<PAGE> 1
Registration No. 33-31675
ICA No. 811-5979
AS FILED ON APRIL 19, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
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<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 9 /x/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 12 /x/
</TABLE>
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
(Formerly Transamerica California Tax-Free Income Fund)
(Exact Name of Registrant as Specified in Articles of Incorporation)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 375-1760
Thomas H. Drohan, Esq.
John Hancock Advisers, Inc.
101 Huntington Avenue, Boston, Massachusetts 02199-7603
(Name and Address of Agent for Service)
Copies to:
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<S> <C>
Jeffrey N. Carp, Esq. Thomas H.Connors, Esq.
Hale and Dorr John Hancock Advisers, Inc.
60 State Street 101 Huntington Avenue
Boston, Massachusetts, 02109 Boston, Massachusetts 02199-7603
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<TABLE>
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It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
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X on May 1, 1995 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on [date] pursuant to paragraph (a) of rule 485
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</TABLE>
Registrant has previously elected, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, to register an indefinite number of its shares
of beneficial interest for sale under the Securities Act of 1933 and filed its
Rule 24f-2 Notice on February 23, 1995.
<PAGE> 2
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
(formerly Transamerica California Tax-Free Income Fund
CROSS-REFERENCE SHEET
Form N-1A
Item
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<CAPTION>
Part A Caption Prospectus
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1... Cover Page Cover Page
2... Synopsis/Summary of Fund Expense Information; The Fund's Expenses;
Expenses Share Price
3... Condensed Financial The Fund's Financial Highlights
Information
4... General Description Investment Objective and Policies;
of Registrant Organization and Management of the Fund
5... Management of the Fund Organization and Management of the Fund;
The Fund's Expenses; Back Cover Page
6... Capital Stock and Organization and Management of the Fund;
Other Securities Dividends and Taxes; How to Buy Shares; How to
Redeem Shares; Additional Services and
Programs
7... Purchase of Securities How To Buy Shares; Share Price; Additional
Being Offered Services and Programs; Alternative Purchase
Arrangements; The Fund's Expenses; Back
Cover Page
8... Redemption or Repurchase How To Redeem Shares
9... Pending Legal Proceedings Not applicable
</TABLE>
<TABLE>
<CAPTION>
Part B Caption Statement of Additional Information
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<S> <C> <C>
10... Cover Page Cover Page
11... Table of Contents Table of Contents
12... General Information Additional Information
and History
13... Investment Objectives Investment Objectives and Policies;
and Policies Investment Restrictions;
Certain Investment Practices
14... Management of the Fund Investment Advisory and Other Services
15... Control Persons and Investment Advisory and Other Services;
Principal Holders of Those Responsible For Management
Securities
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
16... Investment Advisory and Investment Advisory and Other Services
Other Services
17... Brokerage Allocation Brokerage Allocation
18... Capital Stock and Additional Information
Other Securities
19... Purchase, Redemption and Purchase of Shares; Net Asset Value;
Pricing of Securities Additional Services and Programs;
Being Offered Redemption and Repurchase of Shares
20... Tax Status Tax Status
21... Underwriters Purchase of Shares; Distribution Contract
22... Calculation of Calculation of Performance
Performance Data
23... Financial Statements Independent Auditors; Financial Statements
</TABLE>
Part C Other Information
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
iii
<PAGE> 4
JOHN HANCOCK
CALIFORNIA TAX-FREE
INCOME FUND
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 1, 1995
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TABLE OF CONTENTS
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PAGE
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Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Investment Objective and Policies..................................................... 4
Organization and Management of the Fund............................................... 10
Alternative Purchase Arrangements..................................................... 11
The Fund's Expenses................................................................... 12
Dividends and Taxes................................................................... 13
Performance........................................................................... 15
How to Buy Shares..................................................................... 16
Share Price........................................................................... 17
How to Redeem Shares.................................................................. 23
Additional Services and Programs...................................................... 24
Investments, Techniques and Risk Factors.............................................. 28
Appendix A............................................................................ A-1
</TABLE>
This Prospectus sets forth the information about John Hancock California
Tax-Free Income Fund (the "Fund"), a diversified fund, that you should know
before investing. Please read and retain it for future reference.
Additional information about the Fund 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 May 1, 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).
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.
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
EXPENSE INFORMATION
<TABLE>
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 Fund shares. The operating expenses included in the table and hypothetical example below are based
on fees and expenses for the Class A and Class B Shares of the Fund's fiscal year ended December 31, 1994 adjusted to reflect
certain current expenses. Actual fees and expenses in the future of Class A and Class B Shares may be greater or less than those
indicated.
<CAPTION>
CLASS A CLASS B
SHARES SHARES
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SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price)............. 4.50% None
Maximum sales charge imposed on reinvested dividends...................................... None None
Maximum deferred sales charge............................................................. None* 5.00%
Redemption fee+........................................................................... None None
Exchange fee.............................................................................. None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee (net of limitation)........................................................ 0.41% 0.41%
12b-1 fee (net of limitation, Class B Shares)***.......................................... 0.15% 0.90%
Other expenses**.......................................................................... 0.19% 0.19%
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Total Fund operating expenses (net of limitation)***...................................... 0.75% 1.50%
<FN>
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* No sales charge is payable at the time of purchase on investments of $1 million or more, but for these investments a
contingent deferred sales charge may be imposed, as described below under the caption "Share Price," in the event of
certain redemption transactions within one year of purchase.
** Other Expenses include transfer agent, legal, audit, custody and other expenses.
*** Total Fund operating expenses in the table reflect voluntary and temporary limitations by the Fund's investment adviser and
distributor. Without these limitations, the Management Fee and Total Fund Operating Expenses of Class A shares would have been
estimated as 0.55% and 0.89%, respectively, and the Management Fee, Rule 12b-1 Fee and Total Fund Operating Expenses of Class B
shares would have been estimated as 0.55%, 1.00% and 1.74%, respectively. The amount of the 12b-1 fee for Class B Shares 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.
+ Redemption by wire fee (currently $4.00) not included.
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<TABLE>
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EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return
Class A Shares...................................................................... $ 52 $68 $ 85 $134
Class B Shares
-- Assuming complete redemption at end of period.................................. $ 65 $77 $ 102 $159
-- Assuming no redemption......................................................... $ 15 $47 $ 82 $159
<FN>
(This example should not be considered a representation of past or future expenses. Actual expenses may be greater or lesser than
those shown.)
</TABLE>
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."
2
<PAGE> 6
THE FUND'S FINANCIAL HIGHLIGHTS
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. 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 each class of shares outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------------------------------- -----------------------------
1994 1993 1992(1) 1991 1990 1994 1993 1992(1)
-------- -------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE INCOME AND CAPITAL CHANGES
FOR A SHARE OUTSTANDING DURING EACH
YEAR:
Net asset value, beginning of year... $10.85 $10.41 $10.32 $ 9.91 $10.00 $10.85 $10.41 $10.32
INCOME FROM INVESTMENT OPERATIONS
Net investment income................ 0.58 0.62 0.66 0.69 0.74 0.51 0.54 0.58
Net realized and unrealized gain
(loss) on investments.............. ( 1.57) 0.76 0.25 0.47 ( 0.16) ( 1.57) 0.76 0.25
-------- -------- -------- -------- ------- ------- ------- -------
Total from Investment Operations..... ( 0.99) 1.38 0.91 1.16 0.58 ( 1.06) 1.30 0.83
LESS DISTRIBUTIONS
Dividends from net investment
income............................. ( 0.58) ( 0.62) ( 0.67) ( 0.70) ( 0.67) ( 0.51) ( 0.54) ( 0.59)
Distributions from realized gains.... -- ( 0.32) ( 0.15) ( 0.05) -- -- ( 0.32) ( 0.15)
-------- -------- -------- -------- ------- ------- ------- -------
Total Distributions.............. ( 0.58) ( 0.94) ( 0.82) ( 0.75) ( 0.67) ( 0.51) ( 0.86) ( 0.74)
-------- -------- -------- -------- ------- ------- ------- -------
Net asset value, end of year......... $9.28 $10.85 $10.41 $10.32 $ 9.91 $ 9.28 $10.85 $10.41
======== ======== ======== ======== ======= ======= ======= =======
TOTAL RETURN(2)...................... ( 9.31%) 13.60% 9.15% 12.26% 6.13% ( 9.99%) 12.76% 8.35%
======== ======== ======== ======== ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net
assets............................. 0.89% 0.87% 0.83% 0.80% 0.84% 1.64% 1.62% 1.60%
Ratio of expense limitation to
average net assets................. ( 0.14%) ( 0.18%) ( 0.25%) ( 0.40%) ( 0.84%) ( 0.14%) ( 0.18%) ( 0.25%)
-------- -------- -------- -------- ------- ------- ------- -------
Ratio of net expenses to average net
assets............................. 0.75% 0.69% 0.58% 0.40% 0.00% 1.50% 1.44% 1.35%
======== ======== ======== ======== ======= ======= ======= =======
Ratio of net investment income to
average net assets................. 5.85% 5.69% 6.36% 6.75% 7.11% 5.10% 4.82% 5.43%
Portfolio turnover................... 62% 51% 34% 45% 62% 62% 51% 34%
Net Assets, end of year (in
thousands)......................... $241,583 $279,692 $217,014 $163,693 $80,200 $77,365 $65,437 $26,595
</TABLE>
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(1) Per share information has been calculated using the average number of shares
outstanding.
(2) Total return does not include the effect of the initial sales charge for
Class A Shares or the contingent deferred sales charge for Class B Shares.
Total return does include the benefit of a voluntary expense reimbursement
by the Adviser. Without such benefit, total return would be lower.
3
<PAGE> 7
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide as high a level of current income
exempt from both federal income taxes and California personal income taxes as is
consistent with preservation of capital. This objective may not be changed
without a vote of shareholders. The Fund pursues its objective by normally
investing substantially all of its assets in the following debt obligations
issued by or on behalf of the state of California, its political subdivisions,
municipalities, agencies, instrumentalities or public authorities and
obligations issued by other governmental entities (for example, certain U.S.
territories or possessions) the interest on which is excluded from gross income
for federal income tax purposes and is exempt from California personal income
taxes (collectively referred to as "California Tax Exempt Securities") subject
to the following quality standards:
- -------------------------------------------------------------------------------
THE FUND SEEKS TO PROVIDE INCOME THAT IS
EXCLUDABLE FROM FEDERAL AND CALIFORNIA
TAXES.
- -------------------------------------------------------------------------------
(1) Bonds which at the time of purchase are rated within one of the four highest
ratings (AAA, AA, A or BBB) by Standard and Poor's Ratings Group ("S&P") ,
Moody's Investor Services ("Moody's") (Aaa, Aa, A or Baa), or Fitch Investor
Services ("Fitch") (AAA, AA, A, BBB).
(2) Notes which at the time of purchase are rated within one of the two highest
ratings by S&P (SP-1 and SP-2), Moody's (MIG-1 and MIG-2) or Fitch (FIN-1
and FIN-2).
(3) Commercial paper which at the time of purchase is rated A-2 or higher by
S&P, P-2 or higher by Moody's, or F-2 or higher by Fitch.
(4) Participation interests, which are, at the time of purchase, rated A or
better by S&P, Moody's or Fitch or which are issued by an issuer whose
outstanding bonds are rated A or better.
(5) Unrated bonds, notes and commercial paper that in the opinion of the Adviser
are at the time of purchase comparable in quality to the rated obligations
of the same types described above, except that bonds must be comparable in
quality to those rated A or better provided that the Fund may not purchase
an unrated obligation which would cause more than 25% of its total assets to
be invested in unrated debt obligations.
(6) Other types of California Tax Exempt Securities, including variable and
floating rate obligations, which at the time of purchase, are rated within
the categories set forth above for bonds, notes or commercial paper or, if
unrated, are of the quality described in paragraph (5) above.
For a description of the tax exempt ratings described above, see Appendix A in
the Statement of Additional Information. Bonds rated BBB by S&P or Fitch, or Baa
by Moody's, are considered to have some speculative characteristics and, to
varying degrees, can pose special risks generally involving the ability of the
issuer to make payment of principal and interest to a greater extent than higher
rated securities. In addition, because the ratings and quality limitations on
the Fund's investments apply at the time of purchase, a subsequent change in the
rating or quality of a security held by the Fund would not require the Fund to
sell the security. John Hancock Advisers, Inc. (the "Adviser") will purchase
bonds rated BBB or
4
<PAGE> 8
Baa where, based upon price, yield and its assessment of quality, investment in
these bonds is determined to be consistent with the Fund's objective of
preservation of capital. They will evaluate and monitor the quality of all
investments, including bonds rated BBB or Baa, and will dispose of these bonds
as determined to be necessary to assure that the Fund's overall portfolio is
constituted in a manner consistent with the goal of preservation of capital. To
the extent that the Fund's investments in bonds rated BBB or Baa will emphasize
obligations believed to be consistent with the goal of preserving capital, these
obligations may not provide yields as high as those of other obligations having
these ratings, and the differential in yields between these bonds and
obligations with higher quality ratings may not be as significant as might
otherwise be generally available. 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.
The Fund may invest in any combination of California Tax Exempt Securities;
however, it is expected that during normal investment conditions, a substantial
portion of the Fund's assets will be invested in municipal bonds (without regard
to maturities) and other longer-term obligations. When determined to be
appropriate, based upon market conditions, a substantial portion of the Fund's
holdings of California Tax Exempt Securities will consist of notes and
commercial paper and other shorter-term obligations. The Fund may invest up to
20% of its total assets in "private activity bonds" (meeting the quality
standards noted above), the interest on which may constitute a preference item
for purposes of determining the alternative minimum tax.
While as a fundamental investment policy, the Fund invests at least 80% of its
total assets in California Tax Exempt Securities (except during adverse market
conditions), the balance of its assets may be invested in the following
short-term investments: (1) obligations issued by or on behalf of states (other
than California), or the District of Columbia and their political subdivisions,
agencies or instrumentalities which meet the quality standards described above
but the interest on which is subject to California personal income tax ("Other
Tax Exempt Obligations"); (2) obligations issued or guaranteed by the U.S.
government, or one of its agencies or instrumentalities, the interest on which
is not exempt from federal income tax ("U.S. Government Securities"); (3)
corporate commercial paper meeting the quality standards noted above; (4)
certificates of deposit and bankers acceptances of domestic banks with assets of
$1 billion or more; and (5) repurchase agreements with respect to securities of
the type and quality in which the Fund may invest. The income from the foregoing
short-term investments may be subject to California and/or federal income taxes.
As a result, distributions of the Fund which are attributable to income from
investments in Other Tax Exempt Obligations will be subject to California
personal income tax; distributions attributable to U.S. Government Securities
will be subject to federal income tax; and distributions attributable to income
from repurchase agreements, corporate commercial paper, and certificates of
deposit will be subject to federal
5
<PAGE> 9
and California income taxes. The circumstances in which the Fund will normally
invest in these short-term investments are (1) pending the investment of
California Tax Exempt Securities or reinvestment of the proceeds of sales of
such securities or (2) to maintain liquidity and avoid the necessity of
liquidating portfolio investments at a disadvantageous time in order to meet
redemption requests.
As a defensive measure during times of adverse market conditions including when
sufficient California Tax Exempt Securities appropriate for investment by the
Fund are not available, the Fund may temporarily invest more than 20% of its
total assets in short term investments (previously described as Other Tax Exempt
Obligations, U.S. Government Securities, certificates of deposit and corporate
commercial paper) including investment grade corporate debt securities (which
meet the previously described quality standards), as long as at the end of each
quarter of its taxable year, these investments do not exceed 50% of the Fund's
total assets. The Fund will not be pursuing its objective of obtaining
tax-exempt income to the extent it invests in taxable securities. There can be
no assurance that the Fund will achieve its investment objective.
TAX EXEMPT SECURITIES. "Tax Exempt Securities" are debt obligations generally
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, in the opinion of the bond issuer's
counsel (not the Fund's counsel), is excluded from gross income for federal
income tax purposes and (in the case of California Tax Exempt Securities) exempt
from California personal income taxes. (See Discussion on Taxes.) These
securities consist of municipal bonds, municipal notes and municipal commercial
paper (see "Investment Objective and Policies" in the Statement of Additional
Information) as well as variable or floating rate obligations and participation
interests.
The two principal classifications of municipal obligations are general
obligations and revenue obligations. General obligations are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue obligations are payable only from the revenues
derived from a particular facility or class of facilities or in some cases from
the proceeds of a special excise or other tax. For example, industrial
development and pollution control bonds are in most cases revenue obligations
since payment of principal and interest is dependent solely on the ability of
the user of the facilities financed or the guarantor to meet its financial
obligations, and in certain cases, the pledge of real and personal property as
security for payment. 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. These 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.
6
<PAGE> 10
The interest on bonds issued to finance essential state and local government
operations is fully tax-exempt under the Internal Revenue Code of 1986, as
amended (the "Code"). Interest on certain nonessential or private activity bonds
(including those for housing and student loans) issued after August 7, 1986,
while still tax-exempt, constitutes a tax preference item for taxpayers in
determining their alternative minimum tax: as a result, the Fund's distributions
attributable to such interest also constitute tax preference items. The Code
also imposes certain limitations and restrictions on the use of tax-exempt bond
financing for non-governmental business activities, such as industrial
development bonds.
FUND CHARACTERISTICS. Because the Fund will ordinarily invest at least 80% of
its assets in California Tax Exempt Securities, its portfolio is more
susceptible to factors affecting these securities than is a tax-exempt mutual
fund not investing primarily in the obligations of a single state. (See "Risk
Factors" and "Investments, Techniques and Risk Factors".)
The Fund may write (sell) covered call and put options on debt securities in
which it may invest and on indices composed of debt securities in which it may
invest. It may purchase call and put options on these securities and indices. It
may also write straddles, which are combinations of put and call options on the
same security. The Fund may buy and sell interest rate and municipal bond index
futures contracts, and options on these futures contracts, to hedge against
changes in securities prices and interest rates. The Fund may invest in variable
rate and floating rate obligations, including inverse floating rate obligations,
on which the interest rate is adjusted at predesignated periodic intervals or
when there is a change in the market rate of interest on which the interest rate
payable on the obligation is met is based. Options, futures contracts and
variable and floating rate instruments are generally considered to be
"derivative" instruments, because they derive their value from the performance
of an underlying asset, index or other economic benchmark. See "Investments,
Techniques and Risk Factors" for additional discussion of derivative
instruments.
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES TO HELP ACHIEVE ITS INVESTMENT
OBJECTIVE.
- -------------------------------------------------------------------------------
The Fund will not concentrate in any one industry (governmental issuers are not
considered to be part of any "industry"). While the Fund may invest more than
25% of its total assets in industrial development or pollution control bonds, it
may not invest more than 25% of its assets in industrial development or
pollution control bonds which are dependent, directly or indirectly, on the
revenues or credit of private entities in any one industry. The Fund is
diversified for purposes of the Investment Company Act of 1940 (the "Act").
The Fund may purchase tax exempt participation interests and municipal lease
obligations, may lend its portfolio securities, enter into repurchase
agreements, purchase restricted and illiquid securities and purchase securities
on a when-issued or forward commitment basis.
See "Investments, Techniques and Risk Factors" for more information about the
Fund's investments.
7
<PAGE> 11
The Fund has adopted certain investment restrictions which 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
its policy to invest (under normal market conditions) 80% of its total assets in
California Tax-Exempt securities are fundamental and may not be changed without
the approval of the Fund's shareholders. The Fund's other investment policies
and its nonfundamental restrictions, however, may be changed by a vote of the
Trustees 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 trustees of the John Hancock Group of Funds. There can be no
assurance that the Fund will achieve its investment objective.
- -------------------------------------------------------------------------------
THE FUND FOLLOWS CERTAIN POLICIES THAT MAY
HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
RISK FACTORS. An investment in the Fund is intended for long-term investors who
can accept the risks associated with investing primarily in fixed-income
securities. The Fund's investments will be subject to market fluctuation and
other risks inherent in all securities. The Fund's yield, return and price
volatility depend on the type and quality of its investments as well as market
and other factors. In addition, the Fund's potential investments and management
techniques may entail specific risks. For additional information about risks
associated with an investment in the Fund, see "Investments, Techniques and Risk
Factors."
The following information as to certain California risk factors is given in view
of the fact that the Fund's ability to achieve its investment objective depends
upon the ability of the issuers of California Tax Exempt Securities to meet
their continuing obligations for the payment of principal and interest. For a
more complete discussion, you may refer to the Statement of Additional
Information.
In 1978, California passed Proposition 13, limiting the level of property taxes.
This and subsequent legislation limiting taxation and spending may affect the
creditworthiness of the state or local agencies in the future. If either
California or any of its local governmental entities is unable to meet its
financial obligations, the income derived by the Fund, its net asset value, its
ability to preserve or realize capital appreciation or its liquidity could be
adversely affected.
On December 6, 1994, Orange County, California (the "County"), together with its
pooled investment funds (the "O.C. Pools"), filed for protection under Chapter 9
of the federal Bankruptcy Code. This filing occurred after reports that the O.C.
Pools had suffered significant market losses in their investments caused a
liquidity crisis for the O.C. Pools and the County. Approximately 180 other
public entities, most but not all located in the County, were also depositors in
the O.C. Pools. As of mid-January, 1995, after the O.C. Pools were restructured
to reduce their risk exposure, the County estimated that the O.C. Pools had lost
about $1.7 billion or 22% of their initial deposits of around $7.5 billion. Many
of the entities that kept moneys in the O.C. Pools, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have defaulted, and others may
8
<PAGE> 12
default in the future, in payment of their obligations. Moody's and S&P have
suspended, reduced to below investment grade levels, or placed on "Credit Watch"
various securities of the County and the entities participating in the Fund. As
of April 6, 1995, 1.08% of the Fund's total net assets was invested in
obligations arising from the O.C. Pools.
The State of California has no existing obligation with respect to any
obligations or securities of the County or any of the other participating
entities. However, the State may be obligated to intervene to ensure that school
districts have sufficient funds to operate, or maintain certain
county-administered State programs.
The recession starting in mid-1990 was the deepest and longest in California
since the 1930's and caused a sharp drop in State revenues. As a result, the
State accumulated a budget deficit of almost $3 billion at its peak at June 30,
1992. Each budget in the last four years has required the Governor and
Legislature to undertake multibillion dollar cuts in program expenditures,
transfers of fiscal responsibilities to local governments, various one-time
adjustments, accounting changes and tax increases in an effort to balance
revenues and expenditures. The difficulties in reaching a consensus approach to
this persistent imbalance produced a two-month delay in passing the June 1992
budget, which forced the State to issue registered warrants to pay its bills. In
July 1994, the State passed a budget which proposed eliminating the accumulated
budget deficit of about $1.8 billion by the end of the Fiscal Year 1995-96.
The persistent budget deficits, combined with about $1.7 billion of off-budget
payments made to schools and reductions of internally borrowable funds, severely
depleted the State's cash resources, so that it has had to resort to repeated
external borrowing to meet its cash needs since 1992. In order to meet cash flow
requirements for the 1994-95 fiscal year and to defer payment of part of the
budget deficit, the State issued $7 billion of short-term securities in July and
August 1994, of which $4 billion mature in April 1996. To assure repayment of
this borrowing, the State enacted legislation which can lead to automatic,
across-the-board cuts in certain General Fund expenditures in the 1995-96 fiscal
year if cash flow projections made in October 1995 show deterioration from
projections made in July 1994 when the borrowings were made. This plan places
the burden upon the Legislature to maintain ongoing control over the annual
budget, and could place additional financial pressure on local governments'
reliance on program expenditures. The State will continue to have to rely on
access to the short-term debt markets to meet its cash flow requirements in the
foreseeable future.
The California economy has shown steady growth since the start of 1994. After
four consecutive years of on-going job losses, company relocations out of state,
and unemployment rates exceeding 9% at times, the State has registered net job
growth. Over the next two years, modest growth is expected to continue with the
economy generating momentum going into 1996. After recovering from the losses
inflicted by the January 1994 Los Angeles earthquake, personal income is
expected to rebound in 1995. Any setbacks to this recovery could lead to weaker
than expected collections of State and local revenues and continued budget
pressures.
9
<PAGE> 13
As a result of the ongoing budget imbalance, growing deficits and sluggish
recovery, the State credit ratings have been recently downgraded. In July, 1994,
both Moody's and S&P lowered their credit ratings on California General
Obligation debts. Moody's dropped its Aa ratings to A1 and Standard & Poor's
reduced A+ ratings to A. Fitch Investors Service also lowered the State's rating
from Aa to A. Continued financial stress and failure by the State to directly
address its deficit could lead to further downgrades.
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 Trustees, 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.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND
EXECUTION.
- -------------------------------------------------------------------------------
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified open-end management investment company organized as a
Massachusetts business trust in 1990. The Fund 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 Fund 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
Trustees, changing fundamental policies or approving a management contract. The
Fund, under certain circumstances, will assist in shareholder communications
with other shareholders.
- -------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE
INVESTMENT ADVISER WHO IS RESPONSIBLE FOR
THE DAY-TO-DAY OPERATIONS OF THE FUND,
SUBJECT TO THE TRUSTEES' POLICIES AND
SUPERVISION.
- -------------------------------------------------------------------------------
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the John Hancock Mutual Life Insurance 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 distributes shares for all of the John Hancock
mutual funds through Selling Brokers. Certain Fund officers are also officers of
the Adviser and John Hancock Funds. All investment decisions are made by the
Adviser's fixed-income portfolio management team and no single person is
primarily responsible for making recommendations to the team.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF APPROXIMATELY $13 BILLION.
- -------------------------------------------------------------------------------
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.
10
<PAGE> 14
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A shares) or on a contingent deferred basis (the "Contingent Deferred
Sales Charge Alternative," Class B shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or more.
If you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
those of 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.
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider whether,
during the anticipated life of your Fund investment, the CDSC and accumulated
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time, and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for reduced sales charges. See "Share Price --
Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
11
<PAGE> 15
Class A shares are subject to lower distribution fees and, accordingly, pay
correspondingly higher dividends per share, to the extent any dividends are
paid. However, because initial sales charges are deducted at the time of
purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution and service fees and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock
Funds, Inc. ("John Hancock Funds") incurs in connection with the sale of the
shares will be paid from the proceeds of the initial sales charge and ongoing
distribution and service fees. In the case of Class B shares, the expenses will
be paid from the proceeds of the ongoing distribution and service fees, as well
as from the CDSC incurred upon redemption within six years of purchase. The
purpose and function of the Class B shares' CDSC and ongoing distribution and
service fees are the same as those of the Class A shares' initial sales charge
and ongoing distribution and service fees. Sales personnel distributing the
Fund's shares may receive different compensation for selling each class of
shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They also will be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee to
the Adviser. During the Fund's most recent fiscal year, the advisory fee was
.55% of the Fund's average daily net assets reflecting the agreement by the
Fund's previous investment adviser to reduce operating expenses and not to
impose a portion of its management fee during that year. The Adviser has
voluntarily and temporarily agreed to continue to limit the Fund's operating
expenses and not to impose its management fee to the extent necessary, thereby
reducing the total of the Fund's management fees and operating expenses (not
including fees payable by the Fund under a Rule 12b-1 plan) to 0.75% and 1.50%
of the average net assets attributable to Class A and Class B shares,
respectively.
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, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.15% of the Class A shares' average daily
net
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
12
<PAGE> 16
assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. John Hancock Funds has temporarily agreed to limit the
distribution and services fees pursuant to the Class B Plan to 0.90% of average
daily net assets. Up to 0.25% for Class B shares and 0.15% for Class A shares 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; (iv) distribution expenses incurred by other investment
companies which sell all or substantially all of their assets to, merge 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 December 31, 1994, an
aggregate of $3,602,288 of distribution expenses or 4.66% 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.
Information on the Fund's Total expenses is in the Financial Highlights section
of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares dividends daily and distributes them
monthly, representing all or substantially all of its net investment income. The
Fund will distribute net realized long-term and short-term capital gains, if
any, annually before the close of the calendar year.
- -------------------------------------------------------------------------------
THE FUND GENERALLY DECLARES DIVIDENDS
DAILY AND DISTRIBUTES THEM MONTHLY.
- -------------------------------------------------------------------------------
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 dividends on these shares will be lower than those on the Class A
shares. See "Share Price."
TAXATION. The Fund intends to meet certain federal tax requirements so that its
distributions of the tax-exempt interest it earns may be treated as
"exempt-interest dividends," which you are entitled to treat as tax-exempt
interest. That portion of exempt-interest dividends, if any, attributable to
interest on certain tax-exempt obligations that are "private activity bonds" may
increase certain shareholders'
13
<PAGE> 17
alternative minimum tax. Any exempt-interest dividend may increase a corporate
shareholder's alternative minimum tax.
Shareholders receiving social security benefits and certain railroad retirement
benefits may be subject to Federal income tax on up to 85 percent of such
benefits as a result of receiving investment income, including tax-exempt income
(such as exempt-interest dividends) and other dividends paid by the Fund. Shares
of the Fund may not be an appropriate investment for persons who are
"substantial users" of facilities financed by industrial development or private
activity bonds, or persons related to "substantial users." Consult your tax
adviser if you think this may apply to you.
Dividends from the Fund's net taxable income, if any, including any market
discount included in the Fund's income, and from the Fund's net short-term
capital gains are taxable to you as ordinary income. Dividends from the Fund's
net long-term capital gains are taxable as long-term capital gain. These
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 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. When you redeem (sell) or exchange shares, you may realize a
taxable gain or loss.
On the account application you must certify that the social security or other
tax payer 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 taxable dividends and the proceeds of
redemptions or exchanges.
The Fund intends to comply with certain California tax requirements so that
dividends paid by the Fund which are derived from interest on obligations, the
interest on which is exempt from California income tax, will be exempt from
California personal income tax in the hands of shareholders of the Fund.
Dividends from other sources, including capital gain dividends, if any, will not
be exempt from California personal income tax. Dividends paid by the Fund are
not exempt from California franchise or corporate income taxes. California does
not treat tax-exempt interest (or dividends paid by the Fund attributable to
such interest) as a tax preference item for purposes of its alternative minimum
tax.
The foregoing relates to federal income taxation and to California personal
income taxation as in effect as of the date of this Prospectus. Distributions
from investment income and capital gains, including exempt-interest dividends,
may be subject to California franchise taxes if received by a corporation doing
business in California, to state taxes in states other than California and to
local taxes. You should consult your tax adviser for specific advice.
14
<PAGE> 18
PERFORMANCE
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30-day period by the maximum
offering price per share on the last day of that period. Yield is also
calculated according to accounting methods that are standardized for all stock
and bond funds. Because yield accounting methods differ from the methods used
for other accounting purposes, the Fund's yield may not equal the income paid on
shares or the income reported in the Fund's financial statements.
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS YIELD, TAX
EQUIVALENT YIELD AND TOTAL RETURN.
- -------------------------------------------------------------------------------
Tax-equivalent yield is computed by dividing that portion of the yield of the
Fund which is tax-exempt by one minus a stated income tax rate and then adding
the product to any portion of the Fund's yield that is not tax-exempt.
Total return is based on the overall change in value of a hypothetical
investment in the Fund. Both total return calculations for Class A shares
generally include the effect of paying the maximum sales charge of 4.5%.
Investments at a lower sales charge would achieve higher returns than those
advertised. The value of Fund shares, when redeemed, may be more or less than
their original cost. Both yield and total return are historical calculations,
and are not an indication of future performance.
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period of
time. Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
15
<PAGE> 19
<TABLE>
HOW TO BUY SHARES
- ----------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------
OPENING AN ACCOUNT.
- ----------------------------------------------------------------------------------------
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 purchasing Class A or Class B shares.
If you do not specify which class of shares you are purchasing, Investor Services
will assume that you are investing in Class A shares.
- ----------------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation ("Investor Services") P.O. Box 9115, Boston, MA
02205-9115.
2. Deliver the completed application and check to your registered
representative or a broker with an agreement with John Hancock
Funds ("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 California Tax-Free Income Fund
Class A or Class B shares
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to Investor
Services.
- ----------------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information" sections on
AUTOMATIC the Account Privileges Application, designating a bank account from
ACCUMULATION which funds may be drawn.
PROGRAM 2. The amount you elect to invest will be automatically withdrawn from
(MAAP) your bank or credit union account.
- ----------------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A
AND CLASS B SHARES.
- ----------------------------------------------------------------------------------------
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, you 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 and Class B shares by calling
Investor Services toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to invest.
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 in 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.
- ----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 20
<TABLE>
- -----------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES.
(CONTINUED)
- -----------------------------------------------------------------------------------
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 California Tax-Free Income Fund
(Class A or Class B 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 in writing to Investor Services.
- -----------------------------------------------------------------------------------
</TABLE>
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.
- -------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS, THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ in value. Securities in
the Fund's portfolio are valued on the basis of market quotations, valuations
provided by independent pricing services or, at fair value as determined in good
faith in accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which the
Trustees have determined approximates market value. If quotations are not
readily available, assets are valued by a method that the Trustees believe
accurately reflects fair value. The NAV is calculated once daily 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 OFFERING PRICE OF YOUR SHARES IS THEIR
NET ASSET VALUE PLUS A SALES CHARGE, IF
APPLICABLE, WHICH WILL VARY WITH THE
PURCHASE ALTERNATIVE YOU CHOOSE.
- -------------------------------------------------------------------------------
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
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 offering price.
17
<PAGE> 21
<TABLE>
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay for
Class A shares of the Fund equals the NAV plus a sales charge as follows:
<CAPTION>
COMBINED REALLOWANCE
REALLOWANCE TO SELLING
AND SERVICE BROKERS AS A
FEE AS A PERCENTAGE
SALES CHARGE AS SALES CHARGE AS PERCENTAGE OF THE
AMOUNT INVESTED A PERCENTAGE OF A PERCENTAGE OF OF OFFERING OFFERING
(INCLUDING SALES CHARGE) OFFERING PRICE THE AMOUNT INVESTED PRICE(+) PRICE(*)
- ------------------------- --------------- ------------------- ----------- ------------
<S> <C> <C> <C> <C>
Less than $100,000........ 4.50% 4.71% 4.00% 3.76%
$100,000 to $249,999...... 3.75% 3.90% 3.25% 3.01%
$250,000 to $499,999...... 2.75% 2.83% 2.30% 2.06%
$500,000 to $999,999...... 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over....... 0.00%(**) 0.00%(**) 0.00%(***) 0.00%(***)
<FN>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. A Selling Broker to whom substantially the entire sales charge is
reallowed or who receives these incentives may be deemed to be an
underwriter under the Securities Act of 1933. In addition to the
reallowance allowed to all selling Brokers, John Hancock Funds will pay
the following: round trip airfare to a resort will be offered to each
registered representative of a Selling Broker (if the Selling Broker has
agreed to participate) who sells certain amounts of shares of John Hancock
funds. John Hancock Funds will make these incentive payments out of its
own resources. Other than distribution and service fees, the Fund does not
bear distribution expenses.
(**) No sales charge is payable at the time of purchase in Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions within one year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in the aggregate as
follows: 1 % on sales to $4,999,999, 0.50% on the next $5 million and
0.25% on amounts of $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance in an amount equal to 0.25% of the net
assets invested in the Fund at the time of the sale, and thereafter, it
pays the service fee periodically in arrears in an amount up to 0.25% of
the Fund's average annual net assets. Selling Brokers receive the fee as
compensation for providing personal and account maintenance services to
shareholders.
</TABLE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
In addition, John Hancock Funds will pay certain affiliated Selling Brokers at
an annual rate of up to 0.05% of the daily net assets of accounts attributable
to these brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE--INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12
18
<PAGE> 22
months after the end of the calendar month in which the purchase was made (the
CDSC period), a CDSC will be imposed. The rate of the CDSC will depend on the
amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
--------------- ---------
<S> <C>
$1 million to $4,999,999.............................................. 1.00%
Next $5 million to $9,999,999......................................... 0.50%
Amounts of $10 million and over....................................... 0.25%
</TABLE>
Existing full-service clients of the Life Company who were group annuity
contract holders as of September 1, 1994 and participant-directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the Class A shares that have been
redeemed. Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase price, including any distributions which have been
reinvested in additional Class A shares.
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.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charge" below.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in
Class A shares of the Fund or a combination of funds within the John Hancock
family of funds (except money market funds), you may qualify for a reduced sales
charge on your investments in Class A shares through a LETTER OF INTENTION. You
may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE
to take advantage of the value of your previous investments in Class A shares of
the John Hancock funds in meeting the breakpoints for a reduced sales charge.
For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales
charge will be based on the total of:
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN CLASS A SHARES.
- -------------------------------------------------------------------------------
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a) all
Class A shares of the Fund you hold, and (b) all Class A shares of any other
John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
19
<PAGE> 23
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net asset value of
$80,000 and subsequently invest $20,000 in Class A shares of the Fund, the sales
charge on this subsequent investment would be 3.75% and not 4.50% (the rate that
would otherwise be applicable to investments of less than $100,000.) See
"Initial Sales Charge alternative -- Class A Shares."
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
- - A Trustee/Director or officer of the Fund; a Director or officer of the
Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family of any of
the foregoing; or any Fund, pension, profit sharing or other benefit plan for
the individuals described above.
- - Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
- - A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
- - A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products made available to their clients.
- - A former participant in an employee benefit plan with John Hancock Funds, when
he/she withdraws from his/her plan and transfers any or all of his/her plan
distributions directly to the Fund.
- ---------------
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A Shares of the Fund may be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Class B shares
are offered at net asset value per share without a sales charge so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates set forth below. This charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on increases
in account value above the initial purchase price, including shares derived from
dividend reinvestment.
20
<PAGE> 24
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 shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charge"
below.
<TABLE>
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
<S> <C>
- - Proceeds of 50 shares redeemed at $12 per share $600
- - Minus proceeds of 10 shares not subject to CDSC because they were -120
acquired through dividend reinvestment (10 X $12)
- - Minus appreciation on remaining shares, also not subject to CDSC -80
(40 X $2)
----
- - Amount subject to CDSC $400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
part of them to defray its expenses related to providing the Fund with
distribution services connected to the sale of Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without deducting a sales charge at the time of the
purchase.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for the purposes of determining the holding period, any payments you make during
the month will be aggregated and deemed to have been made on the last day of the
month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR IN WHICH CLASS B SHARES DOLLAR AMOUNT SUBJECT TO
REDEEMED FOLLOWING PURCHASE CDSC
- ---------------------------- -------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
21
<PAGE> 25
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- - Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How
to Redeem Shares"), as long as your annual redemptions do not exceed 10% of
your original account value, plus 10% of the value of your subsequent
investments (less redemptions) in that account at the time you notify Investor
Services. This waiver does not apply to Systematic Withdrawal Plan redemptions
of Class A shares that are subject to a CDSC.
-----------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON CLASS B AND
CERTAIN CLASS A SHARE REDEMPTIONS WILL BE WAIVED.
-----------------------------------------------------------------------
- - Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the life expectancy of 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 $100 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 it.
CONVERSION OF CLASS A 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 the shares in the
original fund. The Fund has been advised that the conversion of Class B Shares
to Class A Shares should not be taxable for Federal income tax purposes and
should not change a shareholder's tax basis or tax holding period for the
converted shares.
22
<PAGE> 26
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
- -------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- -------------------------------------------------------------------------------
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to seven days or
longer, as permitted by Federal securities laws.
<TABLE>
- ----------------------------------------------------------------------------------
<S> <C> <C>
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, other
tax-qualified retirement plans or Fund shares 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
using 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 fund transfer to your assigned bank account and
the funds are usually collectible after two business days.
Your bank may or may not charge 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>
23
<PAGE> 27
<TABLE>
- ----------------------------------------------------------------------------------------
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
<S> <C> <C>
Individual, Joint Tenants, Sole A letter of instruction signed (with titles,
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaran-
teed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signatures
guaranteed.
Trusts A letter of instruction signed by the
Trustee(s), with the signature(s)
guaranteed. (If the Trustee's name is not
registered on your account, also provide a
copy of the trust document, certified within
the last 60 days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- ----------------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less,
John Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that any such 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
(iv) a national securities exchange, a registered securities exchange or a
clearing agency.
- ----------------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR
SIGNATURE.
- ----------------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
- ----------------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT
REDEMPTIONS.
- ----------------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock
power or a letter of instruction. 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 $100 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
falls below the required minimum as a result of market action. No CDSC will be
imposed on involuntary redemption of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed, and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
- ----------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A, whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY
FOR SHARES OF THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
24
<PAGE> 28
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
imposed. Class B shares of the Fund which are subject to a CDSC may be exchanged
into Class B shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into John Hancock Short-Term Strategic Income
Fund, John Hancock Limited-Term Government Fund and John Hancock Adjustable U.S.
Government Trust which will be subject to the initial fund's CDSC). 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. However, if you exchange Class B shares
purchased prior to January 1, 1994 for Class B shares of any other John Hancock
Fund, you will be subject to the CDSC schedule in effect on your initial
purchase date.
You may exchange Class B shares of the Fund into shares of John Hancock Cash
Management Fund at net asset value. However, you will continue to be subject to
a CDSC upon redemption. The rate of the CDSC will be the rate in effect for the
original Fund at the time of exchange.
The Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund may also terminate or alter the terms of the
exchange privilege, upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
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.
Pursuant to 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
25
<PAGE> 29
the Fund will attempt to give you prior notice whenever it is reasonably able to
do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current Fund and the
exact name in which it is registered available to give to the telephone
representative.
3. 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.
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
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares reinvested in
shares of any John Hancock fund that is otherwise subject to a sales charge
as long as you reinvest within 120 days from the redemption date. If you paid
a CDSC upon a redemption, you may reinvest at net asset value in the same
class of shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC previously charged, and the reinvested
shares will continue to be subject to a CDSC. For purposes of computing the
CDSC payable upon a subsequent redemption, the holding period of the shares
acquired through reinvestment will include the holding period of the redeemed
shares.
- -------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF THE
FUND, YOU MAY BE ABLE TO
REINVEST ALL OR PART OF THE
PROCEEDS IN SHARES OF THIS
FUND OR ANOTHER JOHN
HANCOCK FUND WITHOUT
PAYING AN ADDITIONAL
SALES CHARGE.
- -------------------------------------------------------------------------------
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
26
<PAGE> 30
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
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.
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
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. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares, because you may be
subject to initial sales charges on your purchases of Class A shares or to a
CDSC on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be automatically withdrawn each month from
your bank, for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program plan at any
time.
4. There is no charge to you for this program, and there is no cost to the Fund.
5. 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.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
27
<PAGE> 31
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
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. To the extent that the Fund's
holdings of participation interests, COPs and inverse floaters are determined to
be illiquid, such holdings will be subject to the 10% restriction on illiquid
investments.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional (taxable) income, the Fund may lend to broker-dealers portfolio
securities amounting to not more than 33 1/3% of its total assets taken at
current value or may enter into repurchase agreements. In a repurchase
agreement, the Fund buys a security subject to the right and obligation to sell
it back to the issuer at the same price plus accrued interest. These
transactions must be fully collateralized at all times. The Fund may reinvest
any cash collateral in short-term highly liquid debt securities. However, they
may involve some credit risk to the Fund if the other party should default on
its obligation and the Fund is delayed in or prevented from recovering the
collateral. Securities loaned by the Fund will remain subject to fluctuations of
market value.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities
on a forward or "when-issued" basis and may purchase or sell securities on a
forward commitment basis to hedge against anticipated changes in interest rates
and prices. When the Fund engages in these transactions, it relies on the seller
or the buyer, as the case may be, to consummate the transaction. Failure to
consummate the transaction may result in the Fund's losing the opportunity to
obtain an advantageous price and yield. If the Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward commitment, it can incur a
taxable gain or a loss.
SHORT TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. Short-term trading may have the effect of
increasing portfolio turnover and may increase net short-term capital gains,
distributions from which would be taxable to shareholders as ordinary income.
The Fund's portfolio securities may be changed without regard to the holding
period of these securities (subject to certain tax restrictions), when the
Adviser deems that this action will help achieve the Fund's objective given a
change in an issuer's operations or changes in general market conditions. The
Fund's portfolio turnover rate is set forth in the table under the caption
"Financial Highlights."
28
<PAGE> 32
DIVERSIFICATION. The Fund is a "diversified" investment company under the
Investment Company Act of 1940 (the "Act"). This means that with respect to 75%
of its total assets: (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer other than U.S. Government securities
and securities of other investment companies and (2) the Fund may not own more
than 10% of the outstanding voting securities of any one issuer. 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 Fund's total
assets. Since California Tax Exempt Securities and other types of debt
obligations ordinarily purchased by the Fund are not voting securities
(notwithstanding the 75% percentage limitation described above), there is
generally no limit on the percentage of a single issuer's obligations which the
Fund may own so long as it does not invest more than 5% of its total assets in
the securities of that issuer. Consequently, the Fund may invest in a greater
percentage of the outstanding securities of a single issuer than would an
investment company which invests in voting securities. In determining the issuer
of a tax-exempt 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.
As for the 25% of the Fund's total assets not subject to the 75% diversification
requirement, there is no percentage limitation on the portion of these assets
that may be invested in the securities of any one issuer. For this reason and
because of the limited number of California issuers of tax-exempt securities,
the Fund is more likely in certain cases to invest higher percentages of its
assets in the securities of single issuers, than would an investment company
which is diversified with respect to 100% of its assets and invests in a broad
range of tax-exempt securities. This practice involves an increased risk of loss
to the Fund if the issuer is unable to make interest or principal payments or if
the market value of these securities declines. The Fund may also invest its
assets in a relatively high percentage of securities issued by entities having
similar characteristics. The issuers may be located in the same city or county
or may pay their interest obligations from revenues of similar projects. This
makes the Fund more susceptible to certain economic, political or regulatory
occurrences since most or all such issuers would likely be located in
California. These similarities therefore increase the potential for fluctuation
of the net asset value of the Fund's shares. The Fund will only invest in
securities of issuers which it believes will make timely payments of interest
and principal.
OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts
on securities and debt security indices, interest rate and municipal bond index
futures contracts and options on such futures contracts. Options and futures
contracts are bought and sold to manage the Fund's exposure to changing interest
rates and security prices. Some options and futures strategies, including
selling futures, buying puts and writing calls, tend to hedge a Fund's
investment against price fluctuations. Other strategies, including buying
futures, writing puts, and
29
<PAGE> 33
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of the overall strategy. The Fund may invest in
options and futures based on debt securities and municipal bond indices
(securities indices).
Options and futures can be volatile investments and involve certain risks. If
the Adviser applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower the Fund's return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. Options and
futures do not pay interest, but may produce capital gains or losses,
distributions of which will be taxable to shareholders.
The Fund will not engage in a transaction in futures or options on futures if,
immediately thereafter, the sum of initial margin deposits and premiums required
to establish positions in futures contracts and options on futures would exceed
5% of the Fund's net assets. The loss incurred by the Fund investing in futures
contracts and in writing options on futures is potentially unlimited and may
exceed the amount of any premium received. The Fund's transactions in options
and futures contracts may be limited by the requirements of the Code for
qualification as a regulated investment company. See the Statement of Additional
Information for further discussion of options and futures transactions,
including tax effects and investment risks.
MUNICIPAL LEASE OBLIGATIONS. The Fund may purchase participation interests
which give the Fund an undivided pro rata interest in the tax exempt security.
For certain participation interests, the Fund will have the right to demand
payment, on a specified number of days' notice for all or any part of the Fund's
participation interest in the tax exempt security plus accrued interest.
Participation interests that are determined to be not readily marketable, will
be considered illiquid for purposes of the Fund's 10% restriction on investment
in securities.
The Fund may also invest in Certificates of Participation ("COP's") which
provide participation interests in lease revenues. Each COP represents a
proportionate interest in or right to the lease-purchase payment made under
municipal lease obligations or installment sales contracts. Municipal lease
obligations are issued by a state or municipal financing authority to provide
funds for the construction of facilities (e.g., schools, dormitories, office
buildings or prisons) or the acquisition of equipment. In certain states, such
as California, COP's constitute a majority of new municipal financing issues.
Certain municipal lease obligations may trade infrequently. Accordingly, COPs
will be purchased and monitored pursuant to analysis by the Adviser and reviewed
according to procedures by the Board of Trustees which consider various factors
in determining the liquidity risk. COPs will not be considered illiquid for
purposes of the Fund's 10% limitation on illiquid securities provided the
Adviser determines that there is a readily available market for such securities.
An investment in COPs is subject to the risk that a municipality may not
appropriate sufficient funds to meet payments on the underlying lease
30
<PAGE> 34
obligation. See the Statement of Additional Information for additional
discussion of participation interests and municipal lease obligations.
DERIVATIVE INSTRUMENTS. The Fund may purchase or enter into derivative
instruments to enhance return, to hedge against fluctuations in interest rates
or securities prices, to change the duration of the Fund's fixed income
portfolio or as a substitute for the purchase or sale of securities. The Fund's
investments in derivative securities may include certain floating rate and
indexed securities. The Fund's transactions in derivative contracts may include
the purchase or sale of futures contracts on securities or indices; options on
futures contracts; and options on securities or indices and forward contracts to
purchase or sell securities.
All of the Funds' transactions in derivative instruments involve a risk of loss
or depreciation due to unanticipated adverse changes in interest rates or
securities prices. The loss on derivative contracts may exceed the Fund's
initial investment in these contracts. In addition, the Fund may lose the entire
premium paid for purchased options that expire before they can be profitably
exercised by the Fund.
Indexed Securities. The Fund may invest in indexed securities, including
floating rate securities that are subject to a maximum interest rate ("capped
floaters") and leveraged inverse floating rate securities ("inverse floaters")
(up to 10% of the Fund's total assets). The interest rate or, in some cases, the
principal payable at the maturity of an indexed security may change positively
or inversely in relation to one or more interest rates, financial indices or
other financial indicators ("reference prices"). An indexed security may be
leveraged to the extent that the magnitude of any change in the interest rate or
principal payable on an indexed security is a multiple of the change in the
reference price. Thus, indexed securities may decline in value due to adverse
market changes in interest rates or other reference prices.
Risks Associated With Derivative Securities and Contracts. The risks associated
with the Fund's transactions in derivative securities and contracts may include
some or all of the following:
Market Risk. Investments in floating rate and indexed securities are subject to
the interest rate and other market risks described above. Entering into a
derivative contract involves a risk that the applicable market will move against
the Fund's position and that the Fund will incur a loss. For derivative
contracts other than purchased options, this loss may exceed the amount of the
initial investment made or the premium received by the Fund.
Leverage and Volatility Risk. Derivative instruments may sometimes increase or
leverage the Fund's exposure to a particular market risk. Leverage enhances the
price volatility of derivative instruments held by the Fund. The Fund may
partially offset the leverage inherent in derivative contracts by maintaining a
segregated account consisting of cash and liquid, high grade debt securities, by
holding offsetting portfolio securities or contracts or by covering written
options.
Correlation Risk. A Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative
31
<PAGE> 35
instrument and the hedged asset. Imperfect correlation may be caused by several
factors, including temporary price disparities among the trading markets for the
derivative instrument, the assets underlying the derivative instrument and the
Fund's portfolio assets.
Credit Risk. Derivative securities and over-the-counter derivative contracts
involve a risk that the issuer or counterparty will fail to perform its
contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity or exchange may suspend
or limit trading in an exchange-traded derivative contract, which may make the
contract temporarily illiquid and difficult to price. The staff of the SEC takes
the position that certain over-the-counter options are subject to the Fund's 10%
limit on illiquid investments. The Fund's ability to terminate over-the-counter
derivative contracts may depend on the cooperation of the counterparties to such
contracts. For thinly traded derivative securities and contracts, the only
source of price quotations may be the selling dealer or counterparty.
32
<PAGE> 36
APPENDIX A
EQUIVALENT YIELDS:
TAX EXEMPT VERSUS TAXABLE INCOME FOR 1994
<TABLE>
The table below shows the effect of the tax status of California Tax Exempt Securities on the yield received by their
holders under the regular federal income tax and California personal income tax laws. It gives the approximate yield a taxable
security must earn at various income brackets to produce after-tax yields equivalent to those of California Tax Exempt Securities
yielding from 4.0% to 7.0%.
<CAPTION>
MARGINAL
COMBINED
CALIFORNIA
AND FEDERAL
SINGLE RETURN JOINT RETURN INCOME TAX IN CALIFORNIA, A TAX-EXEMPT YIELD OF:
- ---------------- ---------------- BRACKET* ----------------------------------------------------------------------
(TAXABLE INCOME) ------------ 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ------------------------------------- ----------------------------------------------------------------------
IS EQUIVALENT TO A TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-4,552 $ 0-9,104 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72% 8.32%
$ 4,553-10,789 $ 9,105-21,578 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80% 8.40%
$ 10,790-17,027 $ 21,579-34,054 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
$ 17,028-22,100 $ 34,055-36,900 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 22,101-23,637 $ 36,901-47,274 32.32% 5.91% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
$ 23,638-29,873 $ 47,275-59,746 33.76% 6.04% 6.79% 7.55% 8.30% 9.06% 9.81% 10.57%
$ 29,874-53,500 $ 59,747-89,150 34.70% 6.13% 6.89% 7.66% 8.42% 9.19% 9.95% 10.72%
$ 53,501-103,600 $ 89,151-140,000 37.42% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39% 11.19%
$103,601-115,000 $140,001-207,200 41.95% 6.89% 7.75% 8.61% 9.47% 10.34% 11.20% 12.06%
$115,001-207,200 $207,201-250,000 42.40% 6.94% 7.81% 8.68% 9.55% 10.42% 11.28% 12.15%
$207,201-250,000 $250,001-414,400 45.64% 7.36% 8.28% 9.20% 10.12% 11.04% 11.96% 12.88%
$ 250,001 and up $ 414,401 and up 46.24% 7.44% 8.37% 9.30% 10.23% 11.16% 12.09% 13.02%
<FN>
- ---------------
* The marginal combined bracket includes the effect of deducting state taxes on your federal tax return.
</TABLE>
The Chart is for illustrative purposes only and is not intended to project
performance of the Fund.
While the Fund principally invests in obligations exempt from federal and
California state income taxes, a portion of the Fund's distributions may be
subject to these taxes or to the alternative minimum tax.
California state income tax rates and brackets have not yet been set for 1995.
This may result in higher or lower actual rates. The above chart is intended for
estimation only.
A-1
<PAGE> 37
JOHN HANCOCK
JOHN HANCOCK CALIFORNIA TAX-FREE
INCOME FUND
CALIFORNIA
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue TAX-FREE INCOME
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR FUND
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CLASS A AND CLASS B SHARES
PROSPECTUS
CUSTODIAN MAY 1, 1995
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110 FOR INVESTORS SEEKING TO
OBTAIN AS HIGH A LEVEL OF CURRENT
INCOME EXEMPT FROM BOTH FEDERAL
TRANSFER AGENT INCOME TAXES AND CALIFORNIA
John Hancock Investor Services PERSONAL INCOME TAXES AS IS
Corporation CONSISTENT WITH PRESERVATION OF
P.O. Box 9116 CAPITAL.
Boston, Massachusetts 02205-9116
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
HOW TO OBTAIN INFORMATION TELEPHONE 1-800-225-5291
ABOUT THE FUND
For Service Information
For Telephone Exchange
For Investment-by-Phone call 1-800-225-5291
For Telephone Redemption
For TDD call 1-800-554-6713
(LOGO) Printed on recycled paper
<PAGE> 38
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
This Statement of Additional Information is not a Prospectus, but is
intended to provide additional information regarding the activities and
operations of the John Hancock California Tax-Free Income Fund (the "Fund") and
should be read in conjunction with the Prospectus.
A Prospectus for the Fund, dated May 1, 1995, which provides the basic
information an investor should know before investing may be obtained without
charge from:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-5291
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . . 2
Certain Investment Practices . . . . . . . . . . . . . . . . . . . . . . 11
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 15
Those Responsible for Management . . . . . . . . . . . . . . . . . . . . 17
Investment Advisory and other Services . . . . . . . . . . . . . . . . . 22
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Distribution Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Redemption and Repurchase of Shares . . . . . . . . . . . . . . . . . . . 31
Additional Services and Programs . . . . . . . . . . . . . . . . . . . . 31
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Brokerage Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Transfer Agent Services . . . . . . . . . . . . . . . . . . . . . . . . . 39
Custody of Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . 39
Calculation of Performance . . . . . . . . . . . . . . . . . . . . . . . 41
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
1
<PAGE> 39
INVESTMENT OBJECTIVE AND POLICIES
Prior to December 22, 1994, the Fund was called Transamerica
California Tax-Free Income Fund.
INVESTMENT OBJECTIVE. As discussed under "Investment Objective and
Policies" in the Prospectus, the investment objective of the Fund is to provide
as high a level of current income exempt from both federal income taxes and
California personal income taxes, as is consistent with preservation of
capital. The Fund seeks to achieve its objective by investing primarily in
debt obligations issued by or on behalf of the state of California and its
political subdivisions, agencies and instrumentalities and other obligations
the interest on which is excluded from gross income for federal income tax
purposes and exempt from California personal income taxes ("California Tax
Exempt Securities") which are rated within the four highest ratings assigned by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch"); if unrated, are determined
to be of comparable quality by the Investment Adviser. Securities in which the
Fund may invest may not earn as high a level of current income as lower quality
securities which have greater market risk and more fluctuation in market value.
DESCRIPTION OF TAX-EXEMPT SECURITIES. As described under "Investment
Objective and Policies" in the Prospectus, in seeking to achieve its investment
objective, the Fund invests in a variety of Tax-Exempt Securities.
Municipal Bonds. Municipal bonds at the time of issuance are
generally long-term securities with maturities of as much as twenty years or
more but may have remaining maturities of shorter duration at the time of
purchase by the Fund. 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 excluded from gross income for federal income tax purposes.
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. 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.
2
<PAGE> 40
VARIABLE OR FLOATING RATE OBLIGATIONS. As discussed under "Investment
Objective and Policies" in the Prospectus, certain of the obligations in which
the Fund may invest may be variable or floating rate obligations on which the
interest rate is adjusted at predesignated periodic intervals (variable rate)
or when there is a change in the market rate of interest on which the interest
rate payable on the obligation is met is based (floating rate). Variable or
floating rate obligations may include a demand feature which entitles the
purchaser to demand prepayment of the principal amount prior to stated
maturity. Also, the issuer may have a corresponding right to prepay the
principal amount prior to maturity. As with any other type of debt security,
the marketability of variable or floating rate instruments may vary depending
upon a number of factors, including the type of issuer and the terms of the
instruments. The Fund may also invest in more recently developed floating rate
instruments which are created by dividing a municipal security's interest rate
into two or more different components. Typically, one component ("floating
rate component" or "FRC") pays an interest rate that is reset periodically
through an auction process or by reference to an interest rate index. A second
component ("inverse floating rate component" or "IFRC") pays an interest rate
that varies inversely with changes to market rates of interest, because the
interest paid to the IFRC holders is generally determined by subtracting a
variable or floating rate from a predetermined amount (i.e., the difference
between the total interest paid by the municipal security and that paid by the
FRC). The Fund may purchase FRC's without limitation. Up to 10% of the Fund's
total assets may be invested in IFRC's in an attempt to protect against a
reduction in the income earned on the Fund's other investments due to a decline
in interest rates. The extent of increases and decreases in the value of an
IFRC generally will be greater than comparable changes in the value of an equal
principal amount of a fixed-rate municipal security having similar credit
quality, redemption provisions and maturity. To the extent that such
instruments are not readily marketable, as determined by the Investment
Adviser pursuant to guidelines adopted by the Board of Trustees, they will be
considered illiquid for purposes of the Fund's 10% investment restriction on
investment in non-readily marketable securities.
PARTICIPATION INTERESTS. The Fund may purchase from financial
institutions tax exempt participation interests in tax exempt securities. A
participation interest gives the Fund an undivided interest in the tax exempt
security in the proportion that the Fund's participation interest bears to the
total amount of the tax exempt security. For certain participation interests,
the Fund will have the right to demand payment, on a specified number of days'
notice, for all or any part of the Fund's participation interest in the tax
exempt security plus accrued interest. Participation interests that are
determined to be not readily marketable will be considered as such for purposes
of the Fund's 10% investment restriction on investment in non-readily
marketable illiquid securities. The Fund may also invest in Certificates of
Participation (COP's) which provide participation interests in lease revenues.
Each Certificate represents a proportionate interest in or right to the
lease-purchase payment made under municipal lease obligations or installment
sales contracts. Typically, municipal lease obligations are issued by a state
or municipal financing authority to provide funds for the construction of
facilities (e.g., schools, dormitories, office buildings or prisons) or the
acquisition of equipment. The facilities are typically used by the state or
municipality pursuant to a lease with a financing authority.
3
<PAGE> 41
Certain municipal lease obligations may trade infrequently. Participation
interests in municipal lease obligations will not be considered illiquid for
purposes of the Fund's 10% limitation on illiquid securities provided the
Investment Adviser determines that there is a readily available market for such
securities. In reaching liquidity decisions, the Investment Adviser will
consider, among others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer.) With respect to municipal lease obligations, the Investment
Adviser also considers: (1) the willingness of the municipality to continue,
annually or biannually, to appropriate funds for payment of the lease; (2) the
general credit quality of the municipality and the essentiality to the
municipality of the property covered by the lease; (3) an analysis of factors
similar to that performed by nationally recognized statistical rating
organizations in evaluating the credit quality of a municipal lease obligation,
including (i) whether the lease can be cancelled; (ii) if applicable, what
assurance there is that the assets represented by the lease can be sold; (iii)
the strength of the lessee's general credit (e.g., its debt, administrative,
economic and financial characteristics); (iv) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an event of nonappropriation); and (v)
the legal recourse in the event of failure to appropriate; and (4) any other
factors unique to municipal lease obligations as determined by the Investment
Adviser.
CALLABLE BONDS. The Fund may purchase and hold callable municipal
bonds which contain a provision in the indenture permitting the issuer to
redeem the bonds prior to their maturity dates at a specified price which
typically reflects a premium over the bonds' original issue price. These bonds
generally have call-protection (a period of time during which the bonds may not
be called) which usually lasts for 7 to 10 years, after which time such bonds
may be called away. An issuer may generally be expected to call its bonds, or
a portion of them during periods of relatively declining interest rates, when
borrowings may be replaced at lower rates than those obtained in prior years.
If the proceeds of a bond called under such circumstances are reinvested, the
result may be a lower overall yield due to lower current interest rates. If the
purchase price of such bonds included a premium related to the appreciated
value of the bonds, some or all of that premium may not be recovered by
bondholders, such as the Fund, depending on the price at which such bonds were
redeemed.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA TAX-EXEMPT SECURITIES.
Since the Fund concentrates its investments in California Tax-Exempt
Securities, the Fund will be affected by any political, economic or regulatory
developments affecting the ability of California issuers to pay interest or
repay principal.
GENERAL. From mid-1990 until late 1993, California has endured a
prolonged economic recession coupled with deteriorating fiscal and budget
conditions. During this period, the state has also contended with natural
disasters including fires, a prolonged drought and a major earthquake in the
Los Angeles area (January 1994), rapidly growing population, and increasing
social service requirements. Unlike the early 1980's the diverse California
economy has not yet staged a major rebound to quickly carry the State out of
this downturn.
4
<PAGE> 42
The California economy has begun to show encouraging signs of growth
since the start of 1994. After two years of unemployment rates over 9%,
ongoing job losses and company relocation's out-of-state, California has begun
to register net job growth. Sectors exhibiting employment growth have been the
construction and related manufacturing, wholesale, and retail trade industries,
transportation, and recreation, business, and management consulting services.
This growth has offset the slowing losses in the aerospace industry and
restructuring of the finance and utility sectors. Over the next two years,
nonfarm employment is projected to remain stable in 1994 but expand by 6.1% in
1995. These trends are expected to continue and allow the State's recovery to
gain momentum over the next two years.
The prolonged recession has seriously impacted California tax revenues
and produced the need for additional expenditures on health and welfare
services. Since the late 1980's, the State's Administrations have recognized
that its budget problems stem in part from a structural imbalance. The largest
General Fund programs - K-12 schools and community colleges, health and
welfare, and corrections - have been increasing faster than the revenue base,
driven by the State's rapid population growth. General Fund expenditures
exceeded revenues for four of the five fiscal years ended 1991-92. These
structural concerns will be exacerbated in coming years by the expected need to
substantially increase capital and operating funds for corrections as a result
of a "Three Strikes" law enacted in 1994.
The principal sources of the State's General Fund revenues are the
California personal income tax (44% of total revenues) sales and use tax (35%)
and bank and corporation taxes (12%). The State maintains a Special Fund for
Economic Uncertainties (the "SFEU") derived from General Fund revenues as a
reserve to meet cash needs of the General Fund but which is required to be
replenished as soon as sufficient revenues are available. Because of the
recession, the SFEU has had a negative balance since 1991; the Administration
projects a positive balance of about $92 million in the SFEU by June 30, 1996.
RECENT BUDGETS. The State failed to enact its 1992-93 budget by July
1, 1992. Although the State had no legal authority to pay many of its vendors,
certain obligations (such as debt service, school apportionments, welfare
payments, and employee salaries) were payable because of continuing or special
appropriations, or court orders. However, the State Controller did not have
enough cash to pay as they came due all of these ongoing obligations, as well
as valid obligations incurred in the prior fiscal year. Starting on July 1,
1992, the Controller was required to issue "registered warrants' in lieu of
normal warrants backed by cash to pay many State obligations. Available cash
was used to pay constitutionally mandated and priority obligations. Between
July 1 and September 3, 1992, the Controller issued an aggregate of
approximately $3.8 billion of registered warrants all of which were called for
redemption by September 4, 1992 following enactment of the 1992-93 Budget Act
and issuance by the State of short- term notes.
The 1992-93 Budget Act, when finally adopted, was projected to
eliminate the State's accumulated deficit, with additional expenditure cuts and
a $1.3 billion transfer of State
5
<PAGE> 43
education funding costs to local governments by shifting local property taxes
to school districts. However, as the recession continued longer and deeper
than expected, revenues once again were far below projections, and only reached
a level just equal to the amount of expenditures, so the State continued to
carry its $2.8 billion budget deficit as of June 30, 1993.
The 1993-94 Budget Act was similar to the prior year, in reliance on
expenditure cuts and an additional $2.6 billion transfer of costs to local
government, particularly counties. A major feature of the budget was a
two-year plan to eliminate the accumulated deficit by borrowing into the
1994-95 fiscal year. With the recession still continuing longer than expected,
the General Fund had $800 million less revenue and $800 million higher
expenditures than budgeted. As a result, revenues only exceed expenditures by
about $500 million. However, this was the first operating surplus in four
years and reduced the accumulated deficit to $2.0 billion, after taking into
account certain other accounting reserves.
CURRENT BUDGET. The 1994-95 Budget Act was passed on July 8, 1994,
and provides for an estimated $41.9 billion of General Fund revenues, and $40.9
billion of expenditures. The budget assumed receipt of about $750 million of
new federal assistance for the costs of incarceration, education, health and
welfare related to undocumented immigrants. Other major components of the
budget include further reductions in health and welfare costs, some additional
transfers of funds from local government, and a plan to defer retirement of $1
billion of the accumulated budget deficit until the 1995-96 fiscal year. The
Federal government has apparently budgeted only $33 million of this immigration
aid. However, this shortfall is expected to be almost fully offset by higher
than projected revenues, and lower than projected caseload growth as the
economy improves.
Because of the accumulated budget deficit over the past several years,
the payment of certain unbudgeted expenditures to schools to maintain constant
per-pupil aid levels, and a reduction of the level of available internal
borrowing, the State's cash resources have been significantly depleted. This
has required the State to rely on a series of external borrowings for the past
several years to pay its normal expenses, including borrowings which have gone
past the end of the fiscal year. In February 1994, the State borrowed $3.2
billion, maturing by December, 1994. In July 1994, the State borrowed a total
of $7.0 billion to meet its cash flow requirements for the 1994-95 fiscal year
and to fund part of its deficit into the 1995-96 fiscal year. A total of $4.0
billion of this borrowing matures in April, 1996. The State will continue to
have to rely on external borrowing to meet its cash needs to the foreseeable
future.
In order to assure repayment of the $4 billion, 22-month borrowing,
the State enacted legislation (the "Trigger Law") which can lead to automatic,
across-the-board cuts in General Fund expenditures in either the 1994-95 or
1995-96 fiscal years if cash flow projections made at certain times during
those years show deterioration from the projections made in July 1994, when the
borrowings were made. On November 15, 1994, the State Controller as part of
the Trigger Law reported that the cash position of the General Fund on June 30,
1995 would be about $580 million better than earlier projected, so no automatic
budget adjustments were required in 1994-95. The Controller's report showed
that loss of federal funds was offset by higher revenues, lower expenditures,
and certain other increases in cash resources.
The proposed Governor's Budget for the 1995-96 Fiscal Year projects
General Fund
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revenues of $42.5 billion and expenditures of $41.7 billion. The Governor's
Budget projects that all the accumulated budget deficits will be repaid by June
30, 1996, with a small balance ($92 million) in the Special Fund for Economic
Uncertainties, the budget reserve. The proposed budget assumes receipt of
about $830 million of new federal aid for undocumented aliens' costs and also
assumes success in certain ongoing litigation concerning previous budget
actions. The Governor has proposed a 15% cut in personal income and corporate
taxes, to be phased in over three years starting in 1996.
RATING AGENCIES. The ongoing structural imbalances, growing
accumulated deficits, and sluggish recovery of the California economy have
placed the State under ongoing scrutiny from the municipal credit rating
agencies. In July 1994, both Moody's and S&P's lowered their ratings on the
State's general obligation debt. Moody's dropped the State from a rating of Aa
to A1 and S&P reduced the rating from A+ to A. Fitch lowered its rating from
Aa to A. Despite the progress in producing break-even financial operations,
the agencies concluded that the State still confronts a continuing fiscal
challenge. The major concerns cited by the agencies included the failure to
directly address most of the accumulated deficit, the potential for the untried
budget triggers to produce fraconian cuts in program expenditures, high
short-term debt and optimistic revenue forecasts.
CONSTITUTIONAL CONSIDERATIONS. Changes in California laws during the
last two decades have limited the ability of California State and municipal
issuers to obtain sufficient revenue to pay their bond obligations.
In 1978, California voters approved an amendment to the California
Constitution known as Proposition 13. Proposition 13 limits ad valorem
(according to value) taxes on real property and restricts the ability of taxing
entities to increase real property taxes and assessments, and limits the
ability of local governments to raise other taxes.
Article XIII B of the California Constitution (the "Appropriation
Limit") imposes a limit on annual appropriations. Originally adopted in 1979,
Article XIII B was modified by Proposition 98 in 1988 and Proposition 111 in
1990. The appropriations subject to the Article consist of tax proceeds which
include tax revenues and certain other funds. Excluded from the Appropriation
Limits are prior (pre 1979) debt service and subsequent debt incurred as the
result of voter authorizations, court mandates, qualified capital outlay
projects and certain increases in gasoline taxes and motor vehicle weight fees.
Certain civil disturbance emergencies declared by the Governor and
appropriations approved by a two-thirds vote of the legislature are excluded
from the determination of excess appropriations, and the appropriations limit
may be overridden by local voter approval for up to a four-year period.
On November 8, 1988, California voters approved Proposition 98, a
combined initiative constitutional amendment and statute called "the Classroom
Instruction Improvement and Accountability Act". This amendment changed school
funding below the University level by guaranteeing K-14 schools a minimum share
of General Fund Revenues. Suspension of the
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Proposition 98 funding formula requires a two-thirds vote of Legislature and
the Governor's concurrence. Proposition 98 also contains provisions
transferring certain funds in excess of the Article III B limit to K-14
schools.
As amended by Proposition 111, the Appropriation Limit recalculated
annually by taking the actual Fiscal Year 1986-1987 limit and applying the
Proposition 111 cost of living and population adjustments as if that limit had
been in effect. The Appropriations Limit is tested over consecutive two-year
periods under this amendment. Any excess "proceeds of taxes" received over
such two-year period above the Appropriation Limits for the two-year period is
divided equally between transfers to K-14 and taxpayers.
Throughout the next few fiscal years, the State's financial
difficulties are expected to remain serious. As more operational and fiscal
responsibilities are shifted to local governments, there will be additional
pressure exerted upon local governments, especially counties and school
districts which rely upon State aid.
Certain debt obligations held by the Fund may be payable solely from
lease payments on real property leased to the State, counties, cities or
various public entities structured in such a way as to not constitute a debt to
the leasing entity. To ensure that a debt is not technically created,
California law requires that the lessor can proportionally reduce its lease
payments equal to its loss of beneficial use and occupancy. Moreover, the
lessor does not agree to pay lease payments beyond the current period; it only
agrees to include lease payments in its annual budget every year. In the event
of a default, the only remedy available against the lessor is that of reletting
the property or suing annually for the rents due; no acceleration of lease
payments is permitted.
The Fund also holds debt obligations payable solely from the revenues
of health care institutions. Certain provisions under California state law may
adversely affect these revenues and, consequently, payment of those debt
obligations.
The Federally sponsored Medicaid program for health care services to
eligible welfare recipients is known as the Medi-Cal program. In the past, the
Medi-Cal program has provided a cost-based system of reimbursement for
impatient care furnished to Medi- Cal beneficiaries by any eligible hospital.
The State now selectively contracts by county with California hospitals to
provide reimbursement for non-emergency inpatient services to Medi-Cal
beneficiaries, generally on a flat per-diem payment basis regardless of cost.
California law also permits private health plans and insurers to contract
selectively with hospitals for services to beneficiaries on negotiated terms,
generally at rates lower than standard charges.
Debt obligations payable solely from revenues of health care
institutions may also be insured by the state pursuant to an insurance program
operated by the Office of Statewide Health Planning and Development (the
"Office"). Most of such debt obligations are secured by a mortgage of real
property in favor of the Office and the holders. If a default occurs on such
insured debt obligations, the Office has the option of either continuing to
meet debt service obligations of foreclosing the mortgage and requesting the
State Treasurer to issue debentures payable from a reserve fund established
under the insurance fund or payable from appropriated state funds.
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Security for certain debt obligations held by the Fund may be in form
of a mortgage or deed of trust on real property. California has statutory
provisions which limit the remedies of a creditor secured by a mortgage or deed
of trust. Principally, the provisions establish conditions governing the
limits of a creditor's right to a deficiency judgment. In the case of a
default, the creditor's rights under the mortgage or deed of trust are subject
to constraints imposed by California real property law upon transfers of title
to real property by private power of sale. These laws require that the loan
must have been in arrears for at least seven months before foreclosure
proceedings can begin. Under California's anti-deficiency legislation, there
is no personal recourse against a mortgagor of single-family residence
regardless of whether the creditor chooses judicial or non-judicial
foreclosure. These disruptions could disrupt the stream of revenues available
to the issuer for paying debt service.
Under California law, mortgage loans secured by single-family
owner-occupied dwellings may be prepaid at any time. Prepayment changes on
such mortgage loans may be imposed only with respect to voluntary payments made
during the first five years of the mortgage loan, and cannot in any event
exceed six months advance interest on the amount prepaid in excess of 20% of
the original principal amount of the mortgage loan. This limitation could
affect the flow of revenues available to the issuer for debt service on these
outstanding debt obligations.
Substantially all of California is located within an active geologic
region subject to major seismic activity. Any California municipal obligation
in the Fund could be affected by an interruption of revenues because of damaged
facilities, or, consequently, income tax deductions for casualty losses or
property tax assessment reductions. Compensatory financial assistance could be
constrained by the inability of (1) an issuer to have obtained earthquake
insurance coverage at reasonable rates; (2) an issuer to perform on its
contract of insurance in the event of widespread losses; or (3) the Federal or
State government to appropriate sufficient funds within their respective budget
limitations.
The January 1994 major earthquake in greater Los Angeles (Northridge)
was estimated to have resulted in up to $20 billion in property damage.
Significant damage was incurred by public and private facilities in four
counties. Los Angeles, Ventura, Orange and San Bernadino Counties were
declared State and Federal disasters. The Federal government approved a total
of $9.5 billion in earthquake relief funds for assistance to homeowners and
small businesses, as well as repair of damaged public facilities.
As described in the summary above, the Fund's investments are
susceptible to possible adverse effects of the complex political, economic and
regulatory matters affecting California issuers. As stated in the Prospectus,
in the view of the Investment Adviser, it is impossible to determine the impact
of any legislation, voter initiatives or other similar measures which have been
or may be introduced to limit or increase the taxing or spending authority of
state and local governments or to predict such governments' abilities to pay
the interest on, or repay the principal of, its obligations.
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CERTAIN INVESTMENT PRACTICES
LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, the Fund may, from time to time, lend securities from its portfolios to
brokers, dealers and financial institutions such as banks and trust companies.
Such loans will be secured by collateral consisting of cash or U.S. Government
securities which will be maintained in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of the loan,
the Fund will receive the income on both the loaned securities and the
collateral and thereby increase its return. Cash collateral will be invested in
short-term high quality debt securities, which will increase the current income
of the Fund. The loans will be terminable by the Fund at any time and by the
borrower on one day's notice. The Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights such as rights to
interest or other distributions or voting rights on important issues. The Fund
may pay reasonable fees to persons unaffiliated with the Fund for services in
arranging such loans. Lending of portfolio securities involves a risk of failure
by the borrower to return the loaned securities, in which event the Fund may
incur a loss.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase
securities on a when-issued or forward commitment basis. "When-issued" refers to
securities whose terms are available and for which a market exists, but which
have not been issued. The Fund will engage in when-issued transactions with
respect to securities purchased for its portfolio in order to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
For when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. When the Fund engages in forward commitment and
when-issued transactions, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may result in
the Fund losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on
a when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, the Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
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 7 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 Investment Adviser will continuously
monitor the creditworthiness of the parties with whom the Fund enters into
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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 is permitted to engage in certain hedging techniques involving
options and futures transactions in order to reduce the effect of interest rate
movements affecting the market values of the investments held, or intended to be
purchased, by the Fund.
OPTIONS ON DEBT SECURITIES. The Fund may purchase and write put and
call options on debt securities which are traded on a national securities
exchange (an "Exchange") to protect its holdings in municipal bonds against a
substantial decline in market value. Securities are considered related if their
price movements generally correlate to one another. The purchase of put options
on debt securities which are related to securities held in its portfolio will
enable the Fund to protect, at least partially, unrealized gains in an
appreciated security in its portfolio without actually selling the security. In
addition, the Fund may continue to receive tax-exempt interest income on the
security. However, under certain circumstances the Fund may not be treated as
the tax owner of a security held subject to a put option, in which case interest
with respect to such security would not be tax-exempt for the Fund. The purchase
of call options on debt securities may help to protect against substantial
increases in prices of securities the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner.
The Fund may sell put and call options it has previously purchased,
which could result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transaction
costs paid in connection with the option which is sold.
In order to protect partially against declines in the value of its
portfolio securities, the Fund may sell (write) call options on debt securities.
A call option gives the purchaser of such option in return for a premium paid,
the right to buy, and the seller has the obligation to sell, the underlying
security at the exercise price if the option is exercised during the option
period. The writer of the call option who receives the premium has the
obligation to sell the underlying security to the purchaser at the exercise
price during the option period if assigned an exercise notice. The Fund will
write call options only on a covered basis, which means that it will own the
underlying security subject to a call option at all times during the option
period. The
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exercise price of a call option may be below, equal to or above the current
market value of the underlying security at the time the option is written.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier point in time when the writer effects a closing
purchase transaction.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, in conjunction with the sale of the underlying security or to
enable the Fund to write another call option on the underlying security with a
different exercise price or different expiration date or both.
The Fund will write cash secured put options in order to facilitate its
ability to purchase a security at a price lower than the current market price of
such security. The Fund will write put options only on a "cash secured" basis
which means that if the Fund writes a "put" it will segregate cash obligations
in the event the "put" is exercised. "Puts" will only be written in furtherance
of the basic investment objectives of the Fund relating to the acquisition of
tax exempt securities and will not be written with the primary intent of
generating income from premiums paid to the Fund in connection with the sale of
the "put".
The purchase and writing of put and call options involves certain
risks. During the option period, the covered call writer has, in return for the
premium on the option, given up the opportunity to profit from a price increase
in the underlying securities above the exercise price, but, as long as its
obligation as a writer continues, has retained the risk of loss in the event the
price of the underlying security declines. A secured put writer assumes the risk
that the underlying security will fall below the exercise price in which case
the writer could be required to purchase the security at a higher price than the
then current market price of the security. In either instance, the writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying securities, in the
case of a call, or acquire the contract securities, in the case of a put, at the
exercise price. If a put or call option purchased by the Fund is not sold when
it has remaining value, and if the market price of the underlying security
remains equal to or greater than the exercise price, in the case of a put, or
equal to or less than the exercise price, in the case of a call, the Fund will
lose its entire investment in the option. Also, where a put or a call option on
a particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security.
The Fund will not invest in a put or a call option if as a result the
amount of premiums paid for such options then outstanding, when added to the
premiums paid for financial and index futures and put and call options on such
futures, would exceed 10% of the Fund's total assets.
FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may engage in the
purchase and
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sale of interest rate futures contracts ("financial futures") and
tax-exempt bond index futures contracts ("index futures") and the purchase and
writing of put and call options thereon, as well as put and call options on
tax-exempt bond indexes (if and when they are traded) only as a hedge against
changes in the general level of interest rates in accordance with strategies
more specifically described below.
The purchase of a financial futures contract obligates the buyer to
accept and pay for the specific type of debt security called for in the contract
at a specified future time and at a specified price. The Fund would purchase a
financial futures contract when it is not fully invested in long-term debt
securities but wishes to defer its purchases for a time until it can invest in
such securities in an orderly manner or because short-term yields are higher
than long-term yields. Such purchases would enable the Fund to earn the income
on a short-term security while at the same time minimizing the effect of all or
part of an increase in the market price of the long-term debt security which the
Fund intends to purchase in the future. A rise in the price of the long-term
debt security prior to its purchase either would generally be offset by an
increase in the value of the futures contract purchased by the Fund or avoided
by taking delivery of the debt securities under the futures contract.
The sale of a financial futures contract obligates the seller to
deliver the specific type of debt security called for in the contract at a
specified future time and at a specified price. The Fund would sell a financial
futures contract in order to continue to receive the income from a long-term
debt security, while endeavoring to avoid part or all of the decline in market
value of that security which would accompany an increase in interest rates. If
interest rates did rise, a decline in the value of the debt security held by the
Fund would be substantially offset by an increase in the value of the futures
contract sold by the Fund. While the Fund could sell a long-term debt security
and invest in a short-term security, ordinarily the Fund would give up income on
its investment, since long-term rates normally exceed short-term rates.
In addition, the Fund may purchase and write put and call options on
financial futures contracts which are traded on an Exchange or a Board of Trade
and enter into closing transactions with respect to such options to terminate an
existing position. Options on financial futures contracts are similar to options
on securities except that a put option on a financial futures contract gives the
purchaser the right in return for the premium paid to assume a short position in
a financial futures contract and a call option on a financial futures contract
gives the purchaser the right in return for the premium paid to assume a long
position in a financial futures contract.
The Fund anticipates purchasing and selling tax-exempt bond index
futures as a hedge against changes in the market value of the tax exempt bonds
which it holds. A tax-exempt bond index fluctuates with changes in the market
values of the tax-exempt bonds included in the index. An index future has
similar characteristics to a financial future except that settlement is made
through delivery of cash rather than the underlying securities. The sale of an
index future obligates the seller to deliver at settlement an amount of cash
equal to a
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specified dollar amount multiplied by the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the future was originally written.
The Fund may also purchase and write put and call options on tax-exempt
bond indexes (if and when such options are traded) and enter into closing
transactions with respect to such options. An option on an index future is
similar to an option on a debt security except that an option on an index future
gives the holder the right to assume a position in an index future. The Fund
will use options on futures contracts and options on tax-exempt bond indexes (if
and when they are traded) in connectionwith hedging strategies. Generally, these
strategies would be employed under the same market conditions in which the Fund
would use put and call options on debt securities.
The Fund may hedge up to the full value of its portfolio through the
use of options and futures. At the time the Fund purchases a futures contract,
an amount of cash or U.S. Government securities at least equal to the market
value of the futures contract will be deposited in a segregated account with the
Fund's Custodian to collateralize the position and thereby insure that such
futures contract is unleveraged. The Fund may not purchase or sell futures
contracts or purchase or write related put or call options if immediately
thereafter the sum of the amount of margin deposits on the Fund's existing
futures and related options positions and the amount of premiums paid for
related options (measured at the time of investment) would exceed 5% of the
Fund's total assets.
While the Fund's hedging transactions may protect the Fund against
adverse movements in the general level of interest rates, such transactions
could also preclude the opportunity to benefit from favorable movements in the
level of interest rates. Due to the imperfect correlation between movements in
the prices of futures contracts and movements in the prices of the related
securities being hedged, the price of a futures contract may move more than or
less than the price of the securities being hedged. There is an increased
likelihood that this will occur when a tax-exempt security is hedged by a
futures contract on a taxable security. Options on futures contracts are
generally subject to the same risks applicable to all option transactions. In
addition, the Fund's ability to use this technique will depend in part on the
development and maintenance of a liquid secondary market for such options. For a
discussion of the inherent risks involved with futures contracts and options
thereon, see "Risks Relating to Transactions in Futures Contracts and Related
Options" below.
The Fund's policies permitting the purchase and sale of futures
contracts and the purchase and writing of related put or call options for
hedging purposes only may not be changed without the approval of shareholders
holding a majority of the Fund's outstanding voting securities. The Trustees may
authorize procedures, including numerical limitations, with regard to such
transactions in furtherance of the Fund investment objectives. Such procedures
are not deemed to be fundamental and may be changed by the Trustees without the
vote of the Fund's shareholders.
RISKS RELATING TO TRANSACTIONS IN FUTURES CONTRACTS AND RELATED
OPTIONS. Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a market for such futures. Although the Fund
intends to purchase or sell futures contracts only on exchanges or boards of
trade where there appears to be an active market, there is no
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assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. In the event a liquid market
does not exist, it may not be possible to close a futures position, and in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of maintenance margin. In addition, limitations imposed by
an exchange or board of trade on which futures contracts are traded may compel
or prevent the Fund from closing out a contract which may result in reduced gain
or increased loss to the Fund. The absence of a liquid market in futures
contracts might cause the Fund to make or take delivery of the underlying
securities at a time when it may be disadvantageous to do so. The purchase of
put options on futures contracts involves less potential dollar risk to the Fund
than an investment of equal amount in futures contracts, since the premium is
the maximum amount of risk the purchaser of the option assumes. The entire
amount of the premium paid for an option can be lost by the purchaser, but no
more than that amount.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions upon
its investments set forth below which may not be changed without the approval by
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. Under
these restrictions, the 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.
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 or as may be necessary in connection with maintaining
collateral in connection with writing put and call options or
making initial margin deposits in connection with the purchase
or sale of financial futures, index futures contracts and
related options.
3. With respect to 75% of its total assets, purchase securities
(other than obligations issued or guaranteed by the United
States government, its agencies or instrumentalities and shares
of other investment companies) of any issuer if the purchase
would cause immediately thereafter more than 5% of the value of
the Fund's total assets invested in the securities of such
issuer or the Fund
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would own more than 10% of the outstanding voting securities of
such issuer.
4. Make loans to others, except through the purchase of
obligations in which the Fund is authorized to invest, entering
in repurchase agreements and lending portfolio securities in an
amount not exceeding one third of its total assets.
5. Purchase securities subject to restrictions on disposition
under the Securities Act of 1933 or securities which are not
readily marketable if such purchase would cause the Fund to
have more than 10% of its net assets invested in such types of
securities.
6. Purchase or retain the securities of any issuer, if those
officers and Trustees of the Fund or the Investment Adviser who
own beneficially more than of 1% of the securities of such
issuer, together own more than 5% of the securities of such
issuer.
7. 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.
8. 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.
9. Invest more than 25% of its assets in the securities of
"issuers" in any single industry; provided that there shall be
no limitation on the purchase of obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities or by any state or political subdivision
thereof. For purposes of this limitation 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 nongovernmental 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
unless all securities issued or guaranteed by the government or
other entity owned by the Fund does not exceed 10% of
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the Fund's total assets.
10. 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. This limitation shall not prevent the Fund
from investing in municipal securities secured by real estate
or interests in real estate or holding real estate acquired as
a result of owning such municipal securities.
11. Invest in common stock or in securities of other investment
companies, except that securities of investment companies may
be acquired as part of a merger, consolidation or acquisition
of assets and units of registered unit investment trusts whose
assets consist substantially of tax-exempt securities may be
acquired to the extent permitted by Section 12 of the Act or
applicable rules.
12. Invest more than 5% of the value of its total assets in
securities of issuers having a record, including predecessors,
of fewer than three years of continuous operation, except
obligations issued or guaranteed by the United State
Government, its agencies or instrumentalities, unless the
securities are rated by a nationally recognized rating service.
13. Issue any senior securities, except insofar as the Fund may be
deemed to have issued a senior security by: entering into a
repurchase agreement; purchasing securities in a when-issued or
delayed delivery basis; purchasing or selling any options or
financial futures contract; borrowing money or lending
securities in accordance with applicable investment
restrictions.
In order to comply with certain state regulatory policies, the Fund has
adopted a non-fundamental policy prohibiting the purchase of warrants. The
Fund's Trustees have approved the following non-fundamental 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.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees who elect officers
who are
17
<PAGE> 55
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund are
also officers and directors of John Hancock Adviser's Inc, (the "Investment
Adviser") or officers and directors of the Fund's distributor, John Hancock
Funds, Inc. (the "Distributor").
Set forth below is information with respect to each of the Fund's
officers and Trustees. The officers and Trustees may be contacted at 101
Huntington Avenue, Boston, MA 02199-7603. Their affiliations represent their
principal occupations during the past five years.
EDWARD J. BOUDREAU, JR.,* Trustee, Chairman and Chief Executive Officer.
Chairman and Chief Executive Officer, the Investment Adviser and The
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
Investment 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 Investment
Adviser (until July 1992); Trustee or Director of other investment
companies managed by the Investment Adviser; and Chairman, John Hancock
Distributors, Inc. (until April, 1994).
JAMES F. CARLIN, Trustee. Chairman and CEO, Carlin Consolidated, Inc.
(insurance); 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 Investment Adviser.
WILLIAM H. CUNNINGHAM, Trustee. Chancellor, University of Texas System and
former President of the University of Texas, Austin, Texas; Regents
Chair in Higher Education Leadership; James L. Bayless Chair for Free
Enterprise; 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 Director LBJ Foundation Board (education
foundation); and Advisory Director, Texas Commerce Bank - Austin.
CHARLES L. LADNER, Trustee. Director, Energy North, Inc. (public utility
holding company); Senior Vice President, Finance UGI Corp (public
utility holding company) (until 1992); and Trustee or Director of other
investment companies managed by the Investment Adviser.
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act").
18
<PAGE> 56
LEO E. LINBECK, JR., Trustee. Chairman, President, Chief Executive Officer and
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
International, Inc. (a geophysical consulting firm); and Director,
Greater Houston Partnership.
PATRICIA P. MCCARTER, Trustee. Director and Secretary, the McCarter Corp.
(machine manufacturer); and Trustee or Director of other investment
companies managed by the Investment Adviser.
STEVEN R. PRUCHANSKY, Trustee. Director and Treasurer, Mast Holdings, Inc.;
Director, 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 Investment Adviser.
NORMAN H. SMITH, Trustee. Lieutenant General, USMC, Deputy Chief of Staff for
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 Investment Adviser.
JOHN P. TOOLAN, Trustee. Director, The Smith Barney Muni Bond Funds, The Smith
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 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 Investment Adviser.
ROBERT G. FREEDMAN,* Vice Chairman and Chief Investment Officer. Vice President
and Chief Investment Officer, the Investment Adviser; President, the
Investment Adviser (until December 1994).
ANNE C. HODSDON,* President. President and Chief Operations Officer, the
Investment Adviser; Executive Vice President, the Investment Adviser
(until December 1994).
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act").
19
<PAGE> 57
JAMES B. LITTLE,* Senior Vice President and Chief Financial Officer. Senior
Vice President, the Investment Adviser.
THOMAS H. DROHAN,* Senior Vice President and Secretary. Senior Vice President
and Secretary, the Investment Adviser.
MICHAEL P. DICARLO,* Senior Vice President. Senior Vice President, the
Investment Adviser.
EDGAR LARSEN,* Senior Vice President. Formerly Senior Portfolio Manager,
Transamerica Fund Management Company.
B.J. WILLINGHAM,* Senior Vice President. Senior Vice President, the Investment
Adviser. Formerly, Director and Chief Investment Officer of
Transamerica Fund Management Company.
JAMES J. STOKOWSKI,* Vice President and Treasurer. Vice President, the
Investment Adviser.
SUSAN S. NEWTON,* Vice President and Compliance Officer. Vice President and
Assistant Secretary, the Investment Adviser.
JOHN A. MORIN,* Vice President. Vice President, the Investment Adviser.
THOMAS J. PRESS,* Vice President and Assistant Secretary. Vice President, the
Investment Adviser. Formerly, General Counsel and Secretary,
Transamerica Management Company; Secretary and Treasurer, Transamerica
Asset Management Group, Inc.; and Secretary, Transamerica Fund
Distributors, Inc.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which the
Investment Adviser serves as investment adviser.
As of April 6, 1995, there were 33,684,734 shares of the Fund
outstanding and officers and trustees of the Fund as a group beneficially owned
less than 1% of these outstanding shares. As of April 6, 1995, Merrill Lynch
Pierce Fenner & Smith, 4800 Deerlake Dr. East, Jacksonville, FL held 2,775,039
shares representing 8.24% of the Fund's outstanding Class A and Class B Shares
(such ownership is as nominee only and does not represent beneficial ownership).
At such date, no other person owned of record or was known by the Fund to own
beneficially as much as 5% of the outstanding shares of the Fund.
As of December 22, 1994, the Trustees 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 Investment Adviser). The members of the Advisory
Board are distinct from the Board of
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act").
20
<PAGE> 58
Trustees, 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 TRUSTEES AND ADVISORY BOARD. Each Independent
Trustee receives an annual retainer of $44,000, a meeting fee of $4,000 for each
of the four regularly scheduled meetings held during the year and a fee of $25
per day or actual travel expenses, whichever is greater. This compensation is
apportioned among the John Hancock funds, including the Fund, on which such
Trustees serve based on the net asset value of such funds. The following table
provides information regarding the compensation paid by the Fund and the other
investment companies in the John Hancock Fund Complex to the Independent
Trustees and the Advisory Board members for their services. Mr. Boudreau, a
non-Independent Trustee, and each of the officers of the Funds are interested
persons of the Investment Adviser, are compensated by the Investment Adviser and
received no compensation from the Funds for their services.
21
<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
Trustees from the Fund Fund's Expenses Trustees**
- -------- ------------- ---------------------------------------------
<S> <C> <C> <C>
James F. Carlin $ 0 $0 $ 60,450
William H. Cunningham $ 4,000* $0 $ 0
Charles L. Ladner $ 0 $0 $ 60,450
Leo E. Linbeck, Jr. $ 5,400 * $0 $ 0
Patricia P. McCarter $ 0 $0 $ 60,200
Steven R. Pruchansky $ 0 $0 $ 62,450
Norman H. Smith $ 0 $0 $ 62,450
John P. Toolan $ 0 $0 $ 60,450
</TABLE>
* Compensation made pursuant to different compensation arrangements
then in effect.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is $366,450 as of the calendar year ended
December 31, 1994. All Trustees/Directors except Messrs. Cunningham
and Linbeck are Trustees/Directors of 39 funds in the John Hancock
Fund Complex. Messrs. Cunningham and Linbeck are Trustees of 21
funds. (The Fund was not part of the John Hancock Fund Complex
until December 22, 1994 and Messrs. Cunningham and Linbeck were not
trustees or directors of any funds in the John Hancock Fund Complex
prior to December 22, 1994.)
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from Certain Funds
Aggregate Benefits Accrued in 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 $ 3,176 $0 $ 54,000
Mrs. Lloyd Bentsen $ 3,176 $0 $ 54,000
Thomas R. Powers $ 3,176 $0 $ 54,000
Thomas B. McDade $ 3,176 $0 $ 54,000
TOTAL $112,704 $0 $ 216,000
</TABLE>
*** Estimated for the Fund's current fiscal year ending December 31, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Fund receives its investment
advice from the Investment Adviser. Investors should refer to the Prospectus
for a description of certain information concerning the investment management
contract. Each of the Trustees and principal officers of the Fund who is also
an affiliated person of the Investment Adviser is named above, together with
the capacity in which such person is affiliated with the Fund and the
Investment Adviser.
22
<PAGE> 60
The Investment Adviser, located at 101 Huntington Avenue, Boston,
Massachusetts 02199-7603, was organized in 1968 and 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 1,000,000 shareholders.
The Investment 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 nation's oldest and largest
financial services companies. 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.
The Fund has entered into an investment management contract with the
Investment Adviser. Under the investment management contract, the Investment
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. See "Organization and Management of the Fund"
and "The Fund's Expenses" in the Prospectus for a description of certain
information concerning the Fund's investment management contract.
No person other than the Investment 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
Investment Adviser may from time to time receive statistical or other similar
factual information, and information regarding general economic factors and
trends, from the Life Company and its affiliates.
Under the terms of the investment management contract with the Fund,
the Investment Adviser provides the Fund with office space, equipment and
supplies and other facilities and personnel required for the business of the
Fund. The Investment Adviser pays the compensation of all officers and
employees of the Fund and Trustees of the Fund affiliated with the Investment
Adviser, the office expenses of the Fund, including those of the Fund's
Treasurer and Secretary, and other expenses incurred by the Investment Adviser
in connection with the performance of its duties. All expenses which are not
specifically paid by the Investment Adviser and which are incurred in the
operation of the Fund including, but not limited to, (i) the fees of the
Trustees of the Fund who are not "interested persons," as such term is defined
in the 1940 Act (the "Independent Trustees"), (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.
23
<PAGE> 61
As provided by the investment management contract, the Fund pays the
Investment Adviser an investment management fee, which is accrued daily and
paid monthly in arrears, equal on an annual basis to a 0.55% of the Fund's
average daily net asset value. See "Organization and Management of the Fund"
in the Prospectus.
The Investment Adviser may voluntarily and temporarily reduce its
advisory fee or make other arrangements to limit the Fund's expenses to a
specified percentage of average daily net assets. The Investment 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 Investment Adviser will be reduced to the extent required by
law. At this time, the most restrictive limit on expenses imposed by a state
requires that expenses charged to the Fund in any fiscal year not exceed 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. When
calculating the limit above, the Fund may exclude interest, brokerage
commissions and extraordinary expenses.
Pursuant to the investment management contract, the Investment Adviser
is not liable to the Fund or its shareholders for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which its contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment
Adviser in the performance of its duties or from its reckless disregard of the
obligations and duties under the 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 Trustees of the Fund who are not
interested persons of one of the parties to the contract, cast in person at a
meeting called for the purpose of voting on such approval, and by either a
majority of the Trustees 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 by the Fund by vote
of a majority of the outstanding voting securities of the Fund, by the Trustees
or by the Investment 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 Investment 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 Investment Adviser or for other funds or clients
for which the Investment Adviser renders investment advice
24
<PAGE> 62
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 Investment 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 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 Investment Adviser. In addition, the Investment Adviser or
the Life Company may grant the non-exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
For the fiscal years ended December 31, 1992, 1993 and 1994 advisory
fees payable by the Fund to TFMC, the Fund's former investment adviser, amounted
to $1,120,887, $1,633,853 and $1,919,101, respectively; however, a portion of
such fees were not imposed pursuant to the voluntary fee and expense limitation
arrangements then in effect (see "The Fund's Expenses" in the Prospectus). For
the period from December 22, 1994 to December 31, 1994, advisory fees payable by
the Fund were paid to the Investment Adviser.
ADMINISTRATIVE SERVICES AGREEMENT. The 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 Fund. 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 were provided as necessary to provide
administrative services to the Fund. The Services Agreement was amended in
connection with the appointment of the Investment Adviser as adviser to the Fund
to permit services under the Agreement to be provided to the Fund by the
Investment Adviser and its affiliates. The Services Agreement was terminated
during the current fiscal year.
For the fiscal years ended December 31, 1992, 1993 and 1994, the Fund
paid to TFMC (pursuant to the Services Agreement) $91,596, $128,984 and
$158,594, respectively, of which $51,731, $83,291 and $109,540, respectively,
was paid to TFMC and $39,865, $45,693 and $49,054, respectively, were paid for
certain data processing and pricing information services.
25
<PAGE> 63
PURCHASE OF SHARES
Shares of the 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"). Share
certificates will not be issued unless requested by the shareholder in writing,
and then only will be issued for full shares. The Board of Trustees reserves
the right to change or waive the minimum investment requirements and to reject
any order to purchase shares (including purchase by exchange) when in the
judgment of the Investment Adviser such rejection is in the Fund's best
interest.
INITIAL SALES CHARGE ON CLASS A SHARES. The sales charges applicable
to purchases of Class A Shares of the Fund are described in the Fund's Class A
and Class B Prospectus. Methods of obtaining reduced sales charges referred to
generally in the Prospectus 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 Class A and Class B
Prospectus, Class A Shares of the Fund may be sold without a sales charge to
certain persons described in the Prospectus.
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 Class A and Class B Prospectus) also are available to
an investor based on the aggregate amount of his concurrent and prior
investments in Class A Shares of the 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.
Thy Fund offers two options regarding the specified period for making
investments under the LOI. All investors have
26
<PAGE> 64
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 $50,000 or
more invested during the specified period from the date of the LOI or from a
date within ninety (90) days prior thereto, upon written request to Investor
Services. 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.
DISTRIBUTION CONTRACT
As discussed in the Prospectus, the Fund's shares are sold on a
continuous basis at the public offering price. The Distributor, a wholly-owned
subsidiary of the Investment 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. Upon notice to all broker-dealers
("Selling Brokers") with whom it has sales agreements, the Distributor 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 Contract was initially adopted by the affirmative
vote of the Fund's Board of Trustees including the vote a majority of Trustees
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 Contract
shall continue in effect until December 22, 1994 and from year to year if
approved by either the vote of the Fund's shareholders or the Board of Trustees
including the vote of a majority of Trustees 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 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 the Distributor.
Total underwriting commissions for sales of the Fund's Class A Shares
for the fiscal years ended December 31, 1992, 1993 and 1994 were $2,854,274,
$2,391,072 and $1,805,845, respectively. Of such amounts $220,605, $233,560
and $126,490, respectively, were retained by the Fund's former distributor,
Transamerica Fund Distributors, Inc. and the remainder was reallowed to
dealers. For the period from December 22, 1994 to December 31, 1994,
underwriting commissions were paid to the Distributor.
27
<PAGE> 65
DISTRIBUTION PLAN. The Trustees, including the Independent Trustees
of the Fund, approved new distribution plans pursuant to Rule 12b-1 under the
1940 Act for Class A Shares ("Class A Plan") and Class B Shares ("Class B
Plan"). Such Plans were approved by a majority of the outstanding shares of
each respective class on December 16, 1994 and became effective on December 22,
1994.
Under the Class A Plan, the distribution or service fees will not
exceed an annual rate of 0.15% of the average daily net asset value of the Class
A Shares of the Fund (determined in accordance with such Fund's Prospectus as
from time to time in effect). 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 the Class B Plan, the
distribution or service fees to be paid by the Fund will not exceed an annual
rate of 1.00% of the average daily net assets of the Class B Shares of the Fund
(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. The Distributor has agreed
to limit the payment of expenses pursuant to the Class B Plan to 0.90% of the
average daily net assets of the Class B Shares of the Fund. Under the Class B
Plan, the fee covers the Distribution and Service Expenses (described below) and
interest expenses on unreimbursed distribution expenses. In accordance with
generally accepted accounting principles, the Fund does not treat distribution
fees in excess of 0.75% of the Fund's net assets 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 in the future.
Under the Plans, expenditures shall be calculated and accrued daily
and paid monthly or at such other intervals as the Trustees shall determine. The
fee may be spent by the Distributor 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 the Distributor 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 the Distributor 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; and (vi)
in the event that any other investment company (the "Acquired Fund") sells all
or substantially all of its assets, merges 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 the Distributor) and others who furnish
personal and shareholder account maintenance services to shareholders of the
relevant class of the Fund.
During the fiscal year ended December 31, 1994, total payments made by
the
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Fund under the former Class A Rule 12b-1 plan to the former distributor
amounted to $405,172, which represented payments for service fees. During the
period from December 22, 1994 to December 31, 1994, payment under the Class A
Plan was made to the Distributor.
During the fiscal year ended December 31, 1994, total payments made by
the Fund under the former Class B Rule 12b-1 plan to the former distributor
amounted to $709,198 of which:
** (1) $118,200 represented service fees which were comprised of
$93,054 for distribution and/or administrative services
provided by the Fund's former distributor and $25,146 for
service fees paid to broker/dealers.
(2) $590,998 represented as the total of distribution fees paid to
the former distributor which are comprised of:
a) $249,768 for dealer commission payments;
b) $62,442 for underwriting fees; and
c) $278,788 for interest or the carrying charges.
For the fiscal year ended December 31, 1994, the former distributor
received $302,402 in contingent deferred sales charges from redemption of the
Fund's Class B shares. For the period from December 22, 1994 to December 31,
1994, the Distributor received fees under the Class B Plan and contingent
deferred sales charges from redemptions of Class B shares.
Each of the Plans provides that it will continue in effect only as
long as its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans provides that it may
be terminated (a) at any time by vote of a majority of the Trustees, a majority
of the Independent Trustees, or a majority of the respective Class' outstanding
voting securities or (b) by the Distributor on 60 days' notice in writing to
the Fund. 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 Trustees and the
Independent Trustees of the Fund. 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. The Board of Trustees, including the
Trustees who are not interested in the Fund and have no direct or indirect
interest in the Plans, has determined that, in their judgment, there is a
reasonable likelihood that the Plans will benefit the holders of the applicable
class of shares of the Fund.
Information regarding the services rendered under the Plans and the
Distribution Agreement and the amounts paid therefore by the respective Class
of the Fund are provided to, and reviewed by, the Board of Trustees on a
quarterly basis. In its quarterly
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review, the Board of Trustees considers the continued appropriateness of the
Plans and the Distribution Agreement and the level of compensation provided
therein.
REDEMPTION AND REPURCHASE OF SHARES
CONTINGENT DEFERRED SALES CHARGE. 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. Class B
Shares which are redeemed within six years of purchase will be subject to a
contingent deferred sales charge ("CDSC") at the rates set forth in the Class A
and Class B Prospectus 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. Certain redemptions
of Class A Shares may be subject to a CDSC, as described in the Prospectus.
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.
Proceeds from the CDSC are paid to the Distributor and are used in
whole or in part by the Distributor 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
Class A and Class B Prospectus for additional information regarding the CDSC.
SPECIAL REDEMPTIONS. Although it is the Fund's present policy to make
payment of redemption proceeds in cash, if the Board of Trustees determines
that a material adverse effect would otherwise be experienced by remaining
investors, redemption proceeds may be paid in whole or in part by a
distribution in kind of securities from the Fund in conformity with rules of
the Securities and Exchange Commission, valuing such securities in the same
manner they are valued in determining NAV, and selecting the securities in such
manner as the Board may deem fair and equitable. If such a distribution
occurs, investors receiving securities and selling them before their maturity
could receive less than the redemption value of such securities and, in
addition, could incur certain transaction costs. Such a redemption is not as
liquid as a redemption paid in cash or federal funds. 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.
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ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectus, the
Fund permits exchanges of shares of any class of the Fund for shares of the
same class in any other John Hancock fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Class A and
Class B Prospectus, the Fund permits 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 or
Class B Shares of the 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. The 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 Fund Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is
explained fully in the Fund's Class A and Class B Prospectus and the Account
Privileges Application. The program, as it relates to automatic investment
checks, is subject to the following conditions;
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice
if any investment is not honored by the shareholder's bank. The bank shall be
under no obligation to notify the shareholder as to the non-payment of any
check.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares
may, within 120 days after the date of redemption, reinvest without payment of
a sales charge any part of the redemption proceeds in shares of the same class
of the Fund or another John Hancock mutual fund, subject to the minimum
investment limit in that fund. The proceeds from the redemption of Class A
Shares may be reinvested at net asset value without paying a sales charge in
Class A Shares of the Fund or in Class A Shares of
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<PAGE> 69
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 "Dividends, Distributions and Tax Status."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's
shares, 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.
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 Trustees. 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.
TAX STATUS
The Fund has qualified and elected to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to continue to so qualify in the future. As
such and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, the Fund will not be subject to Federal income tax on taxable
income (including net short-term and long-term capital gains from the
disposition of portfolio securities or the right to when-issued securities
prior to issuance, or from the lapse, exercise, delivery under or closing out
of options or futures contracts, income from repurchase agreements and other
taxable securities, income attributable to accrued market discount, income from
securities lending, and a portion of the discount from certain stripped
tax-exempt obligations or their coupons) which is distributed to shareholders
at least annually in accordance with the timing requirements of the Code.
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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 from the Fund's current or accumulated earnings and
profits ("E&P"), as computed for Federal income tax purposes, will be taxable
as described in the Fund's Prospectus whether taken in shares or in cash.
Amounts that are not allowable as a deduction in computing taxable income,
including expenses associated with earning tax-exempt interest income, do not
reduce current E&P for this purpose. 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.
The Fund's distributions of tax-exempt interest ("exempt-interest
dividends") timely designated as such will be treated as tax-exempt interest
under the Code, provided that the 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 the 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. The 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 the Fund may invest is treated as an item of
tax preference for purposes of the Federal alternative minimum tax. To the
extent that the 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 the 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 the Fund.
The amount of the Fund's net short-term and long-term 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 the 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
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or, less frequently, 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 the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such 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 the
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 will be disallowed to the extent the
shares disposed of are replaced with other shares of the 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
to the extent of all exempt-interest dividends paid with respect to such shares
and, if not thus disallowed, will 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 short-term and
long-term capital gains, if any, the Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain," which is 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 Fund will not in any event
distribute net 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
the 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 the
Fund, and (c) be entitled to increase the adjusted tax basis for his shares in
the Fund by the difference between his pro rata share of such excess and his
pro rata share of such taxes.
For Federal income tax purposes, the Fund is generally permitted to
carry forward a net capital loss in any year to offset its net capital gains,
if any, during the eight years following the year of the loss. To the extent
subsequent capital gains are offset by such losses, they would not result in
Federal income tax liability to the Fund and, as noted
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above, would not be distributed as such to shareholders. The Fund has $268,000
of capital loss carry forwards, which expire in 2002, available to offset
future capital gains.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Fund will not be deductible for Federal income tax purposes
to the extent it is deemed related to exempt-interest dividends paid by the
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 the Fund even though the borrowed funds may not be directly traceable
to the purchase of shares.
Dividends paid by the Fund to its corporate shareholders will not
qualify for the corporate dividends received deduction in their hands.
If the Fund invests in zero coupon securities or, in general, any
other securities with original issue discount (or with market discount if the
Fund elects to include accrued market discount in income currently), the Fund
must accrue income on such investments prior to the receipt of the
corresponding cash payments. However, the 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, the 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.
Limitations imposed by the Code on regulated investment companies like
the Fund may restrict the Fund's ability to enter into futures and options
transactions.
Certain options and futures transactions undertaken by the Fund may
cause the 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 and timing of some capital gains and losses realized by
the Fund. Also, certain of the Fund's losses on its transactions involving
options or futures contracts and/or offsetting portfolio positions may be
deferred rather than being taken into account currently in calculating the
Fund's gains. These transactions may therefore affect the amount, timing and
character of the 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 Fund will
take into account the special tax rules (including consideration of available
elections) applicable to options and futures contracts in order to minimize any
potential adverse tax consequences.
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
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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 a U.S. trade or business with which
their investment in the 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 the 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 Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company
under the Code, it will also not be required to pay any Massachusetts income
tax.
The following discussion assumes that the Fund will be qualified as a
regulated investment company under subchapter M of the Code and will be
qualified thereunder to pay exempt interest dividends.
Individual shareholders of the Fund who are subject to California
personal income taxation will not be required to include in their California
gross income that portion of their federal exempt-interest dividends which the
Fund clearly and accurately identifies as directly attributable to interest
earned on obligations the interest on which is exempt from California personal
income taxation, provided that at least 50 percent of the value of the Fund's
total assets consists of such obligations. Distributions to individual
shareholders derived from interest on Tax-Exempt Securities issued by
governmental authorities in states other than California and short-term capital
gains will be taxed as dividends for purposes of California personal income
taxation. The Fund's long-term capital gains for Federal income tax purposes
that are distributed to the shareholders will be taxed as long- term capital
gains to individual shareholders of the Fund for purposes of California
personal income taxation. Gain or loss, if any, resulting from a sale or
redemption of shares will be recognized in the year of the sale or redemption.
Present California law taxes both long-term and short-term capital gains at the
rates applicable to ordinary income. Interest on indebtedness incurred or
continued by a shareholder in connection with the purchase of shares of the
Fund will not be deductible for California personal income tax purposes.
Generally, corporate shareholders of the Fund subject to the
California franchise tax will be required to include any gain on a sale or
redemption of shares and all distributions of exempt interest, capital gains
and other taxable income, if any, as income subject to such tax.
The Fund will not be subject to California franchise or corporate
income tax on interest income or net capital gain distributed to the
shareholders.
Shares of the Fund will be exempt from local property taxes in
California.
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Shares of the Fund will not be excludable from the taxable estates of
deceased California resident shareholders for purposes of the California estate
and generation skipping taxes. California estate and generation skipping taxes
are creditable against the corresponding Federal taxes.
The foregoing is a general, abbreviated summary of certain of the
provisions of California law presently in effect as it directly governs the
taxation of the shareholders of the Fund. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to the Fund's transactions. Shareholders are advised
to consult with their own tax advisers for more detailed information concerning
California tax matters.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and
the allocation of brokerage commissions are made by the Investment Adviser and
officers of the Fund pursuant to recommendations made by an investment
committee of the Investment Adviser, which consists of officers and directors
of the Investment Adviser and affiliates and officers and Trustees who are
interested persons of the Fund. Orders for purchases and sales of securities
are placed in a manner which, in the opinion of the officers of the Fund, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
makers reflect a "spread." 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 Trustees may determine, the Investment 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
Investment 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 Investment
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Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Investment Adviser. The research information
and statistical assistance furnished by brokers and dealers may benefit the
Life Company or other advisory clients of the Investment Adviser, and
conversely, brokerage commissions and spreads paid by other advisory clients of
the Investment 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
Trustees. For the fiscal years ended December 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 Trustees that the
price is reasonable in light of the services provided and to policies that the
Trustees may adopt from time to time. During the fiscal year ended December
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 Investment 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 December 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 Trustees pursuant to the 1940
Act. Commissions paid to an Affiliated Broker must be at least as favorable as
those which the Trustees believe to be contemporaneously charged by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold. A transaction would not be placed with an Affiliated
Broker if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers, except for accounts for which
the Affiliated Broker acts as a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Trustees who are not interested persons (as defined in the
1940 Act) of the Fund, the Investment Adviser or the Affiliated Brokers.
Because the Investment 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
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effect principal transactions with Affiliated Brokers.
The Fund's portfolio turnover rates for the fiscal years ended
December 31, 1993 and 1994 were 51% and 62%, respectively.
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 of $19 per account for the Class A Shares
and $22.50 per account for the Class B Shares, plus out-of-pocket expenses.
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.
CUSTODY OF PORTFOLIO
Investor Bank and Trust ("IBT") 24 Federal Street, Boston,
Massachusetts, serves as custodian of the cash and investment securities of the
Fund. IBT is also responsible for, among other things, receipt and delivery of
the Fund's investment securities in accordance with procedures and conditions
specified in the custody agreement.
ADDITIONAL INFORMATION
ORGANIZATION. The Fund is organized as a Massachusetts business trust
under the laws of the Commonwealth of Massachusetts pursuant to a Declaration
of Trust dated October 17, 1989.
SHARES OF THE FUND. Ownership of the Fund is represented by
transferable shares of beneficial interest. The Declaration of Trust permits
the Trustees to create an unlimited number of series and classes of shares of
the Fund and, with respect to each series and class, to issue an unlimited
number of full or fractional shares and to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests of the Fund.
39
<PAGE> 77
Each share of each series or class of the Fund represents an equal
proportionate interest with each other 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 Fund is separate
and distinct. All consideration received for the sales of shares of a
particular series or class of the Fund, 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 such
share is entitled to dividends and distributions out of the net income
belonging to that series or class as declared by the Trustees. Shares of the
Fund have a par value of $0.01 per share. The assets of each series are
segregated on the Fund's books and are charged with the liabilities of that
series and with a share of the Fund's general liabilities. The Trustees
determine those assets and liabilities deemed to be general assets or
liabilities of the Fund, 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, all or a portion of such liabilities may have to be borne by the other
series.
Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios) and additional classes
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). As of the date of this
Statement of Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund designated as Class A and Class B. Class
A and Class B Shares of the Fund represent an equal proportionate interest in
the aggregate net asset values attributable to that class of the Fund. Holders
of Class A Shares and Class B Shares each have certain exclusive voting rights
on matters relating to the Class A Plan and the Class B Plan, respectively.
The different classes of the Fund may bear different expenses relating to the
cost of holding shareholder meetings necessitated by the exclusive voting
rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except for differences caused by the fact
that (i) Class B Shares will pay higher distribution and service fees than
Class A Shares and (ii) each of Class A Shares and Class B Shares will bear any
class expenses properly allocable to such class of shares, subject to the
conditions set forth in a private letter ruling that the Fund has received from
the Internal Revenue Service relating to its multiple-class structure.
Similarly, the net asset value per share may vary depending whether Class A
Shares or Class B Shares are purchased.
VOTING RIGHTS. Shareholders are entitled to a full vote for each full
share held. The Trustees themselves have the power to alter the number and the
terms of office of Trustees, and they may at any time lengthen their own terms
or make their terms of unlimited duration (subject to certain removal
procedures) and appoint their own successors, provided that at all times at
least a majority of the Trustees have been elected by shareholders. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to
40
<PAGE> 78
elect any Trustees. Although the Fund need not hold annual meetings of
shareholders, the trustees may call special meetings of shareholders for action
by shareholder vote as may be required by the 1940 Act or the Declaration of
Trust. Also, a shareholder's meeting must be called if so requested in writing
by the holders of record of 10% or more of the outstanding shares of the Fund.
In addition, the Trustees may be removed by the action of the holders of record
of two-thirds or more of the outstanding shares.
SHAREHOLDER LIABILITY. The Declaration of Trust provides that no
Trustee, officer, employee or agent of the Fund is liable to the Fund or to a
shareholder, nor is any Trustee, officer, employee or agent liable to any third
persons in connection with the affairs of the Fund, except as such liability
may arise from his or its own bad faith, willful misfeasance, gross negligence
or reckless disregard of his duties. It also provides that all third persons
shall look solely to the Fund's property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Fund.
As a Massachusetts business trust, the Fund is not required to issue
share certificates. The Fund shall continue without limitation of time subject
to the provisions in the Declaration of Trust concerning termination by action
of the shareholders.
REPORTS TO SHAREHOLDERS. Shareholders of the Fund will receive annual
and semi-annual reports showing diversification of investments, securities
owned and other information regarding the Fund's activities. The financial
statements of the Fund are audited at least once a year by the Fund's
independent auditors.
REGISTRATION STATEMENT. This Statement of Additional Information and
the Prospectus do not contain all of the information set forth in the Fund's
Registration Statement filed with the Securities and Exchange Commission. The
complete Registration Statement may be obtained from the Securities and
Exchange Commission upon payment of the fee prescribed by the rules and
regulations of the Commission.
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 1994, the annualized yields
of the Fund's Class A Shares and Class B Shares were 6.16% and 5.70%,
respectively (6.01% and 5.55%, respectively, without taking into account the
expense limitation arrangements). As of December 31, 1994 the average annual
total returns of the Class A Shares of the Fund for the one year period and
since inception on December 29, 1989 were -13.61% and 4.99%, respectively As
of December 31, 1994, the average annual returns for the Fund's Class B Shares
for the one year period and since inception December 31, 1991 were -14.99% and
2.27%. Without taking into account the expense limitation arrangements, the
foregoing total return performance would have been lower.
The Fund's 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
41
<PAGE> 79
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).
The Fund may advertise a tax-equivalent yield, which is computed by
dividing that portion of the yield of the 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
Fund's Class A and Class B Shares at the maximum federal and California tax
rate (42.4%) for the 30-day period ended December 31, 1994 were 10.69% and
9.90%, respectively.
The 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
Where:
P= a hypothetical initial investment 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 the Fund during
the period stated by the maximum offering price or net asset value at the end
of the period.
In addition to average annual total returns, the 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
42
<PAGE> 80
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. Excluding the 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, the 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. The Fund may also cite Morningstar Mutual Values, an
independent mutual fund information service which ranks mutual funds. 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.
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.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the 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 the Fund's performance.
ADDITIONAL PERFORMANCE INFORMATION. The Fund may use comparative
performance information from certain industry research materials and/or
published in various periodicals. The characteristics of the investments in
such comparisons may be different from those investments of the Fund's
portfolio. In addition, the formula used to calculate the performance
statistics of such investments may not be identical to the formula used by the
Fund to calculate its performance figures. From time to time, advertisements
or information for the Fund may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such advertisements or
information may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail in the communication.
The Fund may from time to time advertise its comparative performance
as measured or refer to results published by various periodicals including, but
not limited to, Lipper Analytical Services, Inc. Barron's, "The Wall Street
Journal", "New York
43
<PAGE> 81
Times", Weisenberger Investment Companies Service, Donoghue's Money Fund
Report, Stanger's Investment Advisor, Financial Planning, Money, Fortune,
Personal Finance, Muni Week, Institutional Investor, Business Week, Financial
World and Forbes. In addition, the Fund may from time to time advertise its
performance relative to certain indexes and benchmark investments, including:
(a) the Shearson Lehman Municipal Bond Index, (b) Bond Buyer 25 Review Bond
Index, (c) the Consumer Price Index, and (d) taxable investments such as
certificates of deposit, money market deposit accounts, checking accounts,
savings accounts, money market mutual funds.
The composition of the investments in such indexes and the
characteristics of such benchmark investments are not identical to, and in some
cases are very different from, those of the Fund's portfolio. These indexes
and averages are generally unmanaged and the items included in the calculations
of such indexes and averages may not be identical to the formulas used by the
Fund to calculate its performance figures.
44
<PAGE> 82
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ---------- -----------
<S> <C> <C>
LONG-TERM MUNICIPAL
OBLIGATIONS-97.01%
COMMUNITY
FACILITIES-12.62%
Capistrano Unified School
District Community
Facilities District Bonds
7.000% due 09/01/18...................... $ 1,500,000 $ 1,331,250
7.500% due 09/01/07...................... 3,500,000 3,246,250
8.375% due 10/01/20...................... 3,000,000 3,041,250
Fontana Special Tax
Community Facilities
District Bonds
8.375% due 04/01/11...................... 10,000,000 8,262,500
8.400% due 04/01/15...................... 1,000,000 823,750
Fresno Joint Powers
Financing Authority
Revenue Refunding Bonds
6.550% due 09/02/12...................... 2,000,000 1,812,500
Industry Urban Development
Agency Bonds
6.900% due 11/01/16...................... 1,020,000 975,375
7.375% with various
maturities to 05/01/15................ 1,145,000 1,187,937
Los Alamitos Unified
School District Special
Tax Community Facilities
District Bonds
7.150% due 08/15/21...................... 6,005,000 5,359,463
Los Angeles County
Improvement Bonds
8.375% due 09/02/18...................... 3,865,000 3,947,131
Pleasanton Joint Power
Financing Authority
Revenue Bonds
6.600% due 09/02/08...................... 2,940,000 2,730,525
Sacramento Unified School
District Special Tax
Community Facilities
District Bonds
7.300% due 09/01/13...................... 760,000 779,000
Saddleback Valley Unified
School District
Community Facilities
District Bonds
7.750% due 09/01/16...................... 3,200,000 3,124,000
Santa Clarita Community
Facilities District
Special Tax Bonds
7.450% due 11/15/10...................... 3,600,000 3,636,000
-----------
40,256,931
HEALTH-12.92%
California Health Facilities
Financing Authority
Revenue Bonds
5.600% due 05/01/33...................... 3,800,000 2,987,750
5.800% due 12/01/18...................... 3,140,000 2,633,675
6.250% due 07/01/12...................... 1,135,000 1,037,106
7.500% due 04/01/22...................... 2,000,000 2,020,000
California Statewide
Community Development
Authority Revenue
Certificates of
Participation
5.500% due 07/01/23...................... 6,000,000 4,915,000
5.600% due 11/15/17...................... 2,435,000 1,996,700
6.200% due 08/01/12...................... 1,250,000 1,129,687
6.250% due 08/01/22...................... 2,590,000 2,263,012
6.500% due 08/01/22...................... 15,750,000 13,978,125
6.700% due 05/01/11...................... 1,250,000 1,200,000
6.750% due 12/01/21...................... 7,500,000 7,040,625
------------
41,201,680
HOSPITALS-7.93%
Arcadia Hospital
Revenue Bonds
6.625% due 11/15/22...................... 1,205,000 1,051,363
Bakersfield Memorial
Hospital Revenue Bonds
6.500% due 01/01/22...................... 2,000,000 1,792,500
</TABLE>
45
<PAGE> 83
STATEMENT OF NET ASSETS
John HancocK California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
Covina Hospital Revenue
Certificates of
Participation
7.000% due 03/01/17...................... 925,000 857,937
Duarte City of Hope
Medical Center
Certificates of
Participation
6.250% due 04/01/23...................... 13,900,000 11,571,750
Rancho Mirage Joint Powers
Financing Authority
Certificates of
Participation
7.000% due 03/01/22...................... 4,500,000 4,201,875
San Bernardino County
Certificates of
Participation
5.500% due 08/01/17...................... 7,500,000 5,812,500
-----------
25,287,925
HOUSING--0.57%
California Housing Finance
Agency Revenue Bonds
7.375% due 08/01/17...................... 335,000 341,700
Upland Housing Authority
Revenue Bonds
7.500% due 07/01/03...................... 190,000 190,238
7.850% due 07/01/20...................... 1,280,000 1,294,400
-----------
1,826,338
INDUSTRIAL
DEVELOPMENT--0.30%
ABAG Finance Authority
for Nonprofit Corps.
Certificates of
Participation
6.800% due 10/01/11...................... 1,000,000 962,500
MORTGAGE INSURED
BONDS--1.38%
California Housing Finance
Agency Home Mortgage
Revenue Refunding Bonds
7.250% due 08/01/17...................... 3,500,000 3,561,250
Southern California Home
Finance Authority Single
Family Mortgage Revenue
Bonds Series A
6.750% due 09/01/22...................... 850,000 835,125
-----------
4,396,375
MUNICIPAL UTILITY
DISTRICTS--0.92%
Sacramento Municipal
Utility District Electric
Revenue Bonds
5.750% due 05/15/22...................... 2,700,000 2,274,750
Southern California Public
Power Authority
Transmission Project
Revenue Bonds
5.500% due 07/01/20...................... 800,000 655,000
-----------
2,929,750
PUBLIC FACILITIES--21.03%
Anaheim Certificates of
Participation
6.870% due 07/16/23(A)................... 2,000,000 1,690,000
Anaheim Public Finance
Authority Electric Utility
Revenue Bonds
5.750% due 10/01/22..................... 2,750,000 2,354,688
California Public Capital
Improvements Financing
Authority Revenue Bonds
8.125% due 03/01/95...................... 230,000 230,862
</TABLE>
46
<PAGE> 84
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
California State Public
Works Board Lease
Revenue Bonds
5.000% due 12/01/19 .................... 7,795,000 6,021,638
6.700% due 10/01/17 .................... 1,500,000 1,428,750
Chula Vista Certificates of
Participation
6.000% with various
maturities to 09/01/12 ................. 1,700,000 1,506,875
Concord Joint Powers
Financing Authority
Lease Revenue Bonds
5.250% due 08/01/19 .................... 3,520,000 2,772,000
Cupertino Certificates of
Participation
5.750% due 01/01/16 .................... 2,500,000 2,137,500
Delano Certificates of
Participation
7.000% due 04/01/10 .................... 2,000,000 1,915,000
Encinitas Certificates of
Participation
6.750% due 12/01/11 .................... 1,300,000 1,270,750
Inglewood Certificates of
Participation
7.000% due 08/01/19 .................... 1,000,000 966,250
Los Angeles County
Certificates of Participation
6.250% due 07/01/03 .................... 2,000,000 1,920,000
6.500% due 07/01/08 .................... 4,000,000 3,735,000
Los Angeles County Disney
Parking Certificates of
Participation
6.500% due 03/01/23 .................... 2,000,000 1,820,000
Los Angeles County Public
Works Finance Authority
Revenue Bonds
6.000% due 10/01/15 ................... 3,750,000 3,375,000
Oceanside Certificates of
Participation
6.000% due 04/01/17 .................... 2,875,000 2,461,719
6.375% due 04/01/12 .................... 3,000,000 2,767,500
Orange County Certificates
of Participation
6.700% due 08/01/18 .................... 1,000,000 963,750
San Diego County
Certificates of
Participation
6.750% due 08/01/19 .................... 3,000,000 2,996,250
San Jose Financing
Authority Revenue Bonds
6.400% due 09/01/17 .................... 2,000,000 1,857,500
San Marcus Public Facilities
Authority Revenue
Refunding Bonds
6.200% due 08/01/22 .................... 5,000,000 4,156,250
San Mateo Joint Powers
Financing Authority
Lease Revenue
Refunding Bonds
5.000% due 07/01/21 .................... 1,815,000 1,393,012
5.125% due 07/01/18 .................... 2,500,000 1,978,125
Santa Ana Financing
Authority Lease
Revenue Bonds
6.250% with various
maturities to 07/01/24 ................. 11,790,000 11,041,550
Stanislaus County
Certificates of
Participation
7.550% due 04/01/18 .................... 2,295,000 2,283,525
Vallejo Certificates of
Participation
8.000% due 02/01/06 .................... 2,000,000 2,025,000
-----------
67,068,494
REDEVELOPMENT-
COMMERCIAL--1.22%
Azusa Redevelopment
Agency Tax
Allocation Bonds
7.000% due 08/01/22 .................. 2,000,000 1,875,000
</TABLE>
47
<PAGE> 85
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ---------- -----------
<S> <C> <C>
BRENTWOOD REDEVELOPMENT
Agency Tax
Allocation Bonds
7.700% due 11/01/08..................... 135,000 135,844
Richmond Joint Powers
Financing Authority
Revenue Bonds
7.700% due 10/01/10..................... 1,835,000 1,880,875
-----------
3,891,719
REDEVELOPMENT-
MIXED USE--15.94%
Avalon Community
Improvement Agency Tax
Allocation Bonds
6.400% due 08/01/22..................... 1,975,000 1,752,813
Bakersfield Central District
Development Agency Tax
Allocation Bonds
6.625% due 04/01/15..................... 4,000,000 3,665,000
Burbank Redevelopment
Agency Tax
Allocation Bonds
6.000% due 12/01/23..................... 2,750,000 2,296,250
Clearlake Redevelopment
Agency Tax
Allocation Bonds
6.400% due 10/01/23..................... 500,000 446,250
Concord Redevelopment
Agency Tax Allocation
General Obligation Bonds
5.750% due 07/01/10..................... 1,145,000 970,387
Davis City Redevelopment
Agency Tax
Allocation Bonds
7.000% due 09/01/24..................... 5,115,000 5,204,513
Huntington Park Public
Financing Authority
Revenue Bonds
7.600% due 09/01/18..................... 5,000,000 4,675,000
Inglewood Redevelopment
Agency Tax
Allocation Bonds
6.125% due 07/01/13..................... 1,000,000 873,750
Lincoln Redevelopment
Agency Tax Allocation
Revenue Bonds
7.650% due 08/01/17..................... 3,350,000 3,379,313
Merced Public Financing
Authority Revenue Bonds
5.500% due 12/01/15..................... 3,630,000 2,958,450
Orange County
Development Agency Tax
Allocation Bonds
6.125% due 09/01/23..................... 3,000,000 2,302,500
Orange Redevelopment
Agency Tax Allocation
Revenue Bonds
5.700% due 10/01/17..................... 3,000,000 2,478,750
Palm Springs Financing
Authority Revenue Bonds
6.400% due 09/01/17..................... 3,000,000 2,737,500
Pittsburg Redevelopment
Agency Tax
Allocation Bonds
7.400% due 08/15/20..................... 3,040,000 2,983,000
Pomona Public Financing
Authority Revenue
Refunding Bonds
5.750% due 02/01/20..................... 10,000,000 7,912,500
Santa Cruz County Public
Financing Authority
Revenue Bonds
6.200% due 09/01/23..................... 2,000,000 1,677,500
Suisun City Redevelopment
Agency Tax
Allocation Bonds
7.250% due 10/01/20..................... 425,000 460,594
</TABLE>
48
<PAGE> 86
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
Tracy Community
Development Agency Toll
Road Revenue Bonds
6.000% due 03/01/24...................... 5,000,000 4,056,250
-----------
50,830,320
SCHOOLS--5.97%
Beaumont Unified School
District Certificates of
Participation
7.700% due 01/01/21...................... 1,000,000 985,000
Cucamonga School District
Certificates of
Participation
7.600% due 12/01/15...................... 1,000,000 1,022,500
Elk Grove Unified School
District Special
Tax Bonds
7.125% due 12/01/24...................... 1,000,000 1,016,250
Perris Union High School
District Certificates of
Participation
5.900% due 09/01/23...................... 2,000,000 1,667,500
San Gabriel Valley School
Financing Authority
Revenue Refunding Bonds
5.500% due 02/01/19...................... 1,500,000 1,215,000
Saugus Unified School
District Certificates of
Participation
7.500% due 08/01/09...................... 700,000 733,250
Sierra Unified School
District Certificates of
Participation
6.000% due 03/01/12...................... 2,000,000 1,707,500
Simi Valley Unified School
District Certificates of
Participation
6.100% due 08/01/22...................... 3,000,000 2,737,500
University of California
Certificates of Participation
5.500% due 11/01/14...................... 2,000,000 1,642,500
5.600% due 11/01/20...................... 6,180,000 4,990,350
Victor Valley Unified School
District Certificates of
Participation
7.875% due 11/01/12...................... 1,255,000 1,316,181
-----------
19,033,531
TRANSPORTATION--1.09%
San Diego MTDB Authority
Lease Revenue Bonds
5.375% due 06/01/23...................... 2,500,000 2,050,000
San Joaquin Hills
Transportation Corridor
Agency Toll Road
Revenue Bonds
6.750% due 01/01/32...................... 1,750,000 1,448,125
-----------
3,498,125
WASTE--2.98%
California Pollution Control
Financing Authority
Pollution Control
Revenue Bonds
5.850% due 12/01/23...................... 500,000 419,375
California Pollution Control
Financing Authority
Solid Waste Disposal
Revenue Bonds
6.875% due 11/01/27...................... 2,000,000 1,882,500
Stanislaus Waste to Energy
Financing Agency
Revenue Bonds
7.625% due 01/01/10...................... 1,000,000 1,007,500
Vallejo Sanitation and Flood
Control District
Certificates of Participation
5.000% due 07/01/19...................... 8,000,000 6,190,000
-----------
9,499,375
</TABLE>
49
<PAGE> 87
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
WATER--12.14%
Apple Valley Water District
Improvement Bonds
7.875% due 09/02/11...................... 2,425,000 2,500,781
California Department of
Water Resources
Central Valley Project
Revenue Bonds
5.500% due 12/01/23...................... 6,000,000 4,942,500
Calleguas-Las Virgines
Public Financing
Authority Revenue Bonds
5.125% due 07/01/21...................... 4,500,000 3,493,125
Central Coast Water
Authority Revenue Bonds
6.600% due 10/01/22...................... 3,200,000 3,132,000
East Bay Municipal Utility
District Water System
Revenue Refunding Bonds
6.000% due 06/01/12...................... 1,000,000 930,000
Metropolitan Water
District Waterworks
Revenue Bonds
5.000% due 07/01/20...................... 7,500,000 5,784,375
5.500% due 07/01/19...................... 5,000,000 4,181,250
Orange Cove Irrigation
District Revenue
Certificates of Participation
7.000% due 02/01/15...................... 2,500,000 2,409,375
7.250% due 02/01/12...................... 2,000,000 2,000,000
San Bernardino Municipal
Water Department
Certificates of Participation
6.250% due 02/01/17...................... 2,510,000 2,365,675
Santa Barbara Water and
Sewer Certificates of
Participation
6.700% due 04/01/27...................... 2,000,000 1,957,500
Turlock Irrigation District
Certificates of
Participation
7.300% due 01/01/11...................... 4,165,000 4,165,000
Turlock Irrigation District
Revenue Refunding
Bonds Series A
5.750% due 01/01/18...................... 1,000,000 873,750
------------
38,735,331
------------
TOTAL LONG-TERM
MUNICIPAL OBLIGATIONS
(Cost $342,717,564).......................... 309,418,394
SHORT-TERM
OBLIGATIONS--0.88%
VARIABLE RATE REVENUE
BONDS--0.88%
INDUSTRIAL
DEVELOPMENT--0.88%
California Pollution Control
Financing Authority
Pollution Control Revenue
Bonds Series A
5.000% due 01/03/95(B)................... 2,800,000 2,808,941
------------
TOTAL SHORT-TERM
OBLIGATIONS
(Cost $2,808,941)............................ 2,808,941
------------
TOTAL INVESTMENTS--97.89%
(Cost $345,526,505).......................... 312,227,335
CASH AND OTHER ASSETS,
LESS LIABILITIES--2.11%...................... 6,720,818
------------
NET ASSETS, at value,
equivalent to $9.28 per
share for 26,034,286
Class A Shares ($.01 par
value) outstanding and
$9.28 per share for
8,339,105 Class B Shares
($.01 par value)
outstanding--100.00%....................... $318,948,153
============
</TABLE>
(A) Floating rate securities.
(B) Interest rate reset date.
See Notes to Financial Statements.
50
<PAGE> 88
STATEMENT OF OPERATIONS/STATEMENTS OF CHANGES NET ASSETS
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
- --------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $ 23,033,267
------------
Expenses
Management fees............................ $ 1,919,101
Distribution expenses
(see Note D)............................. 1,114,370
Transfer agent fees........................ 244,131
Administrative service fees................ 158,594
Custodian fees............................. 100,287
Audit and legal fees....................... 39,491
Registration fees.......................... 36,394
Trustees' fees and expenses................ 27,905
Insurance expense.......................... 25,872
Shareholder reports........................ 23,859
Organization costs......................... 4,619
Miscellaneous.............................. 20,155
Less: Expense
reimbursement............................ (506,921) 3,207,857
----------- ------------
Net Investment Income.................. 19,825,410
------------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Net realized loss on
investments.............................. (4,180,216)
Net change in unrealized
depreciation of
investments.............................. (51,218,323)
------------
Net realized and unrealized
loss on investments.................. (55,398,539)
------------
Decrease in net assets
resulting from operations............ $(35,573,129)
====================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income...................... $ 19,825,410 $ 16,517,620
Net realized gain (loss) on
investments.............................. (4,180,216) 9,880,178
Net change in unrealized
appreciation
(depreciation) of
investments.............................. (51,218,323) 9,798,946
------------ ------------
Increase (decrease) in net
assets resulting from
operations............................... (35,573,129) 36,196,744
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income-
Class A.................................. (15,737,105) (14,358,309)
Class B.................................. (3,992,716) (2,149,913)
Net realized gain on
investments-
Class A.................................. - (8,029,591)
Class B.................................. - (1,848,387)
------------ ------------
Total distributions to
shareholders......................... (19,729,821) (26,386,200)
------------ ------------
SHARE TRANSACTIONS
Increase in shares
outstanding................................ 29,122,142 91,709,279
------------ ------------
Increase (decrease) in
net assets................................. (26,180,808) 101,519,823
NET ASSETS
Beginning of year.......................... 345,128,961 243,609,138
------------ ------------
End of year................................ $318,948,153 $345,128,961
============ ============
Undistributed Net
Investment Income........................ $ 127,227 $ 31,638
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS
John Hancock California Tax-Free Income Fund
December 31, 1994
NOTE A--
SIGNIFICANT ACCOUNTING POLICIES
John Hancock California Tax-Free Income Fund (the ``Fund''), formerly
Transamerica California Tax-Free Income Fund, is a diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended. On December 16, 1994, the shareholders of each of the mutual
funds managed by Transamerica Fund Management Company (TFMC) voted to approve
new Investment Advisory contracts with John Hancock Advisers, Inc. Each such
approval was subject to the acquisition of TFMC by The Berkeley Financial Group
(known beginning January 1, 1995 as John Hancock Funds), the parent company of
John Hancock Advisers, Inc. The acquisition became effective December 22, 1994.
The Fund's name change was also effective on this date.
The Fund offers two classes of shares to the public. Class A Shares
are subject to an initial sales charge of up to 4.75% and a 12b-1 distribution
plan. Class B Shares are subject to a contingent deferred sales charge and a
separate 12b-1 distribution plan. The following is a summary of significant
accounting policies consistently followed by the Fund.
(1) The Fund values its investments by using quotations provided by
market makers, estimates of market value, or values received from an
independent pricing service. Securities for which market quotations are not
readily available are valued at a fair value as determined in good faith by the
Fund's Board of Trustees. Short-term investments are valued at amortized cost
(original cost plus amortized discount or accrued interest).
(2) Security transactions are accounted for on the trade date. Interest
income is accrued daily. Debt premiums and original issue discounts are
amortized using the yield-to-maturity method. Discounts other than original
issue are not amortized. Realized gains and losses from security transactions
are determined on the basis of identified cost for both financial reporting and
federal income tax purposes.
(3) Income dividends are declared daily by the Fund and paid to
shareholders or reinvested at net asset value monthly. Other distributions are
recorded on the ex-dividend date and may be reinvested at net asset value.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
Distributions payable to shareholders at December 31, 1994 were $907,182.
(4) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code. At December 31, 1994, the Fund had a realized capital loss
carryforward of approximately $268,000, which will expire in 2002.
(5) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
December 31, 1994, these amounts were $11,967 and $26,382, respectively.
(6) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
NOTE B--
MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
From January 1, 1994 through December 21, 1994, TFMC acted as the
Investment Adviser to the Fund. On December 22, 1994, John Hancock Advisers,
Inc., a wholly-owned subsidiary of John Hancock Funds, became Investment
Adviser following the approval of the Fund's shareholders. Throughout these
financial statement notes, TFMC and John Hancock Advisers, Inc. are referred to
collectively as the ``Investment Adviser'', as each acted in this capacity
during the time periods noted above. The Investment Adviser has a sub-advisory
agreement with, and pays a fee to, Transamerica Investment Services, Inc. (the
``Sub-Adviser''). TFMC was, prior to December 22, 1994, and the Sub-Adviser is
presently a subsidiary of Transamerica Corporation.
The Fund's management fee is payable monthly and is calculated based on
the monthly average daily net assets of the Fund at an annual rate of 0.55%. At
December 31, 1994, the management fee payable to the Investment Adviser was
$118,703.
The Investment Adviser also provided administrative services to the
Fund pursuant to an administrative service agreement. During the year ended
December 31, 1994, the Fund paid or accrued $109,540 to the Investment Adviser
for these services, of which $13,620 was payable at December 31, 1994.
The Investment Adviser voluntarily agreed to reimburse the Fund for all
normal operating expenses, excluding distribution expenses, in excess of 0.60%,
on an annual basis, of the Fund's average daily net assets through December 31,
1994. For the year ended December 31, 1994, the Investment Adviser reimbursed
the Fund $506,921 pursuant to this agreement.
52
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS
Continued
John Hancock California Tax-Free Income Fund
During the year ended December 31, 1994, Transamerica Fund
Distributors, Inc., an affiliate of TFMC and principal underwriter of the Fund
through December 21, 1994, and John Hancock Funds, Inc., an affiliate of John
Hancock Advisers, Inc. and principal underwriter since December 22, 1994,
retained $126,490 as their portion of the commissions charged on sales of Class
A Shares of the Fund. Throughout these financial statement notes, Transamerica
Fund Distributors, Inc. and John Hancock Funds, Inc. are referred to
collectively as the ``Distributor'', as each acted in this capacity during the
time periods noted above. At December 31, 1994, receivables from and payable
to the Distributor for Fund share transactions were $182,622 and $725,576,
respectively.
The Fund paid no compensation directly to any officer. Certain officers
of the Fund are affiliated with the Investment Adviser.
During the year ended December 31, 1994, the Fund paid legal fees of
$6,000 to Baker & Botts. A partner with Baker & Botts was an officer of the
Fund until December 22, 1994.
NOTE C--COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
During the year ended December 31, 1994, purchases and sales of securities,
other than short-term obligations, aggregated $241,713,463 and $211,597,251,
respectively.
At December 31, 1994, receivables from brokers for securities sold were
$1,028,289. The identified cost of investments owned was the same for both
financial reporting and federal income tax purposes. At December 31, 1994, the
gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes were $1,262,641 and $34,561,811, respectively.
NOTE D--PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities related to
the distribution of its Class A and Class B Shares (the ``Class A Plan'' and
the ``Class B Plan,'' respectively). The distribution plans, together with the
initial sales charge on Class A Shares and the contingent deferred sales charge
on Class B Shares, comply with the regulations covering maximum sales charges
assessed by mutual funds distributed through securities dealers that are NASD
members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.15% 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 December 31, 1994, the Fund made payments to the Distributor of
$405,172 or 0.15% for Class A and $118,200 or 0.15% for Class B, related to the
above activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment), reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended December 31, 1994, Class B reimbursed the Distributor $590,998 or
0.75% for such costs. For the year ended December 31, 1994, the Distributor
received $302,402 in CDSC.
At December 31, 1994, Class A had $96,343 and Class B had $77,295
payable to the Distributor pursuant to the above distribution plans.
NOTE E--ORGANIZATION
The Fund was organized as a Massachusetts business trust on October 17, 1989.
The Fund had no transactions between that date and December 31, 1989, the
date of the Fund's initial offering of shares to the public, other than the
sale at $10.00 per share (net asset value) of 10,000 shares to TFMC.
The organization expenses of the Fund have been deferred and are being
amortized over a period during which it is expected that a benefit will be
realized, but not longer than five years from the date of commencement of
operations.
53
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE F--SHARE AND RELATED TRANSACTIONS
A summary of share transactions follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1993
-------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold-Class A........................................ 5,288,858 $ 54,343,070 6,222,367 $ 67,684,801
Shares sold-Class B........................................ 3,496,364 36,145,744 3,570,391 39,032,830
Shares issued in reinvestment of distributions-Class A..... 669,253 6,642,113 922,955 10,028,581
Shares issued in reinvestment of distributions-Class B..... 200,879 1,988,933 213,817 2,322,382
Shares redeemed-Class A.................................... (5,712,088) (56,313,131) (2,204,763) (24,012,146)
Shares redeemed-Class B.................................... (1,391,946) (13,684,587) (305,683) (3,347,169)
---------- ------------ ---------- ------------
Net increase in shares outstanding......................... 2,551,320 $ 29,122,142 8,419,084 $ 91,709,279
========== ============ ========== ============
</TABLE>
The components of net assets at December 31, 1994, are as follows:
<TABLE>
<S> <C>
Capital paid-in (unlimited number of shares authorized)................................................. $356,244,025
Undistributed net investment income..................................................................... 127,227
Accumulated net realized loss on investments............................................................ (4,123,929)
Net unrealized depreciation of investments.............................................................. (33,299,170)
------------
NET ASSETS.............................................................................................. $318,948,153
============
</TABLE>
54
<PAGE> 92
[LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
John Hancock California Tax-Free Income Fund
We have audited the accompanying statement of net assets of John Hancock
California Tax-Free Income Fund, formerly Transamerica California Tax-Free
Income Fund, as of December 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
December 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 highlightsreferred to
above present fairly, in all material respects, the financial position of
John Hancock California Tax-Free Income Fund at December 31, 1994, the results
of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial
highlights for each of the indicated periods in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
February 3, 1995
55
<PAGE> 93
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 parenthetical ratings denotes the probable credit
stature upon completion of construction or elimination of the basis of the
condition. Bonds rated A are considered as upper medium grade obligations.
Principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Bonds
rated Baa are considered 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 CORPORATION ("S&P")
AAA, AA, A AND BBB - Bonds rated AAA bear the highest rating assigned
to debt obligations and indicates an extremely strong capacity to pay principal
and interest. Bonds rated AA are considered "high grade," are only slightly
less marked than those of AAA ratings and have the second strongest capacity
for payment of debt service. Bonds rated A have a strong capacity to pay
principal and interest, although they are somewhat susceptible to the adverse
effects or changes in circumstances and economic conditions. The foregoing
ratings are sometimes followed by a "p" indicating that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the bonds being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful and
timely completion of the project. Although a provisional rating addresses
credit quality subsequent of completion of the project, it makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
Bonds rated BBB are regarded as having an adequate capacity to repay principal
and pay interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to repay principal and pay interest for bonds in this
category than for bonds in the A category.
1
<PAGE> 94
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 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 COMMERICAL 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
2
<PAGE> 95
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.
3
<PAGE> 96
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in the Prospectus:
Financial Highlights
Included in Part B are as follows:
Schedule of Investments as of December 31, 1994.
Statement of Assets and Liabilities as of December 31, 1994.
Statements of Operations for the year ended December 31, 1994.
Statements of Changes in Net Assets for each of the two years
in the period ended December 31, 1994.
Notes to Financial Statements and Financial Highlights for
the year ended December 31, 1994.
Included in Part C:
None
(b) Exhibits:
(1) (a) Declaration of Trust *
(b) Amended and Restated Declaration of Trust**
(c) Amendment to Declaration of Trust dated October 25,
1991.***
(d) Amendment to Declaration of Trust dated December 23,
1994
(2) Bylaws of Registrant
(3) Not Applicable
(4) Specimen Share Certificates for Class A Shares and Class B
Shares to be filed by Post-effective Amendment
(5)(a) Investment Advisory Agreement between John Hancock Advisers,
Inc. and the Registrant.
(b) Sub-Advisory Agreement between John Hancock Advisers, Inc.
and Transamerica Investment Services, Inc.
(c) Administrative Services Agreement between John Hancock
Advisers, Inc. and the Registrant.
__________________
* Previously filed with Registration Statement on October 18, 1989 and
incorporated herein by reference.
** Previously filed with Pre-Effective Amendment No. 2 on December 20, 1989
and incorporated herein by reference.
*** Previously filed with Post-Effective Amendment No. 4 on November 1, 1991
and incorporated herein by reference.
C-1
<PAGE> 97
(6) (a) Distribution Agreement between John Hancock Funds, Inc. and
the Registrant.
(b) Soliciting Dealer Agreement between John Hancock Funds, Inc
and the John Hancock funds.
(c) Financial Institution Sales and Service Agreement between
John Hancock Funds, Inc. and the John Hancock funds.
(7) Not Applicable
(8) Master Custodian Agreement between the John Hancock funds and
Investors Bank and Trust.
(9) Transfer Agency Agreement*
(10) Opinion and consent of counsel was filed with the Securities and
Exchange Commission on February 23, 1995, pursuant to Rule 24f-2
and incorporated herein by reference.
(11) Consent of Independent Auditors.
(12) 1994 Annual Report to Shareholders.
(13) Not Applicable
(14) Not Applicable
(15) (a) 12b-1 Plan for Class A Shares.
(b) 12b-1 Plan for Class B Shares.
(16) Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22.**
Item 25. Persons Controlled by or Under Common Control with Registrant
No person is presently controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Shares of Beneficial Interest As of March 31, 1995
----------------------------- --------------------
<S> <C>
Transamerica California Tax-Free Income Fund - Class A 3,179
Transamerica California Tax-Free Income Fund - Class B 2,105
</TABLE>
Item 27. Indemnification
(a) The Registrant's Bylaws at Section 7.09 provide for indemnification
of Registrant's officers, directors, agents and employees as
permitted by Maryland and Federal law.
___________________
* Previously filed with Post-Effective Amendment #6 on March 1, 1993, and
herein incorporated by reference.
** Previously filed with Post-Effective Amendment #4 on November 1, 1991
and incorporated herein by reference.
C-2
<PAGE> 98
(b) Under the Distribution Agreement. Under Section 12 of the
Distribution Agreement, John Hancock Funds, Inc. ("John Hancock
Funds") has agreed to indemnify the Registrant and its
Trustees, 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 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 Insurance Company who serves as a Trustee 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 Incurance 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 the
Adviser provide as follows:
"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 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 of 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 ohter
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 as person."
Insofar as indemnification for liabilities under the Securities Act of
1933 (the "Act") may be permitted to Trustees, officers and
controlling persons of Registrant pursuant to the Registrant's Amended
and Restated Articles of Incorporation, Article 10.1 of the
Registrant's By-Laws, The Underwriting Agreement, the By-Laws of John
Hancock Funds, the Adviser, or the Insurance Company or otherwise,
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 Trustee, officer or
controlling person in connection with the
C-3
<PAGE> 99
securities being registered, 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.
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 Trustee, officer
or controlling person in connection with the securities being
registered, 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.
Item 28. Business and Other Connections of Investment Adviser
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and Directors of the
Investment Adviser, reference is made to Forms ADV (File No. 801-8124)
filed under the Investment Advisers Act of 1940, herein incorporated
by reference.
Item 29. Principal Underwriter
(a) John Hancock Funds, Inc. 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 Fund, John Hancock
Sovereign Investors Fund, John Hancock Cash Management Fund,
John Hancock Special Equities Fund, John Hancock Bond Fund, John
Hancock Tax-Exempt Series Fund, John Hancock Strategic Series,
John Hancock Technology Series and World Fund, John Hancock
Freedom Investment Trust, John Hancock Freedom Investment Trust
II and John Hancock Investment Trust III.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION 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 Sr. Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
C-4
<PAGE> 100
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------ ------------------ -----------------
<S> <C> <C>
C. Troy Shaver, Jr. President, Chief Executive None
101 Huntington Avenue Officer and Director
Boston, Massachusetts
Robert G. Freedman Director Chief Investment
101 Huntington Avenue Officer
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Stephen M. Blair Senior Vice President - Sales None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President
101 Huntington Avenue and Secretary
Boston, Massachusetts
David A. King Senior Vice President None
101 Huntington Avenue Operations
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President
101 Huntington Avenue and Chief Financial
Boston, Massachusetts Officer
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Secretary Vice President,
101 Huntington Avenue Compliance Officer and
Boston, Massachusetts Assistant Secretary
</TABLE>
C-5
<PAGE> 101
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------ ------------------ -----------------
<S> <C> <C>
Arthur J. Holzman, Jr. Second Vice President Second Vice President
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster L. Aborn 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 None
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
</TABLE>
C-6
<PAGE> 102
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ------------------ ------------------ -----------------
<S> <C> <C>
John M. DeCiccio 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
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
Registrant maintains the records required to be maintained by it under Rules
31a-1(a), 31a-a(b), and 31a-2(a) under the Investment Company Act of 1940 as
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 office of Registrant's Transfer Agent and
Custodian.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to assist shareholders with
any communication by them in accordance with the provision
of Section 16 of the Investment Company Act of 1940.
(b) Registrant hereby undertakes to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and
without charge.
C-7
<PAGE> 103
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 pursuant to Rule 485(b) under the Securities Act of 1933
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston, and the Commonwealth of Massachusetts on the 19th day of April
1995.
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
By: *
--------------------------------------------
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration 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
______________________ (Principal Executive
Edward J. Boudreau, Jr. Officer)
Senior Vice President and
______________________ Chief Financial Officer April 19, 1995
James B. Little (Principal Financial and
Accounting Officer)
*
______________________ Trustee
James F. Carlin
*
______________________ Trustee
William H. Cunningham
*
______________________ Trustee
Charles L. Ladner
*
______________________ Trustee
Leo E. Linbeck, Jr.
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*
______________________ Trustee
Patricia P. McCarter
*
______________________ Trustee
Steven R. Pruchansky
*
______________________ Trustee
Norman H. Smith
*
______________________ Trustee
John P. Toolan
*By:
______________________ April 19, 1995
Thomas H. Drohan
(Attorney-in-Fact)
</TABLE>
<PAGE> 105
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Current Interest, John Hancock
Capital Growth Fund, John Hancock Investment Trust, John Hancock California
Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond
Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John
Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally
constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G.
Freedman and James B. Little, and each acting singly, to be my true, sufficient
and lawful attorneys, with full power to each of them, and each acting singly,
to sign for me, in my name and in the capacity indicated below, any
Registration Statement on Form N-1A and any Registration Statement on Form N-14
to be filed by the Trust or the Corporation under the Investment Company Act of
1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of its shares of beneficial interest
and any and all other documents and papers relating thereto, and generally to
do all such things in my name and on my behalf in the capacity indicated to
enable the Trust or the Corporation to comply with the 1940 Act and the 1933
Act, and all requirements of the Securities and Exchange Commission thereunder,
hereby ratifying and confirming my signature as it may be signed by said
attorneys or each of them to any such Registration Statements and any and all
amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument
the 13th day of December, 1994.
/s/William H. Cunningham
___________________________________
William H. Cunningham
<PAGE> 106
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Current Interest, John Hancock
Capital Growth Fund, John Hancock Investment Trust, John Hancock California
Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond
Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John
Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally
constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G.
Freedman and James B. Little, and each acting singly, to be my true, sufficient
and lawful attorneys, with full power to each of them, and each acting singly,
to sign for me, in my name and in the capacity indicated below, any
Registration Statement on Form N-1A and any Registration Statement on Form N-14
to be filed by the Trust or the Corporation under the Investment Company Act of
1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of its shares of beneficial interest
and any and all other documents and papers relating thereto, and generally to
do all such things in my name and on my behalf in the capacity indicated to
enable the Trust or the Corporation to comply with the 1940 Act and the 1933
Act, and all requirements of the Securities and Exchange Commission thereunder,
hereby ratifying and confirming my signature as it may be signed by said
attorneys or each of them to any such Registration Statements and any and all
amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument
the 22nd day of December, 1994.
/s/Norman H. Smith
_____________________________
Norman H. Smith
<PAGE> 107
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Current Interest, John Hancock
Capital Growth Fund, John Hancock Investment Trust, John Hancock California
Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond
Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John
Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally
constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G.
Freedman and James B. Little, and each acting singly, to be my true, sufficient
and lawful attorneys, with full power to each of them, and each acting singly,
to sign for me, in my name and in the capacity indicated below, any
Registration Statement on Form N-1A and any Registration Statement on Form N-14
to be filed by the Trust or the Corporation under the Investment Company Act of
1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of its shares of beneficial interest
and any and all other documents and papers relating thereto, and generally to
do all such things in my name and on my behalf in the capacity indicated to
enable the Trust or the Corporation to comply with the 1940 Act and the 1933
Act, and all requirements of the Securities and Exchange Commission thereunder,
hereby ratifying and confirming my signature as it may be signed by said
attorneys or each of them to any such Registration Statements and any and all
amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument
the 22nd day of December, 1994.
/s/James F. Carlin
________________________________
James F. Carlin
<PAGE> 108
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Current Interest, John Hancock
Capital Growth Fund, John Hancock Investment Trust, John Hancock California
Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond
Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John
Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally
constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G.
Freedman and James B. Little, and each acting singly, to be my true, sufficient
and lawful attorneys, with full power to each of them, and each acting singly,
to sign for me, in my name and in the capacity indicated below, any
Registration Statement on Form N-1A and any Registration Statement on Form N-14
to be filed by the Trust or the Corporation under the Investment Company Act of
1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of its shares of beneficial interest
and any and all other documents and papers relating thereto, and generally to
do all such things in my name and on my behalf in the capacity indicated to
enable the Trust or the Corporation to comply with the 1940 Act and the 1933
Act, and all requirements of the Securities and Exchange Commission thereunder,
hereby ratifying and confirming my signature as it may be signed by said
attorneys or each of them to any such Registration Statements and any and all
amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument
the 22nd day of December, 1994.
/s/Charles L. Ladner
_________________________________
Charles L. Ladner
<PAGE> 109
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Current Interest, John Hancock
Capital Growth Fund, John Hancock Investment Trust, John Hancock California
Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond
Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John
Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally
constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G.
Freedman and James B. Little, and each acting singly, to be my true, sufficient
and lawful attorneys, with full power to each of them, and each acting singly,
to sign for me, in my name and in the capacity indicated below, any
Registration Statement on Form N-1A and any Registration Statement on Form N-14
to be filed by the Trust or the Corporation under the Investment Company Act of
1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of its shares of beneficial interest
and any and all other documents and papers relating thereto, and generally to
do all such things in my name and on my behalf in the capacity indicated to
enable the Trust or the Corporation to comply with the 1940 Act and the 1933
Act, and all requirements of the Securities and Exchange Commission thereunder,
hereby ratifying and confirming my signature as it may be signed by said
attorneys or each of them to any such Registration Statements and any and all
amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument
the 22nd day of December, 1994.
/s/John P. Toolan
________________________________
John P. Toolan
<PAGE> 110
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Current Interest, John Hancock
Capital Growth Fund, John Hancock Investment Trust, John Hancock California
Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond
Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John
Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally
constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G.
Freedman and James B. Little, and each acting singly, to be my true, sufficient
and lawful attorneys, with full power to each of them, and each acting singly,
to sign for me, in my name and in the capacity indicated below, any
Registration Statement on Form N-1A and any Registration Statement on Form N-14
to be filed by the Trust or the Corporation under the Investment Company Act of
1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as
amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of its shares of beneficial interest
and any and all other documents and papers relating thereto, and generally to
do all such things in my name and on my behalf in the capacity indicated to
enable the Trust or the Corporation to comply with the 1940 Act and the 1933
Act, and all requirements of the Securities and Exchange Commission thereunder,
hereby ratifying and confirming my signature as it may be signed by said
attorneys or each of them to any such Registration Statements and any and all
amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument
the 22nd day of December, 1994.
/s/Steven R. Pruchansky
________________________________
Steven R. Pruchansky
<PAGE> 111
INDEX TO EXHIBITS
<TABLE>
<S> <C>
(1) Exhibits:
(a) Declaration of Trust*
(b) Amended and Restated Declaration of Trust**
(c) Amendment to Declaration of Trust dated October 25, 1991.***
(d) Amendment to Declaration of Trust dated December 23, 1994
(2) Bylaws of Registrant
(3) Not Applicable
(4) Specimen Share Certificates for Class A Shares and Class B Shares to be filed by Post-effective Amendment
(5)(a) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant.
(b) Sub-Advisory Agreement between John Hancock Advisers, Inc. and Transamerica Investment Services, Inc.
(c) Administrative Services Agreement between John Hancock Advisers, Inc. and the Registrant.
(6)(a) Distribution Agreement between John Hancock Funds, Inc. and the Registrant.
(b) Soliciting Dealer Agreement between John Hancock Funds, Inc. and the John Hancock funds.
(c) Financial Institution Sales and Service Agreement between John Hancock Funds, Inc. and the John Hancock funds.
(7) Not Applicable
(8) Master Custodian Agreement between the John Hancock funds and Investors Bank and Trust.
(9) Transfer Agency Agreement****
(10) Opinion and consent of counsel was filed with the Securities and Exchange Commission on February 23, 1995,
pursuant to Rule 24f-2 and incorporated herein by reference.
(11) Consent of Independent Auditors.
(12) 1994 Annual Report to Shareholders.
(13) Not Applicable
(14) Not Applicable
(15) (a) Form of 12b-1 Plan for Class A Shares.
(b) Form of 12b-1 Plan for Class B Shares.
(16) Schedule for computation of each performance quotation provided in the Registration Statement in response to Item
22.**
</TABLE>
__________________
* Previously filed with Registration Statement on October 18, 1989
and incorporated herein by reference.
** Previously filed with Pre-Effective Amendment No. 2 on December
20, 1989 and incorporated herein by reference.
*** Previously filed with Post-Effective Amendment No. 4 on November
1, 1991 and incorporated herein by reference.
**** Previously filed with Post-Effective Amendment No. 6 on March 1,
1993 and incorporated herein by reference.
<PAGE> 1
Exhibit 1(d)
TRANSAMERICA CALIFORNIA TAX-FREE INCOME FUND
AMENDMENT TO THE DECLARATION OF TRUST
AMENDMENT TO DECLARATION OF TRUST To change the name of the Trust.
I.
Pursuant to Article XI, Section 11.3(a) of the Declaration of Trust,
each of the undersigned hereby executes this instrument in connection with a
change in the name of the Trust and for that purpose adopts the following
resolution:
RESOLVED, that pursuant to Article XI, Section 11.3 of the Declaration
of Trust, the name of the Trust is hereby changed to "John Hancock California
Tax-Free Income Fund".
<PAGE> 2
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment to be executed this 16th day of December, 1994.
- ------------------------------- -------------------------------
R. Trent Campbell, as Trusteee Thomas B. McDade, as Trustee
5005 Riverway, Ste #240 5276 Cedar Creek
Houston, TX 77027 Houston, TX 77056
- ------------------------------- -------------------------------
Mrs. Lloyd Bentsen, as Trustee Leo Linbeck, Jr. as Trustee
1810 Kalorama Square, N.W. P.O. Box 22500
Washington, D.C. 20008 Houston, TX 77027
- ------------------------------- -------------------------------
William H. Cunningham, as Trustee Thomas M. Simmons, as Trustee
601 Colorado Street 1000 Louisiana Street
O. Henry Hall Houston, TX 77002
Austin, TX 78701
- ---------------------------------
Thomas R. Powers, Trustee
210 Hedwig
Houston, TX 77024
<PAGE> 1
EXHIBIT 2
BY-LAWS
OF
JOHN HANCOCK CALIFORNIA TAX-FREE FUND
ARTICLE I
DEFINITIONS
All capitalized terms have the respective meanings given them in the
Declaration of Trust of John Hancock California Tax-Free Fund, as amended or
restated from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust shall be in Boston, Massachusetts.
Section 2. Other Offices. The Trust may have offices in such other places
without as well as within The Commonwealth of Massachusetts as the Trustees may
from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders of the Trust or a Series
or Class thereof shall be held as provided in the Declaration of Trust at such
place within or without The Commonwealth of Massachusetts as the Trustees shall
designate. The holders of a majority of the Outstanding Shares of the Trust or a
Series or Class thereof present in person or by proxy and entitled to vote shall
constitute a quorum at any meeting of the Shareholders of the Trust or a Series
or Class thereof.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail or telegraphic means to each Shareholder at his address as
recorded on the register of the Trust mailed at least (10) days and not more
than sixty (60) days before the meeting, provided, however, that notice of a
meeting need not be given to a Shareholder to whom such notice need not be given
under the proxy rules of the Commission under the 1940 Act and the Securities
Exchange Act of 1934, as amended. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting
<PAGE> 2
may be held as adjourned without further notice. No notice need be given to any
Shareholder who shall have failed to inform the Trust of his current address or
if a written waiver of notice, executed before or after the meeting by the
Shareholder or his attorney thereunto authorized, is filed with the records of
the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
sixty (60) days prior to the date of any meeting of Shareholders or distribution
or other action as a record date for the determination of the persons to be
treated as Shareholders of record for such purposes.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken. A
proxy shall be deemed signed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting or telegraphic transmission) by the
shareholder or the shareholder's attorney-in-fact. Proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. When any Share is held
jointly by several persons, any one of them may vote at any meeting in person or
by proxy in respect of such Share, but if more than one of them shall be present
at such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he may vote by his guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy.
Section 5. Inspection of Records. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
Section 6. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Outstanding Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law) consent to the action in writing and the written consents are
filed with the records of the meetings of Shareholders. Such consents shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
<PAGE> 3
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, the Chairman
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be given by telephone, cable or wireless to each Trustee at
his business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and participation by such means shall be deemed to have been held at a
place designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting if a majority of the Trustees consent to
the action in writing and the written consents are filed with the records of the
Trustees' meetings. Such consents shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall be
present in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration of Trust or these By-laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than two (2) members to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust or a Series thereof, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
them except those powers which by law, the Declaration of Trust or these By-laws
they are prohibited from delegating. The Trustees may also elect from
<PAGE> 4
their own number other Committees from time to time; the number composing such
Committees, the powers conferred upon the same (subject to the same limitations
as with respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation the Committee
may elect its own Chairman.
Section 2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investments shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee may
receive compensation for their services and may be allowed such fees and
expenses for the attendance at such meeting as the Trustees may from time to
time determine to be appropriate.
Section 3. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be Chairman,
a President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration of Trust or these By-laws, the President, the Treasurer,
the Secretary and any other officer shall each hold office at the pleasure of
the Board of Trustees or until his successor shall have been duly elected and
qualified. The Secretary and the Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same person, but the offices of Vice President, Secretary and Treasurer shall
not be held by the same person. The President shall hold no other office. Except
as above provided, any two offices may be held by the same person. Any officer
may be but none need be a Trustee or Shareholder.
<PAGE> 5
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 4. Powers and Duties of the Chairman. The Trustees may, but need
not, appoint from among their number a Chairman and chief executive officer.
When present he shall preside at the meetings of the Shareholders and of the
Trustees. He may call meetings of the Trustees and of any committee thereof
whenever he deems it necessary. He shall be an executive officer of the Trust
and shall have, with the President, general supervision over the business and
policies of the Trust, subject to the limitations imposed upon the President, as
provided in Section 5 of this Article VI. The Chairman shall have the authority
to appoint officers of the Trust.
Section 5. Powers and Duties of the Vice Chairman. The Trustees may, but
need not, appoint a Vice Chairman of the Trust. The Vice Chairman may, but need
not, be a Trustee. The Vice Chairman shall have such powers and duties as the
Trustees shall determine from time to time. In the absence of any such
determination, the Vice Chairman shall have the same powers as a vice president.
Section 6. Powers and Duties of the President. The President may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and to the control of any Committees of the Trustees, within their
respective spheres, as provided by the Trustees, he shall at all times exercise
a general supervision and direction over the affairs of the Trust. He shall have
the power to employ attorneys and counsel for the Trust or any Series or Class
thereof and to employ such subordinate officers, agents, clerks and employees as
he may find necessary to transact the business of the Trust or any Series or
Class thereof. He shall also have the power to grant, issue, execute or sign
such powers of attorney, proxies or other documents as may be deemed advisable
or necessary in furtherance of the interests of the Trust or any Series thereof.
The President shall have such other powers and duties, as from time to time may
be conferred upon or assigned to him by the Trustees.
Section 7. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees, shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
Section 8. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust or any Series or Class thereof which may come into his hands
to such Custodian as the Trustees may employ. He shall render a statement of
condition of the finances of the Trust or any Series or Class thereof to the
Trustees as often as they shall require the same and he shall in general perform
all the duties incident to the office of a Treasurer and such other duties as
from time to time may be assigned to him by the Trustees. The
<PAGE> 6
Treasurer shall give a bond for the faithful discharge of his duties, if
required so to do by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
Section 9. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he shall have custody of the seal of the Trust; he
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of a transfer agent. He shall attend to the giving and serving
of all notices by the Trust in accordance with the provisions of these By-laws
and as required by law; and subject to these By-laws, he shall in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Trustees.
Section 10. Powers and Duties of Assistant Officers. In the absence or
disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall give a bond for the faithful discharge of his duties, if required so to do
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
Section 11. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him by the Trustees.
Section 12. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration of
Trust, the compensation of the officers and Trustees and members of an advisory
board shall be fixed from time to time by the Trustees or, in the case of
officers, by any Committee or officer upon whom such power may be conferred by
the Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
INDEMNIFICATIONS
Section 1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust or any Series thereof. No Trustee, officer, employee or agent of the Trust
or any Series thereof shall be subject to any personal liability whatsoever to
any Person, other than to the Trust or its Shareholders, in connection with
Trust Property or the affairs of the Trust, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless disregard of his duties
with respect to such Person; and all such Persons shall look solely to the Trust
Property, or to the Property of one or more specific Series of the Trust if the
claim arises from the conduct of such Trustee, officer, employee or agent with
respect to only such Series, for satisfaction of claims of any nature arising in
connection with the affairs
<PAGE> 7
of the Trust. If any Shareholder, Trustee, officer, employee, or agent, as such,
of the Trust or any Series thereof, is made a party to any suit or proceeding to
enforce any such liability of the Trust or any Series thereof, he shall not, on
account thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and liabilities,
to which such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder or former Shareholder
(or his or her heirs, executors, administrators or other legal representatives
or in the case of a corporation or other entity, its corporate or other general
successor) out of the Trust Property for all legal and other expenses reasonably
incurred by him in connection with any such claim or liability. The
indemnification and reimbursement required by the preceding sentence shall be
made only out of assets of the one or more Series whose Shares were held by said
Shareholder at the time the act or event occurred which gave rise to the claim
against or liability of said Shareholder. The rights accruing to a Shareholder
under this Section 1 of Article VII shall not impair any other right to which
such shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust or any Series thereof to indemnify or reimburse
a shareholder in any appropriate situation even though not specifically provided
herein.
Section 2. Non-Liability of Trustees, Etc. No Trustee, officer, employee or
agent of the Trust or any Series thereof shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee, or agent
thereof for any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any breach
of trust) except for his own bad faith, willful misfeasance, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee, officer, employee or
agent of the Trust (including any individual who serves at its request as
director, officer, partner, trustee or the like of another organization in
which it has any interest as a shareholder, creditor or otherwise) shall be
indemnified by the Trust, or by one or more Series thereof if the claim
arises from his or her conduct with respect to only such Series, to the
fullest extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
<PAGE> 8
(i) against any liability to the Trust, a Series thereof or the
Shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interest of the Trust or a Series thereof;
(iii) in the event of a settlement or other disposition not involving
a final adjudication as provided in paragraph (b)(ii) resulting in a
payment by a Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office:
(A) by the court or other body approving the settlement or other
disposition;
(B) based upon a review of readily available facts (as opposed to
a full trial-type inquiry) by (x) vote of a majority of the
Non-interested Trustees acting on the matter (provided that a majority
of the Non-interested Trustees then in office act on the matter) or
(y) written opinion of independent legal counsel; or
(C) a vote of a majority of the Shares outstanding and entitled
to vote (excluding shares owned of record or beneficially by such
individual).
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust or any Series thereof other than Trustees and
officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 3 of Article VII may be advanced by the Trust or a Series thereof prior
to final disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such advances;
or
(ii) a majority of the Non-interested Trustees acting on the matter
(provided that a majority of the Non-interested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to
<PAGE> 9
indemnification.
As used in this Section 3 of Article VII, a "Non-interested Trustee" is one
who (i) is not an "Interested Person" of the Trust (including anyone who has
been exempted from being an "Interested Person" by any rule, regulation or order
of the Commission), and (ii) is not involved in the claim, action, suit or
proceeding.
Section 4. No Bond Required of Trustees. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.
Section 5. No Duty of Investigation; Notice in Trust Instruments, Etc. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust or a Series thereof shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of the applicable Series, and may
contain any further recital which they may deem appropriate, but the omission of
such recital shall not operate to bind the Trustees individually. The Trustees
shall at all times maintain insurance for the protection of the Trust Property
or the Trust Property of the applicable Series, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
Section 6. Reliance on Experts, Etc. Each Trustee, officer or employee of
the Trust or a Series thereof shall, in the performance of his duties, be fully
and completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust or a Series thereof, upon an opinion of counsel, or upon
reports made to the Trust or a Series thereof by any of its officers or
employees or by the Investment Adviser, the Administrator, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
<PAGE> 10
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the last day of December in each year, provided,
however, that the Trustees may from time to time change the fiscal year. The
taxable year of each Series of the Trust shall be as determined by the Trustees
from time to time.
ARTICLE IX
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe but the
absence of a seal shall not impair the validity or execution of any document.
ARTICLE X
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been sent by mail, telegraph, cable or wireless for the purposes of these
By-laws when it has been delivered to a representative of any company holding
itself out as capable of sending notice by such means with instructions that it
be so sent.
ARTICLE XI
AMENDMENTS
These By-laws may be amended, altered or repealed or new By-laws may be
adopted (a) by a Majority Shareholder Vote (as defined in the Declaration of
Trust), or by the Trustees; provided, however, that no By-Law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration of Trust or the By-Laws, a vote of
the Shareholders. The Trustees shall in no event adopt By-Laws which are in
conflict with the Declaration of Trust, and any apparent inconsistency shall be
construed in favor of the related provisions of the Declaration of Trust.
END OF BY-LAWS
<PAGE> 1
EXHIBIT 5(a)
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
Investment Management Contract
Dated: December __, 1994
<PAGE> 2
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
Boston, Massachusetts
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
Ladies and Gentlemen:
John Hancock California Tax-Free Income Fund (the "Fund") has been
organized as a business trust under the laws of The Commonwealth of
Massachusetts to engage in the business of an investment company. The Fund's
shares of beneficial interest may be classified in the future into series
representing the entire undivided interest in separate portfolios operated as
separate investment companies.
The Trustees of the Fund (the "Trustees") have selected John Hancock
Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and you are willing to provide such advice, management and
services under the terms and conditions hereinafter set forth. Accordingly,
the Fund agrees with you as follows:
1. Delivery of Documents. The Fund has furnished you with copies,
properly certified or otherwise authenticated, of each of the following:
(a) Declaration of Trust, dated October 17, 1989, as amended from
time to time (the "Declaration of Trust");
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as
investment adviser for the Fund and approving the form of this
Agreement; and
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states. The
Fund will furnish you from time to time with copies, properly
certified or otherwise authenticated, of all amendments of or
<PAGE> 3
supplements to the foregoing, if any.
2. Investment and Management Services. You will use your best efforts to
provide to the Fund continuing and suitable investment programs with respect to
investments, consistent with the investment policies, objectives and
restrictions of the Fund. In the performance of the Adviser's duties
hereunder, subject always (x) to the provisions contained in the documents
delivered to the Adviser pursuant to Section 1, as each of the same may from
time to time be amended or supplemented, and (y) to the limitations set forth
in the registration statement of the Fund as in effect from time to time under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended (the "1940 Act"), the Adviser will, at its own expense:
(a) furnish the Fund with advice and recommendations, consistent
with the investment policies, objectives and restrictions of
the Fund, with respect to the purchase, holding and
disposition of portfolio securities;
(b) advise the Fund in connection with policy decisions to be made
by the Trustees or any committee thereof with respect to the
Fund's investments and, as requested, furnish the Fund with
research, economic and statistical data in connection with the
Fund's investments and investment policies;
(c) provide administration of the day-to-day investment operations
of the Fund;
(d) submit such reports relating to the valuation of the Fund's
securities as the Trustees may reasonably request;
(e) assist the Fund in any negotiations relating to the Fund's
investments with issuers, investment banking firms, securities
brokers or dealers and other institutions or investors;
(f) consistent with the provisions of Section 6 of this Agreement,
place orders for the purchase, sale or exchange of portfolio
securities with brokers or dealers selected by you, provided
that in connection with the placing of such orders and the
selection of such brokers or dealers you shall seek to obtain
execution and pricing within the policy guidelines determined
by the Trustees and set forth in the Prospectus and Statement
of Additional Information of the Fund as in effect from time
to time;
(g) provide office space and equipment and supplies, the use of
accounting equipment when required, and necessary executive,
clerical and secretarial personnel for the administration of
the affairs of the Fund;
(h) from time to time or at any time requested by the Trustees,
make reports to the Trust of your performance of the foregoing
services and furnish advice and recommendations with respect
to other aspects of the business and affairs of the Fund;
(i) maintain and preserve the records required by the Investment
Company Act of
<PAGE> 4
1940, as amended (the "1940 Act"), to be maintained and
preserved by the Fund (you agree that such records are the
property of the Fund and will be surrendered to the Fund
promptly upon request therefor);
(j) obtain and evaluate such information relating to economies,
industries, businesses, securities markets and securities as
you may deem necessary or useful in the discharge of your
duties hereunder;
(k) oversee, and use your best efforts to assure the performance
of the activities and services of the custodian, transfer
agent or other similar agents retained by the Fund; and
(l) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment
of cash for the account of the Fund.
The Adviser may engage one or more investment advisers which are
either registered as such or specifically exempt from registration under the
Investment Advisers Act of 1940, as amended, to act as subadvisers to provide
with respect to the Fund certain services set forth in Section 2 of this
Agreement, all as shall be set forth in a written contract, which contract
shall be subject to approval by the vote of a majority of the Trustees of the
Fund who are not interested persons of the Adviser, the subadviser or the Fund,
cast in person at a meeting called for the purpose of voting on such approval
and by the vote of a majority of the outstanding voting securities of the Fund
and otherwise consistent with the terms of the 1940 Act. Any fee, compensation
or expense to be paid to any subadviser shall be paid by the Adviser, and no
obligation to the subadviser shall be incurred on the Fund's behalf, except as
agreed upon by the Trustees of the Fund and otherwise consistent with the terms
of the 1940 Act.
3. Expenses of the Fund. You will pay:
(a) the compensation and expenses of all officers and employees of
the Fund;
(b) the expenses of office rent, telephone and other utilities,
office furniture, equipment, supplies and other office
expenses of the Fund;
(c) any other expenses incurred by you in connection with the
performance of your duties hereunder; and
(d) premiums for such insurance as may be agreed upon by you and
the Trustees.
4. Expenses of the Fund Not Paid by You. You will not be required to pay
any expenses which this Agreement does not expressly make payable by you. In
particular, and without limiting the generality of the foregoing but subject to
the provisions of Section 3, you will not be required to pay:
<PAGE> 5
(a) any and all expenses, taxes and governmental fees incurred by
the Fund prior to the effective date of this Agreement;
(b) without limiting the generality of the foregoing clause (a),
the expenses of organizing the Fund (including without
limitation, legal, accounting and auditing fees and expenses
incurred in connection with the matters referred to in this
clause (b)), of initially registering the shares of the Fund
under the Securities Act of 1933, as amended, and of
qualifying the shares for sale under state securities laws for
the initial offering and sale of shares;
(c) the compensation and expenses of Trustees who are not
interested persons (as used in this Agreement, such term shall
have the meaning specified in the 1940 Act) of you, and of
independent advisers, independent contractors, consultants,
managers and other unaffiliated agents employed by the Fund
other than through you;
(d) legal, accounting and auditing fees and expenses of the Fund;
(e) the fees or disbursements of custodians and depositories of
the Fund's assets, transfer agents, disbursing agents, plan
agents and registrars;
(f) taxes and governmental fees assessed against the Fund's assets
and payable by the Fund;
(g) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders of the
Fund;
(h) brokers' commissions and underwriting fees; and
(i) the expense of periodic calculations of the net asset value of
the shares of the Fund.
5. Compensation of the Adviser. For all services to be rendered,
facilities furnished and expenses paid or assumed by you as herein provided,
the Fund will pay you monthly, a fee at the annual rate of 0.55% of the Fund's
average daily net assets.
In the event that normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any limitation
imposed by a state where the 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 arrangements necessary to eliminate any remaining
excess expenses.
6. Avoidance of Inconsistent Position. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither your nor any
investment management subsidiary of yours, nor any of your or their directors,
officers or employees will act as principal or agent or receive any commission.
If any occasion shall arise in which you advise persons concerning the shares
of the Fund, you will act solely on your own behalf and not in any way on
behalf of the Fund.
<PAGE> 6
7. No Partnership or Joint Venture. The Fund and you are not partners of
or joint venturers with each other and nothing herein shall be construed so as
to make them such partners or joint venturers or impose any liability as such
on any of them.
8. Name of the Fund. The Fund may use the name "John Hancock" or any
name derived from or similar to the name "John Hancock Advisers, Inc." or "John
Hancock Mutual Life Insurance Company" only for so long as this Agreement
remains in effect. At such time as this Agreement shall no longer be in
effect, the Fund will (to the extent they lawfully can) cease to use such a
name or any other name indicating that the Fund is advised by or otherwise
connected with you. The Fund acknowledges that it has adopted the name "John
Hancock California Tax-Free Income Fund" through permission of John Hancock
Mutual Life Insurance Company, a Massachusetts insurance company, and agrees
that John Hancock Mutual Life Insurance Company reserves to itself and any
successor to its business the right to 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 John Hancock
Mutual Life Insurance Company or any subsidiary or affiliate thereof shall be
the investment adviser.
9. Limitation of Liability of the Adviser. You shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the the
Fund in connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even though also
employed by you, who may be or become an employee of and paid by the Fund shall
be deemed, when acting within the scope of his employment by the Fund, to be
acting in such employment solely for the Fund and not as your employee or
agent.
10. Duration and Termination of this Agreement. This Agreement shall
remain in force until the second anniversary of the date upon which this
Agreement was executed by the parties hereto, and from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
by (a) a majority of the Trustees who are not interested persons of you or
(other than as trustees) of the Fund, cast in person at a meeting called for
the purpose of voting on such approval, and (b) either (i) the Trustees or (ii)
a majority of the outstanding voting securities of the Fund. This Agreement
may, on 60 days' written notice, be terminated at any time without the payment
of any penalty by the Fund by vote of a majority of the outstanding voting
securities of the Fund, by the Trustees or by you. Termination of this
Agreement with respect to the Fund shall not be deemed to terminate or
otherwise invalidate any provisions of any contract between you and any other
series of the Fund. This Agreement shall automatically terminate in the event
of its assignment. In interpreting the provisions of this Section 10, the
definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "assignment," "interested person" and "voting security") shall
be applied.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no
<PAGE> 7
amendment, transfer, assignment, sale, hypothecation or pledge of this
Agreement shall be effective until approved by (a) the Trustees, including a
majority of the Trustees who are not interested persons of you or (other than
as Trustees) of the Fund, cast in person at a meeting called for the purpose of
voting on such approval, and (b) a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The name John Hancock California Tax-Free Income
Fund is the designation of the Trustees under the Declaration of Trust, dated
October 17, 1989, as amended from time to time. The Declaration of Trust and
all amendments thereto have been filed with the Secretary of State of The
Commonwealth of Massachusetts. The obligations of the Fund are not personally
binding upon, nor shall resort be had to the private property of, any of the
Trustees, shareholders, officers, employees or agents of the Fund, but only the
Fund's property shall be bound. The Fund shall not be liable for the
obligations of any other future series, if any, of the Fund.
Very truly yours,
JOHN HANCOCK CALIFORNIA TAX-FREE
INCOME FUND
By:____________________________________
Thomas M. Simmons
President
The foregoing contract
is hereby agreed to as
of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By:_______________________
Anne C. Hodsdon
Executive Vice President
<PAGE> 1
EXHIBIT 5(b)
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
SUB-ADVISORY AGREEMENT
Agreement made as of December __, 1994 between John Hancock Advisers,
Inc., (the "Investment Manager"), and Transamerica Investment Services, Inc., a
Delaware corporation (the "Sub-adviser").
WHEREAS, the Investment Manager has entered into an Investment
Management Agreement dated December __, 1994 (the "Investment Management
Agreement"), with John Hancock California Tax-Free Income Fund (the "Fund"),
pursuant to which the Investment Manager will act as Investment Manager of the
Fund.
WHEREAS, the Investment Manager desires to retain the Sub-adviser to
provide investment advisory services to the Fund in connection with the
management of the Fund and the Sub-adviser is willing to render such investment
advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Investment Manager
and of the Trustees of the Fund, the Sub-adviser shall manage the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention and disposition thereof, in accordance with the Fund's
investment objectives, policies and restrictions as stated in the Prospectus
(such Prospectus and Statement of Additional Information as currently in effect
and as amended or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(i) The Sub-adviser shall provide supervision of
the Fund's investments and shall determine from time to time what
investments and securities will be purchased, retained, sold or loaned
by the Fund, and what portion of the assets will be invested or held
uninvested as cash.
(ii) In the performance of its duties and
obligations under this Agreement, the Sub-adviser shall act in
conformity with the Declaration of Trust, By-Laws and Prospectus of
the Fund and with the instructions and directions of the Investment
Manager and of the Trustees of the Fund and will conform to and comply
with the requirements of the Investment Company Act of 1940 (the "1940
Act"), the Internal Revenue Code, as amended, and all other applicable
federal and state laws and regulations.
(iii) The Sub-adviser shall determine the
securities to be purchased or sold by the Fund and will place orders
with or through such persons, brokers or dealers in the manner as set
forth in the Fund's Registration Statement
<PAGE> 2
and Prospectus or as the Trustees may direct from time to time.
(iv) The Sub-adviser shall provide both the Fund's
Custodian and the Investment Manager on each business day with
information relating to all transactions concerning the Fund's assets.
(v) The investment management services provided
by the Sub-adviser hereunder are not to be deemed exclusive, and the
Sub-adviser shall be free to render similar services to others.
(b) The Sub-adviser shall authorize and permit any of its
directors, officers and employees who may be elected as Trustees or officers of
the Fund to serve in the capacities in which they are elected. Services to be
furnished by the Sub-adviser under this Agreement may be furnished through the
medium of any of such directors, officers or employees.
(c) The Sub-adviser shall keep the Fund's books and
records required to be maintained by the Sub- adviser pursuant to Paragraph
1(a) hereof and as required by Rule 31a-1 (pursuant to subsections (b)(5),
(b)(9), (b)(10), (b)(11) and (f)) and shall timely furnish to the Investment
Manager all information relating to the Sub- adviser's services hereunder
needed by the Investment Manager to keep the other books and records of the
Fund required by Rule 31a-1 under the 1940 Act. The Sub-adviser agrees that
all records which it maintains for the Fund are the property of the Fund and
the Sub-adviser will surrender promptly to the Fund any of such records upon
the Fund's request, provided however that the Sub-adviser may retain a copy of
such records. The Sub-adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Securities and Exchange Commission under the
1940 Act any such records as are required to be maintained by it pursuant to
paragraph 1(a) hereof.
2. The Investment Manager shall continue to have responsibility
for all services to be provided to the Fund pursuant to the Investment
Management Agreement and shall oversee and review the Sub-adviser's performance
of its duties under this Agreement.
3. The Investment Manager shall reimburse the Sub-adviser for
reasonable costs and expenses incurred by the Sub-adviser in furnishing the
services described in paragraph 1 hereof, such costs and expenses to be
determined in a manner acceptable to the Investment Manager and Sub-adviser.
4. The Sub-adviser shall not be liable for any error of judgment
or for any loss suffered by the Fund or the Investment Manager in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Sub-adviser's part in
the performance of its duties or from its reckless disregard of its obligations
and duties under this Agreement.
5. This Agreement shall continue in effect for a period of more
than one year from the date hereof only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
1940 Act; provided, however, that this
<PAGE> 3
Agreement may be terminated by the Fund at any time, without the payment of any
penalty, by the Trustees of the Fund or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund, or by
the Investment Manager or the Sub-adviser at any time, without the payment of
any penalty, on not less than 60 days' written notice to the other party and
the Fund (in the case of termination by a party), or to each party (in the case
of termination by the Fund). This Agreement shall terminate automatically in
the event of its assignment (as defined in the 1940 Act and the rules
thereunder).
6. Nothing in this Agreement shall limit or restrict the right of
any of the Sub-adviser's directors, officers or employees who may also be a
Trustee, officer or employee of the Fund to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any business, whether of a similar or a dissimilar nature, nor limit nor
restrict the Sub-adviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
7. This Agreement may be amended by mutual consent, but the
consent of the Fund must be obtained in conformity with the requirements of the
1940 Act.
8. This Agreement shall be construed in accordance with the laws
of the Commonwealth of Massachusetts and the applicable provisions of the 1940
Act. To the extent the applicable laws of the Commonwealth of Massachusetts or
any of the provisions herein conflict with the applicable provisions of the
1940 Act, the latter shall control
9. The obligations of the Fund are not personally binding upon,
nor shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Fund, but only the Fund's
property shall be bound.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
JOHN HANCOCK ADVISERS, INC.
By:______________________________
Anne C. Hodsdon
Executive Vice President
TRANSAMERICA INVESTMENT SERVICES, INC.
By:______________________________
Name:____________________________
Title:___________________________
<PAGE> 1
EXHIBIT 5(c)
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 22nd day of December,
1994 by and between John Hancock California Tax-Free Income Fund, a
Massachusetts business trust (the "Trust"), and Transamerica Fund Management
Company, a Delaware corporation (the "Investment Adviser"), and Transamerica
Fund Distributors, Inc., a Maryland corporation (the "Distributor"):
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, each of the Investment Adviser and the Distributor are
registered as an investment adviser under the Investment Advisers Act of 1940,
and engages in the business of acting as Investment Adviser or Distributor and
providing certain other services to certain investment companies, including the
Trust; and
WHEREAS, each of the Investment Adviser and the Distributor are
registered as broker dealers under the Securities Exchange Act of 1934, as
amended, and serves as the principal underwriter of the shares of each of the
investment companies for which the Investment Adviser and the Distributor serve
as investment advisers; and
WHEREAS, the Trust desires to retain the Investment Adviser and the
Distributor to render certain additional services to the Trust regarding
certain bookkeeping, accounting and administrative services (the "Services") in
the manner and on the terms and conditions hereinafter set forth; and
WHEREAS, each of the Investment Adviser and the Distributor desires to
be retained to perform such services on said terms and conditions;
Now, Therefore, this agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Trust and each of the Investment Adviser and the Distributor
agree as follows:
1. The Trust hereby retains each of the Investment Adviser and
the Distributor, as the case may be, to provide to the Trust:
A) such accounting and bookkeeping services and
functions as are reasonably necessary for the operation of the Trust.
Such services shall include, but shall not be limited to, preparation
and maintenance of the following books, records and other documents:
(1) journals containing daily itemized records of all purchases and
sales, and receipts and deliveries of securities and all receipts and
disbursements of cash and all other debits and credits, in the form
required by Rule 31a-1(b)(1)
<PAGE> 2
under the Act; (2) general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, in the form
required by Rules 31a-1(b)(2)(i)-(iii) under the Act; (3) a securities
record or ledger reflecting separately for each portfolio security as
of trade date all "long" and "short" positions carried by the Trust
for the account of the Trust, if any, and showing the location of all
securities long and the off-setting position to all securities short,
in the form required by Rule 31a-1(b)(3) under the Act; (4) a record
of all portfolio purchases or sales, in the form required by Rule
31a-1(b)(6) under the Act; (5) a record of all puts, calls, spreads,
straddles and all other options, if any, in which the Trust has any
direct or indirect interest or which the Trust has granted or
guaranteed, in the form required by Rule 31a-1(b)(7) under the Act;
(6) a record of the proof of money balances in all ledger accounts
maintained pursuant to this Agreement, in the form required by Rule
31a-1(b)(8) under the Act; and (7) price make-up sheets and such
records as are necessary to reflect the determination of the Trust's
net asset value. The foregoing books and records shall be maintained
by the Investment Adviser in accordance with and for the time periods
specified by applicable rules and regulations, including Rule 31a-2
under the Act. All such books and records shall be the property of
the Trust and upon request therefor, the Investment Adviser shall
surrender to the Trust such of the books and records so requested; and
B) certain administrative services including, but not limited to,
administrative services to shareholders of the Trust to respond to
inquiries related to shareholder accounts, processing confirmed
purchase and redemption transactions, processing certain shareholder
transactions, and maintaining dealer information related to
shareholder accounts and typesetting and other financial printing
services for the Trust.
2. Each of the Investment Adviser and the Distributor shall, at
its own expense, maintain such staff and employ or retain such personnel and
consult with such other persons as it shall from time to time determine to be
necessary or useful to the performance of its obligations under this Agreement.
Without limiting the generality of the foregoing, such staff and personnel
shall be deemed to include officers of the Investment Adviser, the Distributor
and persons employed or otherwise retained by the Investment Adviser and the
Distributor to provide or assist in providing of the services to the Trust.
3. Each of the Investment Adviser and the Distributor, as the
case may be, shall provide such office space, facilities and equipment
(including, but not limited to, telecommunication equipment and general office
supplies) and such clerical help and other services as shall be necessary to
provide the services to the Trust. In addition, each of the Investment Adviser
and the Distributor, as the case may be, may arrange on behalf of the Trust to
obtain: (1) data processing or other services, subject to approval by a
majority of the Trust's Board of Trustees, as necessary to assist it in
providing the Services to the Trust, (2) pricing information regarding the
Trust's investment securities from such company or companies as are approved by
a majority of the Trust's Board of Trustees and (3) computer and
telecommunication lines and equipment used to provide the aforementioned
services to the Trust, subject to approval by a majority of the Trust's Board
of Trustees and the Trust shall be financially responsible to such company or
companies as aforesaid, for the reasonable cost of such services.
4. The Trust will, from time to time, furnish or otherwise make
available to each
<PAGE> 3
of the Investment Adviser and the Distributor, as the case may be, such
information relating to the business and affairs of the Trust as the Investment
Adviser and the Distributor, as the case may be, may each reasonably require in
order to discharge its duties and obligations hereunder.
5. The Trust shall reimburse the Investment Adviser and the
Distributor, as the case may be, for: (1) a portion of the compensation,
including all benefits, of officers and employees of the Investment Adviser and
the Distributor, as the case may be, based upon the amount of time that such
persons actually spend in providing or assisting in providing the Services to
the Trust (including necessary supervision and review); and (2) such other
direct expenses, including, but not limited to, those listed in paragraph 3
above, incurred on behalf of the Trust that are associated with the providing
of the Services. In addition the Company will pay the Investment Adviser and
the Distributor a per account Administrative Fee based on the shareholder
service and recordkeeping duties performed. Such fees will be approved by a
majority of the Trust's Board of Trustees (See Schedule A). In no event,
however, shall such reimbursement exceed levels that are fair and reasonable in
light of the usual and customary charges made by others for services of the
same nature and quality. Compensation under this Agreement shall be calculated
and paid monthly.
6. The Investment Adviser and the Distributor will each permit
representatives of the Trust, including the Trust's independent auditors, to
have reasonable access to the personnel and records of the Investment Adviser
and the Distributor in order to enable such representatives to monitor the
quality of services being provided and the determination of reimbursements due
the Investment Adviser and the Distributor pursuant to this Agreement. In
addition, the Investment Adviser and the Distributor shall promptly deliver to
the Board of Trustees of the Trust such information as may reasonably be
requested from time to time to permit the Board of Trustees to make an informed
determination regarding continuation of this Agreement and the payments
contemplated to be made hereunder.
7. The Investment Adviser and the Distributor each will use its
best efforts in providing the Services, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, neither the Investment Adviser nor the Distributor shall
be liable to the Trust or any of the Trust investors for any error or judgment
or mistake of law or any act of omission either by the Investment Adviser or
the Distributor or for any losses sustained by the Trust or the Trust
investors.
8. The Investment Adviser and the Distributor each may assign all
or any part of their respective obligations under this Agreement, and any such
assignment will not cause this Agreement to terminate. Notwithstanding any
such assignment, the Investment Adviser and the Distributor shall remain
responsible for the performance of their respective obligations hereunder.
9. This Agreement shall remain in effect until no later than
December 20, 1996 and from year to year thereafter provided such continuance is
approved at least annually by the vote of a majority of the Trustees of the
Trust who are not parties to this Agreement or "interested persons" (as defined
in the Act) of any such party, which vote must be cast in person at a meeting
called for the purpose of voting on such approval; and further provided,
however, that (a) the Trust may, at any time and without the payment of any
penalty, terminate this
<PAGE> 4
Agreement upon thirty days written notice to the Investment Adviser or the
Distributor and (b) either the Investment Adviser or the Distributor may
terminate this Agreement without payment of penalty on sixty days' written
notice to the Trust. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed post-paid, to the other party at
the principal office of such party.
10. This Agreement shall be construed in accordance with the laws
of The Commonwealth of Massachusetts and the applicable provisions of the Act.
To the extent the applicable law of The Commonwealth of Massachusetts or any of
the provisions herein conflict with the applicable provisions of the Act, the
latter shall control.
11. The Trustees have authorized the execution of this Agreement
in their capacity as Trustees and not individually and the Investment Adviser
and the Distributor agree that neither the shareholders of the Trust nor the
Trustees nor any officer, employee, representative or agent of the Trust shall
be personally liable upon, nor shall resort be had to their private property
for the satisfaction of, obligations given, executed or delivered on behalf of
or by the Trust; that the shareholders, Trustees, officers, employees,
representatives and agents of the Trust shall not be personally liable
hereunder; and that they shall look solely to the property of that Trust for
the satisfaction of any claim hereunder.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
TRANSAMERICA FUND MANAGEMENT JOHN HANCOCK CALIFORNIA
COMPANY TAX-FREE INCOME FUND
By: By:
------------------------- --------------------------
Anne C. Hodsdon Thomas M. Simmons
President President
TRANSAMERICA FUND DISTRIBUTORS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 5
Schedule A
Reimbursement for shareholder and other activities under Section 1.B of the
Administrative Services Agreements.
<TABLE>
<CAPTION>
Reimbursement
Amount per
Fund Account per Year
- ---- ----------------
<S> <C>
John Hancock Capital Growth Fund $4
John Hancock California Tax-Free Income Fund,
Class A & Class B $4
John Hancock Cash Reserve, Inc. $3
John Hancock Tax-Free Bond Fund, Class A &
Class B $4
John Hancock Bond Fund
John Hancock Investment Quality Bond Fund $4
John Hancock Government Securities Trust $4
John Hancock U.S. Government Trust $4
John Hancock Intermediate Government Trust $4
John Hancock Adjustable U.S. Government Fund $4
John Hancock Adjustable U.S. Government Trust,
Class A & Class B $4
John Hancock Investment Trust
John Hancock Growth and Income Fund,
Class A & Class B $4
John Hancock Series. Inc.
John Hancock Money Market Fund B $4
John Hancock Government Income Fund $4
John Hancock High Yield Tax-Free Fund $4
John Hancock High Yield Bond Fund $4
John Hancock Emerging Growth Fund,
Class A & Class B $4
John Hancock Global Resources Fund $4
John Hancock Current Interest
John Hancock U.S. Government Cash Reserve $3
</TABLE>
Additional Duties to be Performed Under Section 1.8 of the
Administrative Services Agreement:
In addition to responding to inquiries related to shareholder accounts,
Transamerica Fund Management Co. ("TFMC") or Transamerica Fund Distributors,
Inc. ("TFD"), as the case may be, will also process shareholder telephone
requests for exchanges, Fed wire purchases and telephone redemptions. TFMC and
TFD, as the case may be, will also process shareholder wire order purchases and
redemption requests placed through dealers. In addition, TFMC and TFD, as the
case may be, will maintain dealer, branch, and representative data on the
transfer agency system for all shareholder accounts.
<PAGE> 1
EXHIBIT 6(a)
December __, 1994
John Hancock Broker Distribution Services, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Distribution Agreement
Dear Sir:
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND (the "Fund") has been organized as
a business trust under the laws of The Commonwealth of Massachusetts to engage
in the business of an investment company. The Fund's Board of Trustees has
selected you to act as principal underwriter (as such term is defined in
Section 2(a)(29) of the Investment Company Act of 1940, as amended) of the
shares of beneficial interest ("shares") of the Fund and you are willing, as
agent for the Fund, to sell the shares to the public, to broker-dealers or to
both, in the manner and on the conditions hereinafter set forth. Accordingly,
the Fund hereby agrees with you as follows:
1. Delivery of Documents. The Fund will furnish you promptly with
copies, properly certified or otherwise authenticated, of any registration
statements filed by it with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, or the Investment Company Act of 1940, as
amended, together with any financial statements and exhibits included therein,
and all amendments or supplements thereto hereafter filed.
2. Registration and Sale of Additional Shares. The Fund will from time
to time use its best efforts to register under the Securities Act of 1933, as
amended, such shares not already so registered as you may reasonably be
expected to sell as agent on behalf of the Fund. This Agreement relates to the
issue and sale of shares that are duly authorized and registered and available
for sale by the Fund if, but only if, the Fund sees fit to sell them. You and
the Fund will cooperate in taking such action as may be necessary from time to
time to qualify shares for sale in Massachusetts and in any other states
mutually agreeable to you and the Fund, and to maintain such qualification if
and so long as such shares are duly registered under the Securities Act of
1933, as amended.
3. Solicitation of Orders. You will use your best efforts (but only in
states in which you may lawfully do so) to obtain from investors unconditional
orders for shares authorized for issue by the Fund and registered under the
Securities Act of 1933, as amended, provided that you may in your discretion
refuse to accept orders for such shares from any particular applicant.
4. Sale of Shares. Subject to the provisions of Sections 5 and 6 hereof
and to such minimum purchase requirements as may from time to time be currently
indicated in the Fund's prospectus, you are authorized to sell as agent on
behalf of the Fund authorized and issued shares registered under the Securities
Act of 1933, as amended. Such sales may be made by you on behalf of the Fund
by accepting unconditional orders to purchase such shares placed with your
investors. The sales price to the public of such shares shall be the public
offering
<PAGE> 2
price as defined in Section 6 hereof.
5. Sale of Shares to Investors by the Fund. Any right granted to you to
accept orders for shares or make sales on behalf of the Fund will not apply to
shares issued in connection with the merger or consolidation of any other
investment company with the Fund or the Fund's acquisition, by purchase or
otherwise, of all or substantially all the assets of any investment company or
substantially all the outstanding shares of any such company, and such right
shall not apply to shares that may be offered or otherwise issued by the Fund
to shareholders by virtue of their being shareholders of the Fund.
6. Public Offering Price. All shares sold by you as agent for the Fund
will be sold at the public offering price, which will be determined in the
manner provided in the Fund's prospectus or statement of additional
information, as now in effect or as it may be amended.
7. No Sales Discount. The Fund shall receive the applicable net asset
value on all sales of shares by you as agent of the Fund.
8. Delivery of Payments. You will deliver to the Fund's transfer agent
all payments made pursuant to orders accepted by you, and accompanied by proper
applications for the purchase of shares, no later than the first business day
following the receipt by you in your home office of such payments and
applications.
9. Suspension of Sales. If and whenever a suspension of the right of
redemption or a postponement of the date of payment or redemption has been
declared pursuant to the Fund's Declaration of Trust and has become effective,
then, until such suspension or postponement is terminated, no further orders
for shares shall be accepted by you except such unconditional orders placed
with you before you have knowledge of the suspension. The Fund reserves the
right to suspend the sale of shares and your authority to accept orders for
shares on behalf of the Fund if in the judgment of a majority of the Fund's
Board of Trustees, it is in the best interests of the Fund to do so, such
suspension to continue for such period as may be determined by such majority;
and in that event, no shares will be sold by the Fund or by you on behalf of
the Fund while such suspension remains in effect except for shares necessary to
cover unconditional orders accepted by you before you had knowledge of the
suspension.
10. Expenses. The Fund will pay (or will enter into arrangements
providing that persons other than you will pay) all fees and expenses in
connection with the preparation and filing of any registration statement and
prospectus or amendments thereto under the Securities Act of 1933, as amended,
covering the issue and sale of shares and in connection with the qualification
of shares for sale in the various states in which the Fund shall determine it
advisable to qualify such shares for sale. It will also pay the issue taxes or
(in the case of shares redeemed) any initial transfer taxes thereon. You will
pay all expenses of printing prospectuses and other sales literature, all fees
and expenses in connection with your qualification as a dealer in various
states, and all other expenses in connection with the sale and offering for
sale of the shares of the Fund which have not been herein specifically
allocated to the Fund.
11. Conformity with Law. You agree that in selling the shares you will
duly conform in all respects with the laws of the United States and any state
in which such shares may be offered for sale by you pursuant to this Agreement.
<PAGE> 3
12. Indemnification. You agree to indemnify and hold harmless the Fund
and each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933, as
amended, against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which the Fund or such Trustees,
officers or controlling person may become subject under such Act, under any
other statute, at common law or otherwise, arising out of the acquisition of
any shares by any person which (a) may be based upon any wrongful act by you or
any of your employees or representatives or (b) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement, prospectus or statement of additional information
covering shares of a Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon information furnished or
confirmed in writing to the Fund by you, or (c) may be incurred or arise by
reason of your acting as the Fund's agent instead of purchasing and reselling
shares as principal in distributing shares to the public, provided that in no
case is your indemnity in favor of a Trustee or officer of the Fund or any
other person deemed to protect such Trustee or officer of the Fund or other
person against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement.
You are not authorized to give any information or to make any
representations on behalf of the Fund or in connection with the sale of shares
other than the information and representations contained in a registration
statement, prospectus, or statement of additional information covering shares,
as such registration statement, prospectus and statement of additional
information may be amended or supplemented from time to time. No person other
than you is authorized to act as principal underwriter for the Fund.
13. Duration and Termination of this Agreement. This Agreement shall
remain in force until two years from the date hereof and from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) a majority of the Board of Trustees of the Fund who are
not interested persons of you (other than as Trustees) or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
either (i) the Board of Trustees of the Fund, or (ii) a majority of the
outstanding voting securities of the Fund. This Agreement may, on 60 days'
written notice, be terminated at any time, without the payment of any penalty,
by the Board of Trustees of the Fund, by a vote of a majority of the
outstanding voting securities of the Fund, or by you. This Agreement will
automatically terminate in the event of its assignment by you. In interpreting
the provisions of this Section 13, the definitions contained in Section 2(a) of
the Investment Company Act of 1940, as amended (particularly the definitions of
"interested person," "assignment" and "voting security"), shall be applied.
14. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. If the Fund should at any time deem it
necessary or advisable in the best interests of the Fund that any amendment of
this agreement be made in order to comply with the recommendations or
<PAGE> 4
requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage under state or federal tax laws and should
notify you of the form of such amendment, and the reasons therefor, and if you
should decline to assent to such amendment, the Fund may terminate this
Agreement forthwith. If you should at any time request that a change be made
in the Fund's Declaration of Trust or By-Laws, or in its methods of doing
business, in order to comply with any requirements of federal law or
regulations of the Securities and Exchange Commission or of a national
securities association of which you are or may be a member, relating to the
sale of shares, and the Fund should not make such necessary change within a
reasonable time, you may terminate this Agreement forthwith.
15. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The obligations of the Fund are not personally
binding upon, nor shall resort be had to the private property of, any of the
Trustees, shareholders, officers, employees or agents of the Fund, but only the
Fund's property shall be bound.
Very truly yours,
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME
FUND
By:____________________________________
Thomas M. Simmons
President
The foregoing Agreement is hereby
accepted as of the date hereof
JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC.
By:______________________________________
C. Troy Shaver, Jr.
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 6(b)
SOLICITING DEALER AGREEMENT
[LOGO]
JOHN HANCOCK FUNDS, INC.
Boston -- Massachusetts -- 02199-7603
<PAGE> 2
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
SOLICITING DEALER AGREEMENT
Date
------------------------------
John Hancock Funds, Inc. ("the Distributor" or "Distributor") is the
principal distributor of the shares of beneficial interest (the "securities")
of each of the John Hancock Funds, ("We" or "us"), (the "Funds"). Such Funds
are those listed on Schedule A hereto which may be amended or supplemented from
time to time by the Distributor to include additional Funds for which the
Distributor is the principal distributor. You represent that you are a member
of the National Association of Securities Dealers, Inc., (the "NASD") and,
accordingly, we invite you to become a non-exclusive soliciting dealer to
distribute the securities of the Funds and you agree to solicit orders for the
purchase of the securities on the following terms. Securities are offered
pursuant to each Fund's prospectus and statement of additional information, as
such prospectus and statement of additional information may be amended from
time to time. To the extent that the prospectus or statement of additional
information contains provisions that are inconsistent with the terms of this
Agreement, the terms of the prospectus or statement of additional information
shall be controlling.
OFFERINGS
1. You agree to abide by the Rules of Fair Practice of the NASD and to all
other rules and regulations that are now or may become applicable to
transactions hereunder.
2. As principal distributor of the Funds, we shall have full authority to
take such action as we deem advisable in respect of all matters pertaining to
the distribution. This offer of shares of the Funds to you is made only in
such jurisdictions in which we may lawfully sell such shares of the Funds.
3. You shall not make any representation concerning the Funds or their
securities except those contained in the then- current prospectus or
statement of additional information for each Fund.
4. With the exception of listings of product offerings, you agree not to
furnish or cause to be furnished to any person or display, or publish any
information or materials relating to any Fund (including, without limitation,
promotional materials, sales literature, advertisements, press releases,
announcements, posters, signs and other similar materials), except such
information and materials as may be furnished to you by the Distributor or the
Fund. All other materials must receive written approval by the Distributor
before distribution or display to the public. Use of all approved advertising
and sales literature materials is restricted to appropriate distribution
channels.
5. You are not authorized to act as our agent. Nothing shall constitute you
as a syndicate, association, joint venture, partnership, unincorporated
business, or other separate entity or otherwise partners with us, but you shall
be liable for your proportionate share of any tax, liability or expense based
on any claim arising from the sale of shares of the Funds under this Agreement.
We shall not be under any liability to you, except for obligations expressly
assumed by us in this Agreement and liabilities under Section 11(f) of the
Securities Act of 1933, and no obligations on our part shall be implied or
inferred herefrom.
-2-
<PAGE> 3
6. DEALER COMPLIANCE/SUITABILITY STANDARDS (CLASS A AND CLASS B SHARES) -
Certain mutual funds distributed by the Distributor are being offered with two
or more classes of shares of the same investment portfolio ("Fund") - refer to
each Fund prospectus for availability and details. It is essential that the
following minimum compliance/suitability standards be adhered to in offering
and selling shares of these Funds to investors. All dealers offering shares of
the Funds and their associated persons agree to comply with these general
suitability and compliance standards.
SUITABILITY
With two classes of shares of certain funds available to individual
investors, (Class A and Class B), it is important that each investor purchases
not only the fund that best suits his or her investment objective but also the
class of shares that offers the most beneficial distribution financing method
for the investor based upon his or her particular situation and preferences.
Fund share recommendations and orders must be carefully reviewed by you and
your registered representatives in light of all the facts and circumstances, to
ascertain that the class of shares to be purchased by each investor is
appropriate and suitable. These recommendations should be based on several
factors, including but not limited to:
(A) the amount of money to be invested initially and over a period of
time;
(B) the current level of front-end sales load or back-end sales load
imposed by the Fund;
(C) the period of time over which the client expects to retain the
investment;
(D) the anticipated level of yield from fixed income funds' Class A and
Class B shares;
(E) any other relevant circumstances such as the availability of
reduced sales charges under letters of intent and/or rights of
accumulation.
There are instances when one distribution financing method may be more
appropriate than another. For example, shares subject to a front-end sales
charge may be more appropriate than shares subject to a contingent deferred
sales charge for large investors who qualify for a significant quantity
discount on the front-end sales charge. In addition, shares subject to a
contingent deferred sales charge may be more appropriate for investors whose
orders would not qualify for quantity discounts and who, therefore, may prefer
to defer sales charges and also for investors who determine it to be
advantageous to have all of their funds invested without deduction of a
front-end sales commission. However, if it is anticipated that an investor may
redeem his or her shares within a short period of time, the investor may,
depending on the amount of his or her purchase, bear higher distribution
expenses by purchasing contingent deferred sales charge shares than if he or
she had purchased shares subject to a front-end sales charge.
COMPLIANCE
Your supervisory procedures should be adequate to assure that an
appropriate person reviews and approves transactions entered into pursuant to
this Soliciting Dealer Agreement for compliance with the foregoing standards.
In certain instances, it may be appropriate to discuss the purchase with the
registered representatives involved or to review the advantages and
disadvantages of selecting one class of shares over another with the client.
The Distributor will not accept orders for Class B Shares in any Fund from you
for accounts maintained in street name. Trades for Class B Shares will only be
accepted in the name of the shareholder.
7. CLASS C SHARES - Certain mutual funds distributed by the Distributor may be
offered with Class C shares. Refer to each Fund prospectus for availability
and details. Class C shares are designed for institutional investors and
qualified benefit plans, including pension funds, and are sold without a sales
charge or 12b-1 fee. If a commission is paid to you for transactions in Class
C shares, it will be paid by the Distributor out of its own resources.
SALES
8. Orders for securities received by you from investors will be for the sale
of the securities at the public offering price, which will be the net asset
value per share as determined in the manner provided in the relevant Fund's
prospectus, as now in effect or as amended from time to time, next after
receipt by us (or the relevant Fund's transfer agent) of the purchase
application and payment for the securities, plus the relevant sales charges set
forth in the relevant Fund's then- current prospectus (the "Public Offering
Price"). The procedures relating to the handling of orders shall be subject to
our instructions which we will forward from time to time to you. All orders
are subject to acceptance by us, and we reserve the right in our sole
discretion to reject any order.
-3-
<PAGE> 4
In addition to the foregoing, you acknowledge and agree to the initial
and subsequent investment minimums, which may vary from year to year, as
described in the then-current prospectus for each Fund.
9. You agree to sell the securities only (a) to your customers at the public
offering price then in effect, or (b) back to the Funds at the currently quoted
net asset value.
10. The amount of sales charge to be reallowed to you (the "Reallowance") as a
percentage of the offering price is set forth in the then-current prospectus of
each Fund.
If a sales charge on the purchase is reduced in accordance with the
provisions of the relevant Fund's then-current prospectus pertaining to
"Methods of Obtaining Reduced Sales Charges," the Reallowance shall be reduced
pro rata.
11. We shall pay a Reallowance subject to the provisions of this agreement as
set forth in Schedule B hereto on all purchases made by your customers pursuant
to orders accepted by us (a) where an order for the purchase of securities is
obtained by a registered representative in your employ and remitted to us
promptly by you, (b) where a subsequent investment is made to an account
established by a registered representative in your employ or (c) where a
subsequent investment is made to an account established by a broker/dealer
other than you and is accompanied by a signed request from the account
shareholder that your registered representative receive the Reallowance for
that investment and/or for subsequent investments made in such account. If for
any reason, a purchase transaction is reversed, you shall not be entitled to
receive or retain any part of the Reallowance on such purchase and shall pay to
us on demand in full the amount of the Reallowance received by you in
connection with any such purchase. We may withhold and retain from the amount
of the Reallowance due you a sum sufficient to discharge any amount due and
payable by you to us.
12. Certain of the Funds have adopted a plan under Investment Company Act
Rule 12b-1 ("Distribution Plan" as described in the the prospectus). To the
extent you provide distribution and marketing services in the promotion of the
sale of shares of these Funds, including furnishing services and assistance to
your customers who invest in and own shares of such Funds and including, but
not limited to, answering routine inquiries regarding such Funds and assisting
in changing distribution options, account designations and addresses, you may
be entitled to receive compensation from us as set forth in Schedule C hereto.
All compensation, including 12b-1 fees, shall be payable to you only to the
extent that funds are received and in the possession of the Distributor.
13. We will advise you as to the jurisdictions in which we believe the shares
have been qualified for sale under the respective securities or "blue sky" laws
of such jurisdictions, but we assume no responsibility or obligations as to
your right to sell the shares of the Funds in any state or jurisdiction.
14. Orders may be placed through:
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
1-800-338-4265
SETTLEMENT
15. Settlements for wire orders shall be made within five business days after
our acceptance of your order to purchase shares of the Funds. Certificates,
when requested, will be delivered to you upon payment in full of the sum due
for the sale of the shares of the Funds. If payment is not so received or
made, we reserve the right forthwith to cancel the sale, or, at our option, to
liquidate the shares of the Fund subject to such sale at the then prevailing
net asset value, in which latter case you will agree to be responsible for any
loss resulting to the Funds or to us from your failure to make payments as
aforesaid.
-4-
<PAGE> 5
INDEMNIFICATION
16. The parties to this agreement hereby agree to indemnify and hold harmless
each other, their officers and directors, and any person who is or may be
deemed to be a controlling person of each other, from and against any losses,
claims, damages, liabilities or expenses (including reasonable fees of
counsel), whether joint or several, to which any such person or entity may
become subject insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon, (a) any untrue
statement or alleged untrue statement of material fact, or any omission or
alleged omission to state a material fact made or omitted by it herein, or, (b)
any willful misfeasance or gross misconduct by it in the performance of its
duties and obligations hereunder.
17. NSCC INDEMNITY - SHAREHOLDER AND HOUSE ACCOUNTS - In consideration of the
Distributor and John Hancock Investor Services Corporation ("Investor
Services") liquidating, exchanging, and/or transferring unissued shares of the
Funds for your customers without the use of original or underlying
documentation supporting such instructions (e.g., a signed stock power or
signature guarantee), you hereby agree to indemnify the Distributor, Investor
Services and each respective Fund against any losses, including reasonable
attorney's fees, that may arise from such liquidation exchange, and/or
transfer of unissued shares upon your direction. This indemnification shall
apply only to the liquidation, exchange and/or transfer of unissued shares in
shareholder and house accounts executed as wire orders transmitted via NSCC's
Fund/SERVsystem. You represent and warrant to the Funds, the Distributor and
Investor Services that all such transactions shall be properly authorized by
your customers.
The indemnification in this Section 16 shall not apply to any losses
(including attorney's fees) caused by a failure of the Distributor, Investor
Services or a Fund to comply with any of your instructions governing any of the
above transactions, or any negligent act or omission of the Distributor,
Investor Services or a Fund, or any of their directors, officers, employees or
agents. All transactions shall be settled upon your confirmation through NSCC
transmission to Investor Services.
The Distributor, Investor Services or you may revoke the indemnity
contained in this Section 16 upon prior written notice to each of the other
parties hereto, and in the case of such revocation, this indemnity agreement
shall remain effective as to trades made prior to such revocation.
MISCELLANEOUS
18. We will supply to you at our expense additional copies of the prospectus
and statement of additional information for each of the Funds and any printed
information supplemental to such material in reasonable quantities upon
request.
19. Any notice to you shall be duly given if mailed or telegraphed to you at
your address as registered from time to time with the NASD.
20. Miscellaneous provisions, if any, are attached hereto and incorporated
herein by reference.
21. This agreement, which shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, may be terminated by any party hereto at any
time upon written notice.
-5-
<PAGE> 6
SOLICITING DEALER
-------------------------------------------------
Name of Organization
By:-------------------------------------------------
Authorized Signature of Soliciting Dealer
-------------------------------------------------
Please Print or Type Name
-------------------------------------------------
Title
-------------------------------------------------
Print or Type Address
-------------------------------------------------
Telephone Number
Date:
-------------------------------------------------
In order to service you efficiently, please provide the following
information on your Mutual Funds Operations Department:
OPERATIONS MANAGER:
---------------------------------------------
ORDER ROOM MANAGER:
---------------------------------------------
OPERATIONS ADDRESS:
---------------------------------------------
---------------------------------------------
TELEPHONE: FAX:
-------------------------------- ------------------------------
<TABLE>
<S> <C>
TO BE COMPLETED BY: TO BE COMPLETED BY:
JOHN HANCOCK FUNDS, INC. JOHN HANCOCK INVESTOR
SERVICES CORPORATION
BY: BY:
------------------------------------------- -------------------------------------------
- ---------------------------------------------- ----------------------------------------------
TITLE TITLE
</TABLE>
DEALER NUMBER:
------------------------------------
-6-
<PAGE> 7
JOHN HANCOCK
MUTUAL FUNDS
John Hancock Broker Distrubution Services, Inc.
101 Huntington Avenue Boston, MA 02199-7608 1-800-225-5291
/s/ John Hancock
<PAGE> 8
JOHN HANCOCK FUNDS, INC.
SCHEDULE A
DATED JANUARY 1, 1995 TO THE
SOLICITING DEALER AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
<TABLE>
<S> <C>
John Hancock Sovereign Achievers Fund John Hancock National Aviation & Technology Fund
John Hancock Sovereign Investors Fund John Hancock Regional Bank Fund
John Hancock Sovereign Balanced Fund John Hancock Gold and Government Fund
John Hancock Sovereign Bond Fund John Hancock Global Rx Fund
John Hancock Sovereign U.S. Government Income Fund John Hancock Global Technology Fund
John Hancock Special Equities Fund* John Hancock Global Fund
John Hancock Special Opportunities Fund John Hancock Pacific Basin Equities Fund
John Hancock Discovery Fund John Hancock Global Income Fund
John Hancock Growth Fund John Hancock International Fund
John Hancock Strategic Income Fund John Hancock Global Resources Fund
John Hancock Limited-Term Government Fund John Hancock Emerging Growth Fund
John Hancock Cash Management Fund John Hancock Capital Growth Fund
John Hancock Managed Tax-Exempt Fund John Hancock Growth & Income Fund
John Hancock Tax-Exempt Income Fund John Hancock High Yield Bond Fund
John Hancock Tax-Exempt Series Fund John Hancock Investment Quality Bond Fund
John Hancock Special Value Fund John Hancock Government Securities Fund
John Hancock Strategic Short-Term Income Fund John Hancock U.S. Government Fund
John Hancock CA Tax-Free Fund John Hancock Government Income Fund
John Hancock High Yield Tax-Free Fund John Hancock Intermediate Government Fund
John Hancock Tax-Free Bond Fund John Hancock Adjustable U.S. Government Fund
John Hancock U.S. Government Cash Reserve Fund John Hancock Cash Reserve Money Market B Fund
</TABLE>
From time to time John Hancock Funds, Inc., as principal distributor of the
John Hancock funds, will offer additional funds for sale. These funds will
automatically become part of this Agreement and will be subject to all its
provisions unless otherwise directed by John Hancock Funds, Inc.
*Closed to new investors as of 9/30/94
<PAGE> 9
JOHN HANCOCK FUNDS, INC.
SCHEDULE B
DATED JANUARY 1, 1995 TO THE
SOLICITING DEALER AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
I. REALLOWANCE
The Reallowance paid to the selling Brokers for sales of John Hancock
Funds is set forth in each Fund's then- current prospectus. No Commission will
be paid on sales of John Hancock Cash Management Fund or any John Hancock Fund
that is without a sales charge. Purchases of Class A shares of $1 million or
more, or purchases into an account or accounts whose aggregate value of fund
shares is $1 million or more will be made at net asset value with no initial
sales charge. On purchases of this type, John Hancock Funds, Inc. will pay a
commission as set forth in each Fund's then-current prospectus. John Hancock
Funds, Inc. will pay Brokers for sales of Class B shares of the Funds a
marketing fee as set forth in each Fund's then-current prospectus.
<PAGE> 10
JOHN HANCOCK FUNDS, INC.
SCHEDULE C
DATED JANUARY 1, 1995 TO THE
SOLICITING DEALER AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
FIRST YEAR SERVICE FEES
Pursuant to the Distribution Plan applicable to each of the Funds
listed in Schedule A, John Hancock Funds, Inc. will advance to you a First Year
Service Fee related to the purchase of Class A shares (only if subject to sales
charge) or Class B shares of any of the Funds, as the case may be, sold by your
firm. This Service Fee will be compensation for your personal service and/or
the maintenance of shareholder accounts ("Customer Servicing") during the
twelve-month period immediately following the purchase of such shares, in the
amount not to exceed .25 of 1% of net assets invested in Class A shares or
Class B shares of the Fund, as the case may be, purchased by your customers.
SERVICE FEE SUBSEQUENT TO THE FIRST YEAR
Pursuant to the Distribution Plan applicable to each of the Funds
listed in Schedule A, the Distributor will pay you quarterly, in arrears, a
Service Fee commencing at the end of the twelve month period immediately
following the purchase of Class A shares (only if subject to sales charge) or
Class B shares, as the case may be, sold by your firm, for Customer Servicing,
in an amount not to exceed .25 of 1% of the average daily net assets
attributable to the Class A shares or Class B shares of the Fund, as the case
may be, purchased by your customers, provided your firm has under management
with the Funds combined average daily net assets for the preceding quarter of
no less than $1 million, or an individual representative of your firm has under
management with the Funds combined average daily net assets for the preceding
quarter of no less than $250,000 (an "Eligible Firm").
<PAGE> 11
JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC.
SCHEDULE D
DATED JULY 1, 1992 TO THE
SOLICITING DEALER AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK MUTUAL FUNDS
No broker/dealer shall represent the FUnds or Distribution Services in any
written communications without prior receipt of written approval from John
Hancock Broker Distribution Services, Inc. This includes but is not limited to
all advertising, public relations, marketing and sales literature, and media
contacts.
Further, subsequent to the creation of such materialsbefore written
approval from JHBDS will be given, a copy of the NASD review document
applicable to such materials must be furnished to John Hancock Broker
Distribution Services, Inc. for its review and files.
FOR PURPOSES OF THIS SCHEDULE D, THE FOLLOWING TERMS ARE DEFINED:
Advertising:
materials designed for the mass market, e.g. print ads, radio and tv
commercials, billboards, etc.
Sales literature:
materials designed for a directed market, e.g. prospecting letters,
brochures, mailers, stuffers, etc.
Coop Advertising:
advertising materials (as defined above) used by selling group members
for which John Hancock pays some or all of the costs of publication
whether the materials were developed by JHBDS Marketing or not.
John Hancock Broker Distribution Services, Inc. Approval of Advertising:
Approval has four meanings:approval of the material itself from a
marketing perspective (JHBDS product managers), proactive compliance
officer), parent company corporate advertising approval (John Hancock
Mutual Life Insurance Company Advertising Dept. personnel) and
approval for use and related cost-sharing arrangements (national sales
coordinators).
NASD Filing:
Materials created by JHBDS will be filed with the NASD by the JHBDS
Compliance Department. Materials not created by JHBDS but to be
included in the coop program will be filed with the NASD by the
broker-dealer creating the materials. However, prior to use of the
materials in our coop program, we will need a copy of the final
version of the material as well as the NASD comment letter. When this
is received, the above approvals can be obtained.
<PAGE> 1
EXHIBIT 6(c)
FINANCIAL INSTITUTION
SALES AND SERVICE AGREEMENT
[LOGO]
JOHN HANCOCK FUNDS, INC.
Boston - Massachusetts - 02199-7603
<PAGE> 2
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
FINANCIAL INSTITUTION
SALES AND SERVICE AGREEMENT
Date
--------------------------------
John Hancock Funds, Inc. ("The Distributor", or "Distributor"), ("We" or
"us"), is the principal distributor of the shares of beneficial interest (the
"securities") of each of the John Hancock Funds (the "Funds"). Such Funds are
those listed on Schedule A hereto which may be amended or supplemented from
time to time by the Distributor to include additional Funds for which the
Distributor is the principal distributor. You hereby represent that you are a
"bank" as defined in Section 3(a)(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and at the time of each transaction in shares of
the Funds, are not required to register as a broker/dealer under the Exchange
Act or regulations thereunder. We invite you to become a non-exclusive
soliciting financial institution ("Financial Institution") to distribute the
securities of the Funds and you agree to solicit orders for the purchase of the
securities on the following terms. Securities are offered pursuant to each
Fund's prospectus and statement of additional information, as such prospectus
and statement of additional information may be amended from time to time. To
the extent that the prospectus or statement of additional information contains
provisions that are inconsistent with the terms of this Agreement, the terms of
the prospectus or statement of additional information shall be controlling.
OFFERINGS
1. You represent and warrant that you will use your best efforts to ensure
that any purchase of shares of the Funds by your customers constitutes a
suitable investment for such customers. You acknowledge that you will base
such a decision of suitability on all the facts you have gathered about your
customer's financial situation, investment objectives, risk tolerance and
sophistication.
2. You represent and warrant that a copy of the then-current prospectus of a
Fund will be delivered to your customer before any purchase of shares of that
Fund are effected for that customer. You shall not effect any transaction in,
or induce any purchase or sale of, any shares of the Funds by means of any
manipulative, deceptive or other fraudulent device or contrivance, and shall
otherwise deal equitably and fairly with your customers with respect to
transactions in shares of a Fund.
3. You represent and warrant that you will not make shares of any Fund
available to your customers, including your fiduciary customers, except in
compliance with all Federal and state laws and rules and regulations of
regulatory agencies or authorities applicable to you, or any of your affiliates
engaging in such activity, which may affect your business practices. You
confirm that you are not in violation of any banking law or regulations as to
which you are subject. You agree that you will comply with the requirements of
Banking Circular 274 issued by the Office of the Comptroller of the Currency in
offering shares of the Funds to your customers. We agree that we will comply
with all Federal and state laws and rules and regulations of regulatory
agencies or authorities applicable to us. We and you acknowledge and agree
that the offering of shares of the Funds pursuant to this agreement is subject
to the oversight of your management and the regulatory authorities by which you
are subject to review, and that appropriate records and materials relating to
any activity by you or us undertaken pursuant to this agreement may be accessed
by bank examiners in the due course of any regulatory review to which you may
be subject.
4. As principal distributor of the Funds, we shall have full authority to take
such action as we deem advisable in respect of all matters pertaining to the
distribution. This offer of shares of the Funds to you is made only in such
jurisdictions in which we may lawfully sell such shares of the Funds.
-2-
<PAGE> 3
5. You shall not make any representation concerning the Funds or their
securities except those contained in the then-current prospectus or statement
of additional information for each Fund.
6. We will supply to you at our expense additional copies of the then-current
prospectus and statement of additional information for each of the Funds and
any printed information supplemental to such material in reasonable quantities
upon request. It shall be your obligation to ensure that all such information
and materials are distributed to your customers who own or seek to own shares
of the Funds in accordance with securities and/or banking law and regulations
and any other applicable regulations.
7. With the exception of listings of product offerings, you agree not to
furnish or cause to be furnished to any person or display, or publish any
information or materials relating to any Fund (including, without limitation,
promotional materials, sales literature, advertisements, press releases,
announcements, posters, signs and other similar materials), except such
information and materials as may be furnished to you by us the Distributor or
the Fund. All other materials must receive written approval by the Distributor
before distribution or display to the public. Use of all approved advertising
and sales literature materials is restricted to appropriate distribution
channels.
8. You are not authorized to act as our agent. In making available shares of
the Funds under this Financial Institution Sales and Service Agreement, nothing
herein shall be construed to constitute you or any of your agents, employees or
representatives as our agent or employee, or as an agent or employee of the
Funds, and you shall not make any representations to the contrary. Nothing
shall constitute you as a syndicate, association, unincorporated business, or
other separate entity or partners with us, but you shall be liable for your
proportionate share of any tax, liability or expense based on any claim arising
from the sale of shares of the Funds under this Agreement. We shall not be
under any liability to you, except for obligations expressly assumed by us in
this Agreement and liabilities under Section 11(f) of the Securities Act of
1933, and no obligations on our part shall be implied or inferred herefrom.
9. DEALER COMPLIANCE/SUITABILITY STANDARDS (CLASS A AND CLASS B SHARES) -
Certain mutual funds distributed by the Distributor are being offered with two
or more classes of shares of the same investment portfolio ("Fund") - refer to
each Fund prospectus for availability and details. It is essential that the
following minimum compliance/suitability standards be adhered to in offering
and selling shares of these Funds to investors. All soliciting financial
institutions offering shares of the Funds and their agents, employees and
representatives agree to comply with these general suitability and compliance
standards.
SUITABILITY
With two classes of shares of certain funds available to individual
investors, (Class A and Class B), it is important that each investor purchases
not only the fund that best suits his or her investment objective but also the
class of shares that offers the most beneficial distribution financing method
for the investor based upon his or her particular situation and preferences.
Fund share recommendations and orders must be carefully reviewed by you and
your agents, employees and representatives in light of all the facts and
circumstances, to ascertain that the class of shares to be purchased by each
investor is appropriate and suitable. These recommendations should be based on
several factors, including but not limited to:
(A) the amount of money to be invested initially and over
a period of time;
(B) the current level of front-end sales load or back-end
sales load imposed by the Fund;
(C) the period of time over which the customer expects to
retain the investment;
(D) the anticipated level of yield from fixed income
funds' Class A and Class B shares;
(E) any other relevant circumstances such as the
availability of reduced sales charges under letters
of intent and/or rights of accumulation.
There are instances when one distribution financing method may be more
appropriate than another. For example, shares subject to a front-end sales
charge may be more appropriate than shares subject to a contingent deferred
sales charge for large investors who qualify for a significant quantity
discount on the front-end sales charge. In addition, shares subject to a
contingent deferred sales charge may be more appropriate for investors whose
orders would not qualify for quantity discounts and who, therefore, may prefer
to defer sales charges and also for investors who determine it to be
advantageous to have all of their funds invested without deduction of a
front-end sales commission. However, if it is anticipated that an investor may
redeem his or her shares within a short period of time, the investor may,
depending on the amount of his or her purchase, bear higher distribution
expenses by purchasing contingent deferred sales charge shares than if he or
she had purchased shares subject to a front-end sales charge.
-3-
<PAGE> 4
COMPLIANCE
Your supervisory procedures should be adequate to assure that an
appropriate person reviews and approves transactions entered into pursuant to
this Financial Institution Sales and Service Agreement for compliance with the
foregoing standards. In certain instances, it may be appropriate to discuss
the purchase with the agents, employees and representatives involved or to
review the advantages and disadvantages of selecting one class of shares over
another with the client. The Distributor will not accept orders for Class B
Shares in any Fund from you for accounts maintained in your name or in the name
of your nominee for the benefit of certain of your customers. Trades for Class
B Shares will only be accepted in the name of the shareholder.
10. CLASS C SHARES - Certain mutual funds distributed by the Distributor may
be offered with Class C shares. Refer to each Fund prospectus for availability
and details. Class C shares are designed for institutional investors and
qualified benefit plans, including pension funds, and are sold without a sales
charge or 12b-1 fee. If a commission is paid to you for transactions in Class
C shares, it will be paid by the Distributor out of its own resources.
SALES
11. With respect to any and all transactions in the shares of any Fund
pursuant to this Financial Institution Sales and Service Agreement it is
understood and agreed in each case that: (a) you shall be acting solely as
agent for the account of your customer; (b) each transaction shall be initiated
solely upon the order of your customer; (c) we shall execute transactions only
upon receiving instructions from you acting as agent for your customer or upon
receiving instructions directly from your customer; (d) as between you and your
customer, your customer will have full beneficial ownership of all shares; (c)
each transaction shall be for the account of your customer and not for your
account; and (f) unless otherwise agreed in writing we will serve as a clearing
broker for you on a fully disclosed basis, and you shall serve as the
introducing agent for your customers' accounts. Subject to the foregoing,
however, and except for Class B shares, as described in Section 8 above, you
may maintain record ownership of such customers' shares in an account
registered in your name or the name of your nominee, for the benefit of such
customers. Each transaction shall be without recourse to you provided that you
act in accordance with the terms of this Financial Institution Sales and
Service Agreement. You represent and warrant to us that you will have full
right, power and authority to effect transactions (including, without
limitation, any purchases and redemptions) in shares of the Funds on behalf of
all customer accounts provided by you.
12. Orders for securities received by you from your customers will be for the
sale of the securities at the public offering price, which will be the net
asset value per share as determined in the manner provided in the relevant
Fund's prospectus, as now in effect or as amended from time to time, next after
receipt by us (or the relevant Fund's transfer agent) of the purchase
application and payment for the securities, plus the relevant sales charges set
forth in the relevant Fund's then-current prospectus (the "Public Offering
Price"). The procedures relating to the handling of orders shall be subject to
our instructions which we will forward from time to time to you. All orders
are subject to acceptance by us, and we reserve the right in our sole
discretion to reject any order.
In addition to the foregoing, you acknowledge and agree to the initial and
subsequent investment minimums, which may vary from year to year, as described
in the then-current prospectus for each Fund.
13. You agree to sell the securities only (a) to your customers at the public
offering price then in effect, or (b) back to the Funds at the currently quoted
net asset value.
14. The amount of sales charge to be reallowed to you (the "Reallowance") as a
percentage of the offering price is set forth in the then-current prospectus of
each Fund.
If a sales charge on the purchase is reduced in accordance with the
provisions of the relevant Fund's then- current prospectus pertaining to
"Methods of Obtaining Reduced Sales Charges," the Reallowance shall be reduced
pro rata.
15. We shall pay a Reallowance subject to the provisions of this agreement as
set forth in Schedule B hereto on all purchases made by your customers pursuant
to orders accepted by us (a) where an order for the purchase of securities is
obtained by you and remitted to us promptly by you, (b) where a subsequent
investment is made to an account established by you or (c) where a subsequent
investment is made to an account established by a financial institution or
-4-
<PAGE> 5
registered broker/dealer other than you and is accompanied by a signed request
from the account shareholder that you receive the Reallowance for that
investment and/or for subsequent investments made in such account. If for any
reason, a purchase transaction is reversed, you shall not be entitled to
receive or retain any part of the Reallowance on such purchase and shall pay to
us on demand in full the amount of the Reallowance received by you in
connection with any such purchase. We may withhold and retain from the amount
of the Reallowance due you a sum sufficient to discharge any amount due and
payable by you to us.
16. Certain of the Funds have adopted a plan under Investment Company Act
Rule 12b-1 ("Distribution Plan" as described in the prospectus). To the extent
you provide distribution and marketing services in the promotion of the sale of
shares of these Funds, including furnishing services and assistance to your
customers who invest in and own shares of such Funds and including, but not
limited to, answering routine inquiries regarding such Funds and assisting in
changing distribution options, account designations and addresses, you may be
entitled to receive compensation from us as set forth in Schedule C hereto.
All compensation, including 12b-1 fees, shall be payable to you only to the
extent that funds are received and in the possession of the Distributor.
17. We will advise you as to the jurisdictions in which we believe the shares
have been qualified for sale under the respective securities or "blue sky" laws
of such jurisdictions, but we assume no responsibility or obligations as to
your right to sell the shares of the Funds in any state or jurisdiction.
18. Orders may be placed through:
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
1-800-338-4265
SETTLEMENT
19. Settlements for wire orders shall be made within five business days after
our acceptance of your order to purchase shares of the Funds. Certificates,
when requested, will be delivered to you upon payment in full of the sum due
for the sale of the shares of the Funds. If payment is not so received or
made, we reserve the right forthwith to cancel the sale, or, at our option, to
liquidate the shares of the Fund subject to such sale at the then prevailing
net asset value, in which latter case you will agree to be responsible for any
loss resulting to the Funds or to us from your failure to make payments as
aforesaid.
INDEMNIFICATION
20. The parties to this agreement hereby agree to indemnify and hold harmless
each other, their officers and directors, and any person who is or may be
deemed to be a controlling person of each other, from and against any losses,
claims, damages, liabilities or expenses (including reasonable fees of
counsel), whether joint or several, to which any such person or entity may
become subject insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon, (a) any untrue
statement or alleged untrue statement of material fact, or any omission or
alleged omission to state a material fact made or omitted by it herein, or, (b)
any willful misfeasance or gross misconduct by it in the performance of its
duties and obligations hereunder.
MISCELLANEOUS
21. Any notice to you shall be duly given if mailed or telegraphed to you at
your address as most recently furnished to us by you.
22. Miscellaneous provisions, if any, are attached hereto and incorporated
herein by reference.
23. This agreement, which shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, may be terminated by any party hereto at any
time upon written notice.
-5-
<PAGE> 6
FINANCIAL INSTITUTION
-------------------------------------------------
Financial Institution
By:
-------------------------------------------------
Authorized Signature of Financial Institution
-------------------------------------------------
Please Print or Type Name
-------------------------------------------------
Title
-------------------------------------------------
Print or Type Address
-------------------------------------------------
Telephone Number
Date:
-------------------------------------------------
In order to service you efficiently, please provide the
following information on your Mutual Funds Operations Department:
OPERATIONS MANAGER:
---------------------------------------------
ORDER ROOM MANAGER:
---------------------------------------------
OPERATIONS ADDRESS:
---------------------------------------------
---------------------------------------------
TELEPHONE: FAX:
--------------------- ----------------------------
TO BE COMPLETED BY: JOHN HANCOCK INVESTOR
JOHN HANCOCK FUNDS, INC. SERVICES CORPORATION
By: By:
--------------------------------- ------------------------------------
- ------------------------------------ ------------------------------------
Title Title
TO BE COMPLETED BY:
FINANCIAL INSTITUTION NUMBER:
----------------------------------------------
-6-
<PAGE> 7
JOHN HANCOCK FUNDS, INC.
SCHEDULE A
DATED JANUARY 1, 1995 TO THE
FINANCIAL INSTITUTION SALES AND SERVICE
AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
<TABLE>
<S> <C>
John Hancock Sovereign Achievers Fund John Hancock National Aviation & Technology Fund
John Hancock Sovereign Investors Fund John Hancock Regional Bank Fund
John Hancock Sovereign Balanced Fund John Hancock Gold and Government Fund
John Hancock Sovereign Bond Fund John Hancock Global Rx Fund
John Hancock Sovereign U.S. Government Income Fund John Hancock Global Technology Fund
John Hancock Special Equities Fund* John Hancock Global Fund
John Hancock Special Opportunities Fund John Hancock Pacific Basin Equities Fund
John Hancock Discovery Fund John Hancock Global Income Fund
John Hancock Growth Fund John Hancock International Fund
John Hancock Strategic Income Fund John Hancock Global Rescources Fund
John Hancock Limited Term Government Fund John Hancock Emerging Growth Fund
John Hancock Cash Management Fund John Hancock Capital Growth Fund
John Hancock Managed Tax-Exempt Fund John Hancock Growth & Income Fund
John Hancock Tax-Exempt Income Fund John Hancock High Yield Bond Fund
John Hancock Tax-Exempt Series Fund John Hancock Investment Quality Bond Fund
John Hancock Special Value Fund John Hancock Government Securities Fund
John Hancock Strategic Short-Term Income Fund John Hancock U.S. Government Fund
John Hancock CA Tax-Free Fund John Hancock Governtment Income Fund
John Hancock High Yield Tax-Free Fund John Hancock Intermediate Government Fund
John Hancock Tax-Free Bond Fund John Hancock Adjustable U.S. Government Fund
John Hancock U.S. Government Cash Reserve Fund John Hancock Cash Reserve Money Market B Fund
</TABLE>
From time to time John Hancock Funds, as principal distributor of the
John Hancock Funds, will offer additional funds for sale. These funds will
automatically become part of this Agreement and will be subject to all its
provisions unless otherwise directed by John Hancock Funds, Inc.
* Closed to new invstors as of 9/30/94.
<PAGE> 8
JOHN HANCOCK FUNDS, INC.
SCHEDULE B
DATED JANUARY 1, 1995 TO THE
FINANCIAL INSTITUTION SALES AND SERVICE
AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
I. REALLOWANCE
The Reallowance paid to Financial Institutions for sales of John Hancock
Funds is the same as that paid to Selling Brokers described and set forth
in each Fund's then-current prospectus. No Commission will be paid on
sales of John Hancock Cash Management Fund or any John Hancock Fund that is
without a sales charge. Purchases of Class A shares of $1 million or more,
or purchases into an account or accounts whose aggregate value of fund
shares is $1 million or more will be made at net asset value with no
initial sales charge. On purchases of this type, the Distributor will pay a
commission as set forth in each Fund's then-current prospectus. John
Hancock Funds, Inc. will pay Financial Institutions for sales of Class B
shares of the Funds a marketing fee as set forth in each Fund's then-
current prospectus for Selling Brokers.
<PAGE> 9
JOHN HANCOCK FUNDS, INC.
SCHEDULE C
DISTRIBUTION PLAN SCHEDULE OF COMPENSATION
DATED JANUARY 1, 1995 TO THE
FINANCIAL INSTITUTION SALES AND SERVICE
AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
FIRST YEAR SERVICE FEE
Pursuant to the Distribution Plan applicable to each of the Funds
listed in Schedule A, the Distributor will advance to you a First Year Service
Fee related to the purchase of Class A shares (only if subject to sales charge)
or Class B shares of any of the Funds, as the case maybe, sold by your firm on
or after July 1, 1993. This Service Fee will be compensation for your personal
service and/or the maintenance of shareholder accounts ("Customer Servicing")
during the twelve-month period immediately following the purchase of such
shares, in an amount not to exceed .25 of 1% of the average daily net assets
attributable to Class A shares or Class B shares of the Fund, as the case may
be, purchased by your customers.
SERVICE FEE SUBSEQUENT TO THE FIRST YEAR
Pursuant to the Distribution Plan applicable to each of the Funds
listed in Schedule A, the Distributor will pay you quarterly, in arrears, a
Service Fee commencing at the end of the twelve-month period immediately
following the purchase of Class A shares (only if subject to sales charge) or
Class B shares, as the case may be, sold by your firm, for Customer Servicing,
in an amount not to exceed .25 of 1% of the average daily net assets
attributable to the Class A shares or Class B shares of the Fund, as the case
may be, purchased by your customers, provided your Financial Institution has
under management with the Funds combined average daily net assets for the
preceding quarter of no less than $1 million, or an individual representative
of your Financial Institution has under management with the Funds combined
average daily net assets for the preceding quarter of no less than $250,000 (an
"Eligible Financial Institution").
<PAGE> 1
EXHIBIT 8
MASTER CUSTODIAN AGREEMENT
between
JOHN HANCOCK MUTUAL FUNDS
and
INVESTORS BANK & TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3
2. Employment of Custodian and Property to be held by it . . . . . . . . . . . . . . . 3-4
3. Duties of the Custodian with Respect toProperty of the Fund . . . . . . . . . . . . . 4
A. Safekeeping and Holding of Property . . . . . . . . . . . . . . . . . . . . . . 4
B. Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8
C. Registration of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
D. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9
E. Payments for Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . . . 9
F. Investment and Availability of Federal Funds . . . . . . . . . . . . . . . . . . 9
G. Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
H. Payment of Fund Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-12
I. Liability for Payment in Advance of Receipt of Securities Purchased . . . . 12-13
J. Payments for Repurchases of Redemptions of Shares of the Fund . . . . . . . . 13
K. Appointment of Agents by the Custodian . . . . . . . . . . . . . . . . . . . . 13
L. Deposit of Fund Portfolio Securities in Securities Systems . . . . . . . . . 13-16
M. Deposit of Fund Commercial Paper in an Approved
Book-Entry System for Commercial Paper . . . . . . . . . . . . . . . . . 16-18
N. Segregated Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-19
O. Ownership Certificates for Tax Purposes . . . . . . . . . . . . . . . . . . . 19
P. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Q. Communications Relating to Fund Portfolio Securities . . . . . . . . . . . . 19-20
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
R. Exercise of Rights; Tender Offers . . . . . . . . . . . . . . . . . . . . . . 20
S. Depository Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-21
T. Interest Bearing Call or Time Deposits . . . . . . . . . . . . . . . . . . . . 21
U. Options, Futures Contracts and Foreign Currency Transactions . . . . . . . . 21-23
V. Actions Permitted Without Express Authority . . . . . . . . . . . . . . . . 23-24
4. Duties of Bank with Respect to Books of Account and
Calculations of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5. Records and Miscellaneous Duties . . . . . . . . . . . . . . . . . . . . . . . . . 24-25
6. Opinion of Fund`s Independent Public Accountants . . . . . . . . . . . . . . . . . . 25
7. Compensation and Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . 25-26
8. Responsibility of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-27
9. Persons Having Access to Assets of the Fund . . . . . . . . . . . . . . . . . . . . 27
10. Effective Period, Termination and Amendment; Successor Custodian . . . . . . . . . 27-28
11. Interpretive and Additional Provisions . . . . . . . . . . . . . . . . . . . . . . 28-29
12. Certification as to Authorized Officers . . . . . . . . . . . . . . . . . . . . . . 29
13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15. Adoption of the Agreement by the Fund . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
<PAGE> 4
MASTER CUSTODIAN AGREEMENT
This Agreement is made as of December 15, 1992 between each investment
company advised by John Hancock Advisers, Inc. which has adopted this Agreement
in the manner provided herein and Investors Bank & Trust Company (hereinafter
called "Bank", "Custodian" and "Agent"), a trust company established under the
laws of Massachusetts with a principal place of business in Boston,
Massachusetts.
Whereas, each such investment company is registered under the Investment
Company Act of 1940 and has appointed the Bank to act as Custodian of its
property and to perform certain duties as its Agent, as more fully hereinafter
set forth; and
Whereas, the Bank is willing and able to act as each such investment
company's Custodian and Agent, subject to and in accordance with the provisions
hereof;
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements herein contained, each such investment company and the
Bank agree as follows:
1. Definitions
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
(a) "Fund" shall mean the investment company which has adopted this
Agreement and is listed on Appendix A hereto. If the Fund is a Massachusetts
business trust or Maryland corporation, it may in the future establish and
designate other separate and distinct series of shares, each of which may be
called a "portfolio"; in such case, the term "Fund" shall also refer to each
such separate series or portfolio.
(b) "Board" shall mean the board of directors/trustees/managing general
partners/director general partners of the Fund, as the case may be.
(c) "The Depository Trust Company", a clearing agency registered with
the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
(d) "Authorized Officer", shall mean any of the following officers of
the Trust: The Chairman of the Board of Trustees, the President, a Vice
President, the Secretary, the Treasurer or Assistant Secretary or Assistant
Treasurer, or any other officer of the Trust duly authorized to sign by
appropriate resolution of the Board of Trustees of the Trust.
(e) "Participants Trust Company", a clearing agency registered with the
Securities and Exchange Commission under Section 17A of the Securities Exchange
Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
<PAGE> 5
(f) "Approved Clearing Agency" shall mean any other domestic clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934 which acts as a securities depository
but only if the Custodian has received a certified copy of a vote of the Board
approving such clearing agency as a securities depository for the Fund.
(g) "Federal Book-Entry System" shall mean the book-entry system
referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for
United States and federal agency securities (i.e., as provided in Subpart O of
Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, and the
book-entry regulations of federal agencies substantially in the form of Subpart
O).
(h) "Approved Foreign Securities Depository" shall mean a foreign
securities depository or clearing agency referred to in rule 17f-4 under the
Investment Company Act of 1940 for foreign securities but only if the Custodian
has received a certified copy of a vote of the Board approving such depository
or clearing agency as a foreign securities depository for the Fund.
(i) "Approved Book-Entry System for Commercial Paper" shall mean a
system maintained by the Custodian or by a subcustodian employed pursuant to
Section 2 hereof for the holding of commercial paper in book-entry form but
only if the Custodian has received a certified copy of a vote of the Board
approving the participation by the Fund in such system.
(j) The Custodian shall be deemed to have received "proper
instructions" in respect of any of the matters referred to in this Agreement
upon receipt of written or facsimile instructions signed by such one or more
person or persons as the Board shall have from time to time authorized to give
the particular class of instructions in question. Electronic instructions for
the purchase and sale of securities which are transmitted by John Hancock
Advisers, Inc. to the Custodian through the John Hancock equity trading system
and the John Hancock fixed income trading system shall be deemed to be proper
instructions; the Fund shall cause all such instructions to be confirmed in
writing. Different persons may be authorized to give instructions for
different purposes. A certified copy of a vote of the Board may be received
and accepted by the Custodian as conclusive evidence of the authority of any
such person to act and may be considered as in full force and effect until
receipt of written notice to the contrary. Such instructions may be general or
specific in terms and, where appropriate, may be standing instructions. Unless
the vote delegating authority to any person or persons to give a particular
class of instructions specifically requires that the approval of any person,
persons or committee shall first have been obtained before the Custodian may
act on instructions of that class, the Custodian shall be under no obligation
to question the right of the person or persons giving such instructions in so
doing. Oral instructions will be considered proper instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund
shall cause all oral
<PAGE> 6
instructions to be confirmed in writing. The Fund authorizes the Custodian to
tape record any and all telephonic or other oral instructions given to the
Custodian. Upon receipt of a certificate signed by two officers of the Fund as
to the authorization by the President and the Treasurer of the Fund accompanied
by a detailed description of the communication procedures approved by the
President and the Treasurer of the Fund, "proper instructions" may also include
communications effected directly between electromechanical or electronic
devices provided that the President and Treasurer of the Fund and the Custodian
are satisfied that such procedures afford adequate safeguards for the Fund's
assets. In performing its duties generally, and more particularly in
connection with the purchase, sale and exchange of securities made by or for
the Fund, the Custodian may take cognizance of the provisions of the governing
documents and registration statement of the Fund as the same may from time to
time be in effect (and votes, resolutions or proceedings of the shareholders or
the Board), but, nevertheless, except as otherwise expressly provided herein,
the Custodian may assume unless and until notified in writing to the contrary
that so-called proper instructions received by it are not in conflict with or
in any way contrary to any provisions of such governing documents and
registration statement, or votes, resolutions or proceedings of the
shareholders or the Board.
2. Employment of Custodian and Property to be Held by It
The Fund hereby appoints and employs the Bank as its Custodian and Agent
in accordance with and subject to the provisions hereof, and the Bank hereby
accepts such appointment and employment. The Fund agrees to deliver to the
Custodian all securities, participation interests, cash and other assets owned
by it, and all payments of income, payments of principal and capital
distributions and adjustments received by it with respect to all securities and
participation interests owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares ("Shares") of the
Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held by the Fund and not delivered by
the Fund to the Custodian. The Fund will also deliver to the Bank from time to
time copies of its currently effective charter (or declaration of trust or
partnership agreement, as the case may be), by-laws, prospectus, statement of
additional information and distribution agreement with its principal
underwriter, together with such resolutions, votes and other proceedings of the
Fund as may be necessary for or convenient to the Bank in the performance of
its duties hereunder.
The Custodian may from time to time employ one or more subcustodians to
perform such acts and services upon such terms and conditions as shall be
approved from time to time by the Board. Any such subcustodian so employed by
the Custodian shall be deemed to be the agent of the Custodian, and the
Custodian shall remain primarily responsible for the securities, participation
interests, moneys and other property of the Fund held by such subcustodian.
Any foreign subcustodian shall be a bank or trust company which is an eligible
foreign custodian within the meaning of Rule 17f-5 under the Investment Company
Act of 1940, and the foreign custody arrangements shall be approved by the
Board and shall be in accordance with and subject to the provisions of said
Rule. For the
<PAGE> 7
purposes of this Agreement, any property of the Fund held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the Custodian
under the terms of this Agreement.
3. Duties of the Custodian with Respect to Property of the Fund
A. Safekeeping and Holding of Property The Custodian shall keep
safely all property of the Fund and on behalf of the Fund shall
from time to time receive delivery of Fund property for
safekeeping. The Custodian shall hold, earmark and segregate on
its books and records for the account of the Fund all property of
the Fund, including all securities, participation interests and
other assets of the Fund (1) physically held by the Custodian, (2)
held by any subcustodian referred to in Section 2 hereof or by any
agent referred to in Paragraph K hereof, (3) held by or maintained
in The Depository Trust Company or in Participants Trust Company
or in an Approved Clearing Agency or in the Federal Book-Entry
System or in an Approved Foreign Securities Depository, each of
which from time to time is referred to herein as a "Securities
System", and (4) held by the Custodian or by any subcustodian
referred to in Section 2 hereof and maintained in any Approved
Book-Entry System for Commercial Paper.
B. Delivery of Securities The Custodian shall release and deliver
securities or participation interests owned by the Fund held (or
deemed to be held) by the Custodian or maintained in a Securities
System account or in an Approved Book-Entry System for Commercial
Paper account only upon receipt of proper instructions, which may
be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities or participation interests
for the account of the Fund, but only against receipt of
payment therefor; if delivery is made in Boston or New
York City, payment therefor shall be made in accordance
with generally accepted clearing house procedures or by
use of Federal Reserve Wire System procedures; if delivery
is made elsewhere payment therefor shall be in accordance
with the then current "street delivery" custom or in
accordance with such procedures agreed to in writing from
time to time by the parties hereto; if the sale is
effected through a Securities System, delivery and payment
therefor shall be made in accordance with the provisions
of Paragraph L hereof; if the sale of commercial paper is
to be effected through an Approved Book-Entry System for
Commercial Paper, delivery and payment therefor shall be
made in accordance with the provisions of Paragraph M
hereof; if the securities are to be sold outside the
United States, delivery may be made in accordance with
procedures agreed to in writing from time to time by the
parties hereto; for the purposes of this subparagraph, the
term "sale" shall include the disposition of a portfolio
<PAGE> 8
security (i) upon the exercise of an option written by the
Fund and (ii) upon the failure by the Fund to make a
successful bid with respect to a portfolio security, the
continued holding of which is contingent upon the making
of such a bid;
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the Fund;
3) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
4) To the issuer thereof or its agent when such securities or
participation interests are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
5) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Paragraph K hereof or into the name
or nominee name of any subcustodian employed pursuant to
Section 2 hereof; or for exchange for a different number
of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided
that, in any such case, the new securities or
participation interests are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
6) To the broker selling the same for examination in
accordance with the "street delivery" custom; provided
that the Custodian shall adopt such procedures as the Fund
from time to time shall approve to ensure their prompt
return to the Custodian by the broker in the event the
broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion of
such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
<PAGE> 9
8) In the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such
warrants, rights or similar securities, or the surrender
of interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
9) For delivery in connection with any loans of securities
made by the Fund (such loans to be made pursuant to the
terms of the Fund's current registration statement), but
only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may
be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities.
10) For delivery as security in connection with any borrowings
by the Fund requiring a pledge or hypothecation of assets
by the Fund (if then permitted under circumstances
described in the current registration statement of the
Fund), provided, that the securities shall be released
only upon payment to the Custodian of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made, further
securities may be released for that purpose; upon receipt
of proper instructions, the Custodian may pay any such
loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
11) When required for delivery in connection with any
redemption or repurchase of Shares of the Fund in
accordance with the provisions of Paragraph J hereof;
12) For delivery in accordance with the provisions of any
agreement between the Custodian (or a subcustodian
employed pursuant to Section 2 hereof) and a broker-dealer
registered under the Securities Exchange Act of 1934 and,
if necessary, the Fund, relating to compliance with the
rules of The Options Clearing Corporation or of any
registered national securities exchange, or of any similar
organization or organizations, regarding deposit or escrow
or other arrangements in connection with options
transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian (or a subcustodian
employed pursuant to Section 2 hereof), and a futures
commission merchant, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or
of any
<PAGE> 10
contract market or commodities exchange or similar
organization, regarding futures margin account deposits or
payments in connection with futures transactions by the
Fund;
14) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board specifying the
securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose
to be proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
C. Registration of Securities Securities held by the Custodian
(other than bearer securities) for the account of the Fund shall
be registered in the name of the Fund or in the name of any
nominee of the Fund or of any nominee of the Custodian, or in the
name or nominee name of any agent appointed pursuant to Paragraph
K hereof, or in the name or nominee name of any subcustodian
employed pursuant to Section 2 hereof, or in the name or nominee
name of The Depository Trust Company or Participants Trust Company
or Approved Clearing Agency or Federal Book-Entry System or
Approved Book-Entry System for Commercial Paper; provided, that
securities are held in an account of the Custodian or of such
agent or of such subcustodian containing only assets of the Fund
or only assets held by the Custodian or such agent or such
subcustodian as a custodian or subcustodian or in a fiduciary
capacity for customers. All certificates for securities accepted
by the Custodian or any such agent or subcustodian on behalf of
the Fund shall be in "street" or other good delivery form or shall
be returned to the selling broker or dealer who shall be advised
of the reason thereof.
D. Bank Accounts The Custodian shall open and maintain a separate
bank account or accounts in the name of the Fund, subject only to
draft or order by the Custodian acting in pursuant to the terms of
this Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or
for the account of the Fund other than cash maintained by the Fund
in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as the Custodian may in its
discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each
such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved in writing by two
officers of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be subject to
withdrawal only by the Custodian in that capacity.
<PAGE> 11
E. Payment for Shares of the Fund The Custodian shall make
appropriate arrangements with the Transfer Agent and the principal
underwriter of the Fund to enable the Custodian to make certain it
promptly receives the cash or other consideration due to the Fund
for such new or treasury Shares as may be issued or sold from time
to time by the Fund, in accordance with the governing documents
and offering prospectus and statement of additional information of
the Fund. The Custodian will provide prompt notification to the
Fund of any receipt by it of payments for Shares of the Fund.
F. Investment and Availability of Federal Funds Upon agreement
between the Fund and the Custodian, the Custodian shall, upon the
receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, invest in
such securities and instruments as may be set forth in such
instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and the
Fund.
G. Collections The Custodian shall promptly collect all income and
other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall promptly
collect all income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such
securities are held by the Custodian or agent thereof and shall
credit such income, as collected, to the Fund's custodian account.
The Custodian shall do all things necessary and proper in connection with such
prompt collections and, without limiting the generality of the foregoing, the
Custodian shall
1) Present for payment all coupons and other income items
requiring presentations;
2) Present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable;
3) Endorse and deposit for collection, in the name of the
Fund, checks, drafts or other negotiable instruments;
4) Credit income from securities maintained in a Securities
System or in an Approved Book-Entry System for Commercial
Paper at the time funds become available to the Custodian;
in the case of securities maintained in The Depository
Trust Company funds shall be deemed available to the Fund
not later than the opening of business on the first
business day after receipt of such funds by the Custodian.
<PAGE> 12
The Custodian shall notify the Fund as soon as reasonably practicable whenever
income due on any security is not promptly collected. In any case in which the
Custodian does not receive any due and unpaid income after it has made demand
for the same, it shall immediately so notify the Fund in writing, enclosing
copies of any demand letter, any written response thereto, and memoranda of all
oral responses thereto and to telephonic demands, and await instructions from
the Fund; the Custodian shall in no case have any liability for any nonpayment
of such income provided the Custodian meets the standard of care set forth in
Section 8 hereof. The Custodian shall not be obligated to take legal action
for collection unless and until reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all stock dividends, rights and
other items of like nature, and deal with the same pursuant to proper
instructions relative thereto.
H. Payment of Fund Moneys Upon receipt of proper instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of the Fund in the
following cases only:
1) Upon the purchase of securities, participation interests,
options, futures contracts, forward contracts and options
on futures contracts purchased for the account of the Fund
but only (a) against the receipt of
(i) such securities registered as provided in
Paragraph C hereof or in proper form for
transfer or
(ii) detailed instructions signed by an officer of the
Fund regarding the participation interests to be
purchased or
(iii) written confirmation of the purchase by the Fund
of the options, futures contracts, forward
contracts or options on futures contracts
by the Custodian (or by a subcustodian employed pursuant
to Section 2 hereof or by a clearing corporation of a
national securities exchange of which the Custodian is a
member or by any bank, banking institution or trust
company doing business in the United States or abroad
which is qualified under the Investment Company Act of
1940 to act as a custodian and which has been designated
by the Custodian as its agent for this purpose or by the
agent specifically designated in such instructions as
representing the purchasers of a new issue of privately
placed securities); (b) in the case of a purchase effected
through a Securities System, upon receipt of the
securities by the Securities System in accordance with the
conditions set forth in Paragraph L hereof; (c) in the
case of a purchase of commercial paper effected through an
Approved Book-Entry System for Commercial Paper, upon
<PAGE> 13
receipt of the paper by the Custodian or subcustodian in
accordance with the conditions set forth in Paragraph M
hereof; (d) in the case of repurchase agreements entered
into between the Fund and another bank or a broker-
dealer, against receipt by the Custodian of the securities
underlying the repurchase agreement either in certificate
form or through an entry crediting the Custodian's
segregated, non-proprietary account at the Federal Reserve
Bank of Boston with such securities along with written
evidence of the agreement by the bank or broker-dealer to
repurchase such securities from the Fund; or (e) with
respect to securities purchased outside of the United
States, in accordance with written procedures agreed to
from time to time in writing by the parties hereto;
2) When required in connection with the conversion, exchange
or surrender of securities owned by the Fund as set forth
in Paragraph B hereof;
3) When required for the redemption or repurchase of Shares
of the Fund in accordance with the provisions of Paragraph
J hereof;
4) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: advisory fees,
distribution plan payments, interest, taxes, management
compensation and expenses, accounting, transfer agent and
legal fees, and other operating expenses of the Fund
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends or other distributions to
holders of Shares declared or authorized by the Board; and
6) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board, specifying the
amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose
to be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for purchase of
securities for the account of the Fund is made by the Custodian in
advance of receipt of the securities purchased in the absence of
specific written instructions signed by two officers of the Fund
to so pay in advance, the Custodian shall be absolutely liable to
the Fund for such securities to the same extent as if the
securities had been received by the Custodian; except that in the
case of a repurchase agreement
<PAGE> 14
entered into by the Fund with a bank which is a member of the
Federal Reserve System, the Custodian may transfer funds to the
account of such bank prior to the receipt of (i) the securities in
certificate form subject to such repurchase agreement or (ii)
written evidence that the securities subject to such repurchase
agreement have been transferred by book-entry into a segregated
non-proprietary account of the Custodian maintained with the
Federal Reserve Bank of Boston or (iii) the safekeeping receipt,
provided that such securities have in fact been so transferred by
book-entry and the written repurchase agreement is received by the
Custodian in due course; and except that if the securities are to
be purchased outside the United States, payment may be made in
accordance with procedures agreed to from time to time by the
parties hereto.
J. Payments for Repurchases or Redemptions of Shares of the Fund
From such funds as may be available for the purpose, but subject
to any applicable votes of the Board and the current redemption
and repurchase procedures of the Fund, the Custodian shall, upon
receipt of written instructions from the Fund or from the Fund's
transfer agent or from the principal underwriter, make funds
and/or portfolio securities available for payment to holders of
Shares who have caused their Shares to be redeemed or repurchased
by the Fund or for the Fund's account by its transfer agent or
principal underwriter.
The Custodian may maintain a special checking account upon which
special checks may be drawn by shareholders of the Fund holding
Shares for which certificates have not been issued. Such checking
account and such special checks shall be subject to such rules and
regulations as the Custodian and the Fund may from time to time
adopt. The Custodian or the Fund may suspend or terminate use of
such checking account or such special checks (either generally or
for one or more shareholders) at any time. The Custodian and the
Fund shall notify the other immediately of any such suspension or
termination.
K. Appointment of Agents by the Custodian The Custodian may at any
time or times in its discretion appoint (and may at any time
remove) any other bank or trust company (provided such bank or
trust company is itself qualified under the Investment Company Act
of 1940 to act as a custodian or is itself an eligible foreign
custodian within the meaning of Rule 17f-5 under said Act) as the
agent of the Custodian to carry out such of the duties and
functions of the Custodian described in this Section 3 as the
Custodian may from time to time direct; provided, however, that
the appointment of any such agent shall not relieve the Custodian
of any of its responsibilities or liabilities hereunder, and as
between the Fund and the Custodian the Custodian shall be fully
responsible for the acts and omissions of any such agent. For the
purposes of this Agreement, any property of the Fund held by any
such agent shall be deemed to be held by the Custodian hereunder.
<PAGE> 15
L. Deposit of Fund Portfolio Securities in Securities Systems The
Custodian may deposit and/or maintain securities owned by the Fund
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in an Approved Foreign Securities Depository
in each case only in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or through one or more
subcustodians employed pursuant to Section 2) keep securities of
the Fund in a Securities System provided that such securities are
maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in the Securities System which
shall not include any assets of the Custodian or such subcustodian
or any other person other than assets held by the Custodian or
such subcustodian as a fiduciary, custodian, or otherwise for its
customers.
(b) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund, and the
Custodian shall be fully and completely responsible for
maintaining a recordkeeping system capable of accurately and
currently stating the Fund's holdings maintained in each such
Securities System.
(c) The Custodian shall pay for securities purchased in book-entry
form for the account of the Fund only upon (i) receipt of notice
or advice from the Securities System that such securities have
been transferred to the Account, and (ii) the making of any entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund only upon (i)
receipt of notice or advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all notices or advises from the Securities System of
transfers of securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
promptly provided to the Fund at its request.
<PAGE> 16
The Custodian shall promptly send to the Fund confirmation of each
transfer to or from the account of the Fund in the form of a
written advice or notice of each such transaction, and shall
furnish to the Fund copies of daily transaction sheets reflecting
each day's transactions in the Securities System for the account
of the Fund on the next busines day.
(d) The Custodian shall promptly send to the Fund any report or other
communication received or obtained by the Custodian relating to
the Securities System's accounting system, system of internal
accounting controls or procedures for safeguarding securities
deposited in the Securities System; the Custodian shall promptly
send to the Fund any report or other communication relating to the
Custodian's internal accounting controls and procedures for
safeguarding securities deposited in any Securities System; and
the Custodian shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant to
Section 2 hereof shall promptly send to the Fund and to the
Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any Securities
System. The Custodian's books and records relating to the Fund's
participation in each Securities System will at all times during
regular business hours be open to the inspection of the Fund's
authorized officers, employees or agents.
(e) The Custodian shall not act under this Paragraph L in the absence
of receipt of a certificate of an officer of the Fund that the
Board has approved the use of a particular Securities System; the
Custodian shall also obtain appropriate assurance from the
officers of the Fund that the Board has annually reviewed and
approved the continued use by the Fund of each Securities System,
so long as such review and approval is required by Rule 17f-4
under the Investment Company Act of 1940, and the Fund shall
promptly notify the Custodian if the use of a Securities System is
to be discontinued; at the request of the Fund, the Custodian will
terminate the use of any such Securities System as promptly as
practicable.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or subcustodians or of any of its or their employees
or from any failure of the Custodian or any such agent or
subcustodian to enforce effectively such rights as it may have
against the Securities System or any other person; at the election
of the Fund, it shall be entitled to be
<PAGE> 17
subrogated to the rights of the Custodian with respect to any
claim against the Securities System or any other person which the
Custodian may have as a consequence of any such loss or damage if
and to the extent that the Fund has not been made whole for any
such loss or damage.
M. Deposit of Fund Commercial Paper in an Approved Book-Entry System for
Commercial Paper Upon receipt of proper instructions with respect to
each issue of direct issue commercial paper purchased by the Fund, the
Custodian may deposit and/or maintain direct issue commercial paper
owned by the Fund in any Approved Book-Entry System for Commercial
Paper, in each case only in accordance with applicable Securities and
Exchange Commission rules, regulations, and no-action correspondence,
and at all times subject to the following provisions:
(a) The Custodian may (either directly or through one or more
subcustodians employed pursuant to Section 2) keep
commercial paper of the Fund in an Approved Book-Entry
System for Commercial Paper, provided that such paper is
issued in book entry form by the Custodian or subcustodian
on behalf of an issuer with which the Custodian or
subcustodian has entered into a book-entry agreement and
provided further that such paper is maintained in a
non-proprietary account ("Account") of the Custodian or
such subcustodian in an Approved Book-Entry System for
Commercial Paper which shall not include any assets of the
Custodian or such subcustodian or any other person other
than assets held by the Custodian or such subcustodian as
a fiduciary, custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to commercial
paper of the Fund which is maintained in an Approved
Book-Entry System for Commercial Paper shall identify by
book-entry each specific issue of commercial paper
purchased by the Fund which is included in the System and
shall at all times during regular business hours be open
for inspection by authorized officers, employees or agents
of the Fund. The Custodian shall be fully and completely
responsible for maintaining a recordkeeping system capable
of accurately and currently stating the Fund's holdings of
commercial paper maintained in each such System.
(c) The Custodian shall pay for commercial paper purchased in
book-entry form for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice from the
issuer that such paper has been issued, sold and
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
purchase, payment and transfer for the account of the
Fund. The Custodian shall transfer such commercial
<PAGE> 18
paper which is sold or cancel such commercial paper which
is redeemed for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice that
payment for such paper has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer or redemption and
payment for the account of the Fund. Copies of all
notices, advises and confirmations of transfers of
commercial paper for the account of the Fund shall
identify the Fund, be maintained for the Fund by the
Custodian and be promptly provided to the Fund at its
request. The Custodian shall promptly send to the Fund
confirmation of each transfer to or from the account of
the Fund in the form of a written advice or notice of each
such transaction, and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's
transactions in the System for the account of the Fund on
the next business day.
(d) The Custodian shall promptly send to the Fund any report
or other communication received or obtained by the
Custodian relating to each System's accounting system,
system of internal accounting controls or procedures for
safeguarding commercial paper deposited in the System; the
Custodian shall promptly send to the Fund any report or
other communication relating to the Custodian's internal
accounting controls and procedures for safeguarding
commercial paper deposited in any Approved Book-Entry
System for Commercial Paper; and the Custodian shall
ensure that any agent appointed pursuant to Paragraph K
hereof or any subcustodian employed pursuant to Section 2
hereof shall promptly send to the Fund and to the
Custodian any report or other communication relating to
such agent's or subcustodian's internal accounting
controls and procedures for safeguarding securities
deposited in any Approved Book-Entry System for Commercial
Paper.
(e) The Custodian shall not act under this Paragraph M in the
absence of receipt of a certificate of an officer of the
Fund that the Board has approved the use of a particular
Approved Book-Entry System for Commercial Paper; the
Custodian shall also obtain appropriate assurance from the
officers of the Fund that the Board has annually reviewed
and approved the continued use by the Fund of each
Approved Book-Entry System for Commercial Paper, so long
as such review and approval is required by Rule 17f-4
under the Investment Company Act of 1940, and the Fund
shall promptly notify the Custodian if the use of an
Approved Book-Entry System for Commercial Paper is to
be discontinued; at the request of the Fund, the Custodian
will terminate the use of any such System as promptly as
practicable.
<PAGE> 19
(f) The Custodian (or subcustodian, if the Approved Book-Entry
System for Commercial Paper is maintained by the
subcustodian) shall issue physical commercial paper or
promissory notes whenever requested to do so by the Fund
or in the event of an electronic system failure which
impedes issuance, transfer or custody of direct issue
commercial paper by book-entry.
(g) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the Fund
for any loss or damage to the Fund resulting from use of
any Approved Book-Entry System for Commercial Paper by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or subcustodians or of any
of its or their employees or from any failure of the
Custodian or any such agent or subcustodian to enforce
effectively such rights as it may have against the System,
the issuer of the commercial paper or any other person; at
the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to
any claim against the System, the issuer of the commercial
paper or any other person which the Custodian may have as
a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such
loss or damage.
N. Segregated Account The Custodian shall upon receipt of proper
instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Paragraph L hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and any registered
broker-dealer (or any futures commission merchant), relating to
compliance with the rules of the Options Clearing Corporation and
of any registered national securities exchange (or of the
Commodity Futures Trading Commission or of any contract market or
commodities exchange), or of any similar organization or
organizations, regarding escrow or deposit or other arrangements
in connection with transactions by the Fund (ii) for purposes
of segregating cash or U.S. Government securities in connection
with options purchased, sold or written by the Fund or futures
contracts or options thereon purchased or sold by the Fund,
(iii) for the purposes of compliance by the Fund with
the procedures required by Investment Company Act Release No.
10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies and (iv) for other
proper purposes, but only, in the case of clause (iv), upon
receipt of, in addition to proper instructions, a certificate
signed by two officers of the Fund, setting forth the purpose such
segregated account and declaring such purpose to be a proper
purpose.
<PAGE> 20
O. Ownership Certificates for Tax Purposes The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of the Fund
held by it and in connection with transfers of securities.
P. Proxies The Custodian shall, with respect to the securities held
by it hereunder, cause to be promptly delivered to the Fund all
forms of proxies and all notices of meetings and any other notices
or announcements or other written information affecting or
relating to the securities, and upon receipt of proper
instructions shall execute and deliver or cause its nominee to
execute and deliver such proxies or other authorizations as may be
required. Neither the Custodian nor its nominee shall vote upon
any of the securities or execute any proxy to vote thereon or give
any consent or take any other action with respect thereto (except
as otherwise herein provided) unless ordered to do so by proper
instructions.
Q. Communications Relating to Fund Portfolio Securities The
Custodian shall deliver promptly to the Fund all written
information (including, without limitation, pendency of call and
maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund and the
maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers and other persons relating
to the securities and participation interests being held for the
Fund. With respect to tender or exchange offers, the Custodian
shall deliver promptly to the Fund all written information
received by the Custodian from issuers and other persons relating
to the securities and participation interests whose tender or
exchange is sought and from the party (or his agents) making the
tender or exchange offer.
R. Exercise of Rights; Tender Offers In the case of tender offers,
similar offers to purchase or exercise rights (including, without
limitation, pendency of calls and maturities of securities and
participation interests and expirations of rights in connection
therewith and notices of exercise of call and put options and the
maturity of futures contracts) affecting or relating to securities
and participation interests held by the Custodian under this
Agreement, the Custodian shall have responsibility for promptly
notifying the Fund of all such offers in accordance with the
standard of reasonable care set forth in Section 8 hereof. For
all such offers for which the Custodian is responsible as provided
in this Paragraph R, the Fund shall have responsibility for
providing the Custodian with all necessary instructions in timely
fashion. Upon receipt of proper instructions, the Custodian shall
timely deliver to the issuer or trustee thereof, or to the agent
of either, warrants, puts, calls, rights or similar
<PAGE> 21
securities for the purpose of being exercised or sold upon proper
receipt therefor and upon receipt of assurances satisfactory to
the Custodian that the new securities and cash, if any, acquired
by such action are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof. Upon receipt
of proper instructions, the Custodian shall timely deposit
securities upon invitations for tenders of securities upon proper
receipt therefor and upon receipt of assurances satisfactory to
the Custodian that the consideration to be paid or delivered or
the tendered securities are to be returned to the Custodian or
subcustodian employed pursuant to Section 2 hereof.
Notwithstanding any provision of this Agreement to the contrary,
the Custodian shall take all necessary action, unless otherwise
directed to the contrary by proper instructions, to comply with
the terms of all mandatory or compulsory exchanges, calls,
tenders, redemptions, or similar rights of security ownership, and
shall thereafter promptly notify the Fund in writing of such
action.
S. Depository Receipts The Custodian shall, upon receipt of proper
instructions, surrender or cause to be surrendered foreign
securities to the depository used by an issuer of American
Depository Receipts, European Depository Receipts or International
Depository Receipts (hereinafter collectively referred to as
"ADRs") for such securities,
against a written receipt therefor adequately describing such
securities and written evidence satisfactory to the Custodian that
the depository has acknowledged receipt of instructions to issue
with respect to such securities ADRs in the name of a nominee of
the Custodian or in the name or nominee name of any subcustodian
employed pursuant to Section 2 hereof, for delivery to the
Custodian or such subcustodian at such place as the Custodian or
such subcustodian may from time to time designate. The Custodian
shall, upon receipt of proper instructions, surrender ADRs to the
issuer thereof against a written receipt therefor adequately
describing the ADRs surrendered and written evidence satisfactory
to the Custodian that the issuer of the ADRs has acknowledged
receipt of instructions to cause its depository to deliver the
securities underlying such ADRs to the Custodian or to a
subcustodian employed pursuant to Section 2 hereof.
T. Interest Bearing Call or Time Deposits The Custodian shall, upon
receipt of proper instructions, place interest bearing fixed term
and call deposits with the banking department of such banking
institution (other than the Custodian) and in such amounts as the
Fund may designate. Deposits may be denominated in U.S. Dollars
or other currencies. The Custodian shall include in its records
with respect to the assets of the Fund appropriate notation as to
the amount and currency of each such deposit, the accepting
banking institution and other appropriate details and shall retain
such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Custodian by the banking
<PAGE> 22
institution. Such deposits shall be deemed portfolio securities
of the applicable Fund for the purposes of this Agreement, and the
Custodian shall be responsible for the collection of income from
such accounts and the transmission of cash to and from such
accounts.
U. Options, Futures Contracts and Foreign Currency Transactions
1. Options. The Custodians shall, upon receipt of proper
instructions and in accordance with the provisions of any
agreement between the Custodian, any registered
broker-dealer and, if necessary, the Fund, relating to
compliance with the rules of the Options Clearing
Corporation or of any registered national securities
exchange or similar organization or organizations, receive
and retain confirmations or other documents, if any,
evidencing the purchase or writing of an option on a
security, securities index, currency or other financial
instrument or index by the Fund; deposit and maintain in
a segregated account for each Fund separately, either
physically or by book-entry in a Securities System,
securities subject to a covered call option written by
the Fund; and release and/or transfer such securities or
other assets only in accordance with a notice or other
communication evidencing the expiration, termination or
exercise of such covered option furnished by the Options
Clearing Corporation, the securities or options exchange
on which such covered option is traded or such other
organization as may be responsible for handling such o
ptions transactions. The Custodian and the broker-dealer
shall be responsible for the sufficiency of assets held
in each Fund's segregated account in compliance with
applicable margin maintenance requirements.
2. Futures Contracts The Custodian shall, upon receipt of
proper instructions, receive and retain confirmations and
other documents, if any, evidencing the purchase or sale
of a futures contract or an option on a futures contract
by the Fund; deposit and maintain in a segregated account,
for the benefit of any futures commission merchant, assets
designated by the Fund as initial, maintenance or
variation "margin" deposits (including mark-to-market
payments) intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold
or any options on futures contracts written by Fund, in
accordance with the provisions of any agreement or
agreements among the Fund, the Custodian and such futures
commission merchant, designed to comply with the rules of
the Commodity Futures Trading Commission and/or of any
contract market or commodities exchange or similar
organization regarding such margin deposits or payments;
and release and/or transfer assets in such margin accounts
only in
<PAGE> 23
accordance with any such agreements or rules. The
Custodian and the futures commission merchant shall be
responsible for the sufficiency of assets held in the
segregated account in compliance with the applicable
margin maintenance and mark-to-market payment
requirements.
3. Foreign Exchange Transactions The Custodian shall,
pursuant to proper instructions, enter into or cause a
subcustodian to enter into foreign exchange contracts,
currency swaps or options to purchase and sell foreign
currencies for spot and future delivery on behalf and for
the account of the Fund. Such transactions may be
undertaken by the Custodian or subcustodian with such
banking or financial institutions or other currency
brokers, as set forth in proper instructions. Foreign
exchange contracts, swaps and options shall be deemed to
be portfolio securities of the Fund; and accordingly, the
responsibility of the Custodian therefor shall be the same
as and no greater than the Custodian's responsibility in
respect of other portfolio securities of the Fund. The
Custodian shall be responsible for the transmittal to and
receipt of cash from the currency broker or banking or
financial institution with which the contract or option is
made, the maintenance of proper records with respect to
the transaction and the maintenance of any segregated
account required in connection with the transaction. The
Custodian shall have no duty with respect to the selection
of the currency brokers or banking or financial
institutions with which the Fund deals or for their
failure to comply with the terms of any contract or
option. Without limiting the foregoing, it is agreed that
upon receipt of proper instructions and insofar as funds
are made available to the Custodian for the purpose, the
Custodian may (if determined necessary by the Custodian to
consummate a particular transaction on behalf and for the
account of the Fund) make free outgoing payments of cash
in the form of U.S. dollars or foreign currency before
receiving confirmation of a foreign exchange contract or
swap or confirmation that the countervalue currency
completing the foreign exchange contract or swap has been
delivered or received. The Custodian shall not be
responsible for any costs and interest charges which may
be incurred by the Fund or the Custodian as a result of
the failure or delay of third parties to deliver foreign
exchange; provided that the Custodian shall nevertheless
be held to the standard of care set forth in, and shall be
liable to the Fund in accordance with, the provisions of
Section 8.
V. Actions Permitted Without Express Authority The Custodian may in its
discretion, without express authority from the Fund:
<PAGE> 24
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Agreement, provided, that all such
payments shall be accounted for by the Custodian to the
Treasurer of the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the securities
and property of the Fund except as otherwise directed by
the Fund.
4. Duties of Bank with Respect to Books of Account and Calculations of Net
Asset Value
The Bank shall as Agent (or as Custodian, as the case may be) keep such books
of account and render as at the close of business on each day a detailed
statement of the amounts received or paid out and of securities received or
delivered for the account of the Fund during said day and such other
statements, including a daily trial balance and inventory of the Fund's
portfolio securities; and shall furnish such other financial information and
data as from time to time requested by the Treasurer or any authorized officer
of the Fund; and shall compute and determine, as of the close of regular
trading on the New York Stock Exchange, or at such other time or times as the
Board may determine, the net asset value of a Share in the Fund, such
computation and determination to be made in accordance with the governing
documents of the Fund and the votes and instructions of the Board at the time
in force and applicable, and promptly notify the Fund and its investment
adviser and such other persons as the Fund may request of the result of such
computation and determination. In computing the net asset value the Custodian
may rely upon security quotations received by telephone or otherwise from
sources or pricing services designated by the Fund by proper instructions, and
may further rely upon information furnished to it by any authorized officer of
the Fund relative (a) to liabilities of the Fund not appearing on its books of
account, (b) to the existence, status and proper treatment of any reserve or
reserves, (c) to any procedures established by the Board regarding the
valuation of portfolio securities, and (d) to the value to be assigned to any
bond, note, debenture, Treasury bill, repurchase agreement, subscription right,
security, participation interest or other asset or property for which market
quotations are not readily available.
5. Records and Miscellaneous Duties
The Bank shall create, maintain and preserve all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund
<PAGE> 25
under the Investment Company Act of 1940, with particular attention to Section
31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and state
tax laws and any other law or administrative rules or procedures which may be
applicable to the Fund. All books of account and records maintained by the
Bank in connection with the performance of its duties under this Agreement
shall be the property of the Fund, shall at all times during the regular
business hours of the Bank be open for inspection by authorized officers,
employees or agents of the Fund, and in the event of termination of this
Agreement shall be delivered to the Fund or to such other person or persons as
shall be designated by the Fund. Disposition of any account or record after
any required period of preservation shall be only in accordance with specific
instructions received from the Fund. The Bank shall assist generally in the
preparation of reports to shareholders, audits of accounts, and other
ministerial matters of like nature; and, upon request, shall furnish the Fund's
auditors with an attested inventory of securities held with appropriate
information as to securities in transit or in the process of purchase or sale
and with such other information as said auditors may from time to time request.
The Custodian shall also maintain records of all receipts, deliveries and
locations of such securities, together with a current inventory thereof, and
shall conduct periodic verifications (including sampling counts at the
Custodian) of certificates representing bonds and other securities for which it
is responsible under this Agreement in such manner as the Custodian shall
determine from time to time to be advisable in order to verify the accuracy of
such inventory. The Bank shall not disclose or use any books or records it has
prepared or maintained by reason of this Agreement in any manner except as
expressly authorized herein or directed by the Fund, and the Bank shall keep
confidential any information obtained by reason of this Agreement.
6. Opinion of Fund's Independent Public Accountants
The Custodian shall take all reasonable action, as the Fund may from time to
time request, to enable the Fund to obtain from year to year favorable opinions
from the Fund's independent public accountants with respect to its activities
hereunder in connection with the preparation of the Fund's registration
statement and Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
7. Compensation and Expenses of Bank
The Bank shall be entitled to reasonable compensation for its services as
Custodian and Agent, as agreed upon from time to time between the Fund and the
Bank. The Bank shall entitled to receive from the Fund on demand reimbursement
for its cash disbursements, expenses and charges, including counsel fees, in
connection with its duties as Custodian and Agent hereunder, but excluding
salaries and usual overhead expenses.
<PAGE> 26
8. Responsibility of Bank
So long as and to the extent that it is in the exercise of reasonable care, the
Bank as Custodian and Agent shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall
be without liability for any action reasonably taken or omitted pursuant to
such advice.
The Bank as Custodian and Agent shall be held to the exercise of reasonable
care in carrying out the provisions of this Agreement but shall be liable only
for its own negligent or bad faith acts or failures to act. Notwithstanding
the foregoing, nothing contained in this paragraph is intended to nor shall it
be construed to modify the standards of care and responsibility set forth in
Section 2 hereof with respect to subcustodians and in subparagraph f of
Paragraph L of Section 3 hereof with respect to Securities Systems and in
subparagraph g of Paragraph M of Section 3 hereof with respect to an Approved
Book-Entry System for Commercial Paper.
The Custodian shall be liable for the acts or omissions of a foreign banking
institution to the same extent as set forth with respect to subcustodians
generally in Section 2 hereof, provided that, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank, the Custodian shall not be
liable for any loss, damage, cost, expense, liability or claim resulting from,
or caused by, the direction of or authorization by the Fund to maintain custody
of any securities or cash of the Fund in a foreign county including, but not
limited to, losses resulting from nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, revolution,
military or usurped powers, nuclear fission, fusion or radiation, earthquake,
storm or other disturbance of nature or acts of God.
If the Fund requires the Bank in any capacity to take any action with respect
to securities, which action involves the payment of money or which action may,
in the opinion of the Bank, result in the Bank or its nominee assigned to the
Fund being liable for the payment of money or incurring liability of some other
form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
9. Persons Having Access to Assets of the Fund
(i) No trustee, director, general partner, officer, employee
or agent of the Fund shall have physical access to the
assets of the Fund held by the Custodian or be authorized
or permitted to withdraw any investments of the Fund, nor
shall the Custodian deliver any assets of the Fund to any
such person. No officer or director, employee or agent of
the Custodian who holds any similar position with the Fund
or the
<PAGE> 27
investment adviser of the Fund shall have access to the
assets of the Fund.
(ii) Access to assets of the Fund held hereunder shall only be
available to duly authorized officers, employees,
representatives or agents of the Custodian or other
persons or entities for whose actions the Custodian shall
be responsible to the extent permitted hereunder, or to
the Fund's independent public accountants in connection
with their auditing duties performed on behalf of the
Fund.
(iii) Nothing in this Section 9 shall prohibit any officer,
employee or agent of the Fund or of the investment adviser
of the Fund from giving instructions to the Custodian or
executing a certificate so long as it does not result in
delivery of or access to assets of the Fund prohibited by
paragraph (i) of this Section 9.
10. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid
to the other party, such termination to take effect not sooner than sixty (60)
days after the date of such delivery or mailing; provided, that the Fund may at
any time by action of its Board, (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Federal Deposit Insurance
Corporation or by the Banking Commissioner of The Commonwealth of Massachusetts
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction. Upon termination of the
Agreement, the Fund shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
Unless the holders of a majority of the outstanding Shares of the Fund vote to
have the securities, funds and other properties held hereunder delivered and
paid over to some other bank or trust company, specified in the vote, having
not less than $2,000,000 of aggregate capital, surplus and undivided profits,
as shown by its last published report, and meeting such other qualifications
for custodians set forth in the Investment Company Act of 1940, the Board
shall, forthwith, upon giving or receiving notice of termination of this
Agreement, appoint as successor custodian, a bank or trust company having such
qualifications. The Bank, as Custodian, Agent or otherwise, shall, upon
termination of the Agreement, deliver to such successor custodian, all
securities then held hereunder and all funds or other properties of the Fund
deposited with or held by the Bank hereunder and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents held by
the Bank relative thereto. In the event that no such vote has been
<PAGE> 28
adopted by the shareholders and that no written order designating a successor
custodian shall have been delivered to the Bank on or before the date when such
termination shall become effective, then the Bank shall not deliver the
securities, funds and other properties of the Fund to the Fund but shall have
the right to deliver to a bank or trust company doing business in Boston,
Massachusetts of its own selection, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all funds, securities and properties of the Fund held by or
deposited with the Bank, and all books of account and records kept by the Bank
pursuant to this Agreement, and all documents held by the Bank relative
thereto. Thereafter such bank or trust company shall be the successor of the
Custodian under this Agreement.
11. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian and the Fund
may from time to time agree on such provisions interpretive of or in addition
to the provisions of this Agreement as may in their joint opinion be consistent
with the general tenor of this Agreement. Any such interpretive or additional
provisions shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any provision of the
governing instruments of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment
of this Agreement.
12. Certification as to Authorized Officers
The Secretary of the Fund shall at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of
the names and signatures of the authorized officers of each fund, it being
understood that upon the occurence of any change in the information set forth
in the most recent certification on file (including without limitation any
person named in the most recent certification who has ceased to hold the office
designated therein), the Secretary of the Fund shall sign a new or amended
certification setting forth the change and the new, additional or ommitted
names or signatures. The Bank shall be entitled to rely and act upon any
officers named in the most recent certification.
13. Notices
Notices and other writings delivered or mailed postage prepaid to the Fund
addressed to Thomas H. Drohan, John Hancock Advisers, Inc., 101 Huntington
Avenue, Boston, Massachusetts 02199, or to such other address as the Fund may
have designated to the Bank, in writing, or to Investors Bank & Trust Company,
24 Federal Street, Boston, Massachusetts 02110, shall be deemed to have been
properly delivered or given hereunder to the respective addressees.
<PAGE> 29
14. Massachusetts Law to Apply; Limitations on Liability
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with the laws of The Commonwealth of Massachusetts.
If the Fund is a Massachusetts business trust, the Custodian expressly
acknowledges the provision in the Fund's declaration of trust limiting the
personal liability of the trustees and shareholders of the Fund; and the
Custodian agrees that it shall have recourse only to the assets of the Fund for
the payment of claims or obligations as between the Custodian and the Fund
arising out of this Agreement, and the Custodian shall not seek satisfaction of
any such claim or obligation from the trustees or shareholders of the Fund.
Each Fund, and each series or portfolio of a Fund, shall be liable only for its
own obligations to the Custodian under this Agreement and shall not be jointly
or severally liable for the obligations of any other Fund, series or portfolio
hereunder.
<PAGE> 30
15. Adoption of the Agreement by the Fund
The Fund represents that its Board has approved this Agreement and has duly
authorized the Fund to adopt this Agreement. This Agreement shall be deemed to
supersede and terminate, as of the date first written above, all prior
agreements between the Fund and the Bank relating to the custody of the Fund's
assets.
* * * *
<PAGE> 31
In Witness Whereof, the parties hereto have caused this agreement to be
executed in duplicate as of the date first written above by their respective
officers thereunto duly authorized.
John Hancock Mutual Funds
by: /s/ Robert G. Freedman
---------------------------
Attest:
/s/Avery P. Maher
- -------------------
Investors Bank & Trust Company
by: /s/ Henry M. Joyce
---------------------------
Attest:
/s/ JM Keenan
- -------------------
<PAGE> 32
Page 1 of 2
INVESTORS BANK & TRUST COMPANY
APPENDIX A
[EFFECTIVE JANUARY 30, 1995]
John Hancock Limited Term Government Fund
John Hancock Capital Series
John Hancock Special Value Fund
John Hancock Growth Fund
John Hancock Income Securities Trust
John Hancock Investors Trust
John Hancock Sovereign Bond Fund
John Hancock Sovereign Investors Fund, Inc.
John Hancock Sovereign Investors Fund
John Hancock Sovereign Balanced Fund
John Hancock Special Equities Fund
John Hancock Strategic Series
John Hancock Independence Diversified Core Equity Fund
John Hancock Strategic Income Fund
John Hancock Utilities Fund
John Hancock Tax-Exempt Income Fund
John Hancock Tax-Exempt Series Fund
California Portfolio
Massachusetts Portfolio
New York Portfolio
John Hancock Technology Series, Inc.
John Hancock National Aviation & Technology Fund
John Hancock Global Technology Fund
Freedom Investment Trust
John Hancock Gold & Government Fund
John Hancock Regional Bank Fund
John Hancock Sovereign U.S. Government Income Fund
John Hancock Managed Tax-Exempt Fund
John Hancock Sovereign Achievers Fund
Freedom Investment Trust II
John Hancock Special Opportunities Fund
Freedom Investment Trust III
John Hancock Discovery Fund
<PAGE> 33
Page 2 of 2
INVESTORS BANK & TRUST COMPANY
APPENDIX A
[EFFECTIVE JANUARY 30, 1995]
John Hancock Series, Inc.
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
John Hancock Money Market Fund B
John Hancock Cash Reserve, Inc.
John Hancock Current Interest
John Hancock U.S. Government Cash Reserve
John Hancock Capital Growth Fund
John Hancock Investment Trust
John Hancock Growth and Income Fund
John Hancock California Tax-Free Income Fund
John Hancock Tax-Free Bond Fund
John Hancock Bond Fund
John Hancock Investment Quality Bond Fund
John Hancock Government Securities Trust
John Hancock U.S. Government Trust
John Hancock Adjustable U.S. Government Trust
John Hancock Adjustable U.S. Government Fund
John Hancock Intermediate Government Trust
John Hancock Institutional Series Trust
John Hancock Berkeley Dividend Performers Fund
John Hancock Berkeley Bond Fund
John Hancock Berkeley Fundamental Value Fund
John Hancock Berkeley Sector Opportunity Fund
John Hancock Independence Diversified Core Equity Fund II
John Hancock Independence Value Fund
John Hancock Independence Growth Fund
John Hancock Independence Medium Capitalization Fund
John Hancock Independence Balanced Fund
<PAGE> 1
EXHIBIT 11
(ERNST & YOUNG LLP LETTERHEAD)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references made to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
February 3, 1995 in Post-Effective Amendment No. 9 to the Registration
Statement (Form N-1A No. 33-31675) of John Hancock California Tax-Free Fund.
ERNST & YOUNG LLP
April 19, 1995
<PAGE> 1
EXHIBIT 12
JOHN HANCOCK
CALIFORNIA TAX-FREE
INCOME FUND
ANNUAL REPORT
December 31, 1994
[LOGO]
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
[Back Cover]
In upper left corner, return address: John Hancock California Tax-Free Income
Fund, John Hancock Funds Shareholder Services, P.O. Box 9656, Providence, RI
02940-9656. In upper right corner, postage information: Bulk Rate U.S. Postage
Paid Permit No. 6011, Houston, Texas. In lower left corner, 3/8" x 3/8" John
Hancock Funds logo. A box sectioned in quadrants with a triangle in upper
left, a circle in upper right, a cube in lower left and a diamond in lower
right.
<PAGE> 2
Chairman's Message
A 2" x 2 7/16" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, centered at top of page with copy wrapped around photo.
Dear Shareholders,
On behalf of our nearly 700 associates, I'm delighted to welcome you to John
Hancock Funds. As you all know, Transamerica Fund Management Company was
acquired by John Hancock Funds on December 22, 1994, following a favorable
shareholder vote. At that time, all of the Transamerica mutual funds became
part of the John Hancock family of funds.
We're excited about the opportunities this acquisition will bring to
shareholders. The combined firms form a larger, more competitive organization
with more than $13 billion in assets under management and more than 1 million
shareholders. Now with 50 open-end funds, 8 closed-end funds and a full array
of retirement and private account services, John Hancock Funds offers you a
broader selection of investment choices to meet your long-term financial needs.
What's more, the union of the John Hancock and Transamerica investment teams
gives you access to some of the top talent in the industry.
The Transamerica name is changing, but the commitment to serving you as a
valued shareholder isn't. Here at John Hancock Funds, our motto is: "We invest
in quality first." It has to do with the way we invest your money and the way
we work with you. Not only do we strive to ensure that your investments are
well managed, we also take pride in providing the highest quality customer
service. We can't guarantee investment performance; nobody can. The quality of
our service, however, depends totally on us. That is something that we can
guarantee.
In mid-May, we anticipate that all of the Transamerica funds will be fully
integrated into John Hancock's internal shareholder service organization, John
Hancock Investor Services. At that time, not only will you gain exchange
privileges into all John Hancock funds, but your account will be handled by one
of the top-rated service organizations in the industry. To show you how
seriously we take our commitment to quality, you will have access to our
service guarantee. If we make an error in processing a transaction in your
account, we will deposit $25 into it. Or, if you have a retirement account, we
will waive the annual fee.
We value your business and look forward to serving your investment needs in
the years to come.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
John Hancock Funds
1
<PAGE> 3
By The Portfolio Management Team
John Hancock California
Tax-Free Income Fund
Rising Interest Rates And California Credit Problems
Hit Municipal Bonds But Long-Term Outlook Still Positive
Under most circumstances, the combination of a 44% drop in the supply of
municipal bonds and higher tax rates would lead to higher prices for tax-free
bonds. During 1994, however, when the Federal Reserve Board raised short-term
interest rates in an attempt to head off inflation and slow economic growth,
the bond market responded by dramatically raising long-term rates. The yield on
the 30-year Treasury bond climbed from 6.26% at the beginning of 1994 to 7.84%
at the year's end. The increase in Treasury yields led to the worst year for
municipal bonds since 1987. The Bond Buyer 20, a municipal bond index, rose in
yield from 5.28% to 6.74%. Since yields and bond prices move inversely, the
price on municipal bonds dropped accordingly.
A tax provision in the 1993 budget added an extra measure of illiquidity to
the municipal market. Most municipal bonds are originally issued at a discount
to par (face value of the bond). The rise in yields and corresponding drop in
prices caused a further decline in price for these bonds. Under this tax
provision, purchasing bonds at a price significantly lower than the original
issue discount price can create taxable income for buyers when the bonds
appreciate back to the original discount price. As a result, demand dropped
during the reporting period.
In California, continuing budget problems, combined with a national
credit-rating agency's negative outlook for the state's economy and a credit
rating downgrade, added to the downward pressure on municipal bond prices. Late
in the period, the state received another blow when Orange County filed for
bankruptcy because the value of its highly-leveraged investment pool plunged.
This hurt not only Orange County's direct debt obligations, but debt
obligations of the 180 local governments and agencies that were invested in the
pool.
RISING RATES HURT
FUND PERFORMANCE
Few state municipal bond funds escaped the market's downturn, and John Hancock
California Tax-Free Income Fund was no exception. For the 12 months ended
December 31, 1994, Class A and Class B Shares had total returns of -9.31% and
- -9.99%, respectively, at net asset value. The average California municipal bond
fund was down -7.52% according to Lipper Analytical Services.*
Our strategy of maintaining a long maturity caused the Fund to underperform
its peers. A longer maturity allows the Fund to pay a higher yield.
Shareholders who receive dividend checks earn a higher level of income than
they would from funds with shorter maturities; shareholders who reinvest
dividends may experience a higher total return over time. Although there will be
2
<PAGE> 4
John Hancock California Tax-Free Income Fund
times, like the recent reporting period, when we will underperform, we believe
that maintaining a long maturity will help us to outperform over the long-term.
As of December 31, 1994, our average maturity was 24 years.
The Fund continued to offer a competitive yield during the period. According
to Lipper, the 12-month yield for Class A Shares was 6.29% and 5.48% for Class
B Shares, versus a California municipal bond fund category average of 5.87%.*
Yield, as calculated by Securities and Exchange Commission standards was 6.16%
for Class A Shares and 5.70% for Class B Shares for the 30 days ended December
31, 1994.**
During the 12-month period, the Fund paid $0.583 per share distributions for
Class A Shares and $0.508 for Class B Shares. Please remember that a portion of
the Fund's distributions may be subject to federal income taxes, state income
taxes or the alternative minimum tax. In January 1994, the Fund distributed
less than $0.01 per share of taxable gains that were carried over from tax year
1993.
STEADY STRATEGY
We manage the Fund for high tax-free yields and preservation of capital over
the long-term. We maintained that objective, making minor changes in response to
the interest-rate environment.
We reduced the percentage of alternative minimum tax bonds and nonrated
securities during the period. We believe that these bonds will probably not
perform as well as other issues when the municipal bond market rebounds. We
upgraded the credit quality of the Fund for the same reason.
We also increased our call protection. By buying bonds that cannot be called
(redeemed early), we locked in higher yields. As of December 31, 1994, the
portfolio's average call date was May 31, 2004.
We continued our strategy of seeking out the most attractively valued bonds
by moving between credit qualities. We invested in lower-quality issues when we
felt we were being appropriately compensated for the added risk. By the same
token, we sold high-quality bonds that we believed were overvalued.
We increased our exposure to essential service revenue bonds which are
backed by user fees rather than tax revenues.
ORANGE COUNTY EXPOSURE
A small portion of the portfolio was invested in bonds affected by the Orange
County bankruptcy. These holdings are not direct obligations of Orange County
but were issued by entities that invested in the Orange County pool. These
bonds are backed by dedicated, separate revenue streams. We anticipate no loss
of revenue as a result of the Orange County, California bankruptcy. The value
of these holdings decreased slightly on the news of the bankruptcy but
increased in January, tracking the bond market. We anticipate that these
holdings will regain normal trading value as the situation is resolved.
Our portfolio remained well diversified and contained 117 issues in 14 market
sectors as of December 31, 1994.
OUTLOOK
In California, the state's economy shows signs of improvement, including job
growth and stronger home sales. Ultimately this should relieve budget pressures
and improve credit fundamentals which bodes well for municipal bonds. However,
we expect some short-term pressures to remain as the Orange County situation is
resolved.
Looking forward, we remain cautiously optimistic about returns in municipal
bonds. Total issuance in 1995 should be very close to 1994's total of $160
billion. With approximately $300 billion out of the $1.2 trillion municipal
bond market either maturing or being called, there should be periods when
demand will exceed supply. Demand from individuals should remain strong due to
higher after-tax yields. Currently, yields on 30-year, AAA-rated municipals are
approximately 81% of the 30-year Treasury bond, which more than compensates for
the possibility of lower tax rates being discussed by the new Congress.
While demand from trust and insurance buyers should
3
<PAGE> 5
John Hancock California Tax-Free Income Fund
remain moderate due to higher short-term yields, demand from mutual funds could
increase from 1994 levels. If interest rates stabilize or the perception among
investors changes to a stable long-term interest-rate environment, net sales of
mutual funds will once again drive municipal prices higher.
We believe that the economy will slow to its historic norm of between 2.5% to
3.0% annual gross domestic product growth by the middle of 1995. Until that
happens, the Federal Reserve may continue to raise short-term interest rates.
Consumers seem to have satisfied their pent-up demand which, together with
higher short-term rates, should cool the economy. We expect long-term rates to
move lower in 1995 in response to a slower economy. When this happens,
municipal bond fund investors should see the returns on their investments begin
to improve.
* Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance may be
lower. Also, the Fund reimburses expenses. Without expense reimbursement, yield
and total return would have been lower. Total return would have been -13.73%
and -15.12% for Class A and Class B Shares, respectively, at net asset value
for the 12 months ended December 31, 1994.
** The SEC yield reflects net investment income earned by the Fund. Without
expense reimbursement, yields would have been 6.01% and 5.55% for Class A and
Class B Shares, respectively.
A box with heading "Top Five Sectors" following the footnote in the first
(left) column. Box lists the following: 1. Public Facilities, 21%,
2. Redevelopment, 17%, 3. Health, 13%, 4. Community Facilities, 13% 5. Water,
12%. The footnote below states: "As a percentage of total net assets on
December 31, 1994."
Table entitled "Scorecard" following the "Top Five Sectors". The header for
the left column is "Investments;" The header for the right column is "Recent
Performance...And What's Behind The Numbers." The first listing is CA
Department of Water followed by a down arrow and the phrase "Essential service
down on drought concerns." The second listing is California Statewide followed
by a down arrow and the phrase "Credit downgrade."
Bar chart with heading "Fund Performance" at the top of the second (right)
column. Under the heading is the note: "For the year ended December 31, 1994."
The horizontal chart is scaled in increments of -2% from -12% at the left and
12% at the right. Within the chart, there are three solid bars. The first
represents the -9.31% total return for John Hancock California Tax-Free Income
Fund Class A. The second represents the -9.99% total return for John Hancock
California Tax-Free Income Fund Class B. The third represents the -7.52% total
return for the Lipper Average California Municipal Bond Fund. The footnote
below states: "Total returns for John Hancock California Tax-Free Income Fund
are at net asset value with all distributions reinvested. The average
California municipal bond fund is tracked by Lipper Analytical Services.* See
the following page for historical performance information."
4
<PAGE> 6
John Hancock California Tax-Free Income Fund
LONG-TERM PERFORMANCE REVIEW
If you had invested $10,000 in John Hancock California Tax-Free Income Fund on
December 29, 1989 (Class A inception) and reinvested all dividends, your
investment, upon redemption, would have grown to $12,761 as of December 31,
1994.* Class B Shares, which were introduced on December 31, 1991, would have
grown to $10,698.
The chart compares the Fund's performance to the Lehman Brothers Municipal
Bond Index and the Consumer Price Index (CPI). The Lehman Brothers index is an
unmanaged index of municipal securities that are similar, but not identical, to
the bonds in the Fund's portfolio. The CPI is a commonly used gauge of the rate
of inflation.
Returns for Class A Shares (including the Fund's average annual total
returns for the one-year and since inception periods ended December 31, 1994,
as shown in the inset box) reflect the maximum 4.75% sales charge. Returns for
Class B Shares (for one-year and since inception, as shown in the box) reflect
expenses and the applicable contingent deferred sales charge which declines
yearly as follows: 5%, 4%, 3%, 3%, 2%, 1%, 0%. Return for the Lehman index does
not reflect a sales charge. If you were to purchase individual bonds
represented in this index, any sales charges that you would pay would reduce
your return accordingly.
Your investment return will fluctuate so that your shares, when redeemed, may
be worth more or less than the original cost. Performance information
representing past performance is no guarantee of future results.
* Class A Shares' return since inception includes the effect of expense
reimbursement which, if excluded, would have caused performance to be lower.
Without expense reimbursement, Class A return would have been -13.73% for the
one-year period and 4.62% since inception. Class B return would have been
- -15.12% for the one-year period and 2.07% since inception.
Boxed line chart at top right corner of page with heading "John Hancock
California Tax-Free Income Fund A vs. Lehman Brothers Muni Bond Index." Note
below states" "Growth of $10,000 Investment Since Inception, 12/29/89 -
12/31/94." The chart is scaled in $1,000 increments from $9,000 to $17,000 at
the left. The chart is scaled at the bottom from 12/29/89 at the left to 1994
at the right. Within the chart are three lines. The solid line represents the
value of a hypothetical $10,000 investment in the John Hancock California Tax-
Free Income Fund Class A on December 29, 1989 including 4.75% front load sales
charge that is equal to $12,761 on December 31, 1994. The dashed line
represents the value of a hypothetical $10,000 investment in the Lehman
Brothers Muni Bond Index on December 29, 1989 and is equal to $13,895 on
December 31, 1994. The dotted line represents a hypothetical $10,000
investment in the Consumer Price Index on December 29, 1989 and is equal to
$11,871 on December 31, 1994. In the upper left corner of the chart, is a box
with the heading "Average Annual Total Return." Text for the box reads from
left: "1 year, 5 year, Inception" on the first line and from left on the
second line, "-13.61%, 4.99% and 4.99%."
Page 5
Boxed line chart at top right corner of page with heading "Class B Shares."
Note below states" "Growth of $10,000 Investment Since Inception, 12/31/91 -
12/31/94." The chart is scaled in $1,000 increments from $10,000 to $14,000 at
the left. The chart is scaled at the bottom from 12/31/91 at the left to 1994
at the right. Within the chart are three lines. The solid line represents the
value of a hypothetical $10,000 investment in the John Hancock California Tax-
Free Income Fund Class B on December 31, 1991 including the applicable 5.00%
contingent deferred sales charge and expenses and is equal to $10,698 on
December 31, 1994. The dashed line represents the value of a hypothetical
$10,000 investment in the Lehman Brothers Muni Bond Index on December 31, 1991
and is equal to $11,584 on December 31, 1994. The dotted line represents a
hypothetical $10,000 investment in the Consumer Price Index on December 31,
1991 and is equal to $10,855 on December 31, 1994. In the upper left corner of
the chart, is a box with the heading "Average Annual Total Return." Text for
the box reads from left: "1 year, 5 year, Inception" on the first line and
from left on the second line, "-14.99%, N/A and 2.27%."
5
<PAGE> 7
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ---------- -----------
<S> <C> <C>
LONG-TERM MUNICIPAL
OBLIGATIONS-97.01%
COMMUNITY
FACILITIES-12.62%
Capistrano Unified School
District Community
Facilities District Bonds
7.000% due 09/01/18...................... $ 1,500,000 $ 1,331,250
7.500% due 09/01/07...................... 3,500,000 3,246,250
8.375% due 10/01/20...................... 3,000,000 3,041,250
Fontana Special Tax
Community Facilities
District Bonds
8.375% due 04/01/11...................... 10,000,000 8,262,500
8.400% due 04/01/15...................... 1,000,000 823,750
Fresno Joint Powers
Financing Authority
Revenue Refunding Bonds
6.550% due 09/02/12...................... 2,000,000 1,812,500
Industry Urban Development
Agency Bonds
6.900% due 11/01/16...................... 1,020,000 975,375
7.375% with various
maturities to 05/01/15................ 1,145,000 1,187,937
Los Alamitos Unified
School District Special
Tax Community Facilities
District Bonds
7.150% due 08/15/21...................... 6,005,000 5,359,463
Los Angeles County
Improvement Bonds
8.375% due 09/02/18...................... 3,865,000 3,947,131
Pleasanton Joint Power
Financing Authority
Revenue Bonds
6.600% due 09/02/08...................... 2,940,000 2,730,525
Sacramento Unified School
District Special Tax
Community Facilities
District Bonds
7.300% due 09/01/13...................... 760,000 779,000
Saddleback Valley Unified
School District
Community Facilities
District Bonds
7.750% due 09/01/16...................... 3,200,000 3,124,000
Santa Clarita Community
Facilities District
Special Tax Bonds
7.450% due 11/15/10...................... 3,600,000 3,636,000
-----------
40,256,931
HEALTH-12.92%
California Health Facilities
Financing Authority
Revenue Bonds
5.600% due 05/01/33...................... 3,800,000 2,987,750
5.800% due 12/01/18...................... 3,140,000 2,633,675
6.250% due 07/01/12...................... 1,135,000 1,037,106
7.500% due 04/01/22...................... 2,000,000 2,020,000
California Statewide
Community Development
Authority Revenue
Certificates of
Participation
5.500% due 07/01/23...................... 6,000,000 4,915,000
5.600% due 11/15/17...................... 2,435,000 1,996,700
6.200% due 08/01/12...................... 1,250,000 1,129,687
6.250% due 08/01/22...................... 2,590,000 2,263,012
6.500% due 08/01/22...................... 15,750,000 13,978,125
6.700% due 05/01/11...................... 1,250,000 1,200,000
6.750% due 12/01/21...................... 7,500,000 7,040,625
------------
41,201,680
HOSPITALS-7.93%
Arcadia Hospital
Revenue Bonds
6.625% due 11/15/22...................... 1,205,000 1,051,363
Bakersfield Memorial
Hospital Revenue Bonds
6.500% due 01/01/22...................... 2,000,000 1,792,500
</TABLE>
6
<PAGE> 8
STATEMENT OF NET ASSETS
John HancocK California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
Covina Hospital Revenue
Certificates of
Participation
7.000% due 03/01/17...................... 925,000 857,937
Duarte City of Hope
Medical Center
Certificates of
Participation
6.250% due 04/01/23...................... 13,900,000 11,571,750
Rancho Mirage Joint Powers
Financing Authority
Certificates of
Participation
7.000% due 03/01/22...................... 4,500,000 4,201,875
San Bernardino County
Certificates of
Participation
5.500% due 08/01/17...................... 7,500,000 5,812,500
-----------
25,287,925
HOUSING--0.57%
California Housing Finance
Agency Revenue Bonds
7.375% due 08/01/17...................... 335,000 341,700
Upland Housing Authority
Revenue Bonds
7.500% due 07/01/03...................... 190,000 190,238
7.850% due 07/01/20...................... 1,280,000 1,294,400
-----------
1,826,338
INDUSTRIAL
DEVELOPMENT--0.30%
ABAG Finance Authority
for Nonprofit Corps.
Certificates of
Participation
6.800% due 10/01/11...................... 1,000,000 962,500
MORTGAGE INSURED
BONDS--1.38%
California Housing Finance
Agency Home Mortgage
Revenue Refunding Bonds
7.250% due 08/01/17...................... 3,500,000 3,561,250
Southern California Home
Finance Authority Single
Family Mortgage Revenue
Bonds Series A
6.750% due 09/01/22...................... 850,000 835,125
-----------
4,396,375
MUNICIPAL UTILITY
DISTRICTS--0.92%
Sacramento Municipal
Utility District Electric
Revenue Bonds
5.750% due 05/15/22...................... 2,700,000 2,274,750
Southern California Public
Power Authority
Transmission Project
Revenue Bonds
5.500% due 07/01/20...................... 800,000 655,000
-----------
2,929,750
PUBLIC FACILITIES--21.03%
Anaheim Certificates of
Participation
6.870% due 07/16/23(A)................... 2,000,000 1,690,000
Anaheim Public Finance
Authority Electric Utility
Revenue Bonds
5.750% due 10/01/22..................... 2,750,000 2,354,688
California Public Capital
Improvements Financing
Authority Revenue Bonds
8.125% due 03/01/95...................... 230,000 230,862
</TABLE>
7
<PAGE> 9
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
California State Public
Works Board Lease
Revenue Bonds
5.000% due 12/01/19 .................... 7,795,000 6,021,638
6.700% due 10/01/17 .................... 1,500,000 1,428,750
Chula Vista Certificates of
Participation
6.000% with various
maturities to 09/01/12 ................. 1,700,000 1,506,875
Concord Joint Powers
Financing Authority
Lease Revenue Bonds
5.250% due 08/01/19 .................... 3,520,000 2,772,000
Cupertino Certificates of
Participation
5.750% due 01/01/16 .................... 2,500,000 2,137,500
Delano Certificates of
Participation
7.000% due 04/01/10 .................... 2,000,000 1,915,000
Encinitas Certificates of
Participation
6.750% due 12/01/11 .................... 1,300,000 1,270,750
Inglewood Certificates of
Participation
7.000% due 08/01/19 .................... 1,000,000 966,250
Los Angeles County
Certificates of Participation
6.250% due 07/01/03 .................... 2,000,000 1,920,000
6.500% due 07/01/08 .................... 4,000,000 3,735,000
Los Angeles County Disney
Parking Certificates of
Participation
6.500% due 03/01/23 .................... 2,000,000 1,820,000
Los Angeles County Public
Works Finance Authority
Revenue Bonds
6.000% due 10/01/15 ................... 3,750,000 3,375,000
Oceanside Certificates of
Participation
6.000% due 04/01/17 .................... 2,875,000 2,461,719
6.375% due 04/01/12 .................... 3,000,000 2,767,500
Orange County Certificates
of Participation
6.700% due 08/01/18 .................... 1,000,000 963,750
San Diego County
Certificates of
Participation
6.750% due 08/01/19 .................... 3,000,000 2,996,250
San Jose Financing
Authority Revenue Bonds
6.400% due 09/01/17 .................... 2,000,000 1,857,500
San Marcus Public Facilities
Authority Revenue
Refunding Bonds
6.200% due 08/01/22 .................... 5,000,000 4,156,250
San Mateo Joint Powers
Financing Authority
Lease Revenue
Refunding Bonds
5.000% due 07/01/21 .................... 1,815,000 1,393,012
5.125% due 07/01/18 .................... 2,500,000 1,978,125
Santa Ana Financing
Authority Lease
Revenue Bonds
6.250% with various
maturities to 07/01/24 ................. 11,790,000 11,041,550
Stanislaus County
Certificates of
Participation
7.550% due 04/01/18 .................... 2,295,000 2,283,525
Vallejo Certificates of
Participation
8.000% due 02/01/06 .................... 2,000,000 2,025,000
-----------
67,068,494
REDEVELOPMENT-
COMMERCIAL--1.22%
Azusa Redevelopment
Agency Tax
Allocation Bonds
7.000% due 08/01/22 .................. 2,000,000 1,875,000
</TABLE>
8
<PAGE> 10
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ---------- -----------
<S> <C> <C>
BRENTWOOD REDEVELOPMENT
Agency Tax
Allocation Bonds
7.700% due 11/01/08..................... 135,000 135,844
Richmond Joint Powers
Financing Authority
Revenue Bonds
7.700% due 10/01/10..................... 1,835,000 1,880,875
-----------
3,891,719
REDEVELOPMENT-
MIXED USE--15.94%
Avalon Community
Improvement Agency Tax
Allocation Bonds
6.400% due 08/01/22..................... 1,975,000 1,752,813
Bakersfield Central District
Development Agency Tax
Allocation Bonds
6.625% due 04/01/15..................... 4,000,000 3,665,000
Burbank Redevelopment
Agency Tax
Allocation Bonds
6.000% due 12/01/23..................... 2,750,000 2,296,250
Clearlake Redevelopment
Agency Tax
Allocation Bonds
6.400% due 10/01/23..................... 500,000 446,250
Concord Redevelopment
Agency Tax Allocation
General Obligation Bonds
5.750% due 07/01/10..................... 1,145,000 970,387
Davis City Redevelopment
Agency Tax
Allocation Bonds
7.000% due 09/01/24..................... 5,115,000 5,204,513
Huntington Park Public
Financing Authority
Revenue Bonds
7.600% due 09/01/18..................... 5,000,000 4,675,000
Inglewood Redevelopment
Agency Tax
Allocation Bonds
6.125% due 07/01/13..................... 1,000,000 873,750
Lincoln Redevelopment
Agency Tax Allocation
Revenue Bonds
7.650% due 08/01/17..................... 3,350,000 3,379,313
Merced Public Financing
Authority Revenue Bonds
5.500% due 12/01/15..................... 3,630,000 2,958,450
Orange County
Development Agency Tax
Allocation Bonds
6.125% due 09/01/23..................... 3,000,000 2,302,500
Orange Redevelopment
Agency Tax Allocation
Revenue Bonds
5.700% due 10/01/17..................... 3,000,000 2,478,750
Palm Springs Financing
Authority Revenue Bonds
6.400% due 09/01/17..................... 3,000,000 2,737,500
Pittsburg Redevelopment
Agency Tax
Allocation Bonds
7.400% due 08/15/20..................... 3,040,000 2,983,000
Pomona Public Financing
Authority Revenue
Refunding Bonds
5.750% due 02/01/20..................... 10,000,000 7,912,500
Santa Cruz County Public
Financing Authority
Revenue Bonds
6.200% due 09/01/23..................... 2,000,000 1,677,500
Suisun City Redevelopment
Agency Tax
Allocation Bonds
7.250% due 10/01/20..................... 425,000 460,594
</TABLE>
9
<PAGE> 11
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
Tracy Community
Development Agency Toll
Road Revenue Bonds
6.000% due 03/01/24...................... 5,000,000 4,056,250
-----------
50,830,320
SCHOOLS--5.97%
Beaumont Unified School
District Certificates of
Participation
7.700% due 01/01/21...................... 1,000,000 985,000
Cucamonga School District
Certificates of
Participation
7.600% due 12/01/15...................... 1,000,000 1,022,500
Elk Grove Unified School
District Special
Tax Bonds
7.125% due 12/01/24...................... 1,000,000 1,016,250
Perris Union High School
District Certificates of
Participation
5.900% due 09/01/23...................... 2,000,000 1,667,500
San Gabriel Valley School
Financing Authority
Revenue Refunding Bonds
5.500% due 02/01/19...................... 1,500,000 1,215,000
Saugus Unified School
District Certificates of
Participation
7.500% due 08/01/09...................... 700,000 733,250
Sierra Unified School
District Certificates of
Participation
6.000% due 03/01/12...................... 2,000,000 1,707,500
Simi Valley Unified School
District Certificates of
Participation
6.100% due 08/01/22...................... 3,000,000 2,737,500
University of California
Certificates of Participation
5.500% due 11/01/14...................... 2,000,000 1,642,500
5.600% due 11/01/20...................... 6,180,000 4,990,350
Victor Valley Unified School
District Certificates of
Participation
7.875% due 11/01/12...................... 1,255,000 1,316,181
-----------
19,033,531
TRANSPORTATION--1.09%
San Diego MTDB Authority
Lease Revenue Bonds
5.375% due 06/01/23...................... 2,500,000 2,050,000
San Joaquin Hills
Transportation Corridor
Agency Toll Road
Revenue Bonds
6.750% due 01/01/32...................... 1,750,000 1,448,125
-----------
3,498,125
WASTE--2.98%
California Pollution Control
Financing Authority
Pollution Control
Revenue Bonds
5.850% due 12/01/23...................... 500,000 419,375
California Pollution Control
Financing Authority
Solid Waste Disposal
Revenue Bonds
6.875% due 11/01/27...................... 2,000,000 1,882,500
Stanislaus Waste to Energy
Financing Agency
Revenue Bonds
7.625% due 01/01/10...................... 1,000,000 1,007,500
Vallejo Sanitation and Flood
Control District
Certificates of Participation
5.000% due 07/01/19...................... 8,000,000 6,190,000
-----------
9,499,375
</TABLE>
10
<PAGE> 12
STATEMENT OF NET ASSETS
John Hancock California Tax-Free Income Fund
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ----------- -----------
<S> <C> <C>
WATER--12.14%
Apple Valley Water District
Improvement Bonds
7.875% due 09/02/11...................... 2,425,000 2,500,781
California Department of
Water Resources
Central Valley Project
Revenue Bonds
5.500% due 12/01/23...................... 6,000,000 4,942,500
Calleguas-Las Virgines
Public Financing
Authority Revenue Bonds
5.125% due 07/01/21...................... 4,500,000 3,493,125
Central Coast Water
Authority Revenue Bonds
6.600% due 10/01/22...................... 3,200,000 3,132,000
East Bay Municipal Utility
District Water System
Revenue Refunding Bonds
6.000% due 06/01/12...................... 1,000,000 930,000
Metropolitan Water
District Waterworks
Revenue Bonds
5.000% due 07/01/20...................... 7,500,000 5,784,375
5.500% due 07/01/19...................... 5,000,000 4,181,250
Orange Cove Irrigation
District Revenue
Certificates of Participation
7.000% due 02/01/15...................... 2,500,000 2,409,375
7.250% due 02/01/12...................... 2,000,000 2,000,000
San Bernardino Municipal
Water Department
Certificates of Participation
6.250% due 02/01/17...................... 2,510,000 2,365,675
Santa Barbara Water and
Sewer Certificates of
Participation
6.700% due 04/01/27...................... 2,000,000 1,957,500
Turlock Irrigation District
Certificates of
Participation
7.300% due 01/01/11...................... 4,165,000 4,165,000
Turlock Irrigation District
Revenue Refunding
Bonds Series A
5.750% due 01/01/18...................... 1,000,000 873,750
------------
38,735,331
------------
TOTAL LONG-TERM
MUNICIPAL OBLIGATIONS
(Cost $342,717,564).......................... 309,418,394
SHORT-TERM
OBLIGATIONS--0.88%
VARIABLE RATE REVENUE
BONDS--0.88%
INDUSTRIAL
DEVELOPMENT--0.88%
California Pollution Control
Financing Authority
Pollution Control Revenue
Bonds Series A
5.000% due 01/03/95(B)................... 2,800,000 2,808,941
------------
TOTAL SHORT-TERM
OBLIGATIONS
(Cost $2,808,941)............................ 2,808,941
------------
TOTAL INVESTMENTS--97.89%
(Cost $345,526,505).......................... 312,227,335
CASH AND OTHER ASSETS,
LESS LIABILITIES--2.11%...................... 6,720,818
------------
NET ASSETS, at value,
equivalent to $9.28 per
share for 26,034,286
Class A Shares ($.01 par
value) outstanding and
$9.28 per share for
8,339,105 Class B Shares
($.01 par value)
outstanding--100.00%....................... $318,948,153
============
</TABLE>
(A) Floating rate securities.
(B) Interest rate reset date.
See Notes to Financial Statements.
11
<PAGE> 13
STATEMENT OF OPERATIONS/STATEMENTS OF CHANGES NET ASSETS
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
- --------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................... $ 23,033,267
------------
Expenses:
Management fees............................ $ 1,919,101
Distribution expenses
(see Note D)............................. 1,114,370
Transfer agent fees........................ 244,131
Administrative service fees................ 158,594
Custodian fees............................. 100,287
Audit and legal fees....................... 39,491
Registration fees.......................... 36,394
Trustees' fees and expenses................ 27,905
Insurance expense.......................... 25,872
Shareholder reports........................ 23,859
Organization costs......................... 4,619
Miscellaneous.............................. 20,155
Less: Expense
reimbursement............................ (506,921) 3,207,857
----------- ------------
Net Investment Income.................. 19,825,410
------------
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Net realized loss on
investments.............................. (4,180,216)
Net change in unrealized
depreciation of
investments.............................. (51,218,323)
------------
Net realized and Unrealized
Loss on Investments.................. (55,398,539)
------------
Decrease in net assets
Resulting from Operations............ $(35,573,129)
====================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS:
NET INVESTMENT INCOME...................... $ 19,825,410 $ 16,517,620
Net realized gain (loss) on
investments.............................. (4,180,216) 9,880,178
Net change in unrealized
appreciation
(depreciation) of
investments.............................. (51,218,323) 9,798,946
------------ ------------
Increase (decrease) in net
assets resulting from
operations............................... (35,573,129) 36,196,744
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income-
Class A.................................. (15,737,105) (14,358,309)
Class B.................................. (3,992,716) (2,149,913)
Net realized gain on
investments-
Class A.................................. - (8,029,591)
Class B.................................. - (1,848,387)
------------ ------------
Total distributions to
shareholders......................... (19,729,821) (26,386,200)
------------ ------------
SHARE TRANSACTIONS
Increase in shares
outstanding................................ 29,122,142 91,709,279
------------ ------------
Increase (decrease) in
net assets................................. (26,180,808) 101,519,823
NET ASSETS
Beginning of year.......................... 345,128,961 243,609,138
------------ ------------
End of year................................ $318,948,153 $345,128,961
============ ============
Undistributed Net
Investment Income........................ $ 127,227 $ 31,638
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
----------------------------------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------- ------------------------------
1994(1) 1993 1992(2) 1991 1990 1994(1) 1993 1992(2)
--------- -------- -------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share income and capital changes
for a share outstanding during
each year:
Net asset value, beginning of year....... $ 10.85 $ 10.41 $ 10.32 $ 9.91 $ 10.00 $ 10.85 $ 10.41 $ 10.32
INCOME FROM
INVESTMENT OPERATIONS
Net investment income................... 0.58 0.62 0.66 0.69 0.74 0.51 0.54 0.58
Net realized and unrealized gain
(loss) on investments................. (1.57) 0.76 0.25 0.47 (0.16) (1.57) 0.76 0.25
--------- -------- -------- ------- -------- -------- -------- -------
Total from Investment Operations.... (0.99) 1.38 0.91 1.16 0.58 (1.06) 1.30 0.83
LESS DISTRIBUTIONS
Dividends from net investment
income................................ (0.58) (0.62) (0.67) (0.70) (0.67) (0.51) (0.54) (0.59)
Distributions from realized gains....... - (0.32) (0.15) (0.05) - - (0.32) (0.15)
--------- -------- -------- ------- -------- -------- -------- -------
Total Distributions................. (0.58) (0.94) (0.82) (0.75) (0.67) (0.51) (0.86) (0.74)
--------- -------- -------- ------- -------- -------- -------- -------
Net asset value, end of year............ $ 9.28 $ 10.85 $ 10.41 $ 10.32 $ 9.91 $ 9.28 $ 10.85 $ 10.41
======== ======== ======== ======= ======= ======== ======== =======
TOTAL RETURN(3)......................... (9.31)% 13.60% 9.15% 12.26% 6.13% (9.99)% 12.76% 8.35%
======== ======== ======== ======= ======= ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average
net assets............................ 0.89% 0.87% 0.83% 0.80% 0.84% 1.64% 1.62% 1.60%
Ratio of expense reimbursement
to average net assets................. (0.14)% (0.18)% (0.25)% (0.40)% (0.84)% (0.14)% (0.18)% (0.25)%
======== ======== ======== ======= ======= ======== ======== =======
Ratio of net expenses to average
net assets............................ 0.75% 0.69% 0.58% 0.40% 0.00% 1.50% 1.44% 1.35%
======== ======== ======== ======= ======= ======= ======= =======
Ratio of net investment income
to average net assets................. 5.85% 5.69% 6.36% 6.75% 7.11% 5.10% 4.82% 5.43%
Portfolio turnover...................... 62% 51% 34% 45% 62% 62% 51% 34%
Net Assets, end of year
(in thousands)........................ $241,583 $279,692 $217,014 $163,693 $80,200 $77,365 $65,437 $26,595
</TABLE>
(1) December 22, 1994, John Hancock Advisers, Inc. became the Investment
Adviser. Prior to this date, Transamerica Fund Management Company was
the Investment Adviser.
(2) Per share information has been calculated using the average number of
shares outstanding.
(3) Total return does not include the effect of the initial sales charge for
Class A Shares nor the contingent deferred sales charge for Class B
Shares. Total return does include the benefit of a voluntary expense
reimbursement by the Investment Adviser. Without such benefit, total
return would be lower.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
John Hancock California Tax-Free Income Fund
December 31, 1994
NOTE A--
SIGNIFICANT ACCOUNTING POLICIES
John Hancock California Tax-Free Income Fund (the ``Fund''), formerly
Transamerica California Tax-Free Income Fund, is a diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended. On December 16, 1994, the shareholders of each of the mutual
funds managed by Transamerica Fund Management Company (TFMC) voted to approve
new Investment Advisory contracts with John Hancock Advisers, Inc. Each such
approval was subject to the acquisition of TFMC by The Berkeley Financial Group
(known beginning January 1, 1995 as John Hancock Funds), the parent company of
John Hancock Advisers, Inc. The acquisition became effective December 22, 1994.
The Fund's name change was also effective on this date.
The Fund offers two classes of shares to the public. Class A Shares
are subject to an initial sales charge of up to 4.75% and a 12b-1 distribution
plan. Class B Shares are subject to a contingent deferred sales charge and a
separate 12b-1 distribution plan. The following is a summary of significant
accounting policies consistently followed by the Fund.
(1) The Fund values its investments by using quotations provided by
market makers, estimates of market value, or values received from an
independent pricing service. Securities for which market quotations are not
readily available are valued at a fair value as determined in good faith by the
Fund's Board of Trustees. Short-term investments are valued at amortized cost
(original cost plus amortized discount or accrued interest).
(2) Security transactions are accounted for on the trade date. Interest
income is accrued daily. Debt premiums and original issue discounts are
amortized using the yield-to-maturity method. Discounts other than original
issue are not amortized. Realized gains and losses from security transactions
are determined on the basis of identified cost for both financial reporting and
federal income tax purposes.
(3) Income dividends are declared daily by the Fund and paid to
shareholders or reinvested at net asset value monthly. Other distributions are
recorded on the ex-dividend date and may be reinvested at net asset value.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
Distributions payable to shareholders at December 31, 1994 were $907,182.
(4) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code. At December 31, 1994, the Fund had a realized capital loss
carryforward of approximately $268,000, which will expire in 2002.
(5) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
December 31, 1994, these amounts were $11,967 and $26,382, respectively.
(6) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
NOTE B--
MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
From January 1, 1994 through December 21, 1994, TFMC acted as the
Investment Adviser to the Fund. On December 22, 1994, John Hancock Advisers,
Inc., a wholly-owned subsidiary of John Hancock Funds, became Investment
Adviser following the approval of the Fund's shareholders. Throughout these
financial statement notes, TFMC and John Hancock Advisers, Inc. are referred to
collectively as the ``Investment Adviser'', as each acted in this capacity
during the time periods noted above. The Investment Adviser has a sub-advisory
agreement with, and pays a fee to, Transamerica Investment Services, Inc. (the
``Sub-Adviser''). TFMC was, prior to December 22, 1994, and the Sub-Adviser is
presently a subsidiary of Transamerica Corporation.
The Fund's management fee is payable monthly and is calculated based on
the monthly average daily net assets of the Fund at an annual rate of 0.55%. At
December 31, 1994, the management fee payable to the Investment Adviser was
$118,703.
The Investment Adviser also provided administrative services to the
Fund pursuant to an administrative service agreement. During the year ended
December 31, 1994, the Fund paid or accrued $109,540 to the Investment Adviser
for these services, of which $13,620 was payable at December 31, 1994.
The Investment Adviser voluntarily agreed to reimburse the Fund for all
normal operating expenses, excluding distribution expenses, in excess of 0.60%,
on an annual basis, of the Fund's average daily net assets through December 31,
1994. For the year ended December 31, 1994, the Investment Adviser reimbursed
the Fund $506,921 pursuant to this agreement.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
John Hancock California Tax-Free Income Fund
During the year ended December 31, 1994, Transamerica Fund
Distributors, Inc., an affiliate of TFMC and principal underwriter of the Fund
through December 21, 1994, and John Hancock Funds, Inc., an affiliate of John
Hancock Advisers, Inc. and principal underwriter since December 22, 1994,
retained $126,490 as their portion of the commissions charged on sales of Class
A Shares of the Fund. Throughout these financial statement notes, Transamerica
Fund Distributors, Inc. and John Hancock Funds, Inc. are referred to
collectively as the ``Distributor'', as each acted in this capacity during the
time periods noted above. At December 31, 1994, receivables from and payable
to the Distributor for Fund share transactions were $182,622 and $725,576,
respectively.
The Fund paid no compensation directly to any officer. Certain officers
of the Fund are affiliated with the Investment Adviser.
During the year ended December 31, 1994, the Fund paid legal fees of
$6,000 to Baker & Botts. A partner with Baker & Botts was an officer of the
Fund until December 22, 1994.
NOTE C--
COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
During the year ended December 31, 1994, purchases and sales of securities,
other than short-term obligations, aggregated $241,713,463 and $211,597,251,
respectively.
At December 31, 1994, receivables from brokers for securities sold were
$1,028,289. The identified cost of investments owned was the same for both
financial reporting and federal income tax purposes. At December 31, 1994, the
gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes were $1,262,641 and $34,561,811, respectively.
NOTE D--
PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities related to
the distribution of its Class A and Class B Shares (the ``Class A Plan'' and
the ``Class B Plan,'' respectively). The distribution plans, together with the
initial sales charge on Class A Shares and the contingent deferred sales charge
on Class B Shares, comply with the regulations covering maximum sales charges
assessed by mutual funds distributed through securities dealers that are NASD
members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.15% 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 December 31, 1994, the Fund made payments to the Distributor of
$405,172 or 0.15% for Class A and $118,200 or 0.15% for Class B, related to the
above activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment), reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended December 31, 1994, Class B reimbursed the Distributor $590,998 or
0.75% for such costs. For the year ended December 31, 1994, the Distributor
received $302,402 in CDSC.
At December 31, 1994, Class A had $96,343 and Class B had $77,295
payable to the Distributor pursuant to the above distribution plans.
NOTE E--
ORGANIZATION
The Fund was organized as a Massachusetts business trust on October 17, 1989.
The Fund had no transactions between that date and December 31, 1989, the
date of the Fund's initial offering of shares to the public, other than the
sale at $10.00 per share (net asset value) of 10,000 shares to TFMC.
The organization expenses of the Fund have been deferred and are being
amortized over a period during which it is expected that a benefit will be
realized, but not longer than five years from the date of commencement of
operations.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE F--SHARE AND RELATED TRANSACTIONS
A summary of share transactions follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1993
-------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold-Class A........................................ 5,288,858 $ 54,343,070 6,222,367 $ 67,684,801
Shares sold-Class B........................................ 3,496,364 36,145,744 3,570,391 39,032,830
Shares issued in reinvestment of distributions-Class A..... 669,253 6,642,113 922,955 10,028,581
Shares issued in reinvestment of distributions-Class B..... 200,879 1,988,933 213,817 2,322,382
Shares redeemed-Class A.................................... (5,712,088) (56,313,131) (2,204,763) (24,012,146)
Shares redeemed-Class B.................................... (1,391,946) (13,684,587) (305,683) (3,347,169)
---------- ------------ ---------- ------------
Net increase in shares outstanding......................... 2,551,320 $ 29,122,142 8,419,084 $ 91,709,279
========== ============ ========== ============
</TABLE>
The components of net assets at December 31, 1994, are as follows:
<TABLE>
<S> <C>
Capital paid-in (unlimited number of shares authorized)................................................. $356,244,025
Undistributed net investment income..................................................................... 127,227
Accumulated net realized loss on investments............................................................ (4,123,929)
Net unrealized depreciation of investments.............................................................. (33,299,170)
------------
NET ASSETS.............................................................................................. $318,948,153
============
</TABLE>
16
<PAGE> 18
John Hancock California Tax-Free Income Fund
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
John Hancock California Tax-Free Income Fund
We have audited the accompanying statement of net assets of John Hancock
California Tax-Free Income Fund, formerly Transamerica California Tax-Free
Income Fund, as of December 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
December 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 California Tax-Free Income Fund at December 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.
Houston, Texas
February 3, 1995
17
<PAGE> 19
John Hancock California Tax-Free Income Fund
FUND INFORMATION
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
OFFICERS
Edward J. Boudreau, Jr., Chairman and Chief Executive Officer
Robert G. Freedman, Vice Chairman and Chief Investment Officer
Thomas M. Simmons, President
Anne C. Hodsdon, Executive Vice President
James B. Little, Senior Vice President and Chief Financial Officer
Thomas H. Drohan, Senior Vice President and Secretary
Warren Schmalenberger, Senior Vice President
James K. Ho, Senior Vice President
Andrew F. St. Pierre, Senior Vice President
B.J. Willingham, Senior Vice President
Frank Lucibella, Vice President
James J. Stokowski, Vice President and Treasurer
Susan S. Newton, Vice President and Compliance Officer
John A. Morin, Vice President
Thomas J. Press, Vice President and Assistant Secretary
TRUSTEES
James F. Carlin
William H. Cunningham
Charles L. Ladner
Leo E. Linbeck
Patricia P. McCarter
Steven R. Pruchansky
Norman H. Smith
John P. Toolan
DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
TRANSFER AGENT
The Shareholder Services Group, Inc.
P.O. Box 9656
Providence, RI 02940-9656
1-800-343-6840
This material is not authorized for distribution unless preceded or
accompanied by a current prospectus.
The performance information referred to in this report is historical and does
not represent a guarantee of similar future results. The investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
No portion of the distributions during the fiscal year qualifies for the
dividend received deduction.
The income dividends paid during the year ended December 31, 1994 were
reported to shareholders on Form 1099 in early 1995. Two percent of dividends
paid were from sources subject to alternative minimum tax (AMT) provisions.
Please consult your tax adviser to determine how this information impacts your
personal tax circumstances.
- --------------------------------------------------------------------------------
18
<PAGE> 1
EXHIBIT 15(e)
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
Distribution Plan
Class A Shares
December __, 1994
ARTICLE I. THIS PLAN
This Distribution Plan (the "Plan") sets forth the terms and
conditions on which John Hancock California Tax-Free Income Fund (the "Fund")
will, after the effective date hereof, pay certain amounts to John Hancock
Broker Distribution Services, Inc. ("Broker Services") in connection with the
provision by Broker Services of certain services to the Fund and its Class A
shareholders, as set forth herein. Certain of such payments by the Trust 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
Broker Services have entered into a Distribution Agreement of even date
herewith, as amended from time to time (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 Broker Services a fee in the amount specified in
Article III hereof. Such fee may be spent by Broker Services 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
payable out of such fee as it is received by Broker Services or other
broker-dealers ("Selling Brokers") that have entered into an agreement with
Broker Services 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
Broker Services related to the distribution of Class A shares of the Fund, (d)
distribution expenses incurred by Transamerica Fund Distributors, Inc. in
connection with the Class A shares of the Fund, and (e)
<PAGE> 2
distribution 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 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 Broker Services)
and others who furnish personal and shareholder account maintenance services to
Class A 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 0.25% 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 may only constitute up to an annual
rate of 0.25% of the average daily net asset value of the Class A shares of the
Fund payable annually pursuant to the Plan. Such expenditures shall be
calculated and accrued daily and paid monthly or at such other intervals as the
Trustees shall determine. In the event Broker Services 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 Broker Services under this Plan during any fiscal
year of the Fund and not expended or allocated by Broker Services 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 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 __, 1994, as from time to time continued and amended
(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 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 TRUSTEES
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
<PAGE> 3
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 Trustees of the Fund and (b) those Trustees of
the Fund 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 Trustees").
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.
ARTICLE VII. INFORMATION
Broker Services shall furnish the Fund and its Trustees 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 Trustees may request.
ARTICLE VIII. TERMINATION
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class A shares, or (b) by Broker Services 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 Trustees 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.
<PAGE> 4
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.
ARTICLE XI. LIMITATION OF LIABILITY
The obligations of the Fund are not personally binding upon, nor shall
resort be had to the private property of, any of the Trustees, shareholders,
officers, employees or agents of the Fund, but only the Fund's property shall
be bound.
<PAGE> 5
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the ____ day of December, 1994 in Boston, Massachusetts.
JOHN HANCOCK CALIFORNIA TAX-FREE
INCOME FUND
By:
----------------------------------------------
Thomas M. Simmons
President
JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC.
By:
----------------------------------------------
C. Troy Shaver, Jr.
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 15(f)
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
Distribution Plan
Class B Shares
December __, 1994
ARTICLE I. THIS PLAN
This Distribution Plan (the "Plan") sets forth the terms and
conditions on which John Hancock California Tax- Free Income Fund (the "Fund"),
on behalf of its Class B shares, will, after the effective date hereof, pay
certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker
Services") in connection with the provision by Broker Services of certain
services to the Fund and its Class B 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 Broker Services have entered into a
Distribution Agreement of even date herewith, as amended from time to time (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 Broker Services a fee in the amount specified in
Article III hereof. Such fee may be spent by Broker Services on any activities
or expenses primarily intended to result in the sale of Class B 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 Broker Services or other broker-dealers
("Selling Brokers") that have entered into an agreement with Broker Services
for the sale of Class B shares of the Fund, (b) direct out-of-pocket expenses
incurred in connection with the distribution of Class B shares of the Fund,
including expenses related to printing of prospectuses and reports to other
than existing Class B 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 Broker Services related to the
distribution of Class B shares of the Fund, (d) distribution expenses incurred
by Transamerica Fund
<PAGE> 2
Distributors, Inc. in connection with the Class B shares
of the Fund, (e) distribution 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
merges or otherwise combines with the Fund and (f) interest expenses on
unreimbursed distribution expenses related to Class B shares as described in
Article III hereof.
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of Broker Services)
and others who furnish personal and shareholder account maintenance services to
Class B 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 1.00% of
the average daily net asset value of the Class B 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 B shares of the
Fund. Such expenditures shall be calculated and accrued daily and paid monthly
or at such other intervals as the Trustees shall determine. In the event
Broker Services is not fully reimbursed for payments made or other expenses
incurred by it under this Plan, Broker Services shall be entitled to carry
forward such expenses to subsequent fiscal years for submission to the Class B
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 Trustees from terminating 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 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 __, 1994, as from time to time continued and amended
(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 Fund shall not, directly or indirectly, engage in financing any activity
which is primarily intended to or should reasonably result in the sale of Class
B shares of the Fund.
<PAGE> 3
ARTICLE V. APPROVAL BY TRUSTEES
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
Trustees of the Fund and (b) those Trustees of the Fund 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 Trustees").
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.
ARTICLE VII. INFORMATION
Broker Services shall furnish the Fund and its Trustees 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 Trustees may request.
ARTICLE VIII. TERMINATION
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class B shares, or (b) by Broker Services 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 Trustees or by vote of a
majority of the Fund's then outstanding voting Class B shares.
(b) That such agreement shall terminate automatically in the event
of its assignment.
<PAGE> 4
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 B 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.
ARTICLE XI. LIMITATION OF LIABILITY
The obligations of the Fund are not personally binding upon, nor shall
resort be had to the private property of, any of the Trustees, shareholders,
officers, employees or agents of the Fund, but only the Fund's property shall
be bound.
<PAGE> 5
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the ___ day of December, 1994 in Boston, Massachusetts.
JOHN HANCOCK CALIFORNIA TAX-FREE
INCOME FUND
By:
--------------------------------------------
Thomas M. Simmons
President
JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC.
By:
--------------------------------------------
C. Troy Shaver, Jr.
President and Chief Executive Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 6
<CIK> 0000856671
<NAME> JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND, CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 345,526
<INVESTMENTS-AT-VALUE> 312,227
<RECEIVABLES> 8,698
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<NET-CHANGE-FROM-OPS> (35,573)
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<DISTRIBUTIONS-OF-INCOME> 19,730
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<NUMBER-OF-SHARES-SOLD> 90,489
<NUMBER-OF-SHARES-REDEEMED> 69,998
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<NET-CHANGE-IN-ASSETS> 29,122
<ACCUMULATED-NII-PRIOR> 31,638
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<GROSS-ADVISORY-FEES> 1,919
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,715
<AVERAGE-NET-ASSETS> 270,115
<PER-SHARE-NAV-BEGIN> 10.85
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> (1.57)
<PER-SHARE-DIVIDEND> (.58)
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<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> .89
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<ARTICLE> 6
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<NAME> JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND, CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 345,526
<INVESTMENTS-AT-VALUE> 312,227
<RECEIVABLES> 8,698
<ASSETS-OTHER> 99
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 321,024
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<OTHER-ITEMS-LIABILITIES> 2,076
<TOTAL-LIABILITIES> 2,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 356,244
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<NUMBER-OF-SHARES-SOLD> 90,489
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<SHARES-REINVESTED> 8,631
<NET-CHANGE-IN-ASSETS> 29,122
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<ACCUMULATED-GAINS-PRIOR> 2
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,919
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<GROSS-EXPENSE> 3,715
<AVERAGE-NET-ASSETS> 78,800
<PER-SHARE-NAV-BEGIN> 10.85
<PER-SHARE-NII> .51
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<EXPENSE-RATIO> 1.64
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