<PAGE> 1
As filed with the Securities and Exchange Commission on July 7, 1995.
File Nos. 33-16048; 811-5254
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. __
/ /
Post-Effective Amendment No. 20 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 / X /
Amendment No. 22 / X /
(Check appropriate box or boxes)
JOHN HANCOCK SERIES, INC.
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
Registrant's Telephone Number, including Area Code: (617) 375-1700
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Thomas H. Drohan, John Hancock Advisers, Inc.
101 Huntington Avenue, Boston, MA 02199
with a copy to:
Jeffrey N. Carp, Esq., Hale and Dorr,
60 State Street, Boston, MA 02109
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(Name and address of agent for service)
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b), or
/ / on (date) pursuant to paragraph (b), or
/ / 60 days after filing pursuant (a), or
/ X / on September 12, 1995 pursuant to paragraph (a) of
Rule 485
The Registrant has registered an indefinite number of shares pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended. The Registrant
filed the notice required by Rule 24f-2 for its most recent fiscal year on or
about December 31, 1994.
<PAGE> 2
JOHN HANCOCK SERIES, INC.
CROSS REFERENCE SHEET
JOHN HANCOCK MONEY MARKET FUND
CLASS A AND CLASS B SHARES
__________________________
<TABLE>
Pursuant to Rule 495(a) under the Securities Act of 1993
<CAPTION>
ITEM NUMBER
FORM N-1A STATEMENT OF ADDITIONAL
PART A PROSPECTUS CAPTION INFORMATION CAPTION
___________________________________________________________________
<C> <S> <C>
1 Front Cover Page *
2 Expense Information; The *
Fund's Expenses; Share
Price
3 The Fund's Financial *
Highlights; Performance
4 Investment Objective and *
Policies; Organization and
Management of the Fund
5 Organization and *
Management of the Fund;
The Fund's Expenses; Back
Cover Page
6 Organization and *
Management of the Fund;
Dividends and Taxes; How
to Buy Shares; How to
Redeem Shares; Additional
Services and Programs
7 How to Buy Shares; Share *
Price; Additional Services
and Programs; The Fund's
Expenses; Back Cover Page
8 How to Redeem Shares *
9 Not Applicable *
10 * Front Cover Page
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NUMBER
FORM N-1A STATEMENT OF ADDITIONAL
PART A PROSPECTUS CAPTION INFORMATION CAPTION
___________________________________________________________________
<C> <S> <C>
11 * Table of Contents
12 * Organization of the
Corporation
13 * Investment Objective
and Policies; Certain
Investment Practices;
Investment
Restrictions
14 * Those Responsible for
Management
15 * Those Responsible for
Management
16 * Investment Advisory
and Other Services;
Distribution
Contracts; Transfer
Agent Services;
Custody of Portfolio;
Independent Auditors
17 * Brokerage Allocation
18 * Description of
Corporation's Shares
19 * Net Asset Value;
Additional Services
and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of
Performance
23 * Financial Statements
</TABLE>
-2-
<PAGE> 4
JOHN HANCOCK
MONEY MARKET
FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
SEPTEMBER 12, 1995
- --------------------------------------------------------------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Yield Information..................................................................... 4
Investment Objective and Policies..................................................... 4
Organization and Management of the Fund............................................... 6
The Fund's Expenses................................................................... 6
Dividends and Taxes................................................................... 8
How to Buy Shares..................................................................... 9
Share Price........................................................................... 10
How to Redeem Shares.................................................................. 13
Additional Services and Programs...................................................... 14
Investments, Techniques and Risk Factors.............................................. 17
</TABLE>
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.
<PAGE> 5
<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.
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
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
Deferred sales load................................................................................ 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*......................................................................................... 0.15% 1.00%
Other expenses**................................................................................... 0.74% 0.56%
Total Fund operating expenses (net of reduction)***................................................ 1.39% 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 1.49%.
+Redemption by wire fee (currently $4.00) not included.
</TABLE>
<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:
Class A Shares................................................................. $14 $ 44 $ 76 $ 166
Class B Shares
-- Assuming complete redemption at end of period........................... $71 $ 95 $131 $ 206
-- Assuming no redemption.................................................. $21 $ 65 $111 $ 206
</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 Contracts."
2
<PAGE> 6
<TABLE>
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.
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)
--------------- --------- --------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
- ---------------
(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.
</TABLE>
3
<PAGE> 7
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.
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 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 or (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 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
4
<PAGE> 8
(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.
- -------------------------------------------------------------------------------
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 provided, its investment policies are
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. 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.
See "Investments, Techniques and Risk Factors" for more information about the
Fund's investments.
5
<PAGE> 9
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 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. 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.
- -------------------------------------------------------------------------------
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 ("Selling
Brokers"). 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.
6
<PAGE> 10
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
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.
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.
7
<PAGE> 11
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. The Fund will distribute net realized capital gains, if any, at least
annually.
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 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.
8
<PAGE> 12
HOW TO BUY SHARES
Initial purchases of Class A shares of the Fund may be made either directly or
by exchanging amounts invested in Class A shares of another John Hancock mutual
fund into Class A shares of the Fund.
Class B shares of the Fund may not be purchased directly. 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 your investment goals have
changed after your initial investment in another John Hancock mutual fund, you
may choose to exchange fund shares temporarily for shares in a short-term, high-
grade money market portfolio like the Fund. Once you decide upon your new
investment goals, you can exchange the Class B shares of the Fund for Class B
shares of another John Hancock fund that matches your investment goals.
Investments in Class B shares of the Fund, unlike investments in most money
market funds, are subject to certain contingent deferred sales charges. 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.
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
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
shares or exchanging Class B shares of another John Hancock mutual fund for Class
B shares of the Fund. If you do not specify which class of shares you are
purchasing, Investor Services will assume that you are investing in Class A
shares.
- ---------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------
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
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.
- ---------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A SHARES
- -------------------------------------------------------------------------------
PROGRAM 2. The amount you elect to invest will be automatically withdrawn
(MAAP) from your bank or credit union account.
(CLASS A
SHARES ONLY)
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
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 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, 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.
- -------------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------------
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 shares
Your Account Number
Name(s) under which account is registered
- -------------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
YOU WILL RECEIVE STATEMENTS REGARDING YOUR
ACCOUNT, WHICH YOU SHOULD KEEP TO HELP
WITH YOUR PERSONAL RECORDKEEPING.
- -------------------------------------------------------------------------------
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.
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 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
10
<PAGE> 14
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.
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. You will not incur a sales charge when you
purchase Class A shares or exchange into Class B shares of the Fund, but Class B
shares are subject to a contingent deferred sales charge if you redeem them
within six years of original purchase. See "Contingent Deferred Sales Charge --
Class B Shares" below. 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 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 will be subject upon redemption to the contingent deferred sales charge
("CDSC") set forth in the prospectus of the John Hancock fund from which you
initially exchanged your shares in order to acquire Class B shares of the Fund.
You may be eligible for a waiver of the CDSC as described 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. The
amount of the CDSC, if any, will vary depending on the number of years from the
time 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.
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.
11
<PAGE> 15
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B SHARE REDEMPTIONS WILL BE WAIVED.
- -------------------------------------------------------------------------------
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares, 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.
- - 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 the Fund from another John Hancock
fund, the calculation will be based on the time you purchased Class B shares in
the original fund.
12
<PAGE> 16
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
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).
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>
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.
- ------------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with the Fund,
redemption proceeds of $1,000 or more can be wired on the next
business day to your designated bank account, and a fee
(currently $4.00) will be deducted. 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.
- ------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 17
<TABLE>
- ------------------------------------------------------------------------------------
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
-------------------- ------------
<S> <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.
</TABLE>
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
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.
- -------------------------------------------------------------------------------
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
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.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
14
<PAGE> 18
imposed. Class B shares of the Fund 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
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.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) (CLASS A SHARES ONLY)
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
1. You can authorize an investment to be automatically withdrawn each month
from your bank, for investment in Class A shares of the Fund under the
"Automatic Investing" and "Bank Information" sections of the Account
Privileges Application.
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
15
<PAGE> 19
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.
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> 20
SYSTEMATIC WITHDRAWAL PLAN
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
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.
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.
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.
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 up to 10% of its assets in restricted
securities eligible for resale to certain institutional investors pursuant to
Rule 144A under the Securities Act of 1933.
17
<PAGE> 21
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> 22
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
CUSTODIAN MAXIMUM CURRENT INCOME
Investors Bank & Trust Company CONSISTENT WITH
24 Federal Street CAPITAL PRESERVATION
Boston, Massachusetts 02110 AND LIQUIDITY.
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
[LOGO] Printed on Recycled Paper TELEPHONE 1-800-225-5291
<PAGE> 23
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 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
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Organization of the Corporation.......................... 3
Investment Objectives and Policies....................... 3
Certain Investment Practices............................. 4
Investment Restrictions.................................. 24
Those Responsible for Management......................... 29
Investment Advisory and Other Services................... 37
Distribution Contract.................................... 41
Net Asset Value.......................................... 45
Initial Sales Charge on Class A Shares................... 47
Deferred Sales Charge on Class B Shares.................. 48
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C>
Special Redemptions...................................... 49
Additional Services and Programs......................... 49
Description of the Corporation's Shares.................. 50
Tax Status............................................... 52
Calculation of Performance............................... 57
Brokerage Allocation..................................... 59
Transfer Agent Services.................................. 62
Custody of Porftolio..................................... 62
Independent Auditors..................................... 62
Appendix................................................. A-1
Financial Statements..................................... F-1
</TABLE>
-2-
<PAGE> 25
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.
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
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various industry groups, depending upon the Adviser's outlook with respect to
prevailing trends 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
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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 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
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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 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 bond 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.
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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 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
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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
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
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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.
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.
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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, 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.
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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 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.
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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.
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.
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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 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.
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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 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.
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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 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
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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 (other than
Money Market 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 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
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<PAGE> 39
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.
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.
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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 such 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
(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 rated 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
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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 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.
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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 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
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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
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.
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<PAGE> 44
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.
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.
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<PAGE> 45
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 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.
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<PAGE> 46
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, 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
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<PAGE> 47
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 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
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<PAGE> 48
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 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.
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<PAGE> 49
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.
(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.
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<PAGE> 50
(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.
(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 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.
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<PAGE> 51
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.
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:
POSITION HELD WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS
- ---------------- ------------------ -----------------------
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
Officer(1)(2) ("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
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<PAGE> 52
("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).
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
601 Colorado Street Texas System and former
O'Henry Hall President of the University of
Austin, TX 78701 Texas, Austin, Texas; Regents
Chair in Higher Education
Leadership; James L. Bayless
Chair for Free Enterprise;
Professor of Marketing and
Dean College of Business
Administration/Graduate
-30-
<PAGE> 53
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.
Charles L. Ladner Director(3) Director, Energy North, Inc.
UGI Corporation (public utility holding
460 North Gulph Road company); Senior Vice
King of Prussia, PA 19406 President, Finance UGI 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
Houston, TX 77027 Director, 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
-31-
<PAGE> 54
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 #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,
Naples, FL 33942 First 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,
Rt. 1, Box 249 E Deputy Chief of Staff for
Linden, VA 22642 Manpower and 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
13 Chadwell Place Muni Bond Funds, The Smith
Morristown, NJ 07960 Barney 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
-32-
<PAGE> 55
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.
Robert G. Freedman* Vice Chairman Chief Investment Officer,
101 Huntington Avenue and Chief the 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
-33-
<PAGE> 56
Susan S. Newton* Vice President Vice President and Assistant
101 Huntington Avenue and Compliance Secretary, the Adviser.
Boston, MA 02199 Officer
John A. Morin* Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
* An "interested person" of the Corporation, as such term is defined in the
1940 Act.
(1) Member of the Executive Committee.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A 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:
<TABLE>
NUMBER OF SHARES HELD (EXPRESSED AS PERCENTAGE OF FUND'S OUTSTANDING SHARES)
<S> <C>
Emerging Growth Fund:
Class A
762,184 Shares National Westminster Bank PLC as
16.30% Trustee of 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
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
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>
-34-
<PAGE> 57
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 22 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 Funds
are interested persons of the Adviser, are compensated by the Adviser and
received no compensation from the Funds for their services.
-35-
<PAGE> 58
<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
<FN>
* 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>
-36-
<PAGE> 59
<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
<FN>
*** Estimated for the Funds' current fiscal year ending October 31, 1995.
</TABLE>
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.
-37-
<PAGE> 60
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.
<TABLE>
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:
<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%
</TABLE>
-38-
<PAGE> 61
The next $500 million 0.325%
The next $500 million 0.30%
Over $2.5 billion 0.275%
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.
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.
-39-
<PAGE> 62
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 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.
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<PAGE> 63
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.
(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.
-41-
<PAGE> 64
(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 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.
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.
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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 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 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:
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(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
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.
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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.
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
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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.
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.
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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.
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
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(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 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 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.
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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 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.
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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 1,000,000,000 shares of Class A Common Stock, from 625,000,000 to
1,300,000,000 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.
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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.
In accordance with a multiple class plan adopted pursuant to Rule 18f-3
under the 1940 Act, 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 and have exclusive voting rights with respect to matters
relating to the distribution expenditures. 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 ofthat 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 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 Director, on the written
request of the holders of at least 10% of 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.
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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 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
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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 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
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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.
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.
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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.
Each Fund that invests in certain PIKs, zero coupon securities or
certain increasing rate securities (an, 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 in default
presents 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
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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.
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.
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CALCULATION OF PERFORMANCE
YIELD (EXCEPT FOR THE MONEY MARKET FUND). For the 30-day period ended
December 31, 1994, the yields of (a) High Yield Bond Fund's Class A and Class B
shares were 11.55% and 11.35%, respectively, (b) High Yield Tax-Free Fund's
Class A and Class B shares were 6.71% and 6.28%, respectively and (c) Government
Income Fund's Class A and Class B shares were 6.14% and 5.64%, 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 (except for Money Market Fund) yield 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 December 31, 1994 were
10.48% and 9.81%, respectively.
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.
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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
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 (net asset value per share) per share at the beginning of such
period and then dividing the result by the
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maximum offering price (net asset value per share) 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.
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.
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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.
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.
-60-
<PAGE> 83
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.
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%*.
-61-
<PAGE> 84
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
Portfolio securities of the Funds are held pursuant to a custodian
agreement between the Corporation and Investors Bank & Trust Company ("IBT") 24
Federal Street, Boston, Massachusetts. Under the custodian agreement, IBT
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 prepare 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> 85
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
A-1
<PAGE> 86
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 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> 87
FINANCIAL STATEMENTS
--------------------
F-1
<PAGE> 88
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> 89
<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> 90
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> 91
<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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
JOHN HANCOCK SERIES, INC.
CROSS REFERENCE SHEET
JOHN HANCOCK MONEY MARKET FUND
CLASS S SHARES
__________________________
<TABLE>
Pursuant to Rule 495(a) under the Securities Act of 1993
<CAPTION>
ITEM NUMBER
FORM N-1A STATEMENT OF ADDITIONAL
PART A PROSPECTUS CAPTION INFORMATION CAPTION
___________________________________________________________________
<C> <S> <C>
1 Front Cover Page *
2 Expense Information; The *
Fund's Expenses; Share
Price
3 The Fund's Financial *
Highlights; Performance
4 Investment Objective and *
Policies; Organization and
Management of the Fund
5 Organization and *
Management of the Fund;
The Fund's Expenses; Back
Cover Page
6 Organization and *
Management of the Fund;
Dividends and Taxes; How
to Buy Class S Shares; How
to Redeem Class S Shares;
Additional Services and
Programs
7 How to Buy Class S Shares; *
Share Price; Additional Services
and Programs; The Fund's
Expenses; Back Cover Page
8 How to Redeem Class S Shares *
9 Not Applicable *
10 * Front Cover Page
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
ITEM NUMBER
FORM N-1A STATEMENT OF ADDITIONAL
PART A PROSPECTUS CAPTION INFORMATION CAPTION
___________________________________________________________________
<C> <S> <C>
11 * Table of Contents
12 * Organization of the
Corporation
13 * Investment Objective
and Policies; Certain
Investment Practices;
Investment
Restrictions
14 * Those Responsible for
Management
15 * Those Responsible for
Management
16 * Investment Advisory
and Other Services;
Distribution
Contracts; Transfer
Agent Services;
Custody of Portfolio;
Independent Auditors
17 * Brokerage Allocation
18 * Description of
Corporation's Shares
19 * Net Asset Value;
Additional Services
and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of
Performance
23 * Financial Statements
</TABLE>
-2-
<PAGE> 106
JOHN HANCOCK MONEY MARKET FUND
CLASS S SHARES
PROSPECTUS
SEPTEMBER 12, 1995
____________________________________________________________________
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Expense Information........................................ 3
The Fund's Financial Highlights............................ 4
Yield Information.......................................... 6
Investment Objective and Policies.......................... 6
Organization and Management of the Fund.................... 8
The Fund's Expenses........................................ 9
Dividends and Taxes........................................ 10
How to Buy Class S Shares.................................. 11
Share Price................................................ 12
How to Redeem Class S Shares............................... 12
Investments, Techniques and Risk Factors................... 13
</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> 107
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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<PAGE> 108
<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 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.
<CAPTION>
<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
Deferred sales load .................................... None
Redemption fee+......................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee. ........................................ 0.50%
12b-1 fee*.............................................. 0.40%
Other expenses**. ...................................... 0.65%
Total Fund operating expenses .......................... 1.55%
----
<FN>
+ 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.
</TABLE>
<TABLE>
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.
<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.............. $16 $49 $84 $185
</TABLE>
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<PAGE> 109
(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.
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<PAGE> 110
<TABLE>
Selected data for a Class B share outstanding throughout each period is as follows:
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1995 ---------------------- PERIOD ENDED
(UNAUDITED)(1) 1994 1993 1992 1991 1990 1989 1988 OCTOBER 31, 1987(2)
--------------- ---- ---- ---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
_____________
(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.
</TABLE>
-5-
<PAGE> 111
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 or (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
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<PAGE> 112
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> 113
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. 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
-8-
<PAGE> 114
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.
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
-9-
<PAGE> 115
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. The Fund will distribute net
realized capital gains, if any, at least annually. Dividends are
reinvested in additional shares of your class.
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 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.
-10-
<PAGE> 116
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 account (the "Selling
Broker"). When you open a brokerage account, free credit balances
in your brokerage account will be automatically invested or
"swept" into the Fund, subject to the terms and conditions of your
brokerage account agreement. An initial purchase of Class S
shares of the Fund will be made automatically when the free credit
balance in your brokerage account (including deposits, proceeds of
sales of securities, and miscellaneous cash dividends and
interest, but not amounts held by the Selling Broker as collateral
for margin obligations to the Selling Broker exceeds the amount
specified in your brokerage account agreement at the time
specified in your brokerage account agreement. Thereafter, free
credit balances in your brokerage account which, in total, equal
or exceed the amount specified in your brokerage account agreement
at the time specified in your brokerage account agreement will be
automatically invested in Class S shares of the Fund. Purchase
orders for the shares will automatically be purchased on your
behalf by the Selling Broker equal to free cash balances in your
account as of [________] on that day. Upon request, the amount
specified in your brokerage account agreement or more may be
invested in Class S shares of the Fund on the business day
following receipt by the transfer agent of investor instructions.
Questions regarding the terms of your brokerage account agreement
should be directed to the Selling Broker.
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<PAGE> 117
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO
HELP WITH YOUR PERSONAL RECORDKEEPING.
You will receive 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 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.
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, as of the close of business on each business day,
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<PAGE> 118
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 place a redemption order on your behalf for 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. You may also redeem Class S shares
of the Fund by placing a redemption request through your Selling
Broker. The proceeds from this redemption 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
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 up to 10% of its assets in restricted securities
eligible for resale to certain institutional investors pursuant to
Rule 144A under the Securities Act of 1933.
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
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<PAGE> 119
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.
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<PAGE> 120
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
Investors Bank & Trust Company 101 HUNTINGTON AVENUE
24 Federal 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> 121
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>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Organization of the Corporation.......................... 2
Investment Objective and Policies........................ 2
Certain Investment Practices............................. 2
Investment Restrictions.................................. 7
Those Responsible for Management......................... 11
Investment Advisory and Other Services................... 19
Distribution Contract.................................... 22
Amortized Cost Method of Portfolio
Valuation........................................... 24
Special Redemptions...................................... 25
Description of the Corporation's Shares.................. 25
Tax Status............................................... 27
Calculation of Performance............................... 29
Brokerage Allocation..................................... 31
Transfer Agent Services.................................. 33
Custody of Portfolio..................................... 33
Independent Auditors..................................... 33
Appendix................................................. A-1
Financial Statements..................................... F-1
</TABLE>
<PAGE> 122
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
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<PAGE> 123
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.
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<PAGE> 124
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
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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)
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<PAGE> 126
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
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<PAGE> 127
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.
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
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<PAGE> 128
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
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
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<PAGE> 129
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
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 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,
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<PAGE> 130
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.
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.
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<PAGE> 131
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.
<TABLE>
Set forth below is the principal occupation or employment of
the Directors and principal officers of the Corporation during the
past five years:
<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 Chairman and Chief Executive
101 Huntington Ave. and Chief Executive Officer, the Adviser and The
Boston, MA 02199 Officer (1)(2) 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
Freedom Securities Corporation,
<FN>
__________________________
* An "interested person" of the Corporation as such term is defined in the
1940 Act.
(1) Member of the Executive Committee.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A Member of the Audit, Administration and Compensation Committees.
</TABLE>
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<PAGE> 132
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ----------------------
<S> <C> <C>
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);
Centennial Chair in Business
Education Leadership, 1983-1985;
Director, LaQuinta Motor Inns,
<FN>
__________________________
* An "interested person" of the Corporation as such term is defined in the
1940 Act.
(1) Member of the Executive Committee.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A Member of the Audit, Administration and Compensation Committees.
</TABLE>
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<PAGE> 133
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ----------------------
<S> <C> <C>
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 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.
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
<FN>
__________________________
* An "interested person" of the Corporation as such term is defined in the
1940 Act.
(1) Member of the Executive Committee.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A Member of the Audit, Administration and Compensation Committees.
</TABLE>
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<PAGE> 134
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ----------------------
<S> <C> <C>
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
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 Tax-
Morristown, NJ 07960 Free Money Fund, Inc., Vantage
Money Market Funds (mutual
<FN>
__________________________
* An "interested person" of the Corporation as such term is defined in the
1940 Act.
(1) Member of the Executive Committee.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A Member of the Audit, Administration and Compensation Committees.
</TABLE>
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<PAGE> 135
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ----------------------
<S> <C> <C>
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.
ROBERT G. FREEDMAN* Vice Chairman and Chief Investment Officer, the
101 Huntington Ave. Chief Investment Adviser.
Boston, MA 02199 Officer (2)
ANNE C. HODSDON* President (2) President, the Adviser.
101 Huntington Ave.
Boston, MA 02199
JAMES B. LITTLE* Senior Vice President Senior Vice President, the
101 Huntington Ave. and Chief Financial Adviser
Boston, MA 02199 Officer
THOMAS H. DROHAN* Senior Vice President Senior Vice President and
101 Huntington Ave. and Secretary Secretary, the Adviser.
Boston, MA 02199
MICHAEL P. DICARLO* Senior Vice President Senior Vice President, the
101 Huntington Ave. (2) Adviser
Boston, MA 02199
<FN>
__________________________
* An "interested person" of the Corporation as such term is defined in the
1940 Act.
(1) Member of the Executive Committee.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A Member of the Audit, Administration and Compensation Committees.
</TABLE>
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<PAGE> 136
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Corporation During the Past Years
---------------- -------------------- ----------------------
<S> <C> <C>
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
JOHN A. MORIN* Vice President Vice President, the Adviser.
101 Huntington Ave.
Boston, MA 02199
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.
<FN>
__________________________
* An "interested person" of the Corporation as such term is defined in the
1940 Act.
(1) Member of the Executive Committee.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Committee on Administration.
(4) A Member of the Audit, Administration and Compensation Committees.
</TABLE>
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<PAGE> 137
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
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
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<PAGE> 138
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**
--------- ------------- ---------------- ------------------
<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
<FN>
* 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.
</TABLE>
<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
<FN>
*** Estimated for the Fund's current fiscal year ending October 31, 1995.
</TABLE>
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<PAGE> 139
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
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.
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<PAGE> 140
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.
<TABLE>
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:
<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
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
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<PAGE> 141
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
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.
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<PAGE> 142
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
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.
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<PAGE> 143
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
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
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<PAGE> 144
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
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
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<PAGE> 145
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 $250,000 or 1% of the net asset value of the Fund
during any 90 day period for any one account.
DESCRIPTION OF THE CORPORATION'S SHARES
The Fund operates as one series of the Corporation. All
shares of stock of the Corporation ($.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 1,000,000,000 shares of Class A Common Stock, from
625,000,000 to 1,300,000,000 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
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<PAGE> 146
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.
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 pursuant to a multiple class plan adopted in
accordance with the requirements of Rule 18f-3 under the 1940 Act.
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 and have exclusive voting rights with
respect to matters relating to the distribution expenditures. The
Directors of the Corporation may classify and reclassify the
shares of the Fund into additional classes of common stock at a
future date.
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<PAGE> 147
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 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 Director, on the written
request of the holders of at least 10% of 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,
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
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<PAGE> 148
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.
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.
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<PAGE> 149
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.
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
-29-
<PAGE> 150
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.
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,
-30-
<PAGE> 151
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.
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
-31-
<PAGE> 152
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.
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
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<PAGE> 153
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
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
Portfolio securities of the Fund are held pursuant to a
custodian agreement between the Fund and Investors Bank and Trust
Company ("IBT") 24 Federal Street, Boston, Massachusetts. Under
the custodian agreement, IBT 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.
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<PAGE> 154
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> 155
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> 156
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> 157
FINANCIAL STATEMENTS
[See the financial statements attached to the Statement of
Additional Information for the Class A and Class B shares of the Fund
included elsewhere in this Post-Effective Amendment.]
F-1
<PAGE> 158
JOHN HANCOCK SERIES, INC.
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements included in the Registration Statement:
John Hancock Money Market Fund
Statement of Assets and Liabilities as of October 31, 1994.
Statement of Operations for the year ended October 31, 1994.
Statement of Changes in Net Assets for the years ended October 31, 1993
and 1994.
Notes to Financial Statements.
Financial Highlights.
Schedule of Investments as of October 31, 1994.
Statement of Assets and Liabilities as of April 30, 1995.
Statement of Operations for the six-months ended April 30, 1995.
Statement of Changes in Net Assets for the six-months ended April 30,
1995.
Notes to Financial Statements.
Financial Highlights.
Schedule of Investments as of April 30, 1995.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit
Index hereto and are incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is directly or indirectly controlled by or under common
control with Registrant.
<TABLE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of June 23, 1995, the number of record holders of shares of the
Registrant were as follows:
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<S> <C>
John Hancock Emerging Growth Fund
Class A Shares 9,301
Class B Shares 20,644
John Hancock High Yield Tax-Free Fund
Class A Shares 441
Class B Shares 3,069
</TABLE>
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<PAGE> 159
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<S> <C>
John Hancock High Yield Bond Fund
Class A Shares 610
Class B Shares 6,939
John Hancock Money Market Fund
Class A Shares 0
Class B Shares 1,935
Class S Shares 0
John Hancock Global Resources Fund
Class A Shares 286
Class B Shares 3,797
John Hancock Government Income Fund
Class A Shares 26
Class B Shares 8,378
</TABLE>
ITEM 27. INDEMNIFICATION
(a) Indemnification provisions relating to the Registrant's Directors,
officers, employees and agents is set forth in Article V of the Registrant's By
Laws included as Exhibit 2 herein.
(b) Under Section 12 of the Distribution Agreement, John Hancock
Funds, Inc. ("John Hancock Funds") has agreed to indemnify the Registrant and
its Directors, officers and controlling persons against claims arising out of
certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of the John Hancock Mutual Life Insurance
Company (the "Insurance Company") provides, in effect, that the Insurance
Company will, subject to limitations of law, indemnify each present and former
director, officer and employee of the of the Insurance Company who serves as a
Director or officer of the Registrant at the direction or request of the
Insurance Company against litigation expenses and liabilities incurred while
acting as such, except that such indemnification does not cover any expense or
liability incurred or imposed in connection with any matter as to which such
person shall be finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interests of the Insurance
Company. In addition, no such person will be indemnified by the Insurance
Company in respect of any liability or expense incurred in connection with any
matter settled without final adjudication unless such settlement shall have
been approved as in the best interests of the Insurance Company either by vote
of the Board of Directors at a meeting composed of directors who have no
interest in the outcome of such vote, or by vote of the policyholders. The
Insurance Company may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an undertaking by
the person indemnified to repay such payment if he should be determined to be
entitled to indemnification.
Article IX of the respective By-Laws of John Hancock Funds and John
Hancock Advisers, Inc. (the "Adviser") provide as follows:
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<PAGE> 160
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a director, officer, employee or agent of the
Corporation, or is or was at any time since the inception of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and the liability was not incurred by reason of gross
negligence or reckless disregard of the duties involved in the conduct of his
office, and expenses in connection therewith may be advanced by the
Corporation, all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification
provided by Section 9.01 shall not be deemed exclusive of any other right to
which those indemnified may be entitled, and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person."
Insofar as indemnification for liabilities under the Securities Act of 1933
(the "Act") may be permitted to Directors, officers and controlling persons of
the Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation and By-Laws, the Distribution Agreement, the By-Laws of John
Hancock Funds, the Adviser, or the Insurance Company or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Directors, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
-----------------------------------------------------
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and Directors of the Adviser,
reference is made to Form ADV (801-8124) filed under the Investment Advisers
Act of 1940, which is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) John Hancock Funds acts as principal underwriter for the Registrant and
also serves as principal underwriter or distributor of shares for John Hancock
Cash Reserve, Inc., John Hancock Bond Fund, John Hancock Capital Growth Fund,
John Hancock Current Interest, John Hancock Series, Inc., John Hancock Tax-Free
Bond Fund, John Hancock California Tax-Free Income Fund, John Hancock Capital
Series, John Hancock Limited-Term Government Fund, John Hancock Tax-Exempt
Income Fund, John Hancock Sovereign Investors Fund, Inc., John Hancock Cash
C-3
<PAGE> 161
Management Fund, John Hancock Special Equities Fund, John Hancock Sovereign
Bond Fund, John Hancock Tax-Exempt Series, John Hancock Strategic Series, John
Hancock Technology Series, Inc., John Hancock World Fund, John Hancock
Investment Trust, John Hancock Institutional Series Trust, Freedom Investment
Trust, Freedom Investment Trust II and Freedom Investment Trust III.
<TABLE>
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
------------------ --------------------- ---------------------
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman Chairman
101 Huntington Avenue
Boston, Massachusetts
Robert H. Watts Director and Senior None
John Hancock Place Vice President
P.O. Box 111
Boston, Massachusetts
C. Troy Shaver, Jr. President, Chief None
101 Huntington Avenue Executive Officer and
Boston, Massachusetts Director
Robert G. Freedman Director Vice President, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice None
101 Huntington Avenue President-Sales
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President
101 Huntington Avenue and Secretary
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President
101 Huntington Avenue and Chief Financial
Boston, Massachusetts Officer
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
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<PAGE> 162
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
------------------ --------------------- ---------------------
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------- ---------------
<S> <C> <C>
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President Vice President,
101 Huntington Avenue and Secretary Assistant Secretary
Boston, Massachusetts and Compliance Officer
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
</TABLE>
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<PAGE> 163
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
------------------ --------------------- ---------------------
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------- ---------------
<S> <C> <C>
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Hugh A. Dunlap, Jr. Director None
101 Huntington Avenue
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington avenue
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
1000 Louisiana Street
Houston, Texas
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
The Registrant maintains the records required to be maintained by it under
Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company
Act of 1940 at its principal executive offices at 101 Huntington Avenue,
Boston, Massachusetts 02199-7603. Certain records, including records
relating to Registrant's shareholders and the physical possession of its
securities, may be maintained pursuant to Rule 31a-3 at the main offices
of Registrant's Transfer Agent and Custodian.
ITEM 31. MANAGEMENT SERVICES
-------------------
Not applicable.
ITEM 32. UNDERTAKINGS
------------
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a
copy of the latest annual report to shareholders with respect to that
series upon request and without charge.
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<PAGE> 164
(d) Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940, as amended, which relates to the assistance to be
rendered to shareholders by the Trustees of the Registrant in calling a
meeting of shareholders for the purpose of voting upon the question of the
removal of a trustee.
C-7
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
7th day of July, 1995.
JOHN HANCOCK SERIES, INC.
By: *
--------------------------------
Edward J. Boudreau, Jr.
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman and Chief
- ------------------------- Executive Officer
Edward J. Boudreau, Jr. (Principal Executive
Officer)
/s/James B. Little Senior Vice President July 7, 1995
- ------------------------- and Chief Financial
James B. Little Officer (Principal
Financial and
Accounting Officer)
* Director
- -------------------------
James F. Carlin
* Director
- -------------------------
William H. Cunningham
* Director
- -------------------------
Charles L. Ladner
</TABLE>
C-8
<PAGE> 166
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director
- -------------------------
Leo E. Linbeck, Jr.
* Director
- -------------------------
Patricia P. McCarter
* Director
- -------------------------
Steven R. Pruchansky
* Director
- -------------------------
Norman H. Smith
* Director
- -------------------------
John P. Toolan
*By: /s/Thomas H. Drohan July 7, 1995
-------------------
Thomas H. Drohan,
Attorney-in-Fact
</TABLE>
C-9
<PAGE> 167
JOHN HANCOCK SERIES, INC.
(File Nos. 33-16048; 811-5254)
INDEX TO EXHIBITS
(1) (a) Registrant's Articles of Incorporation dated June 22,
1987.[1]
(b) Articles of Amendment and Restatement dated July 1, 1987.[1]
(c) Articles of Amendment dated July 24, 1987.[1]
(d) Articles Supplementary dated August 6, 1987.[2]
(e) Articles Supplementary filed October 8, 1987.[2]
(f) Articles Supplementary filed June 16, 1989.[2]
(g) Articles Supplementary.[3]
(h) Articles Supplementary dated October 22, 1993.[4]
(i) Articles Supplementary dated May 17, 1994.[2]
(j) Articles Supplementary dated December 22, 1994.[5]
(k) Articles Supplementary to be filed with the Commonwealth of
Massachusetts on or about September 12, 1995.++
(2) Amended Bylaws.[6]
(3) Not Applicable.
(4) Form of Specimen Share Certificates for (i) Class A Shares
(except for Money Market Fund) and (ii) Class B Shares of each
series of the Registrant.[1]
(5) (a) (1) Investment Advisory Agreement between John Hancock
Advisers, Inc. and the Registrant on behalf of Global
Resources Fund.[6]
(2) Investment Advisory Agreement between John Hancock
Advisers, Inc. and the Registrant on behalf of
Emerging Growth Fund.[6]
(3) Investment Advisory Agreement between John Hancock
Advisers, Inc. and the Registrant on behalf of High
Yield Tax-Free Fund.[6]
(4) Investment Advisory Agreement between John Hancock
Advisers, Inc. and the Registrant on behalf of
Government Income Fund.[6]
(5) Investment Advisory Agreement between John Hancock
Advisers, Inc. and the Registrant on behalf of Money
Market Fund.[6]
(6) Investment Advisory Agreement between John Hancock
Advisers, Inc. and the Registrant on behalf of High
Yield Bond Fund.[6]
C-10
<PAGE> 168
(b) (1) Sub-Advisory Agreement between John Hancock Advisers,
Inc. and Transamerica Investment Services, Inc.
(relating to High Yield Tax-Free Fund).[6]
(c) (1) Form of substantially identical Amended and Restated
Administrative Services Agreements among Transamerica
Fund Management Company, Transamerica Funds
Distributor, Inc. and the Registrant on behalf of
each of Global Resources Fund, Emerging Growth Fund,
High Yield Tax-Free Fund, Government Income Fund,
Money Market Fund and High Yield Bond Fund.[6]
(6) (a) Distribution Agreement between Registrant and John Hancock
Broker Distribution Services, Inc.
(b) Form of Soliciting Dealer Agreement between John Hancock
Funds, Inc. and the John Hancock funds.
(c) Form of Financial Institution Sales and Service Agreement
between John Hancock Funds, Inc. and the John Hancock
funds.[6]
(7) Not Applicable.
(8) Master Custodian Agreement between the John Hancock funds and
Investor Bank & Trust Company.[6]
(9) Transfer Agency Agreement between John Hancock Investor Services
Corporation and the John Hancock funds.[6]
(10) Not Applicable.
(11) Consent of Independent Auditors.+
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) (a) Rule 12b-1 Plans: Class A shares
(i) Global Resources Fund[6]
(ii) Emerging Growth Fund[6]
(iii) Government Income Fund[6]
(iv) High Yield Bond Fund[6]
(v) High Yield Tax-Free Fund[6]
(vi) Money Market Fund (Form of 12b-1 Plan)+
C-11
<PAGE> 169
(b) Rule 12b-1 Plans: Class B shares
(i) Money Market Fund[6]
(ii) Global Resources Fund[6]
(iii) Emerging Growth Fund[6]
(iv) Government Income Fund[6]
(v) High Yield Bond Fund[6]
(vi) High Yield Tax-Free Fund[6]
(c) Rule 12b-1 Plan: Class S shares
(i) Money Market Fund (Form of 12b-1 Plan)+
(16) Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22 for each
series of the Registrant.[2]
(17) Financial Data Schedule. [6]
(18) 18f-3 Plan.+
________________________
[1] Incorporated by reference to Registration Statement filed
July 24, 1987.
[2] Previously filed with Registration Statement and/or post-
effective amendments and incorporated by reference herein.
[3] Incorporated by reference to Post-effective Amendment No. 10
filed on February 22, 1991.
[4] Incorporated by reference to Post-effective Amendment No. 16
filed on April 13, 1994.
[5] Incorporated by reference to Post-effective Amendment No. 18
filed on January 30, 1995.
[6] Incorporated by reference to Post-effective Amendment No. 19
filed electronically on May 15, 1995.
+ Filed herewith electronically.
++ To be filed by amendment.
C-12
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "The Fund's
Financial Highlights" in the Class A and Class B shares Prospectus and in the
Class S shares Prospectus and "Independent Auditors" in the Class A and Class B
shares Statement of Additional Information and in the Class S shares Statement
of Additional Information and to the use, in this Post-Effective Amendment
Number 20 to Registration Statement No. 33-16048 of John Hancock Money
Market Fund B, a series of John Hancock Series, Inc., of our report dated
December 2, 1994.
/s/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
Boston, Massachusetts
July 6, 1995
<PAGE> 1
EXHIBIT 15(a)(vi)
JOHN HANCOCK MONEY MARKET FUND
Form of
Distribution Plan
Class A Shares
ARTICLE I. THIS PLAN
This Distribution Plan (the "Plan") sets forth the terms and conditions
on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock
Money Market Fund (the "Fund"), on behalf of its Class A shares, will, after
the effective date hereof, pay certain amounts to John Hancock Funds, Inc.
("John Hancock Funds") in connection with the provision by John Hancock Funds
of certain services to the Fund and its Class A shareholders, as set forth
herein. Certain of such payments by the Fund may, under Rule 12b-1 of the
Securities and Exchange Commission, as from time to time amended (the "Rule"),
under the Investment Company Act of 1940, as amended (the "Act"), be deemed to
constitute the financing of distribution by the Fund of its shares. This Plan
describes all material aspects of such financing as contemplated by the Rule
and shall be administered and interpreted, and implemented and continued, in a
manner consistent with the Rule. The Fund and John Hancock Funds heretofore
entered into a Distribution Agreement, dated December 22, 1994 as amended (the
"Agreement"), the terms of which, as heretofore and from time to time
continued, are incorporated herein by reference.
ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES
The Fund shall pay to John Hancock Funds a fee in the amount specified
in Article III hereof. Such fee may be spent by John Hancock Funds on any
activities or expenses primarily intended to result in the sale of Class A
shares of the Fund, including, but not limited to the payment of Distribution
Expenses (as defined below) and Service Expenses (as defined below).
Distribution Expenses include but are not limited to, (a) initial and ongoing
sales compensation out of such fee as it is received by John Hancock Funds or
other broker-dealers ("Selling Brokers") that have entered into an agreement
with John Hancock Funds for the sale of Class A shares of the Fund, (b) direct
out-of-pocket expenses incurred in connection with the distribution of Class A
shares of the Fund, including expenses related to printing of prospectuses and
reports to other than existing Class A shareholders of the Fund, and
preparation, printing and distribution of sales literature and advertising
materials, (c) an allocation of overhead and other branch office expenses of
John Hancock Funds related to the distribution of Class A shares of the Fund;
and (d) expenses incurred in connection with the distribution of a
corresponding class of any open-end, registered investment company which sells
all or substantially all of its assets to the Fund or which which merges or
otherwise combines with the Fund.
Service Expenses 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 A shareholders of the Fund.
<PAGE> 2
ARTICLE III. MAXIMUM EXPENDITURES
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed an annual rate of 0.25%
of the average daily net asset value of the Class A shares of the Fund
(determined in accordance with the Fund's prospectus as from time to time in
effect) to cover Distribution Expenses and Service Expenses, provided that the
portion of such fee used to cover service expenses shall not exceed an annual
rate of up to 0.25% of the average daily net asset value of the Class A shares
of the Fund. Such expenditures shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board of Directors shall determine.
In the event John Hancock Funds is not fully reimbursed for payments made or
other expenses incurred by it under this Plan, such expenses will not be
carried beyond one year from the date such expenses were incurred. Any fees
paid to John Hancock Funds under this Plan during any fiscal year of the Fund
and not expended or allocated by John Hancock Funds for actual or budgeted
Distribution Expenses and Service Expenses during such fiscal year will be
promptly returned to the Fund.
ARTICLE IV. EXPENSES BORNE BY THE FUND
Notwithstanding any other provision of this Plan, the Company, the Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment
Management Contract dated December 22, 1994 (the "Management Contract"), and
under the Fund's current prospectus as it is from time to time in effect.
Except as otherwise contemplated by this Plan, the Company and the Fund shall
not, directly or indirectly, engage in financing any activity which is
primarily intended to or should reasonably result in the sale of shares of the
Fund.
ARTICLE V. APPROVAL BY DIRECTORS, ETC.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section
12(b) of the Act or the rules and regulations thereunder) of (a) all of the
members of the Board of Directors of the Company and (b) those members of the
Board of Directors of the Company who are not "interested persons" of the
Fund, as such term may be from time to time defined under the Act, and have no
direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the "Independent Directors").
ARTICLE VI. CONTINUANCE
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article V.
2
<PAGE> 3
ARTICLE VII. INFORMATION
John Hancock Funds shall furnish the Fund and its Board of Directors
quarterly, or at such other intervals as the Fund shall specify, a written
report of amounts expended or incurred for Distribution Expenses and Service
Expenses pursuant to this Plan and the purposes for which such expenditures
were made and such other information as the Board of Directors may request.
ARTICLE VIII. TERMINATION
This Plan may be terminated (a) at any time by vote of a majority of
the Board of Directors, a majority of the Independent Directors, or a majority
of the Fund's outstanding voting Class A shares, or (b) by John Hancock Funds
on 60 days' notice in writing to the Fund.
ARTICLE IX. AGREEMENTS
Each agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be terminated
at any time, without payment of any penalty, by vote of a
majority of the Independent Directors or by vote of a
majority of the Fund's then outstanding voting Class A shares.
(b) That such agreement shall terminate automatically in the event of
its assignment.
ARTICLE X. AMENDMENTS
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class A shares of the Fund. No material amendment to the
Plan shall, in any event, be effective unless it is approved in the same
manner as is provided for approval of this Plan in Article V.
3
<PAGE> 4
IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed
this Distribution Plan effective as of the ____ day of ______, 1995 in Boston,
Massachusetts.
JOHN HANCOCK SERIES, INC.
By
-------------------------
President
JOHN HANCOCK FUNDS, INC.
By
-------------------------
President
4
<PAGE> 1
EXHIBIT 15(c)
JOHN HANCOCK MONEY MARKET FUND
Form of
Distribution Plan
Class S Shares
ARTICLE I. THIS PLAN
This Distribution Plan (the "Plan") sets forth the terms and conditions
on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock
Money Market Fund (the "Fund"), on behalf of its Class S shares, will, after
the effective date hereof, pay certain amounts to John Hancock Funds, Inc.
("John Hancock Funds") in connection with the provision by John Hancock Funds
of certain services to the Fund and its Class S shareholders, as set forth
herein. Certain of such payments by the Fund may, under Rule 12b-1 of the
Securities and Exchange Commission, as from time to time amended (the "Rule"),
under the Investment Company Act of 1940, as amended (the "Act"), be deemed to
constitute the financing of distribution by the Fund of its shares. This Plan
describes all material aspects of such financing as contemplated by the Rule
and shall be administered and interpreted, and implemented and continued, in a
manner consistent with the Rule. The Fund and John Hancock Funds heretofore
entered into a Distribution Agreement, dated December 22, 1994, as amended
(the "Agreement"), the terms of which, as heretofore and from time to time
continued, are incorporated herein by reference.
ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES
The Fund shall pay to John Hancock Funds a fee in the amount specified
in Article III hereof. Such fee may be spent by John Hancock Funds on any
activities or expenses primarily intended to result in the sale of Class S
shares of the Fund, including, but not limited to the payment of Distribution
Expenses (as defined below) and Service Expenses (as defined below).
Distribution Expenses include but are not limited to, (a) initial and ongoing
sales compensation out of such fee as it is received by John Hancock Funds,
other broker-dealers or financial service firms ("Selling Brokers") that have
entered into an agreement with John Hancock Funds for the sale of Class S
shares of the Fund, (b) direct out-of-pocket expenses incurred in connection
with the distribution of Class S shares of the Fund, including expenses related
to printing of prospectuses and reports to other than existing Class S
shareholders of the Fund, and preparation, printing and distribution of sales
literature and advertising materials, (c) an allocation of overhead and other
branch office expenses of John Hancock Funds related to the distribution of
Class S shares of the Fund; (d) expenses incurred in connection with the
distribution of a corresponding class of any open-end, registered investment
company which sells all or substantially all of its assets to the Fund or
which which merges or otherwise combines with the Fund; and (e) interest
expenses on unreimbursed distribution expenses related to Class S shares as
described in Article III hereof.
<PAGE> 2
Service Expenses 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.
ARTICLE III. MAXIMUM EXPENDITURES
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed an annual rate of 0.40%
of the average daily net asset value of the Class S shares of the Fund
(determined in accordance with the Fund's prospectus as from time to time in
effect) to cover Distribution Expenses and Service Expenses, provided that the
portion of such fee used to cover service expenses shall not exceed an annual
rate of up to 0.25% of the average daily net asset value of the Class S shares
of the Fund. Such expenditures shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board of Directors shall determine.
In the event John Hancock Funds is not fully reimbursed for payments made or
other expenses incurred by it under this Plan, John Hancock Funds shall be
entitled to carry forward such expenses to subsequent fiscal years for
submission to the Class S shares of the Fund for payment, subject always to
the annual maximum expenditures set forth in this Article III; provided,
however, that nothing herein shall prohibit or limit the Board of Directors
from terminiating this Plan and all payments hereunder at any time pursuant to
Article VIII hereof.
ARTICLE IV. EXPENSES BORNE BY THE FUND
Notwithstanding any other provision of this Plan, the Company, the Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment
Management Contract dated December 22, 1994 (the "Management Contract"), and
under the Fund's current prospectus as it is from time to time in effect.
Except as otherwise contemplated by this Plan, the Company and the Fund shall
not, directly or indirectly, engage in financing any activity which is
primarily intended to or should reasonably result in the sale of shares of the
Fund.
ARTICLE V. APPROVAL BY DIRECTORS, ETC.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section
12(b) of the Act or the rules and regulations thereunder) of (a) all of the
members of the Board of Directors of the Company and (b) those members of the
Board of Directors of the Company who are not "interested persons" of the
Fund, as such term may be from time to time defined under the Act, and have no
direct or indirect financial interest in the operation of this Plan or any
agreements related to it (the "Independent Directors").
ARTICLE VI. CONTINUANCE
2
<PAGE> 3
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article V.
ARTICLE VII. INFORMATION
John Hancock Funds shall furnish the Fund and its Board of Directors
quarterly, or at such other intervals as the Fund shall specify, a written
report of amounts expended or incurred for Distribution Expenses and Service
Expenses pursuant to this Plan and the purposes for which such expenditures
were made and such other information as the Board of Directors may request.
ARTICLE VIII. TERMINATION
This Plan may be terminated (a) at any time by vote of a majority of
the Board of Directors, a majority of the Independent Directors, or a majority
of the Fund's outstanding voting Class S shares, or (b) by John Hancock Funds
on 60 days' notice in writing to the Fund.
ARTICLE IX. AGREEMENTS
Each agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be terminated
at any time, without payment of any penalty, by vote of a
majority of the Independent Directors or by vote of a majority
of the Fund's then outstanding voting Class S shares.
(b) That such agreement shall terminate automatically in the event of
its assignment.
ARTICLE X. AMENDMENTS
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class S shares of the Fund. No material amendment to the
Plan shall, in any event, be effective unless it is approved in the same
manner as is provided for approval of this Plan in Article V.
3
<PAGE> 4
IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed
this Distribution Plan effective as of the ____ day of ____, 1995 in Boston,
Massachusetts.
JOHN HANCOCK SERIES, INC.
By
-------------------------
President
JOHN HANCOCK FUNDS, INC.
By
-------------------------
President
4
<PAGE> 1
EXHIBIT 18
JOHN HANCOCK MONEY MARKET FUND
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
Each class of shares of John Hancock Money Market Fund (the
"Fund"), a series of John Hancock Series, Inc., will have the same
relative rights and privileges and be subject to the same sales
charges, fees and expenses, except as set forth below. In
addition, extraordinary expenses attributable to one or more
classes shall be borne by such classes. The Board of Directors
may determine in the future that other allocations of expenses or
other services to be provided to a class of shares are appropriate
and amend this Plan accordingly without the approval of
shareholders of any class. Except as set forth in the Fund's
prospectus, shares may be exchanged only for shares of the same
class of another fund in the John Hancock group of funds.
CLASS A SHARES
Class A Shares are sold at net asset value without a sales
charge and are subject to the minimum purchase requirements set
forth in the Fund's prospectus. Class A Shares are subject to
fees under the Fund's Class A Rule 12b-1 Distribution Plan on the
terms set forth in the Fund's prospectus. The Class A
Shareholders have exclusive voting rights, if any, with respect to
the Class A Distribution Plan. Transfer agency fees are allocated
to Class A Shares on a class basis. Class A Shares shall be
entitled to the shareholder services set forth from time to time
in the Fund's prospectus with respect to Class A Shares.
CLASS B SHARES
Class B Shares are sold at net asset value per share without
the imposition of an initial sales charge. However, Class B
shares redeemed within six years of purchase will be subject to a
contingent deferred sales charge as set forth in the Fund's
prospectus. Class B Shares are sold subject to the minimum
purchase requirements set forth in the Fund's prospectus. Class B
Shares are subject to fees under the Class B Rule 12b-1
Distribution Plan on the terms set forth in the Fund's prospectus.
The Class B Shareholders of the Fund have exclusive voting rights,
if any, with respect to the Fund's Class B Distribution Plan.
Transfer agency fees are allocated to Class A Shares on a class
basis. Class B Shares shall be entitled to the shareholder
services set forth from time to time in the Fund's prospectus with
respect to Class B Shares.
<PAGE> 2
Class B Shares will automatically convert to Class A Shares
of the Fund at the end of eight years after the initial purchase
date of Class B shares, except as provided in the Fund's
prospectus. The initial purchase date for Class B shares acquired
through reinvestment of dividends on Class B Shares will be deemed
to be the date on which the original Class B shares were
purchased. Such conversion will occur at the relative net asset
value per share of each class. Redemption requests placed by
shareholders who own both Class A and Class B Shares of the Fund
will be satisfied first by redeeming the shareholder's Class A
Shares, unless the shareholder has made a specific election to
redeem Class B Shares.
The conversion of Class B Shares to Class A Shares is subject
to the receipt of a ruling of the Internal Revenue Service or an
opinion of counsel to the effect that the automatic conversion of
Class B Shares to Class A Shares does not constitute a taxable
event under federal income tax law. The conversion of Class B
Shares to Class A Shares may be suspended if such a ruling is no
longer effective or such an opinion is no longer available.
CLASS S SHARES
Class S Shares are sold at net asset value without a sales
charge and are subject to the minimum purchase requirements set
forth in the Fund's prospectus. Class S Shares are sold only to
or through broker-dealers and other financial services firms in
connection with cash management "sweep" programs. Class S Shares
are subject to fees under the Class S Rule 12b-1 Distribution Plan
on the terms set forth in the Fund's prospectus. The Class S
Shareholders of the Fund have exclusive voting rights, if any,
with respect to the Fund's Class S Distribution Plan. Transfer
agency fees are allocated to Class S Shares. Class S Shares shall
be entitled to the shareholder services set forth from time to
time in the Fund's prospectus with respect to Class S Shares.
-2-
