<PAGE> 1
Registration No. 33-31675
ICA No. 811-5979
AS FILED ON FEBRUARY 29, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 10 /x/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 13 /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)
<TABLE>
<S> <C>
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
- ----
on [date] pursuant to paragraph (b)
- ----
60 days after filing pursuant to paragraph (a)
- ----
X on May 1, 1996 pursuant to paragraph (a) of rule 485
- ----
</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 26, 1996.
<PAGE> 2
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
(formerly Transamerica California Tax-Free Income Fund
CROSS-REFERENCE SHEET
Form N-1A
Item
<TABLE>
<CAPTION>
Part A Caption Prospectus
- ------ ------- ----------
<S> <C> <C>
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
- ------ ------- -----------------------------------
<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
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 1, 1996
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Expense Information................................................................... 2
The Fund's Financial Highlights....................................................... 3
Investment Objective and Policies..................................................... 5
Organization and Management of the Fund............................................... 11
Alternative Purchase Arrangements..................................................... 12
The Fund's Expenses................................................................... 14
Dividends and Taxes................................................................... 15
Performance........................................................................... 16
How to Buy Shares..................................................................... 18
Share Price........................................................................... 19
How to Redeem Shares.................................................................. 25
Additional Services and Programs...................................................... 26
Investments, Techniques and Risk Factors.............................................. 30
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, 1996 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
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 actual fees and expenses for the Class A
and Class B shares of the Fund's fiscal year ended December 31, 1995 adjusted to
reflect current fees and expenses. Actual fees and expenses may be greater or
less than those indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price)............. 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............................................................................ 0.55% 0.55%
12b-1 fee (net of limitation, Class B Shares)***.......................................... 0.15% 0.90%
Other expenses**.......................................................................... 0.20% 0.20%
Less fee waiver and expense limitation by Adviser......................................... 0.15% 0.15%
Total Fund operating expenses (net of limitation)****..................................... 0.75% 1.50%
</TABLE>
- ---------------
* No sales charge is payable at the time of purchase on investments in Class
A shares 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.
*** 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.
**** Total Fund operating expenses in the table reflect voluntary and temporary
limitations by the Fund's investment adviser and distributor. Without these
limitations, the Total Fund operating expenses of Class A shares and Class
B shares would be 0.90% and 1.65%, respectively.
+ Redemption by wire fee (currently $4.00) not included.
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
- ------------------------------------------------------------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return
Class A Shares...................................................................... $ 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
(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 Fund's 1995 Annual Report and 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1994(e) 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 9.28 $10.85 $10.41 $10.32 $ 9.91 $10.00(b)
Net Investment Income..................................... 0.57(d) 0.58 0.62 0.66 0.69 0.74
Net Realized and Unrealized Gain (Loss) on Investments.... 1.41 (1.57) 0.76 0.25 0.47 (0.16)
-------- -------- -------- -------- -------- -------
Total from Investment Operations.......................... 1.98 (0.99) 1.38 0.91 1.16 0.58
LESS DISTRIBUTIONS
Dividends from Net Investment Income...................... (.57) (0.58) (0.62) (0.67) (0.70) (0.67)
Distributions from Net Realized Gains on Investments Sold
and Financial Futures Contracts......................... -- -- (0.32) (0.15) (0.05) --
-------- -------- -------- -------- -------- -------
Total Distributions................................... (0.57) (0.58) (0.94) (0.82) (0.75) (0.67)
-------- -------- -------- -------- -------- -------
Net Asset Value, End of Period............................ $10.69 $ 9.28 $10.85 $10.41 $10.32 $ 9.91
======== ======== ======== ======== ======== =======
Total Investment Return at Net Asset Value(c)............. 21.88% (9.31)% 13.60% 9.15% 12.26% 6.13%
Total Adjusted Investment Return at Net Asset
Value(a)(c)............................................. 21.73% (9.45)% 13.42% 8.90% 11.86% 5.29%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $309,305 $241,583 $279,692 $217,014 $163,693 $80,200
Ratio of Expenses to Average Net Assets................... 0.75% 0.75% 0.69% 0.58% 0.40% 0.00%
Ratio of Adjusted Expenses to Average Net Assets(a)....... 0.90% 0.89% 0.87% 0.83% 0.80% 0.84%
Ratio of Net Investment Income to Average Net Assets...... 5.76% 5.85% 5.69% 6.36% 6.75% 7.11%
Ratio of Adjusted Net Investment Income to Average Net
Assets(a)............................................... 5.61% 5.71% 5.51% 6.11% 6.35% 6.27%
Portfolio Turnover Rate................................... 37% 62% 51% 34% 45% 62%
</TABLE>
- ---------------
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(d) Not annualized.
(e) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
+ Portfolio turnover excludes merger activity.
3
<PAGE> 7
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994(e) 1993 1992
------- ------- ------- -------
<S> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period................................................ $ 9.28 $10.85 $10.41 $10.32(b)
Net Investment Income............................................................... .50(d) 0.51 0.54 0.58(d)
Net Realized and Unrealized Gain (Loss) on Investments.............................. 1.40 (1.57) 0.76 0.25
-------- -------- -------- --------
Total from Investment Operations.................................................... 1.90 (1.06) 1.30 0.83
LESS DISTRIBUTIONS
Dividends from Net Investment Income................................................ (0.50) (0.51) (0.54) (0.59)
Distributions from Net Realized Gains on Investments Sold and Financial Futures
Contracts......................................................................... -- -- (0.32) (0.15)
-------- -------- -------- --------
Total Distributions............................................................. (0.50) (0.51) (0.86) (0.74)
-------- -------- -------- --------
Net Asset Value, End of Period...................................................... $10.68 $ 9.28 $10.85 $10.41
======== ======== ======== ========
Total Investment Return at Net Asset Value(c)....................................... 20.87% (9.99)% 12.76% 8.35%
Total Adjusted Investment Return at Net Asset Value(a)(c)........................... 20.72% (10.13)% 12.58% 8.10%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)........................................... $84,673 $77,365 $65,437 $26,595
Ratio of Expenses to Average Net Assets............................................. 1.50% 1.50% 1.44% 1.35%
Ratio of Adjusted Expenses to Average Net Assets(a)................................. 1.65% 1.64% 1.62% 1.60%
Ratio of Net Investment Income to Average Net Assets................................ 4.97% 5.10% 4.82% 5.43%
Ratio of Adjusted Net Investment Income to Average Net Assets(a).................... 4.82% 4.96% 4.64% 5.18%
Portfolio Turnover Rate............................................................. 37%+ 62% 51% 34%
</TABLE>
- ---------------
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(d) On average month end shares outstanding.
(e) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
+ Portfolio turnover excludes merger activity.
4
<PAGE> 8
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 five
highest ratings by Standard and Poor's Ratings Group ("S&P") (AAA, AA, A,
BBB or BB), Moody's Investor Services ("Moody's") (Aaa, Aa, A, Baa or Ba),
or Fitch Investor Services ("Fitch") (AAA, AA, A, BBB or Ba). Not more than
20% of the Fund's total assets will be invested in bonds rated BB or Ba.
(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 John
Hancock Advisers, Inc. (the "Adviser") are, at the time of purchase,
comparable in quality to the rated obligations of the same types described
above. 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 determined to be of comparable quality in the opinion of the
Adviser.
For a description of the tax exempt ratings described above, see Appendix A in
the Statement of Additional Information. Bonds rated BBB or lower by S&P or
Fitch, or Baa or lower 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. The Adviser will purchase bonds
rated BBB or Baa or lower where, based upon price, yield and its assessment of
quality, investment in these bonds is determined to be
5
<PAGE> 9
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 or lower, 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 lower or Baa or lower 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 and California income taxes. The
circumstances in which the Fund will normally invest in these short-term
6
<PAGE> 10
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.
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
7
<PAGE> 11
(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 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.
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
- -------------------------------------------------------------------------------
THE FUND FOLLOWS CERTAIN POLICIES THAT MAY
HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
8
<PAGE> 12
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.
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.
Orange County, California still remains under court supervision after filing for
protection under Chapter 9 of the Federal Bankruptcy Code in December 1994. This
fiscal crisis caused the County to default on note obligations and involved it
in numerous legal proceedings which could continue over the next several years.
The aftermath still continues in fiscal year 1996 with the County having reduced
staff, reorganized departments, cut discretionary spending and services,
initiated a program to increase solid waste revenues and issued recovery notes
to meet cashflow needs and begin repaying Investment Pool participants. Failure
by the voters to approve one-half cent increase in the County Sales Tax prompted
the County to cut additional services and examine alternative plans for meeting
the county's obligations. Local Orange County governments have also had to
adjust budgets and reduce spending in some instances to compensate for their
investment pool losses and county serve cuts. A Recovery Plan which includes the
diversion of public transit revenues to the General Fund was adopted by the
County and approved by the State Legislature in the fall of 1995. The most
recent plan calls for the county to pay for investment losses to the Investment
Pool Participants (approximately 23% of their principal investments in the pool)
over 15 years. Before the plan can be submitted to the bankruptcy court for
approval, the
9
<PAGE> 13
proposal must be unanimously approved by the investment pool
participants. The County anticipates receiving court approval of the plan and
emerging for bankruptcy by the end of fiscal year 1996.
The County of Los Angeles entered fiscal year 1996 with a projected budget
shortfall of $1.2 billion. After several years of closing prospective gaps
through deficit financing and the use of non-recurring revenues, significant
concern exists over the ability of County to meet this challenge. Even after the
infusion of Federal aid for health care, the County was still required to close
clinic offices, cut expenditures and significantly reduce staff. It is
anticipated that the county may have to enact additional cuts during the year
and endorse a similar program to balance the fiscal year 1997 budget. The
recovery plan approved by the State Legislature would allow the County to divert
transit revenues to the General Fund. Concerns over the longer term effects of
the current imbalance caused Moody's and S&P to downgrade various securities of
the County. The General Obligation debt of the County was lowered from A1 to A
and from A+ to A- by Moody's and S&P, respectively.
The State of California has no existing obligation with respect to any
obligations or securities of the Counties or other local entities. State
legislation passed to facilitate the recovery plans for Orange County and Los
Angeles County permits the counties to transfer funds designated for specific
purposes to general purpose funds but does not commit any state funds to
resolving these situations. 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.
Until the signs of recovery appeared in 1994, California remained mired in the
state's deepest and longest recession since the 1930's. 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 five years has required the Governor and the Legislature
to undertake multi-billion 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. Again in
1995, the State experienced difficulties in obtaining a consensus on the budget
which produced a two-month delay in passage. The final fiscal year 1996 budget
proposes to eliminate the budget deficit including all short-term borrowings and
generate a small surplus.
The persistent 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 had to resort to repeated external
borrowing to meet cash needs since 1992. In order to meet cash flow requirements
for the 1994-95 fiscal year and to defer a partial payment on the budget
deficit, the State issued $7 billion of short-term securities in 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
10
<PAGE> 14
expenditures in fiscal year 1996 if cash projections made in October 1995 show
deterioration form the original 1994 borrowing projections. This plan places the
burden upon the Legislature to maintain ongoing control over the annual budget,
and could exert additional pressure on local governments reliant on appropriated
program expenditures.
In 1995, the California economy continued the recovery stated a year earlier.
After four consecutive years of on-going job losses, company relocations out of
state, and unemployment rates in excess of 9% at times, the State has registered
two consecutive years of job growth and declining unemployment rates. The
expansion has produced additional tax revenues which have outpaced projections
over the first half of fiscal year 1996. Due to the growth in tax revenues, the
State met the October 1995 cash flow projection and did not have to initiate
mandatory cuts in program expenditures. The additional revenues should also
facilitate meeting the original budget forecast calling for the retirement of
all short-term securities including the $4 billion issued in 1994 and the
generation of a small surplus by end of the Fiscal Year. Over the next two
years, growth in employment and personal income is forecast to outpace the
growth of the national economy. Any setbacks to this recovery or future
breakdowns in fiscal discipline could lead to additional budgetary pressures on
State and local governments.
When choosing brokerage firms to carry out the Fund's transactions, the Adviser
gives primary consideration to 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, John Hancock Advisers, Inc. (the
"Adviser") may place securities transactions with brokers affiliated with the
Adviser. These brokers include Tucker Anthony Incorporated, Sutro & 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 Trustees may
also classify or reclassify any series into one or more classes. Accordingly,
the Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B shares. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
as to voting, redemption, dividends and liquidation. However, each class of
shares bears different distribution fees, and Class A and Class B shareholders
have exclusive voting rights with respect to their distribution plans. 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,
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
11
<PAGE> 15
under certain circumstances, will assist in shareholder communications
with other shareholders.
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 Inc., ("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. Pursuant to an
order of the SEC, the Fund has adopted a deferred compensation plan for its
independent Trustees which allows Trustees' fees to be invested by the Fund in
other John Hancock funds.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF APPROXIMATELY $16 BILLION.
- -------------------------------------------------------------------------------
Dianne Sales-Singer is the Fund's portfolio manager and is responsible for the
day-to-day management of the Fund. Ms. Sales-Singer has been with the Adviser
since 1989. Prior to joining the Adviser, she was employed at Bear Stearns & Co.
Inc.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
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.
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 you 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 0.15% 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
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
12
<PAGE> 16
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
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.
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.
- -------------------------------------------------------------------------------
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, 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.
13
<PAGE> 17
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 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 fee to the
Adviser which for the 1995 fiscal year was 0.40% of the Fund's average daily net
assets. The Adviser has voluntarily and temporarily agreed to continue to limit
the Fund's operating expenses to 0.75% and 1.50% of the average net assets
attributable to Class A and Class B shares, respectively.
The advisory fee paid by the Fund is higher than that of most other funds, but
is comparable to fees paid by funds that invest in similar securities.
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 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 and others
for providing personal and account maintenance services to shareholders.
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
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, 1995, an
aggregate of $3,275,187 of distribution expenses or 3.9% 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.
14
<PAGE> 18
Information on the Fund's total expenses is in the Fund 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 may distribute net realized long-term and short-term capital gains, if any,
at least annually.
- -------------------------------------------------------------------------------
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 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' 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
15
<PAGE> 19
not subject to back-up 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.
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
also utilize tax equivalent yields of its Class A and Class B shares computed in
the same manner, with adjustment for assumed Federal income tax rates. For a
comparison of yields on municipal securities and taxable securities, see the
Taxable Equivalent Yield Table in Appendix A.
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS YIELD, TAX
EQUIVALENT YIELD AND TOTAL RETURN.
- -------------------------------------------------------------------------------
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 of the respective
class of shares of the Fund divided by the number of years included in the
period and Class B. 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.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Fund's
Financial Highlights"). Investments at lower sales charges would result in
higher
16
<PAGE> 20
performance figures. Yield and total return for the Class B shares reflect
deduction of the applicable contingent deferred sales charge imposed on a
redemption of shares held for the applicable period. All calculations assume
that all dividends are reinvested at net asset value on the reinvestment dates
during the periods. Yield and total return of Class A and Class B shares will be
calculated separately and, because each class is subject to certain different
expenses, the yield and total return may differ with respect to that class for
the same period. The relative performance of the Class A and Class B shares will
be affected by a variety of factors, including the higher operating expenses
attributable to the Class B shares, whether the Fund's investment performance is
better in the earlier or later portions of the period measured and the level of
net assets of the classes during the period. The Fund will include the total
return of both Class A and Class B shares in any advertisement or promotional
materials including Fund performance data. The value of Fund's 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. See "Factors to Consider in Choosing an Alternative."
17
<PAGE> 21
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The minimum initial investment 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.
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------
1. Complete the "Automatic Investing" and "Bank Information" sections on
MONTHLY the Account Privileges Application, designating a bank account from
AUTOMATIC which funds may be drawn.
ACCUMULATION 2. The amount you elect to invest will be withdrawn automatically from
PROGRAM your bank or credit union account.
(MAAP)
</TABLE>
- -------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A
AND CLASS B SHARES.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-by-Phone" and "Bank Information" sections
on the Account Privileges Application, designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, 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>
18
<PAGE> 22
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES.
(CONTINUED)
- -------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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. 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
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost which the Trustees has
determined to approximate 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.
19
<PAGE> 23
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:
<TABLE>
<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%(***)
</TABLE>
(*) 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.
(**) 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 made 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. 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.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
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" below.
20
<PAGE> 24
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 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 John Hancock 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."
21
<PAGE> 25
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%. This is 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, financial planner, consultant 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 or
services made available to their clients.
- - A former participant in an employee benefit plan with John Hancock Funds, when
he or she withdraws from his or her plan and transfers any or all of his/her
plan distributions directly to the Fund.
- - A Member of an approved affinity group financial services plan.*
- ---------------
* 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 an initial sales charge so that
your entire 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. The 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
22
<PAGE> 26
value above the initial purchase price, including shares derived from dividend
reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from 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.
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:
<TABLE>
<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
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 an initial sales charge.
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.
23
<PAGE> 27
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- - Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How
to Redeem Shares"), as long as your annual redemptions do not exceed 10% of
your account value at the time you established your Systematic Withdrawal
Plan, and 10% of the value of your subsequent investments (less redemptions)
in that account at the time you notify Investor Services. This waiver does not
apply to Systematic Withdrawal Plan redemptions of Class A shares that are
subject to a CDSC.
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON
CLASS B 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 B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into this Fund from another John Hancock
fund, the calculation will be based on the time you purchased the shares in the
original fund. The Fund has been advised that the conversion of Class B Shares
to Class A Shares should not be taxable for Federal income tax purposes and
should not change your tax basis or tax holding period for the converted shares.
24
<PAGE> 28
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 three business
days or longer, as permitted by Federal securities laws.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BY TELEPHONE All Fund shareholders are eligible automatically 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 according to 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>
25
<PAGE> 29
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TYPE OF REGISTRATION REQUIREMENTS
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.
</TABLE>
- --------------------------------------------------------------------------------
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 (v)
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 additional purchases and dividend reinvestments exceeds the number
of shares redeemed, repeated redemptions from a smaller account may eventually
trigger this policy.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
26
<PAGE> 30
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 Intermediate
Maturity Government Fund 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.
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 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 of 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.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give prior notice whenever it is reasonably
able to do so, it may impose these restrictions at any time.
27
<PAGE> 31
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current Fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
--the name and class of the Fund whose shares you currently own
--your account number
--the name(s) in which the account is registered
--the name of the fund in which you wish your exchange to be invested
--the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares that you reinvest
in a 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. The holding period of the shares
acquired through reinvestment for the purpose of computing the CDSC payment
upon a subsequent redemption 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 the Fund shares or in
shares of other John Hancock funds, subject to the minimum investment limit
of that fund.
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.
28
<PAGE> 32
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 from 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 withdrawn automatically each month on
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 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.
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.
29
<PAGE> 33
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."
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
30
<PAGE> 34
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 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
31
<PAGE> 35
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 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.
32
<PAGE> 36
Correlation Risk. A Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative 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.
33
<PAGE> 37
APPENDIX A
EQUIVALENT YIELDS:
TAX EXEMPT VERSUS TAXABLE INCOME FOR 1995
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 10.0%.
<TABLE>
<CAPTION>
MARGINAL
COMBINED
CALIFORNIA
AND FEDERAL
INCOME TAX
SINGLE RETURN JOINT RETURN BRACKET* IN CALIFORNIA, A TAX-EXEMPT YIELD OF:
- ---------------- ---------------- ------------ -----------------------------------------------------------------------
(TAXABLE INCOME) 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
- ------------------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IS EQUIVALENT TO A TAXABLE YIELD OF:
$ 0-4,831 $ 0-9,662 15.85% 4.75% 5.94% 7.13% 8.32% 9.51% 10.70% 11.88%
$ 4,832-11,449 $ 9,663-22,898 16.70% 4.80% 6.00% 7.20% 8.40% 9.60% 10.80% 12.00%
$ 11,450-18,068 $ 22,899-36,136 18.40% 4.90% 6.13% 7.35% 8.58% 9.80% 11.03% 12.25%
$ 18,069-23,350 $ 36,137-39,000 20.10% 5.01% 6.26% 7.51% 8.76% 10.01% 11.26% 12.52%
$ 23,351-25,083 $ 39,001-50,166 32.32% 5.91% 7.39% 8.87% 10.34% 11.82% 13.30% 14.78%
$ 25,084-31,700 $ 50,167-63,400 33.76% 6.04% 7.55% 9.06% 10.57% 12.08% 13.59% 15.10%
$ 31,701-56,550 $ 63,401-94,250 34.70% 6.13% 7.66% 9.19% 10.72% 12.25% 13.78% 15.31%
$ 56,551-109,936 $ 94,251-143,600 37.42% 6.39% 7.99% 9.59% 11.19% 12.78% 14.38% 15.98%
$109,937-117,950 $ - 37.90% 6.44% 8.05% 9.66% 11.27% 12.88% 14.49% 16.10%
$ - $143,601-219,872 41.95% 6.89% 8.61% 10.34% 12.06% 13.78% 15.50% 17.23%
$117,951-219,872 $219,873-256,500 42.40% 6.94% 8.68% 10.42% 12.15% 13.89% 15.63% 17.36%
$219,873-256,500 $ - 43.04% 7.02% 8.78% 10.53% 12.29% 14.04% 15.80% 17.56%
$ - $256,501-439,774 45.64% 7.36% 9.20% 11.04% 12.88% 14.72% 16.56% 18.40%
$ 256,501-OVER $ 439,745 -OVER 46.24% 7.44% 9.30% 11.16% 13.02% 14.88% 16.74% 18.60%
</TABLE>
- ---------------
* The marginal combined bracket includes the effect of deducting state taxes
on your federal tax return.
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 1996.
This may result in higher or lower actual rates. The above chart is intended for
estimation only.
A-1
<PAGE> 38
(NOTES)
<PAGE> 39
(NOTES)
<PAGE> 40
(NOTES)
<PAGE> 41
JOHN HANCOCK CALIFORNIA TAX-FREE
INCOME FUND
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
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
JOHN HANCOCK
CALIFORNIA
TAX-FREE INCOME
FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 1, 1996
A MUTUAL FUND SEEKING TO
OBTAIN 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.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
JHD 5300P 5/96 (LOGO) Printed on
Recycled Paper
<PAGE> 42
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
This Statement of Additional Information provides information about John
Hancock California Tax-Free Income Fund (the "Fund") in addition to the
information that is contained in the Fund's Class A and Class B Prospectus (the
"Prospectus"), dated May 1, 1996.
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus, a copy of which can be obtained free
of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-5291
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Organization of the Fund............................................ 2
Investment Objective and Policies................................... 2
Certain Investment Practices........................................ 10
Investment Restrictions............................................. 15
Those Responsible for Management.................................... 17
Investment Advisory and other Services.............................. 25
Initial Sales Charge on Class A Shares.............................. 28
Distribution Contract............................................... 30
Deferred Sales Charge on Class B Shares............................. 32
Special Redemptions................................................. 33
Additional Services and Programs.................................... 33
Description of the Fund's Shares.................................... 35
Net Asset Value..................................................... 37
Tax Status.......................................................... 37
Calculation of Performance.......................................... 42
Brokerage Allocation................................................ 44
Transfer Agent Services............................................. 46
Independent Auditors................................................ 46
Custody of Portfolio................................................ 46
Appendix A.......................................................... 47
Financial Statements................................................ F1
</TABLE>
-1-
<PAGE> 43
ORGANIZATION OF THE FUND
The Fund is a diversified open-end management investment company
organized as a business trust under the laws of The Commonwealth of
Massachusetts pursuant to a Declaration of Trust dated October 17, 1989. Prior
to the approval of John Hancock Advisers, Inc. (the "Investment Adviser") as the
Fund's adviser effective December 22, 1994, the Fund was known as Transamerica
California Tax-Free Income Fund.
INVESTMENT OBJECTIVE AND POLICIES
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.
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> 44
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. 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
-3-
<PAGE> 45
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 canceled; (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 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. Over the past years, the economy has begun to show signs of
renewed economic growth, albeit at a modest pace. However, it is unlikely that
the California economy will stage a major turnaround or expand at rates equal to
the mid-1980's. Economic
-4-
<PAGE> 46
growth in the 1990's is likely to occur at a more subdued rate that in
California's past than in the 1980's.
In 1995, the California economy continued the recovery started a year
earlier. After four consecutive years of on-going job losses, company
relocations out of state, and at times, unemployment rates in excess of 9%, the
State has registered two consecutive years of job growth and declining
unemployment rates. During 1994 and throughout most of 1995, California posted
non-farm employment gains of 1.3% and 2.3%. Sectors exhibiting employment growth
have been the construction and related manufacturing, wholesale, and retail
trade industries, transportation and recreation, business, and management
consulting. This period has also seen personal income growth exceeding 3%
annually, increasing retail sales, and increased international trade,
particularly manufactured goods. Over the next two years, non-farm employment is
projected to annually expand at rates above 2% . 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. 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. 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 education funding costs to local governments by
shifting local property taxes to school districts. However,
-5-
<PAGE> 47
as the recession continued, forcing the State to continued to carry its $2.8
billion budget deficit as of June 30, 1993.
The 1993-94 Budget Act also relied 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 continuing
longer than expected, revenues only exceeded 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.
The 1994-95 Budget Act was passed on July 8, 1994, and provided 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 undocumented immigrants, as well as 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
utilize 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.
Again in 1995, the State experienced difficulties in obtaining a
consensus on the Budget which produced a two-month delay in passage. The enacted
FY1995-96 Budget projects General Fund revenues of $44.1 billion and
expenditures of $43.4 billion. . Key components built into the budget included
the receipt of about $830 million of new Federal aid for undocumented aliens'
costs and the successful resolution of litigation concerning previous budget
actions. This Budget proposes to eliminate the outstanding deficit including all
short-
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term borrowings and generate a small surplus of $289 million by year end. On
October 16, 1995, the State Controller indicated that the cash position of the
General Fund exceeded requirements for enacting the Trigger Law. Initial results
show that the major tax sources (Income, Sales and Corporation Taxes) of the
state are exceeding projections by $440 million. The tax revenue growth provides
some evidence of the breadth of California's economic rebound and offsets some
reductions in anticipated Federal aid during 1995. Attainment of FY1995-96
Budget projections hinge on the continuation of the economic recovery into 1996
and the maintenance of fiscal discipline by the state.
The FY1996-97 budget as currently proposed by the Governor calls for
General Fund expenditures of $44.28 billion against expected revenues of $44.99
billion, a general increase of 5% over FY1995-96. Specific features of the
proposal include additional investments in infrastructure, educational
technology and programs, reductions in welfare expenditures and renter tax
credits, and a 15% tax cut for individuals and corporations to be phased in over
3 years. The final form of the FY1996-97 Budget remains to be shaped through
negotiations with the California Legislature.
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 and initiation deficit reduction,
the agencies remain cautions as the State confronts a continuing fiscal
challenge.
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.
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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 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
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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.
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
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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.
CERTAIN INVESTMENT PRACTICES
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
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
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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 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.
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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 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
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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 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 connection with 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
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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 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.
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<PAGE> 56
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 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
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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 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
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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 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.
-17-
<PAGE> 59
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Trustee, Chairman Chairman and Chief Executive Officer,
101 Huntington Avenue and Chief the Adviser and The Berkeley Financial
Boston, MA 02199 Executive Group ("The Berkeley Group");
Officer(1)(2) Chairman, NM Capital Management, Inc.
("NM Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock Funds,
Inc.; John Hancock Investor Services
Corporation ("Investor Services"); and
Sovereign Asset Management Corporation
("SAMCorp"); (hereinafter the Adviser,
the Berkeley Group, NM Capital,
Advisers International, John Hancock
Funds, Inc., Investor Services and
SAMCorp are collectively referred to
as the "Affiliated Companies");
Chairman, First Signature Bank &
Trust; Director, John Hancock Freedom
Securities Corporation, John Hancock
Capital Corporation, New England/
Canada Business Council; Member,
Investment Company Institute Board of
Governors; Trustee, Museum of Science;
President, the Adviser (until July
1992); and Chairman, John Hancock
Distributors, Inc. (until April, 1994).
</TABLE>
- ---------------
* An "interested person" of the Portfolio, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of
Trust, the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-18-
<PAGE> 60
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
James F. Carlin Trustee(3) Chairman and CEO, Carlin Consolidated,
233 West Central Street Inc. (insurance); Chairman,
Natick, MA 01760 Massachusetts Higher Education
Coordinating Council; 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).
William H. Cunningham Trustee(3) Chancellor, University of Texas System
601 Colorado Street and former President of the University
O'Henry Hall of Texas, Austin, Texas; Regents Chair
Austin, TX 78701 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); LBJ Foundation
Board (education foundation); and
Advisory Director, Texas Commerce
Bank - Austin.
Charles F. Fretz Trustee (3) Consultant, self employed; Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Forster & Crosby, Inc.
Malvern, PA 19355 (international management consultants)
(until 1985).
</TABLE>
- ---------------
* An "interested person" of the Portfolio, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of
Trust, the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-19-
<PAGE> 61
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
Harold R. Hiser, Jr. Trustee(3) Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals)(until 1995);
Director, ReCapital Corporation
(reinsurance).
Charles L. Ladner Trustee(3) Director, Energy North, Inc. (public
UGI Corporation utility holding company); Senior Vice
460 North Gulph Road President, Finance UGI Corp. (public
King of Prussia, PA 19406 utility holding company) (until 1992).
Leo E. Linbeck, Jr. Trustee(3) Chairman, President, Chief Executive
3810 W. Alabama Officer and Director, Linbeck
Houston, TX 77027 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(3) Director and Secretary, the McCarter
1230 Brentford Road Corp. (machine manufacturer).
Malvern, PA 19355
</TABLE>
- ---------------
* An "interested person" of the Portfolio, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of
Trust, the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-20-
<PAGE> 62
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
Steven R. Pruchansky Trustee(1)(3) Director and Treasurer, Mast Holdings,
6920 Daniel road Inc.; Director, First Signature Bank &
Naples, FL 33942 Trust Company (until August 1991); General
Partner, Mast Realty Trust; President,
Maxwell Building Corp. (until 1991).
Norman H. Smith Trustee(3) Lieutenant General, USMC, Deputy Chief of
243 Mt. Oriole Lane Staff for Manpower and Reserve Affairs,
Linden, VA 22642 Headquarters Marine Corps; Commanding
General III Marine Expeditionary Force/3rd
Marine Division (retired 1991).
John P. Toolan Trustee(3) Director, The Smith Barney Muni Bond
13 Chadwell Place Funds, The Smith Barney Tax-Free Money
Morristown, NJ 07960 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).
</TABLE>
- ---------------
* An "interested person" of the Portfolio, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of
Trust, the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-21-
<PAGE> 63
<TABLE>
<CAPTION>
POSITION HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
- ---------------- -------------- -----------------------
<S> <C> <C>
Robert G. Freedman* Vice Chairman and Vice Chairman and Chief Investment
101 Huntington Avenue Chief Investment Officer, the Adviser; President,
Boston, MA 02199 Officer(2) the Adviser (until 1994)
Anne C. Hodsdon* President(2) President and Chief Operating
101 Huntington Avenue Officer; the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser (until
December, 1994); Senior Vice
President, the Adviser (until
December 1993; Vice President, the
Adviser (until 1991).
James B. Little* Senior Vice President Senior Vice President, the Adviser.
101 Huntington Avenue and Chief Financial
Boston, MA 02199 Officer
Thomas H. Drohan* Senior Vice President Senior Vice President and
101 Huntington Avenue and Secretary Secretary, the Adviser.
Boston, MA 02199
James J. Stokowski* Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, MA 02199
Susan S. Newton* Vice President and Vice President and Assistant
101 Huntington Avenue Compliance Officer Secretary, the Adviser.
Boston, MA 02199
John A. Morin* Vice President, the Vice President, the Adviser.
101 Huntington Avenue Adviser
Boston, MA 02199
</TABLE>
- ---------------
* An "interested person" of the Portfolio, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of
Trust, the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
-22-
<PAGE> 64
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 January 31, 1996, there were 36,803,158 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 February 2, 1996, Merrill Lynch
Pierce Fenner & Smith, 4800 Deerlake Dr. East, Jacksonville, FL held 1,739,429
shares representing 6.03% of the Fund's outstanding Class A Shares and 892,875
shares representing 12.45% of the Fund's outstanding 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 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.
-23-
<PAGE> 65
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. 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.
<TABLE>
<CAPTION>
Total Compensation
Pension or from all Funds in
Aggregate Retirement Benefits John Hancock Fund
Compensation from Accrued as Part of Complex to
Trustees the Fund the Fund's Expenses Trustees**
- -------- -------- ------------------- ----------
<S> <C> <C> <C>
James F. Carlin $ 2,966 0 $ 60,700
William H. Cunningham 5,098 $2,238 69,700
Charles F. Fretz 4,590 0 56,200
Harold R. Hiser, Jr. 0 244 60,200
Charles L. Ladner 3,628 0 60,700
Leo E. Linbeck, Jr. 7,586 0 73,500
Patricia P. McCarter 3,628 0 60,700
Steven R. Pruchansky 3,742 0 62,700
Norman H. Smith 3,742 0 62,700
John P. Toolan 0 3,628 60,700
------- ------ --------
Total: $30,849 $6,110 $627,500
</TABLE>
* Compensation made pursuant to different compensation arrangements than in
effect for the fiscal year ended December 31, 1995
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is $627,500 as of the calendar year ended December 31,
1995. All Trustees/Directors except Messrs. Cunningham and Linbeck are
Trustees/Directors of 32 funds in the John Hancock Fund Complex. Messrs.
Cunningham and Linbeck are Trustees of 30 funds
-24-
<PAGE> 66
<TABLE>
<CAPTION>
Total Compensation
Pension or Retirement from Certain Funds in
Aggregate Benefits Accrued as John Hancock Fund
Compensation from Part of the Fund's Complex to Advisory
Advisory Board*** the Fund Expenses Board***
- ----------------- -------- -------- --------
<S> <C> <C> <C>
R. Trent Campbell $ 6,369 $0 $ 70,000
Mrs. Lloyd Bentsen 6,564 $0 63,000
Thomas R. Powers 6,369 $0 63,000
Thomas B. McDade 6,369 $0 63,000
--------
Total: $25,677 $0 $259,000
</TABLE>
*** As of 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.
The Investment Adviser, located at 101 Huntington Avenue, Boston,
Massachusetts 02199-7603, was organized in 1968 and more than $16 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
-25-
<PAGE> 67
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. The Investment Adviser is responsible
for the management of the Fund's portfolio assets.
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.
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.
-26-
<PAGE> 68
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 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.
-27-
<PAGE> 69
For the fiscal years ended December 31, 1993 and 1994 advisory fees
payable by the Fund to TFMC, the Fund's former investment adviser, amounted to
$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 fiscal
year end December 31, 1995, advisory fees paid to the Fund's Adviser Amounted to
$1,423,864.
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, 1993 and 1994, the Fund paid to
TFMC (pursuant to the Services Agreement) $128,984 and $158,594, respectively,
of which $83,291 and $109,540, respectively, was paid to TFMC and $45,693 and
$49,054, respectively, were paid for certain data processing and pricing
information services. No fee relating to the Services Agreement was paid or
incurred during the fiscal year 1995.
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.
-28-
<PAGE> 70
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 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.
The LOI authorizes Investor Services to hold in escrow sufficient Class
A shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment specified in the LOI
is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By signing the
LOI, the investor authorizes Investor Services to act as his attorney-in-fact to
redeem any escrowed shares and adjust the sales charge, if necessary. A LOI does
not constitute a binding commitment by an investor to purchase, or by the Fund
to sell, any additional shares and may be terminated at any time.
-29-
<PAGE> 71
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, 1993, 1994 and 1995 were $2,391,072,
$1,805,845 and $________, respectively. Of such amounts $233,560, $126,490 were
retained by the Fund's former distributor, Transamerica Fund Distributors, Inc.
For the period end December 31, 1995, underwriting commissions of $________ were
retained by the Fund's current distributor, John Hancock Funds.
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
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<PAGE> 72
(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, 1995, the Funds paid John
Hancock Funds the following amounts of expenses with respect to the Class A and
Class B shares of the Fund:
<TABLE>
<CAPTION>
Printing and
Mailing of
Prospectuses to Interest, Carrying
New Compensation to or Other Finance
Advertising Shareholders Selling Brokers Charges Other
----------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Class A shares $26,879 $5,599 $271,250 $ 0
Class B shares $17,056 $2,848 $289,614 $361,535
</TABLE>
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<PAGE> 73
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 review, the Board of Trustees considers the continued
appropriateness of the Plans and the Distribution Agreement and the level of
compensation provided therein.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of a sales charge so that the Fund will receive the full
amount of the purchase payment.
CONTINGENT DEFERRED SALES CHARGE. Class B Shares which are redeemed
within six years of purchase will be subject to a 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.
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<PAGE> 74
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.
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
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<PAGE> 75
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 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."
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<PAGE> 76
DESCRIPTION OF THE FUND'S SHARES
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.
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.
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<PAGE> 77
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 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.
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<PAGE> 78
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.
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.
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.
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<PAGE> 79
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 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.
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<PAGE> 80
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 above, would not be
distributed as such to shareholders. The Fund has $5,482,396 of capital loss
carry forwards, of which $44,815 expires December 31, 2001, $267,864 expires
December 31, 2002 and $5,169,717 expires December 31, 2003 available to offset
future capital gains.
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<PAGE> 81
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 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.
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<PAGE> 82
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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<PAGE> 83
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.
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 1995, the annualized yields of
the Fund's Class A Shares and Class B Shares were 5.00% and 4.49%, respectively
(4.85% and 4.34%, respectively, without taking into account the expense
limitation arrangements). As of December 31, 1995 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 16.40% and 7.69%, respectively As of
December 31, 1995, the average annual returns for the Fund's Class B Shares for
the one year period and since inception December 31, 1991 were 15.89% and 6.77%.
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 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).
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<PAGE> 84
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
(39.6%) for the 30-day period ended December 31, 1995 were 9.30% and 8.35%,
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 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 fixed income mutual funds in the United
States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used
for comparison
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<PAGE> 85
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.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and
the allocation of brokerage commissions are made by the Investment Adviser
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
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<PAGE> 86
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 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, 1995, 1994 and 1993, 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, 1995, 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, 1995, 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
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<PAGE> 87
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 effect principal transactions with
Affiliated Brokers.
The Fund's portfolio turnover rates for the fiscal years ended December
31, 1994 and 1995 were 62% and 37%, 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
$21.50 per account for the Class B Shares, plus out-of-pocket expenses. These
expenses are aggregated and charged to the Fund and allocated to each class on
the basis of the related net asset values.
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
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Fund and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, Investors
Bank & Trust Company performs custody, portfolio and fund accounting services.
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<PAGE> 88
APPENDIX A
TAX EXEMPT BOND RATINGS
Below is a description of the five ratings that may apply to the Fund's
investments in Tax-Exempt Bonds.
TAX-EXEMPT BOND RATINGS
Moody's describes its five highest ratings for Tax-Exempt Bonds as
follows:
Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated AA are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Bonds which are rated BAA are considered as medium grade obligations;
i.e., they are neither highly protected nor 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.
Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
The five highest ratings of Standard & Poor's for Tax-Exempt Bonds are
AAA (Prime), AA (High Grade), A (Good Grade), BBB (Medium Grade) and BB:
AAA This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay
principal and interest.
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<PAGE> 89
AA Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small
degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay principal and interest for bonds in this category than for
bonds in the A category.
BB Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB- rating.
Fitch describes its ratings for Tax-Exempt Bonds as follows:
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated "AAA". Because bonds rated in the "AAA" and "AA" categories
are not significantly vulnerable to foresee future developments,
short-term debt of these issuers is generally rated F-1+.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit 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 have adverse impact on these bonds and, therefore, impair
timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with
higher ratings.
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<PAGE> 90
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives
can be identified that could assist the obligor in satisfying its
debt service requirements.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in bond risk are of lesser importance in the short-term run. Symbols
used will be as follows:
MIG 1 Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG 2 Loans bearing this designation are of high quality, with margins
of protection ample although not so large as in the preceding group.
MIG 3 Loans bearing this designation are of favorable quality, with all
securities elements accounted for but lacking the undeniable strength of
the preceding grades. Market access for refinancing, in particular, is
likely to be less well established.
Standard & Poor's ratings for state and municipal notes and other
short-term loans are designated Standard & Poor's Grade (SP).
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
Fitch Ratings for short-term debt obligations that are payable on demand
or have original maturities of up to three years including commercial paper,
certificates of deposits, medium term notes and municipal and investment notes
are designated by the following ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
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<PAGE> 91
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin for safety is not
as great as for issues assigned F-1+ and F-1 ratings.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
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PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements included in the Registration Statement:
Not Applicable.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit
Index hereto and are incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is directly or indirectly controlled by or under common
control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of February 2, 1996, the number of record holders of shares of the
Registrant was as follows:
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<S> <C>
Class A Shares - 5,987
Class B Shares - 1,841
</TABLE>
ITEM 27. INDEMNIFICATION
(a) Indemnification provisions relating to the Registrant's Trustees,
officers, employees and agents is set forth in Article VII of the Registrant's
By Laws included as Exhibit 2 herein.
(b) Under Section 12 of the Distribution Agreement, John Hancock Funds,
Inc. ("John Hancock Funds") has agreed to indemnify the Registrant and its
Trustees, officers and controlling persons against claims arising out of
certain acts and statements of John Hancock Funds.
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<PAGE> 93
Section 9(a) of the By-Laws of John Hancock Mutual Life Insurance Company
"Insurance Company" provides, in effect, that the Insurance Company will,
subject to limitations of law, indemnify each present and former director,
officer and employee of the of the Insurance Company who serves as a 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 Insurance Company either by vote of the Board of Directors
at a meeting composed of directors who have no interest in the outcome of such
vote, or by vote of the policyholders. The Insurance Company may pay expenses
incurred in defending an action or claim in advance of its final disposition,
but only upon receipt of an undertaking by the person indemnified to repay such
payment if he should be determined not to be entitled to indemnification.
Article IX of the respective By-Laws of John Hancock Funds and John
Hancock Advisers, Inc.("the Adviser") provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a director, officer, employee or agent of the
corporation, or is or was at any time since the inception of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and the liability was not incurred by reason of gross
negligence or reckless disregard of the duties involved in the conduct of his
office, and expenses in connection therewith may be advanced by the Corporation,
all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the Registrant's Declaration of Trust and By-Laws, the
Distribution Agreement, the By-Laws of John Hancock Funds, the Adviser, or the
Insurance Company or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
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<PAGE> 94
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
-----------------------------------------------------
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and Directors of the
Investment Adviser, reference is made to Forms ADV (801-8124) filed under the
Investment Advisers Act of 1940, which is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) John Hancock Funds acts as principal underwriter for the
Registrant and also serves as principal underwriter or distributor of shares
for John Hancock Cash Reserve, Inc., John Hancock Bond Fund, John Hancock
Current Interest, John Hancock Series, Inc., John Hancock Tax-Free Bond Fund,
John Hancock California Tax-Free Income Fund, John Hancock Capital Series,
John Hancock Limited Term Government Fund, John Hancock Tax-Exempt Income
Fund, John Hancock Sovereign Investors Fund, Inc., John Hancock Special
Equities Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt
Series, John Hancock Strategic Series, John Hancock Technology Series, Inc.,
John Hancock World Fund, John Hancock Investment Trust, John Hancock
Institutional Series Trust, Freedom Investment Trust, Freedom Investment
Trust II and Freedom Investment Trust III.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
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<PAGE> 95
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
------------------ --------------------- ---------------------
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. President, Chief Executive Chairman
101 Huntington Avenue Officer and Director
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Compliance Officer
P.O. Box 111
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Senior Vice President and Director None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
</TABLE>
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<PAGE> 96
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
------------------ --------------------- ---------------------
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------- ---------------
<S> <C> <C>
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President and Vice President,
101 Huntington Avenue Secretary Assistant Secretary
Boston, Massachusetts and Compliance Officer
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
One Beacon Street
Boston, Massachusetts
</TABLE>
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<PAGE> 97
<TABLE>
<S> <C> <C>
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
1000 Louisiana Street
Houston, Texas
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
Registrant maintains the records required to be maintained by it
under Rules 31a-1 (a), 31a-1(b), and 31a-2(a) under the Investment
Company Act of 1940 at its principal executive offices at 101
Huntington Avenue, Boston Massachusetts 02199-7603. Certain records,
including records relating to the Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant to
Rule 31a-3 at the main offices of the Registrant's Transfer Agent
and Custodian.
ITEM 31. MANAGEMENT SERVICES
-------------------
Not applicable.
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<PAGE> 98
ITEM 32. UNDERTAKINGS
------------
(a) Not Applicable
(b) Not Applicable
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered
with a copy of the latest annual report to shareholders with respect
to that series upon request and without charge.
(d) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940, as amended which relates to the
assistance to be rendered to shareholders by the Trustees of the
Registrant in calling a meeting of shareholders for the purpose of
voting upon the question of the removal of a trustee.
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<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and The Commonwealth of Massachusetts on the
28th day of February, 1996.
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
By: *
------------------------------------
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman and Chief Executive
- ---------------------------- Officer (Principal Executive Officer)
Edward J. Boudreau, Jr.
/s/James B. Little
- ---------------------------- Senior Vice President and Chief February 28, 1996
James B. Little Financial Officer (Principal
Financial and Accounting Officer)
* Trustee
- ----------------------------
James F. Carlin
* Trustee
- ----------------------------
William H. Cunningham
* Trustee
- ----------------------------
Charles F. Fretz
* Trustee
- ----------------------------
Harold R. Hiser, Jr.
</TABLE>
C-8
<PAGE> 100
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Trustee
- ----------------------------
Charles L. Ladner
* Trustee
- ----------------------------
Leo E. Linbeck, Jr.
* Trustee
- ----------------------------
Patricia P. McCarter
* Trustee
- ----------------------------
Steven R. Pruchansky
* Trustee
- ----------------------------
Norman H. Smith
* Trustee
- ----------------------------
John P. Toolan
*By: /s/Thomas H. Drohan Feburary 28, 1996
-------------------
Thomas H. Drohan,
Attorney-in-Fact
</TABLE>
C-9
<PAGE> 101
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
----------- ----------- -----------
<S> <C> <C>
99.B1 Amended and Restated Declaration of Trust dated December
19, 1989; Amendment to Declaration of Trust dated October
22, 1991; Amendment to Declaration of Trust dated December
16, 1994 and September 11, 1995.+
99.B2 By-Laws.*
99.B3 None.
99.B4.1 Specimen share certificate for Registrant (Classes A and B).+
99.B5 Investment Advisory Agreement between John Hancock Advisers, Inc. and the
Registrant.*
99.B6 Distribution Agreement between John Hancock Funds, Inc. and the Registrant.*
99.B6.1 Form of Financial Institution Sales and Service Agreement.*
99.B6.2 Form of Soliciting Dealer Agreement between John Hancock Broker Distribution
Services, Inc. and Selected Dealers.*
99.B7 None.
99.B8 Master Custodian Agreement with Investors Bank and Trust Company Bank.*
99.B9 Transfer Agency and Service Agreement with John Hancock Fund Services, Inc.*
99.B10 Not applicable
99.B11 Not applicable
99.B12 Not applicable
99.B13 None
</TABLE>
C-10
<PAGE> 102
<TABLE>
<S> <C> <C>
99.B15 Class A Distribution Plan between Registrant and John Hancock Funds, Inc.*
99.B15.1 Class B Distribution Plan between Registrant and John Hancock Funds, Inc.*
99.B16 Working papers showing yield calculation for yield and total return.+
27.1A Not applicable
27.1B Not applicable
<FN>
*Previously filed with Registration Statement and/or post-effective amendment
and incorporated by reference herein.
+Filed herewith
</TABLE>
C-11
<PAGE> 1
EXHIBIT 99.B1
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
TRANSAMERICA CALIFORNIA
TAX-FREE INCOME FUND
THIS AMENDED AND RESTATED DECLARATION OF TRUST of Transamerica
California Tax-Free Income Fund, 1000 Louisiana, Houston, Texas 77002, is made
the 18th of December, 1989 by the parties signatory hereto, as trustees (such
persons, so long as they shall continue in office in accordance with the terms
of this Declaration of Trust, and all other parsons who at the time in question
have been duly elected or appointed as trustees in accordance with the
provisions of this Declaration of Trust and are then in office, being
hereinafter called the "Trustees"), it being desired by the Trustees to amend
and restate the Declaration of Trust of Transamerica California Tax-Free Income
Fund originally made the 16th of October, 1989.
WITNESSETH:
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all money and property contributed to the trust fund to manage and
property contributed to the trust fund to manage and dispose of the same for the
benefit of the holders from time to time of the shares of beneficial interest
issued hereunder and subject to the provisions hereof, to wit:
ARTICLE I
Name and Definition
-------------------
1.1 NAME. The name of the trust created hereby (the "Trust") shall be
"Transamerica California Tax-Free Income Fund," and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all documents and sue
or be sued under that name, which name (and the word "Trust" wherever
hereinafter used) shall refer to the Trustees as Trustees, and not individually,
and shall not refer to the officers, agents, employees or shareholders of the
Trust. However, should the Trustees determine that the use of such name is not
advisable, they may select such other name for the Trust as they deem proper and
the Trust may hold its property and conduct its activities under such other
name. Any name change shall become effective upon the execution by a majority of
the then Trustees of an instrument setting forth the new name. Any such
instrument shall have the status of an amendment to this Declaration.
<PAGE> 2
1.2 DEFINITIONS. As used in this Declaration, the following terms
shall have the following meanings:
The terms "AFFILIATED PERSON," "ASSIGNMENT," "COMMISSION," "INTERESTED
PERSON," and "PRINCIPAL UNDERWRITER" shall have the meanings given them in the
1940 Act, as defined below.
"DECLARATION" shall mean this Declaration of Trust as amended from time
to time. References in this Declaration to "DECLARATION," "HEREOF," "HEREIN,"
and "HEREUNDER" shall be deemed to refer to the Declaration rather than the
article or section in which such words appear.
"FUNDAMENTAL POLICIES" shall mean the investment objectives, policies
and restrictions set forth in the Prospectus or Statement of Additional
Information of the Trust and designated therein as policies or restrictions
which may be changed only upon a vote of Shareholder of the Trust.
"MAJORITY SHAREHOLDER VOTE" means the vote of the holders of: (i) a
majority of Shares represented in person or by proxy and entitled to vote at a
meeting of Shareholders at which a quorum, as determined in accordance with the
By-Laws, in present and (ii) a majority of Shares issued and outstanding and
entitled to vote when action is taken by written consent of Shareholders. For
these purposes, however, the term "majority" shall mean a "majority of the
outstanding voting securities," as the phrase is defined in the 1940 Act, when
any action is required by the 1940 Act by such majority as so defined.
"PERSON" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"PROSPECTUS" and "STATEMENT OF ADDITIONAL INFORMATION" shall mean the
currently effective Prospectus and Statement of Additional Information of the
Trust under the Securities Act of 1933, as amended.
"SERIES" means one of the separately managed components of the Trust as
set forth in Section 6.1 hereof or as may be established and designated from
time to time by the Trustees pursuant to that section.
"SHAREHOLDERS" shall mean as of any particular time all holders of
record of outstanding Shares at such time.
"SHARES" shall mean the transferable units of interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole shares.
<PAGE> 3
"TRUSTEES" shall mean the signatories to this Declaration of Trust, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who at the time in question have been duly elected or
appointed and have qualified as trustees in accordance with the previsions
hereof and are then in office, and reference in this Declaration of Trust to a
Trustee or Trustees shall refer to such person or persons in their capacity as
trustees hereunder.
"TRUST PROPERTY" shall mean as of any particular time any and all
property, real or personal, tangible for intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees.
The "1940 ACT" refers to the Investment Company Act of 1940 and the
rules and regulations thereunder, as amended from time to time.
ARTICLE II
Trustees
--------
2.1 NUMBER OF TRUSTEES. The number of Trustees shall be such number as
shall be fixed from time to time by a written instrument signed by a majority of
the Trustees, provided, however, that the number of Trustees shall in no event
be less than three nor more than fifteen.
2.2 ELECTION, TERM. Each Trustee named herein, or elected or appointed
hereafter, shall (except in the event of resignation, removal or vacancy) hold
office until a successor has been elected or appointed and has qualified to
serve as Trustee. Trustees shall have terms of unlimited duration, subject to
the resignation and removal provisions of Section 2.3 hereof. Except as herein
provided and subject to Section 16(a) of the 1940 Act, Trustees need not be
elected by Shareholders, and the Trustees may elect and appoint their own
successors and may, pursuant to Section 2.4 hereof, appoint Trustees to fill
vacancies. The Trustees may adopt By-Laws not inconsistent with this Declaration
or any provision of law to provide for election of Trustees by Shareholders at
such time or times as the Trustees shall determine to be necessary or advisable.
Except for the Trustees named herein, an individual may not commence to serve as
Trustee except if appointed pursuant to a written instrument signed by a
majority of the Trustees then in office or unless elected by Shareholders, and
any such election or appointment shall not become effective until the individual
appointed or elected shall not become effective until the individual appointed
or elected shall have accepted such election or appointment and agreed in
writing to be bound by the terms of this Declaration of Trust. A Trustee shall
be an individual at least 21 years of age who is not under a legal disability.
2.3 RESIGNATION AND REMOVAL. Any Trustee may resign his trust (without
need for prior or subsequent accounting) by an instrument in writing signed by
him and delivered to the other Trustees and such resignation shall be effective
upon such delivery, or at a later date according to the terms of the instrument.
Any of the Trustees may be removed
<PAGE> 4
(provided the aggregate number of Trustees after such removal shall not be less
than the number required by Section 2.1 hereof) with cause, by action of
two-thirds of the remaining Trustees or by the action of the Shareholders of
record of not less than two-thirds of the Shares outstanding. For purposes of
determining the circumstances and procedures under which such removal by the
Shareholders may take place, the provisions of Section 16(c) of the 1940 Act
shall be applicable to the same extent as if the Trust were subject to the
provisions of that Section. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust-Property held in the name of the
resigning or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
2.4 VACANCIES. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. In the case of a vacancy caused by reason of
an increase in the number of Trustees, subject to the provisions of Section
16(a) of the 1940 Act, the remaining Trustees shall fill such vacancy by the
appointment of such other person as they, in their discretion, shall see fit. An
appointment of a Trustee may be made in anticipation of a vacancy to occur at a
later date by reason of retirement, resignation or increase in the number of
Trustees. Whenever a vacancy in the number of Trustees shall occur, until such
vacancy is filled as provided in this Section 2.4, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of the existence of such
vacancy.
2.5 MEETING. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, if any, the President, the Secretary or any two
Trustees of the Trust. Regular meetings of the Trustees may be held without call
or notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be mailed or otherwise given not
less than 48 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
provided otherwise in this Declaration of Trust or by applicable law, any action
of the Trustees may be taken at a meeting by vote of a majority of the Trustees
present (a quorum being present) or without a meeting by written consents of all
of the Trustees.
<PAGE> 5
Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust within the meaning of
Section 1.2 hereof or otherwise interested in any action to be taken may be
counted for quorum purposes under this Section and shall be entitled to vote to
the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to such
communications systems shall constitute presence in person at such meeting;
except where a vote cast in person is required by the 1940 Act.
2.6 OFFICERS. The Trustees shall annually elect a President, a
Secretary and a Treasurer and may elect a Chairman. The Trustees may elect or
appoint or authorize the Chairman, if any, or President to appoint such other
officers or agents with such powers as the Trustees may deem to be advisable.
The Chairman and President shall be and the Secretary and Treasurer may, but
need not, be a Trustee.
2.7 BY-LAWS. The Trustees may adopt and from time to time amend or
repeal the By-Laws for the conduct of the business of the Trust.
2.8 DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by power of
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees; provided that in no case shall less than
two Trustees personally exercise the powers granted to the Trustees under the
Declaration except as herein otherwise expressly provided.
ARTICLE III
Powers of Trustees
------------------
3.1 GENERAL. The Trustees shall have exclusive and absolute control
over the Trust Property and over the business of the Trust to the same extent as
if the Trustees were the sole owners of the Trust Property and business in their
own right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the
<PAGE> 6
aforesaid power. Such powers of the Trustees may be exercised without order of
or resort to any court.
3.2 INVESTMENTS. The Trustees shall have power, subject to the
Fundamental Policies, to;
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute
ore otherwise deal in or dispose of securities and other investments and assets
of whatever kind, or retain Trust assets in cash and from time to time change
the investments of the assets of the Trust, and exercise any and all rights,
powers and privileges of ownership or interest in respect of any and all such
investments and assets of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designated one or more persons, firms, associations or corporations to
exercise any of said rights powers and privileges in respect of any of said
investments and assets.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3 LEGAL TITLE. Legal title to all Trust Property shall be vested in
the Trustees as joint tenants, except that the Trustees shall have power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust, or in the name of any other
Person as nominee, on such terms as the Trustees may determine, provided that
the interest of the Trust therein is appropriately protected.
The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each person who may hereafter become a Trustee. Upon
there resignation, removal or death of a Trustee he shall automatically cease to
have any right, title or interest in any of the Trust Property, and the right,
title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
3.4 ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell
reissue, dispose of, transfer, and otherwise deal in, Shares, including shares
in fractional denominations, and, subject to the more detailed provisions set
forth in Articles VIII and IX, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
Trust whether capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the Commonwealth of Massachusetts governing
business corporations.
<PAGE> 7
3.5 BORROW MONEY; LEND ASSETS. Subject to the Fundamental Policies, the
Trustees shall have power to borrow money or otherwise obtain credit and to
secure the same by mortgaging, pledging or otherwise subjecting as security the
assets of the Trust, including the lending of portfolio securities, and to
endorse, guarantee or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust assets.
3.6 DELEGATION; COMMITTEES. The Trustees shall have power, consistent
with their continuing exclusive authority over the management of the Trust and
the Trust Property, to delegate from time to time such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or names of the
Trustees or otherwise as the Trustees may deem expedient, to the same extent as
such delegation is permitted to directors of a Massachusetts business
corporation and is permitted by the 1940 Act.
3.7 COLLECTION AND PAYMENT. The Trustees shall have power to collect
all property due to the Trust; and to pay all claims, including taxes, against
the Trust Property; to prosecute, defend, compromise or abandon any claims
relating to the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
3.8 EXPENSES. The Trustees shall have power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration of Trust, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may pay themselves such compensation for special services,
including legal, underwriting , syndicating and brokerage services, as they in
good faith may deem reasonable and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.9 MISCELLANEOUS POWERS. The Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) remove
Trustees or fill vacancies in or add to their number, elect and remove such
officers and appoint and terminate such agents or employees as they consider
appropriate , and appoint from their own number, and terminate, any one or more
committees which may exercise some or all of the power and authority of the
Trustees as the Trustees may determine; (d) purchase, and pay for out of Trust
Property, insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, distributors, selected dealers or
independent contractors of the Trust against all claims arising by reason of
holding any such position or by reason of any action taken or omitted by any
such Person in such capacity, whether or not constituting negligence, or whether
or not the Trust would have the power to indemnify such Person against such
liability; (e) establish pension, profit-sharing, share
<PAGE> 8
purchase and other retirement, incentive and benefit plans for any Trustee,
officers, employees and agents of the Trust: (f) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific, civic
or similar purposes; (g) to the extent permitted by law, indemnify any Person
with whom the Trust has dealings, including the investment adviser, distributor,
transfer agent and selected dealers, to such extent as the Trustees shall
determine; (h) guarantee indebtedness or contractual obligations of others; (i)
determine and change the fiscal year of the Trust and the method in which its
accounts shall be kept; (j) adopt a seal for the Trust, but the absence of such
seal shall not impair the validity of any instrument executed on behalf of the
Trust; and (k) call for meetings of Shareholders as may be necessary or
appropriate.
3.10 FURTHER POWERS. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as too what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive. In construing the provisions
of this Declaration, the presumption shall be in favor of a grant of power to
the Trustees. The Trustees will not be required to obtain any court order to
deal with the Trust Property.
3.11 PRINCIPAL TRANSACTIONS. Except in transactions permitted by the
1940 Act or any rule or regulation thereunder, or any order of, exemption issued
by the Commission, or effected to implement the provisions of any agreement to
which the Trust is a party, the Trustees shall not knowingly, on behalf of the
Trust, buy any securities (other than Shares) from or sell any securities (other
than Shares) to, or lend any assets of the Trust to, any Trustee or officer of
the Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, distributor or
transfer agent or with any Affiliated Person of such Person; but the Trust may
employ any such Person, or firm of company in which such Person is an Interested
Person, as broker, legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian upon customary terms.
3.12 LITIGATION. The Trustees shall have the power to engage in and to
prosecute, defend, compromise, abandon, or adjust, by arbitration or otherwise,
any actions, suits, proceedings, disputes, claims and demands relating to the
Trust, and out of the assets of the Trust to pay or to satisfy any debts, claims
or expenses incurred in connection therewith including those of litigation, and
such power shall include without limitation the power of the Trustees or any
appropriate committee thereof, in the exercise of their or its good faith
business judgment, to dismiss any action, suit, proceeding, dispute, claim or
demand, derivative or otherwise, brought by any person, including a Shareholder
in its own name or the name of the Trust, whether or not the Trust or any of the
Trustees may
<PAGE> 9
be named individually therein, or the subject matter arises by reason of
business for or on behalf of the Trust.
ARTICLE IV
Management and Distribution Arrangements
----------------------------------------
4.1 MANAGEMENT ARRANGEMENTS. Subject to approval by a Majority
Shareholder Vote, the Trustees may in their discretion from time to time enter
into advisory, administration or management contracts whereby the other party to
such contracts shall undertake to furnish such advisory, administrative,
management, accounting, legal, statistical and research facilities and services,
promotional or marketing activities, and such other facilities and services, if
any, as the Trustees shall from time to time consider desirable and all upon
such terms and conditions, and subject to such sub-allegation by the other
party, as the Trustees may in their discretion determine. Notwithstanding any
provisions of this Declaration of Trust, the Trustees may authorize any adviser,
administrator or manager (subject to such general or specific instructions as
the Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of portfolio securities of the Trust on behalf of the Trustees or may
authorize any office, employee or Trustee to effect such purchases, sales, loans
or exchanges pursuant to recommendations of any such adviser, administrator or
manager (all without further action by the Trustees). Any such purchases, sales,
loans and exchanges shall be deemed to have been authorized by all of the
Trustees. The Trustees may, in their sole discretion, call a meeting of
Shareholders in order to submit to a vote of Shareholders at such meeting the
approval or continuance of any such investment advisory, management or other
contract.
4.2 ADMINISTRATIVE SERVICES. The Trustees may in their discretion from
time to time contract for administrative personnel and services whereby the
other party shall agree to provide to the Trustees or the Trust administrative
personnel and services to operate the Trust on a daily or other basis on such
terms and conditions as the Trustees may in their discretion determine. Such
services may be provided by one or more persons or entities.
4.3 DISTRIBUTION ARRANGEMENTS. The Trustees may in their discretion
from time to time enter into a contract providing for the sale of the Shares of
the Trust to net the Trust not less than the par value per share, whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article IV or
the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution or repurchase of
the Shares.
4.4 PARTIES TO CONTRACT. Any contract of the character described in
Sections 4.1, 4.2 or 4.3 of this Article IV or in Article VI or VII hereof may
be entered into with any
<PAGE> 10
corporation, firm, trust or association, although one or more of the Trustees
or officers of the Trust may be on officer, director, Trustee, shareholder,
employee or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any less or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article IV
or the By-Laws. The same person (including a firm, corporation, trust or
association) may be the other party to contracts entered into pursuant to
Section 4.1, 4.2 or 4.3 above Article VI or VII, and any individual may be
financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts mentioned in this Section 4.4.
4.5 PROVISIONS AND AMENDMENTS. Any contract entered into pursuant to
Sections 4.1, 4.2 or 4.3 of this Article IV shall be consistent with and subject
to all applicable requirements of the 1940 Act with respect to its adoption,
continuance, termination and the method of authorization and approval of such
contract or renewal thereof, and no amendment to any contract entered into
pursuant to much sections shall be effective unless entered into in accordance
with applicable provisions of the 1940 Act.
ARTICLE V
Limitations of Liability of
Shareholders, Trustees and Others
---------------------------------
5.1 NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder, as such, 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. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than the Trust
or its Shareholders, in connection with Trust Property or the affairs of the
Trust, and all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust. If any Shareholder, Trustee, officer, employee or agent, as such, of
the Trust, is made a party to any suit or proceeding to enforce any such
liability, 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 for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability. The rights accruing to a
Shareholder under this Section 5.1 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
<PAGE> 11
5.2 NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer, employee or
agent of the Trust 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 his
duties.
5.3 INDEMNIFICATION. The Trustees shall provide for indemnification by
the Trust of any person who is, or has been a Trustee, officer, employee or
agent of the Trust 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, officer, employee or agent and against amounts paid or
incurred by him in the settlement thereof, in such manner as the Trustees may
provide from time to time in the By-Laws.
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.
5.4 NO BOND REQUIRED OF TRUSTEES. No Trustee, as such, shall be
obligated to give any bond or surety or to her security for the performance of
any of his duties hereunder.
5.5 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 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 undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees under this Declaration of Trust or in their
capacity as officers, employees or agents of the Trust. Every written
obligation, contract instrument, certificate, Share, other security of the Trust
or undertaking made or issued by the Trustees or by any officers, employees or
agents of the Trust, in their capacity as such, shall contain an appropriate
recital to the effect that the Shareholders, Trustees, officers, employees and
agents of the Trust shall not personally be bound by or liable thereunder, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim thereunder, and appropriate references shall be made therein
to the Declaration of Trust, and may contain any further recital which they may
deem appropriate but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, Shareholders, officers, employees or
agents of the Trust. The Trustees may maintain insurance for the protection of
the Trust
<PAGE> 12
Property, 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.
5.6 RELIANCE ON EXPERTS, ETC. Each Trustee and officer or employee of
the Trust 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, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by any investment adviser, 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 export may also be a Trustee.
ARTICLE VI
Shares of Beneficial Interest
-----------------------------
6.1 BENEFICIAL INTEREST. The interest of the beneficiaries hereunder
shall be divided into transferable Shares of beneficial interest, par value
$0.01 per share. The number of such Shares of beneficial interest authorized
hereunder is unlimited. The Trustees may initially issue whole and fractional
Shares of a single class each of which shall represent an equal proportionate
share in the Trust with each other Share. As provided by the provisions of
Section 6.9 hereof, the Trustees may authorize the creation of series of Shares
of such class (the proceeds of which may be invested in separate, independently
managed portfolios) and the creation of additional classes of Shares of the
Trust and within any series. All Shares issued hereunder including without
limitation, Shares issued in connection with a dividend in Shares or a split of
Shares, shall be fully paid and nonassessable.
6.2 RIGHTS OF SHAREHOLDERS. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares,
and they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Trust nor can they be called upon
to share or assume any losses of the Trust or suffer an assessment of any kind
by virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in this Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights (except for rights of appraisal specified in Section 11.4 and as
the Trustees may determine with respect to any series or class of Shares).
6.3 TRUST ONLY. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership,
<PAGE> 13
joint stock association, corporation, bailment or any form of legal relationship
other than a trust. Nothing in this Declaration of Trust shall be construed to
make the Shareholders, either by themselves or with the Trustees, partners or
members of a joint stock association.
6.4 ISSUANCE OF SHARES. The Trustees, in their discretion, may from
time to time without a vote of the Shareholders issue Shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount not less than par value and type of
consideration, including cash or property, at such time or times, and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
6.5 REGISTER OF SHARES. A register shall be kept at the Trust or a
transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Such register shall be conclusive as to who are the holders of the
Shares and who shall be entitled to receive dividends or distributions or
otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall
be entitled to receive payment of any dividend or distribution, nor to have
notice given to him as herein provided, until he has given his address to a
transfer agent or such other officer or agent of the Trustees as shall keep the
said register for entry thereon. It is not required that certificates be issued
for the Shares, however, the Trustees, in their discretion, may authorize the
issuance of share certificates and promulgate appropriate rules and regulations
as to their use.
6.6 TRANSFER AGENT AND REGISTRAR. The Trustees shall have power to
employ a transfer agent or transfer agents, and a registrar or registrars. The
transfer agent or transfer agents may keep the said register and record therein
the original issues and transfers, if any, of the said Shares. Any such transfer
agent and registrars shall perform the duties usually performed by transfer
agents and registrars of certificates of stock in a corporation, except as
modified by the Trustees.
6.7 TRANSFER OF SHARES. Shares shall be transferable on the records of
the Trust only by the record holder thereof or by his agent thereto duly
authorized in writing, upon delivery to the Trustees or a transfer agent of the
Trust of a duly executed instrument of transfer, together with such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
<PAGE> 14
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or a transfer
agent of the Trust, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
6.8 TREASURE SHARES. Shares held in the treasury shall, until reissued,
not confer any voting rights on the Trustees, nor shall such Shares be entitled
to any dividends or other distributions declared with respect to the Shares.
6.9 SERIES AND CLASS DESIGNATION. The Trustees, in their discretion,
may authorize the division of Shares into two or more series representing
interests in separate, independently managed portfolios and may authorize
additional classes of shares of the Trust and within any series. The different
series or classes shall be established and designated and the variations in the
relative rights and preferences as between the different series or classes shall
be fixed and determined, by the Trustees, subject to such requirements and
limitations as set forth below and provided that all Shares shall be identical
except that there may be variations so fixed and determined between different
series or classes as to investment objective, purchase price, right of
redemption, special and relative rights as to dividends, conversion and on
liquidation, and the several series or classes shall have separate voting
rights, as set forth in Section 10.1 of this Declaration. All references to
Shares in this Declaration shall be deemed to be shares of any or all series or
classes as the context may require.
If the Trustees shall divide the Shares of the Trust into two or more
series or two or more classes, the following provisions shall be applicable:
(a) The number of authorized Shares and the number of Shares of each
series or of each class that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Shares or any Shares
previously issued and reacquired of any series or class into one or
more series or one or more classes that may be established and
designated from time to time. The Trustees may hold as treasury shares
(of the same or some other series or class), reissue for such
consideration and on such terms as they may determine, or cancel any
Shares of any series or any class reacquired by the Trust at their
discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property
shall be governed by Section 3.2 of this Declaration with respect to
any one or more series which represents the interests in the assets of
the Trust immediately prior to the establishment of two or more series
and the power of the Trustees to invest and reinvest assets applicable
to any other series shall be the same, except as otherwise
<PAGE> 15
set forth in the instrument of the Trustees establishing such series
which is hereinafter described.
(c) All considerations received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits
and proceeds thereof including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, except as provided in paragraph (e) below, shall
irrevocably belong to that series for all purposes, subject only to the
rights of creditors and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account
of the Trust. In the event that there are any assets; income earnings,
profits and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series established and
designated from time to time in such manner and on such basis as they,
in their sole discretion, deem fair and equitable. Each such allocation
by the Trustees shall be conclusive and binding upon the Shareholders
of all series for all purposes.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all
expenses, costs, charges and reserves attributable to that series,
except as provided in paragraph (e) below, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and equitable.
Each such allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the
Shareholders of all series for all purposes. The Trustees shall have
full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items are capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(e) In the event the Trustees create additional classes of Shares of
the Trust or more than one class of shares within any series, each such
additional class shall represent such interests in the Trust property
or, if series have been established, in the property of the series of
which the class is a part, and have such voting, dividend, liquidation
and other rights and such terms and conditions as shall be fixed and
determined by the Trustees and, as provided in Section 10.1 a class may
have exclusive voting rights with respect to matters relating to solely
to such class. Such additional classes may be established for such
purposes as the Trustees determine to be appropriate, and have such
rights as the Trustees shall determine, in order to enable the Trust to
issue Shares representing interests which vary from the rights and
interests of other classes of the Trust or any series. The varying
rights and interest of each class shall be appropriately reflected (in
the manner
<PAGE> 16
determined by the Trustees) in the net asset value, dividend and
liquidation rights of the Shares of such class.
(f) The power of the Trustees to pay dividends and make distributions
with respect to the Shares of any series or class shall be governed by
Section 9.2 of this Declaration. Such dividends paid and distributions
made with respect to any series or class shall be from such of the
income and capital gains, accrued or realized, from the assets
belonging to that series or class, as the Trustees may determine based
upon the rights of each series or class established, after providing
for actual and accrued liabilities belonging to that series or class.
All dividends and distributions on Shares of a particular series or
class shall be distributed pro rata to the holders of that series or
class in proportion to the number of Shares of that series or class
held by such holders at the date and time of record established for the
payment of such dividends or distributions.
(g) Subject to the requirements of the 1940 Act, particularly Section
18(f) and Rule 18f-2, as they may be modified by the terms of any
exemption by rule or order therefrom, the Trustees shall have the power
to determine the designations, preferences, privileges, limitations and
rights of each class and series of Shares.
(h) The establishment and designation of any series or class of Shares
shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such series or
class, or as otherwise provided in such instrument. At any time that
there are no Shares outstanding of any particular series or class
previously established and designated, the Trustees may by an
instrument executed by a majority of their number abolish that series
or class and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to
this Declaration.
6.10 NOTICE. Any and all notices to which any Shareholder hereunder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
ARTICLE VII
Custodian
---------
7.1 APPOINTMENT AND DUTIES. The Trustees shall at all times employ a
custodian or custodians, meeting the qualifications for custodians contained in
the 1940 Act, as custodian with authority as its agent, but subject to such
restrictions, limitations and other requirements, if any, as may be contained in
the By-Laws of the Trust and the 1940 Act, for purposes of maintaining custody
of the Trust's securities and similar investments.
<PAGE> 17
7.2 CENTRAL CERTIFICATE SYSTEM. Subject to applicable rules,
regulations and orders, the Trustees may direct the custodian to deposit all or
any part of the securities and similar investments owned by the Trust in a
system for the central handling of securities pursuant to which all securities
of any particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities.
ARTICLE VIII
Redemption
----------
8.1 REDEMPTIONS. All outstanding Shares may be redeemed at the option
of the holders thereof, upon and subject to the terms and conditions provided in
this Article VIII. The Trust shall, upon application of any Shareholder or
pursuant to authorization from any Shareholder, redeem or repurchase from such
Shareholder outstanding Shares for an amount per share determined by the
application of a formula adopted for such purpose by resolution of the Trustees
(which formula shall be consistent with applicable provisions of the 1940 Act);
provided that (a) such amount per Share shall not exceed the cash equivalent of
the proportionate interest of each Share in the assets of the Trust at the time
of the purchase or redemption and (b) if so authorized by the Trustees, the
Trust may, at any time and from time to time, charge fees for effecting such
redemption, at such rates as the Trustees may establish, as and to the extent
permitted under the 1940 Act, and may, at any time and from time to time,
pursuant to such Act or an order thereunder, suspend such right of redemption.
The procedures for effecting redemption shall be as set forth in the Prospectus
and the Statement of Additional Information, as amended from time to time. The
proceeds of redemptions of Shares shall be paid in cash; except that the Trust
may pay a redemption by a distribution of securities in kind if and to the
extent that the Trustees determine that the payment of such redemption in kind
is necessary to avoid or to reduce adverse effects upon the Trust and its
remaining Shareholders that would otherwise result if payment were made in cash
and subject to the requirements of the 1940 Act (including any election made by
the Trust pursuant to Rule 18f-1 thereunder).
8.2 REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If the Trustees shall,
at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption a number, or principal amount, of Shares or the securities of the
Trust sufficient, in the opinion of the Trustees, to maintain or bring the
direct or indirect ownership of Shares or the securities of the Trust into
conformity with the requirements of such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in question would in
the opinion of the Trustees result in such disqualification. The redemption
shall be effected at a redemption price determined in accordance with Section
8.1.
<PAGE> 18
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
8.3 REDEMPTIONS OF ACCOUNT OF LESS THAN $100. The Trustees shall have
the power to redeem shares at a redemption price determined in accordance with
Section 8.1 if at any time the total investment in a Shareholder account does
not have a value of at least $100 (or such lesser amount as the Trustees may
determine); provided, however, that the Trustees may not exercise such power
with respect to Shares if the Prospectus does not describe such power (and
applicable amount). In the event the Trustees determine to exercise their power
to redeem Shares provided in this Section 8.3, shareholders shall be notified
that the value of their account is less than $100 (or such lesser amount as
determined above) and allowed a reasonable period of time to make an additional
investment before the redemption is effected.
ARTICLE IX
Determination of Net Asset Value,
Net Income and Distributions
----------------------------
9.1 NET ASSET VALUE. The net asset value of each outstanding Share of
the Trust shall be determined in such manner and at such time or times on such
days as the Trustees may determine, in accordance with applicable provisions of
the 1940 Act, as described from time to time in the Trust's currently effective
Prospectus and Statement of Additional Information. The power and duty to make
the daily calculations may be delegated by the Trustees to the adviser,
administrator, manager, custodian, transfer agent or such other person as the
Trustees may determine. The Trustees may suspend the daily determination of net
asset value to the extent permitted by the 1940 Act.
9.2 DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall from time to time
distribute ratably among the Shareholders such proportion of the net profits,
including net income, surplus (including paid-in surplus), capital or assets
held by the Trustees as they may deem proper. Such distribution shall be made in
cash and the Trustees may distribute ratably among the Shareholders additional
Shares issuable hereunder in such manner, at such times, and on such terms as
the Trustees may deem proper. Such distributions may be among the Shareholders
of record at the time of declaring a distribution or among the Shareholders of
record at such later date as the Trustees shall determine. Dividends and
distributions on Shares may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the
<PAGE> 19
debts or expenses of the Trust or to meet obligations of the Trust, or
as they may deem desirable to use in the conduct of its affairs or to retain for
future requirements or extensions of the business. The Trustees may adopt and
offer to Shareholders such dividend reinvestment plan, cash dividend payout
plans or related plans, as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books of the Trust,
the above provisions shall be interpreted to give the Trustees the power in
their discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
ARTICLE X
Shareholders Voting and Reports
-------------------------------
10.1 VOTING. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article II herein, (ii) with respect to any
investment advisory, management or other contract as provided in Section 4.1,
(iii) with respect to termination of the Trust as provided in Section 11.2, (iv)
with respect to any amendment of the Declaration to the extent and as provided
in Section 11.3, (v) with respect to any merger, consolidation or sale of assets
as provided in Section 11.4 (vi) with respect to incorporation of the Trust, to
the extent and as provided in Section 11.5, (vii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or Shareholders, and
(viii) with respect to such additional matters relating to the Trust as may be
required by law, the Declaration, the By-Laws or any registration statement of
the Trust, filed with any federal or state regulatory authority, or as and when
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that Shares held in the treasury of the Trust as of the record date, as
determined in accordance with the By-Laws, shall not be voted. A Majority
Shareholder Vote shall be sufficient to take or authorize action upon any matter
except as otherwise provided herein. There shall be no cumulative voting in the
election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, the Declaration
or the By-Laws to be taken by Shareholder.
In the event of the establishment of series or classes as contemplated
by Section 6.9, Shareholders of each such series or class shall, with respect to
those matters upon which Shareholders are entitled to vote, be entitled to vote
only on matters affecting such series or class, and voting shall be by series
and class and require a Majority Shareholder Vote of each series or class that
would be affected by such matter, except that all Shares
<PAGE> 20
(regardless of series or class) shall be voted as a single voting class
where the interests of each class and series in a matter are substantially
identical or where required by applicable law. Except as otherwise required by
law, any action required or permitted to be taken at any meeting or Shareholders
may be taken without a meeting if Shareholders constituting a Majority
Shareholder Vote consent to the action in writing and such consents are filed
with the records of the Trust, such consents shall be treated for all purposes
as votes taken at a meeting of Shareholders. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the Declaration.
10.2 REPORTS. The Trustees shall transmit to Shareholders such written
financial reports of the operations of the Trust, including financial statements
certified by independent public accountants, as may be required under applicable
law.
ARTICLE XI
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
------------------------
11.1 DURATION. Subject to possible termination in accordance with the
provisions of Section 11.2 hereof, the Trust created hereby shall continue
without limitation of time.
11.2 Termination of Trust.
---------------------
(a) The Trust may be terminated (i) by a Majority Shareholder
Vote at any meeting of Shareholders, (ii) by an instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to by holders
constituting Majority Shareholder Vote or (iii) by the Trustees by written
notice to the Shareholders. Upon the termination of the Trust.
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust
shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer or otherwise dispose
of all or any part of the remaining Trust Property to one or
more persons at public or private sale for consideration
which may consist in whole or in part of cash, securities
or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriately to liquidate
its business; provided that any sale, conveyance, assignment,
exchange, transfer or other disposition of all or
substantially all the Trust Property shall require approval
as set forth in Section 11.4.
<PAGE> 21
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary
for their protection, the Trustees may distribute the
remaining Trust Property, in cash or in kind or partly each,
among Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to
Shareholders as herein provided, a majority of the Trustees shall
execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination, and the Trustees
shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
11.3 Amendment Procedure.
--------------------
(a) This Declaration may be amended by vote of the
Shareholders. The Trustees may also amend this Declaration without the
vote or consent of Shareholders to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, or if they deem it
necessary or desirable to conform this Declaration to the requirements
of applicable federal or state laws or regulations or the requirements
of the regulated investment company provisions of the Internal Revenue
Code, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made under Section 11.3(a) above,
which would change any rights with respect to any Shares of the Trust
by reducing the amount payable thereon upon liquidation of the Trust or
by diminishing or eliminating any voting rights pertaining thereto,
except with the vote or consent of affected Shareholders. Nothing
contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or
to permit assessments upon Shareholders.
(c) A certification in recordable form signed by a majority of
the Trustees or by the Secretary or any Assistant Secretary of the
Trust, setting forth an amendment and reciting that it was duly adopted
by the Shareholders or by the Trustees as aforesaid or a copy of the
Declaration, as amended, in recordable form and executed by a majority
of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
11.4 MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may merge or
consolidate with any other corporation, association, trust or other organization
or may sell, lease or exchange all or substantially all of the Trust Property,
including its good will, upon such terms and conditions and for such
consideration when and as authorized by a Majority Shareholder Vote, and any
such merger, consolidation, sale, lease or exchange
<PAGE> 22
shall be deemed for all purposes to have been accomplished under and pursuant
to the statutes of the Commonwealth of Massachusetts. In respect of any such
merger, consolidation, sale or exchange of assets, any Shareholder shall be
entitled to rights of appraisal of his Shares to the same extent as a
shareholder of a Massachusetts business corporation in respect of a merger,
consolidation, sale or exchange of assets of a Massachusetts business
corporation , and such rights shall be his exclusive remedy in respect of his
dissent from any such action.
11.5 INCORPORATION. Upon a Majority Shareholder Vote, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for shares or securities thereof or
otherwise, and to lend money to, subscribe for shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire shares or any
other interest. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organizations or
entities.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 FILING. This Declaration and all amendments hereto shall be filed
in the office of the Secretary of the Commonwealth of Massachusetts and in such
other places as may be required under the laws of Massachusetts and may also be
filed or record in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and acknowledged
by a Trustee stating that such action was duly taken in a manner provided
herein, and unless such amendment or such certificate sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, containing the original Declaration and all
amendments theretofore made, may be executed from time to time by a majority of
the Trustees and shall, upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
12.2 RESIDENT AGENT. The Trust hereby appoints CT Corporation System as
its resident agent in the Commonwealth of Massachusetts, whose post office
address is 2 Oliver Street, Boston, Massachusetts 02109.
<PAGE> 23
12.3 GOVERNING LAW. This Declaration is executed by the Trustees and
delivered in the Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State and reference shall be specifically made to the business
corporation law of the Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists.
12.4 COUNTERPARTS. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
12.5 RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any person dealing with the
Trustees and their successors.
12.6 Provisions in Conflict With Law or Regulations.
-----------------------------------------------
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
<PAGE> 24
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment to be executed this 18th day of December , 1989.
/s/Thomas R. Powers /s/Robert C. Thompson
- --------------------------------- ---------------------------------
Thomas R. Powers, as Trustee Robert C. Thompson, as Trustee
1000 Louisiana P.O. Box 3490
Houston, Texas 77002 Conroe, Texas 77305
/s/Thomas B. McDade /s/Leo E. Linbeck, Jr.
- --------------------------------- ---------------------------------
Thomas B. McDade, as Trustee Leo E. Linbeck, Jr., as Trustee
5276 Cedar Creek P.O. Box 22500
Houston, Texas 77056 Houston, Texas 77027
/s/R.Trent Campbell /s/William H. Cunningham
- --------------------------------- ---------------------------------
R. Trent Campbell, as Trustee William H. Cunningham, as Trustee
777 Post Oak Blvd. #510 P.O. Box T
Houston, Texas 77056 Austin, Texas 78713
<PAGE> 25
TRANSAMERICA CALIFORNIA TAX-FREE INCOME FUND
--------------------------------------------
AMENDMENT TO DECLARATION OF TRUST TO: (1) Designate and classify Class
A Shares and Class B Shares of the Trust; (2) provide that such Class A Shares
and Class B Shares shall be identical in all substantive respects, as set forth
in and pursuant to the Declaration of Trust (as amended and restated), except as
to the separate bearing of certain distribution expenses; and (3) redesignate
and reclassify, without further act, all Shares of beneficial interest of the
Trust issued and outstanding on or before the effective date of this Amendment
to Declaration of Trust filed with the Commonwealth of Massachusetts as Class A
Shares (but with no change in liquidation, net asset value, dividend, voting or
any other rights of such Shares.)
I
Pursuant to Article VI, Section 6.9 and Article XI, Section 11.3 of the
Declaration of Trust (as amended and restated), each of the undersigned hereby
executes this certificate in connection with the designation and
reclassification of Class A Shares and Class B Shares of the Trust and certain
terms and provisions thereof relating to the separate bearing of certain
distribution expenses, and redesignation issue and outstanding Shares of the
Trust as Class A Shares, and for those purposes adopts the following
resolutions:
RESOLVED, that pursuant to prior authorization of the Trustees and
pursuant to Article VI, Section 6.9 and Article XI, Section 11.3 of the
Declaration of Trust (as amended and restated), the shares of the Trust may be
represented by Class A Shares and Class B Shares, with such Class A and Class B
Shares to be identical in all substantive respects except that (a) expenses
related directly or indirectly to the distribution of Shares of the Trust may be
borne solely by such Class (as shall be determined by the Trustees) and each
Class may have exclusive voting rights with respect to matters relating to the
expenses being borne solely by such Class, and (b) the bearing of expenses
solely by a Class shall be appropriately reflected (in the manner and for the
duration determined by the Trustees, including, without limitation automatic
conversion of Class B Shares to Class A Shares upon satisfaction of contingent
deferred sales charges relating to such Class B Shares) in the net asset value,
dividends and liquidation rights of the shares of such Class; and
RESOLVED, that pursuant to authority expressly vested in the Trustees
of the Trust by Article VI, Section 6.9 of the Declaration of Trust (as amended
and restated), the Trustees hereby create, divide and classify, and provide for
the issuance of, Class A Shares and Class B Shares of the Trust, as follows:
<TABLE>
<CAPTION>
Class No. of Shares Authorized
----- ------------------------
<S> <C>
Class A Shares Unlimited
Class B Shares Unlimited
</TABLE>
<PAGE> 26
; and
RESOLVED, that except as hereinabove set forth with respect to bearing
of expenses and appropriate related matters (in the manner and for the duration
determined by the Trustees, including, without limitation, automatic conversion
of Class B Shares to Class A Shares upon satisfaction of contingent deferred
sales charges relating to such Class B Shares), the terms of the Class A Shares
and Class B Shares shall be as provided in the Declaration of Trust or an
Amendment thereto or other appropriate constituent document of the Trust; and be
it
RESOLVED, that all shares of beneficial interest of the Trust issued
and outstanding on or before the effective date of this Amendment to
redesignated and reclassified, without further act, as Class A Shares of the
Trust (but with no change in liquidation, net asset value, dividend, voting or
any other rights of such Shares.)
<PAGE> 27
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment to be executed this 22nd day of October 1991
/s/ Thomas R. Powers /s/ Mrs. Lloyd Bentsen, Jr.
- --------------------------------- -------------------------------------
Thomas R. Powers, as Trustee Mrs. Lloyd Bentsen, Jr., as Trustee
1000 Louisiana 1810 Kalorama Square, N.W.
Houston, Texas 77002 Washington, D.C. 20008
/s/ Thomas B. McDade /s/ Leo E. Linbeck, Jr.
- --------------------------------- -------------------------------------
Thomas B. McDade, as Trustee Leo E. Linbeck, Jr., as Trustee
5276 Cedar Creek P.O. Box 22500
Houston, Texas 77056 Houston, Texas 77027
/s/ R. Trent Campbell /s/ William H. Cunningham
- --------------------------------- -------------------------------------
R. Trent Campbell, as Trustee William H. Cunningham, as Trustee
5005 Riverway, Suite #240 P.O. Box T
Houston, Texas 77027 Austin, Texas 78713
<PAGE> 28
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 change to "John Hancock California
Tax-Free Income Fund".
<PAGE> 29
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment to be executed this 16th day of December, 1994.
/s/ R. Trent Campbell /s/ Thomas R. Powers
- ----------------------------------- -------------------------------
R. Trent Campbell, as Trustee Thomas R. Powers, as Trustee
5005 Riverway, Ste #240 1000 Louisiana
Houston, TX 77027 Houston, TX 77002
/s/ Mrs. Lloyd Bentsen /s/ Thomas B. McDade
- ----------------------------------- -------------------------------
Mrs. Lloyd Bentsen, as Trustee Thomas B. McDade, as Trustee
1810 Kalorama Square, N.W. 5276 Cedar Creek
Washington, D.C. 20008 Houston, TX 77056
/s/ William H. Cunningham /s/ Leo E. Linbeck, Jr.
- ----------------------------------- -------------------------------
William H. Cunningham, as Trustee Leo E. Linbeck, Jr., as Trustee
601 Colorado Street P.O. Box 22500
O. Henry Hall Houston, TX 77027
Austin, TX 78701
/s/ Thomas M. Simmons
- -----------------------------------
Thomas M. Simmons, as Trustee
1000 Louisiana Street
Houston, TX 77002
<PAGE> 30
TRANSAMERICA TAX-FREE BOND 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 change to "John Hancock Tax-Free Bond
Fund".
<PAGE> 31
IN WITNESS WHEREOF, the undersigned has caused this Certificate of Amendment to
be executed this 16th day of December, 1994.
/s/ R. Trent Campbell /s/ Thomas R. Powers
- ------------------------------- -------------------------------
R. Trent Campbell, as Trustee Thomas R. Powers, as Trustee
5005 Riverway, Ste #240 1000 Louisiana
Houston, TX 77027 Houston, TX 77002
/s/ Mrs. Lloyd Bentsen /s/ Thomas B. McDade
- ------------------------------- -------------------------------
Mrs. Lloyd Bentsen, as Trustee Thomas B. McDade, as Trustee
1810 Kalorama Square, N.W. 5276 Cedar Creek
Washington, D.C. 20008 Houston, TX 77056
/s/ William H. Cunningham /s/ Leo E. Linbeck, Jr.
- ------------------------------- -------------------------------
William H. Cunningham, as Trustee Leo E. Linbeck, Jr., as Trustee
601 Colorado Street P.O. Box 22500
O. Henry Hall Houston, TX 77027
Austin, TX 78701
/s/ Thomas M. Simmons
- -------------------------------
Thomas M. Simmons, as Trustee
1000 Louisiana Street
Houston, TX 77002
<PAGE> 32
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
Instrument Increasing the Number of Trustees and
------------------------------------------------
Appointing Individuals To Fill the Vacancies
--------------------------------------------
The Trustees of John Hancock California Tax-Free Income Fund (the
"Trust"), hereby amend the Trust's Declaration of Trust, dated October 16, 1989,
effective September 11, 1995.
(a) pursuant to Section 2.1 of the Declaration of Trust, to increase
the number of Trustees of the Trust from nine to eleven; and
(b) pursuant to Section 2.4 of the Declaration of Trust, to appoint
Charles F. Fretz and Harold R. Hiser, Jr. to fill the vacancies thereby
created, such appointments to become effective upon such individuals
accepting in writing such appointments and agreeing to be bound by the
terms of the Declaration of Trust with such individuals holding office
until their successor is elected and qualified or until the earlier of
their resignation, removal or death.
IN WITNESS WHEREOF, the Trustees of the Trust have executed these
Instruments as of the 11th day of September, 1995.
/s/ Edward J. Boudreau, Jr. /s/ Patricia P. McCarter
- ------------------------------- -------------------------------
Edward J. Boudreau, Jr. Patricia P. McCarter
As Trustee and not individually As Trustee and not individually
/s/ James F. Carlin /s/ Steven R. Pruchansky
- ------------------------------- -------------------------------
James F. Carlin Steven R. Pruchansky
As Trustee and not individually As Trustee and not individually
/s/ William H. Cunningham /s/ Norman H. Smith
- ------------------------------- -------------------------------
William H. Cunningham Norman H. Smith
As Trustee and not individually As Trustee and not individually
/s/ Charles L. Ladner /s/ John P. Toolan
- ------------------------------- -------------------------------
Charles L. Ladner John P. Toolan
As Trustee and not individually As Trustee and not individually
/s/ Leo E. Linbeck, Jr.
- -------------------------------
Leo E. Linbeck, Jr.
As Trustee and not individually
<PAGE> 33
The Declaration of Trust, a copy of which is on file in the office of
the Secretary of State of the Commonwealth of Massachusetts, provides that 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 Persons; and
all such Persons shall look solely to the Trust Property, or to the Trust
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 of the Trust.
<PAGE> 1
EXHIBIT B.4
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND- A
fully paid and non-assessable Shares of Beneficial Interest, of JOHN HANCOCK
CALIFORNIA TAX-FREE INCOME FUND -A, par value $0.01 per share, transferable on
the books of the Trust by the holder in person, or by duly authorized attorney,
upon surrender of this certificate properly endorsed. Pursuant to Article VI
of the Declaration of Trust, no holder of any shares of the Trust has any
preemptive rights to acquire unissued or treasury shares of the Trust. This
certificate is not valid unless countersigned by the Transfer Agent.
Change date 5/15/95...jxr TEST
Mass Fund
Signed by Boudreau, Chairman
<PAGE> 2
JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND- B
fully paid and non-assessable Shares of Beneficial Interest, of JOHN HANCOCK
CALIFORNIA TAX-FREE INCOME FUND -B, par value $0.01 per share, transferable on
the books of the Trust y the holder in person, or by duly authorized attorney,
upon surrender of this certificate properly endorsed. Pursuant to Article VI
of the Declaration of Trust, no holder of any shares of the Trust has any
preemptive rights to acquire unissued or treasury shares of the Trust. This
certificate is not valid unless countersigned by the Transfer Agent.
Change date 5/15/95...jxr TEST
Mass Fund
Signed by Boudreau, Chairman
<PAGE> 1
<TABLE>
<CAPTION>
EX.16
FUND# 99916 11/1/95
JH CAL TAX FREE CL A DAILY SUMMARY AND DETAIL REPORT
DETAIL INFORMATION: INCOME,EXPENSES,SHARES OUTSTANDING & MAX OFFERING PRICE
DAY DATE INCOME EXPENSES SHARES MAX OFFERING PRICE YIELD
<S> <C> <C> <C> <C> <C> <C>
01 11/30/95 51,373.9951 6,265.30 29,099,276.312
02 12/01/95 50,493.3201 6,313.85 29,090,068.084
03 12/02/95 50,493.3201 6,332.61 29,090,068.084
04 12/03/95 50,493.3201 6,332.61 29,090,068.084
05 12/04/95 50,466.8516 6,332.61 29,088,034.559
06 12/05/95 50,323.9772 6,364.32 29,083,704.749
07 12/06/95 50,512.7004 6,372.05 29,101,460.611
08 12/07/95 50,480.6399 6,392.90 29,073,171.908
09 12/08/95 50,504.1190 6,358.41 29,054,729.967
10 12/09/95 50,504.1190 6,347.73 29,054,729.967
11 12/10/95 50,504.1190 6,347.73 29,054,729.967
12 12/11/95 50,254.8205 6,347.73 29,038,503.474
13 12/12/95 50,670.7980 6,347.35 29,020,705.080
14 12/13/95 50,659.9333 6,315.88 29,014,801.932
15 12/14/95 50,092.5964 6,311.57 29,016,073.460
16 12/15/95 52,250.9539 6,294.25 29,013,405.822
17 12/16/95 52,250.9539 6,298.99 29,013,405.822
18 12/17/95 52,250.9539 6,298.99 29,013,405.822
19 12/18/95 54,892.1202 6,298.99 29,012,973.646
20 12/19/95 50,731.6351 6,247.37 28,999,822.998
21 12/20/95 50,773.2229 6,255.77 28,954,491.122
22 12/21/95 52,399.6913 6,273.95 28,927,017.850
23 12/22/95 50,699.1466 6,283.98 28,936,342.552
24 12/23/95 50,699.1466 6,303.80 28,936,342.552
25 12/24/95 50,699.1466 6,303.80 28,936,342.552
26 12/25/95 50,699.1466 6,303.80 28,936,342.552
27 12/26/95 50,637.0008 6,303.80 28,919,649.227
28 12/27/95 50,516.9199 6,308.58 28,892,035.616
29 12/28/95 50,436.9287 6,320.65 28,857,152.051
30 12/29/95 50,354.0121 6,328.43 28,921,042.384
TOTAL: 1,528,119.6088 189,507.80 870,239,898.806 11.19 4.99997%
AVERAGE SHARES: 29,007,996.627
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
FUND# 99917 11/1/95
JH CAL TAX FREE CL B DAILY SUMMARY AND DETAIL REPORT
DETAIL INFORMATION: INCOME,EXPENSES,SHARES OUTSTANDING & MAX OFFERING PRICE
DAY DATE INCOME EXPENSES SHARES MAX OFFERING PRICE YIELD
<S> <C> <C> <C> <C> <C> <C>
01 11/30/95 14,069.4737 3,433.97 7,969,805.711
02 12/01/95 13,837.7150 3,461.68 7,972,703.644
03 12/02/95 13,837.7150 3,471.02 7,972,703.644
04 12/03/95 13,837.7150 3,471.02 7,972,703.644
05 12/04/95 13,833.0373 3,471.02 7,973,622.094
06 12/05/95 13,777.6761 3,488.18 7,963,077.557
07 12/06/95 13,811.9702 3,490.69 7,957,927.994
08 12/07/95 13,832.3475 3,504.55 7,966,976.119
09 12/08/95 13,854.4822 3,489.53 7,970,958.187
10 12/09/95 13,854.4822 3,483.60 7,970,958.187
11 12/10/95 13,854.4822 3,483.60 7,970,958.187
12 12/11/95 13,795.1042 3,483.60 7,971,706.452
13 12/12/95 13,910.4030 3,483.83 7,967,457.136
14 12/13/95 13,908.9908 3,467.59 7,966,738.464
15 12/14/95 13,750.8793 3,464.74 7,965,721.540
16 12/15/95 14,344.7387 3,455.15 7,965,759.192
17 12/16/95 14,344.7387 3,457.11 7,965,759.192
18 12/17/95 14,344.7387 3,457.11 7,965,759.192
19 12/18/95 15,039.1679 3,457.11 7,949,431.687
20 12/19/95 13,915.9886 3,428.04 7,935,377.801
21 12/20/95 13,935.8998 3,433.24 7,947,798.025
22 12/21/95 14,377.1382 3,437.91 7,937,392.443
23 12/22/95 13,878.2766 3,441.02 7,921,527.772
24 12/23/95 13,878.2766 3,454.68 7,921,527.772
25 12/24/95 13,878.2766 3,454.68 7,921,527.772
26 12/25/95 13,878.2766 3,454.68 7,921,527.772
27 12/26/95 13,870.3217 3,454.68 7,922,128.591
28 12/27/95 13,858.7259 3,460.69 7,926,751.758
29 12/28/95 13,843.9372 3,468.28 7,921,274.184
30 12/29/95 13,803.2898 3,469.01 7,928,536.270
TOTAL: 418,958.2653 103,932.01 238,586,097.983 10.68 4.49222%
AVERAGE SHARES: 7,952,869.933
</TABLE>
<PAGE> 3
TRANSAMERICA CALIFORNIA
TAX-FREE INCOME FUND-CLASS A
SEC TOTAL RETURN FORMULA
Initial Investment: $1,000.00
<TABLE>
<CAPTION>
- ---------------------------------------------
Average Annual Total Return Rate:
Lipper JHA
<S> <C> <C>
6.00 Year Return: 8.42% 7.69%
5 Year Return: 8.81% 8.00%
1 Year Return: 17.72% 16.40%
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------
Investment Value at End of Period: CUMULATIVE
<S> <C> <C>
10 Year Value: $1,560.17 56.02%
5 Year Value: $1,469.38 46.94%
1 Year Value: $1,163.95 16.40%
- -----------------------------------------------------
</TABLE>
- ---------------
$10,000.00
Initial
Investment
$15,601.70
Since Inception
or 10 years
- ---------------
<TABLE>
<S> <C>
Constant Sales Charge: 4.50%
</TABLE>
<TABLE>
<S> <C>
Monthly Dividend Declared $0.0528
Dividends accrued since
last payment date: $0.0016
</TABLE>
<TABLE>
<CAPTION>
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains
Ended NAV Price Charge Date Amount Price Information
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/29/89 $10.00 $10.47 4.50%
1/31/90 $9.87 $10.34 4.50% 1/31/90 0.06100 $9.87
2/28/90 $9.84 $10.30 4.50% 2/28/90 0.06100 $9.84
3/30/90 $9.76 $10.22 4.50% 3/30/90 0.06100 $9.76
4/30/90 $9.57 $10.02 4.50% 4/30/90 0.06100 $9.57
5/31/90 $9.76 $10.22 4.50% 5/31/90 0.06100 $9.76
6/29/90 $9.80 $10.26 4.50% 6/29/90 0.06100 $9.80
7/31/90 $9.92 $10.39 4.50% 7/31/90 0.06100 $9.92
8/31/90 $9.60 $10.05 4.50% 8/31/90 0.06100 $9.60
9/28/90 $9.62 $10.07 4.50% 9/28/90 0.06100 $9.62
10/31/90 $9.70 $10.16 4.50% 10/31/90 0.06100 $9.70
11/30/90 $9.86 $10.32 4.50% 11/30/90 0.06100 $9.86
12/31/90 $9.91 $10.38 4.50%
1/2/91 $9.89 $10.36 4.50% 1/2/91 0.06100 $9.86
1/31/91 $9.89 $10.36 4.50% 1/31/91 0.05900 $9.89
2/28/91 $9.89 $10.36 4.50% 2/28/91 0.05900 $9.89
3/22/91 $9.87 $10.34 4.50% 3/22/91 0.05900 $9.84
4/24/91 $9.97 $10.44 4.50% 4/24/91 0.05900 $9.94
5/24/91 $10.02 $10.49 4.50% 5/24/91 0.05900 $9.99
6/24/91 $9.96 $10.43 4.50% 6/24/91 0.05630 $9.90
7/25/91 $10.05 $10.52 4.50% 7/25/91 0.05710 $10.03
8/26/91 $10.10 $10.58 4.50% 8/26/91 0.05800 $10.08
9/24/91 $10.18 $10.66 4.50% 9/24/91 0.05650 $10.16
10/25/91 $10.24 $10.72 4.50% 10/25/91 0.05770 $10.21
11/25/91 $10.21 $10.69 4.50% 11/25/91 0.05600 $10.20
12/26/91 $10.32 $10.81 4.50% 12/26/91 0.05650 $10.28 $0.04890
1/27/92 $10.28 $10.76 4.50% 1/27/92 0.05650 $10.31
2/24/92 $10.25 $10.73 4.50% 2/24/92 0.05500 $10.20
3/25/92 $10.23 $10.71 4.50% 3/25/92 0.05740 $10.20
4/24/92 $10.26 $10.74 4.50% 4/24/92 0.05650 $10.26
5/22/92 $10.33 $10.82 4.50% 5/22/92 0.05720 $10.32
6/30/92 $10.47 $10.96 4.50% 6/30/92 0.05400 $10.47
7/31/92 $10.72 $11.23 4.50% 7/31/92 0.05550 $10.72
8/31/92 $10.52 $11.02 4.50% 8/31/92 0.05620 $10.52
9/30/92 $10.50 $10.99 4.50% 9/30/92 0.05420 $10.50
10/30/92 $10.25 $10.73 4.50% 10/30/92 0.05610 $10.25
11/30/92 $10.49 $10.98 4.50% 11/30/92 0.05440 $10.49
12/24/92 $10.41 $10.90 4.50% 12/24/92 0.15400 $10.40 $0.15400
<CAPTION>
10-Year 5-Year 1-Year
---------------------------------------------------------------------------------------------------------------
Month Dividend # of Shs Shares Dividend # of Shs Shares Dividend # of Shs Shares Plot Points
Ended Received Reinv. O/S Received Reinv. O/S Received Reinv. O/S for Graph
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/29/89 95.511 $9,551.10
1/31/90 $5.8262 0.590 96.101 $9,485.17
2/28/90 $5.8622 0.596 96.697 $9,514.98
3/30/90 $5.8985 0.604 97.301 $9,496.58
4/30/90 $5.9354 0.620 97.921 $9,371.04
5/31/90 $5.9732 0.612 98.533 $9,616.82
6/29/90 $6.0105 0.613 99.146 $9,716.31
7/31/90 $6.0479 0.610 99.756 $9,895.80
8/31/90 $6.0851 0.634 100.390 $9,637.44
9/28/90 $6.1238 0.637 101.027 $9,718.80
10/31/90 $6.1626 0.635 101.662 $9,861.21
11/30/90 $6.2014 0.629 102.291 $10,085.89
12/31/90 $0.0000 0.000 102.291 96.339 $10,137.04
1/2/91 $6.2398 0.633 102.924 $5.8767 0.596 96.935 $10,179.18
1/31/91 $6.0725 0.614 103.538 $5.7192 0.578 97.513 $10,239.91
2/28/91 $6.1087 0.618 104.156 $5.7533 0.582 98.095 $10,301.03
3/22/91 $6.1452 0.625 104.781 $5.7876 0.588 98.683 $10,341.88
4/24/91 $6.1821 0.622 105.403 $5.8223 0.586 99.269 $10,508.68
5/24/91 $6.2188 0.623 106.026 $5.8569 0.586 99.855 $10,623.81
6/24/91 $5.9693 0.603 106.629 $5.6218 0.568 100.423 $10,620.25
7/25/91 $6.0885 0.607 107.236 $5.7342 0.572 100.995 $10,777.22
8/26/91 $6.2197 0.617 107.853 $5.8577 0.581 101.576 $10,893.15
9/24/91 $6.0937 0.600 108.453 $5.7390 0.565 102.141 $11,040.52
10/25/91 $6.2577 0.613 109.066 $5.8935 0.577 102.718 $11,168.36
11/25/91 $6.1077 0.599 109.665 $5.7522 0.564 103.282 $11,196.80
12/26/91 $6.1961 0.603 110.268 $5.8354 0.568 103.850 $11,379.66
1/27/92 $6.2301 0.604 110.872 $5.8675 0.569 104.419 $11,397.64
2/24/92 $6.0980 0.598 111.470 $5.7430 0.563 104.982 $11,425.68
3/25/92 $6.3984 0.627 112.097 $6.0260 0.591 105.573 $11,467.52
4/24/92 $6.3335 0.617 112.714 $5.9649 0.581 106.154 $11,564.46
5/22/92 $6.4472 0.625 113.339 $6.0720 0.588 106.742 $11,707.92
6/30/92 $6.1203 0.585 113.924 $5.7641 0.551 107.293 $11,927.84
7/31/92 $6.3228 0.590 114.514 $5.9548 0.555 107.848 $12,275.90
8/31/92 $6.4357 0.612 115.126 $6.0611 0.576 108.424 $12,111.26
9/30/92 $6.2398 0.594 115.720 $5.8766 0.560 108.984 $12,150.60
10/30/92 $6.4919 0.633 116.353 $6.1140 0.596 109.580 $11,926.18
11/30/92 $6.3296 0.603 116.956 $5.9612 0.568 110.148 $12,268.68
12/24/92 $18.0112 1.732 118.688 $16.9628 1.631 111.779 $12,355.42
</TABLE>
<PAGE> 4
TRANSAMERICA CALIFORNIA
TAX-FREE ICOME FUND-CLASS A
SEC TOTAL RETURN FORMULA
Initial Investment: $1,000.00
<TABLE>
<CAPTION>
- ---------------------------------------------
Average Annual Total Return Rate:
Lipper JHA
<S> <C> <C>
6.00 Year Return: 8.42% 7.69%
5 Year Return: 8.81% 8.00%
1 Year Return: 17.72% 16.40%
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------
Investment Value at End of Period: CUMULATIVE
<S> <C> <C>
10 Year Value: $1,560.17 56.02%
5 Year Value: $1,469.38 46.94%
1 Year Value: $1,163.95 16.40%
- -----------------------------------------------------
</TABLE>
- ---------------
$10,000.00
Initial
Investment
$15,601.70
Since Inception
or 10 years
- ---------------
<TABLE>
<S> <C>
Constant Sales Charge: 4.50%
</TABLE>
<TABLE>
<S> <C>
Monthly Dividend Declared $0.0528
Dividends accrued since
last payment date: $0.0016
</TABLE>
<TABLE>
<CAPTION>
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains
Ended NAV Price Charge Date Amount Price Information
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/92 $10.41 $10.90 4.50% 12/31/92 0.05550 $10.41
1/29/93 $10.48 $10.97 4.50% 1/29/93 0.05470 $10.48
2/26/93 $10.84 $11.35 4.50% 2/26/93 0.04930 $10.84
3/31/93 $10.70 $11.20 4.50% 3/31/93 0.05440 $10.70
4/30/93 $10.78 $11.29 4.50% 4/30/93 0.05280 $10.78
5/28/93 $10.82 $11.33 4.50% 5/28/93 0.05400 $10.82
6/30/93 $10.95 $11.47 4.50% 6/30/93 0.05190 $10.95
7/30/93 $10.92 $11.43 4.50% 7/30/93 0.05230 $10.92
8/31/93 $11.09 $11.61 4.50% 8/31/93 0.05200 $11.09
9/30/93 $11.17 $11.70 4.50% 9/30/93 0.05020 $11.17
10/29/93 $11.16 $11.69 4.50% 10/29/93 0.05150 $11.16
11/30/93 $11.01 $11.53 4.50% 11/30/93 0.04920 $11.01
12/22/93 $10.85 $11.36 4.50% 12/22/93 0.31830 $10.82 $0.31830
12/31/93 $10.85 $11.36 4.50% 12/31/93 0.05150 $10.85
1/31/94 $10.90 $11.41 4.50% 1/31/94 0.04930 $10.90
2/28/94 $10.61 $11.11 4.50% 2/28/94 0.04370 $10.61
3/31/94 $10.00 $10.47 4.50% 3/31/94 0.04940 $10.00
4/29/94 $10.03 $10.50 4.50% 4/29/94 0.04830 $10.03
5/31/94 $10.06 $10.53 4.50% 5/31/94 0.05000 $10.06
6/30/94 $9.89 $10.36 4.50% 6/30/94 0.04810 $9.89
7/29/94 $10.06 $10.53 4.50% 7/29/94 0.05070 $10.06
8/31/94 $10.06 $10.53 4.50% 8/31/94 0.04960 $10.06
9/30/94 $9.81 $10.27 4.50% 9/30/94 0.04910 $9.81
10/31/94 $9.50 $9.95 4.50% 10/31/94 0.04940 $9.50
11/30/94 $9.22 $9.65 4.50% 11/30/94 0.04700 $9.22
12/31/94 $9.28 $9.72 4.50% 12/30/94 0.04870 $9.28
1/31/95 $9.57 $10.02 4.50% 01/31/95 0.04960 $9.57
2/28/95 $9.89 $10.36 4.50% 02/28/95 0.04879 $9.89
3/31/95 $9.99 $10.46 4.50% 03/31/95 0.04656 $9.99
4/30/95 $9.98 $10.45 4.50% 04/28/95 0.04951 $9.98
5/31/95 $10.32 $10.81 4.50% 05/31/95 0.04790 $10.32
6/30/95 $10.08 $10.55 4.50% 06/29/95 0.04633 $10.08
7/31/95 $10.06 $10.53 4.50% 07/28/95 0.04468 $10.06
8/31/95 $10.18 $10.66 4.50% 08/30/95 0.05144 $10.13
9/30/95 $10.19 $10.67 4.50% 09/28/95 0.04659 $10.12
10/31/95 $10.35 $10.84 4.50% 10/30/95 0.04964 $10.34
11/30/95 $10.56 $11.06 4.50% 11/29/95 0.04785 $10.50
12/31/95 $10.69 $11.19 4.50% 12/28/95 0.04489 $10.66
<CAPTION>
10-Year 5-Year 1-Year
-----------------------------------------------------------------------------------------------------------
Month Dividend # of Shs Shares Dividend # of Shs Shares Dividend # of Shs Shares Plot Points
Ended Received Reinv. O/S Received Reinv. O/S Received Reinv. O/S for Graph
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/92 $6.5872 0.633 119.321 $6.2037 0.596 112.375 $12,421.32
1/29/93 $6.5269 0.623 119.944 $6.1469 0.587 112.962 $12,570.13
2/26/93 $5.9132 0.545 120.489 $5.5690 0.514 113.476 $13,061.01
3/31/93 $6.5546 0.613 121.102 $6.1731 0.577 114.053 $12,957.91
4/30/93 $6.3942 0.593 121.695 $6.0220 0.559 114.612 $13,118.72
5/28/93 $6.5715 0.607 122.302 $6.1890 0.572 115.184 $13,233.08
6/30/93 $6.3475 0.580 122.882 $5.9780 0.546 115.730 $13,455.58
7/30/93 $6.4267 0.589 123.471 $6.0527 0.554 116.284 $13,483.03
8/31/93 $6.4205 0.579 124.050 $6.0468 0.545 116.829 $13,757.15
9/30/93 $6.2273 0.558 124.608 $5.8648 0.525 117.354 $13,918.71
10/29/93 $6.4173 0.575 125.183 $6.0437 0.542 117.896 $13,970.42
11/30/93 $6.1590 0.559 125.742 $5.8005 0.527 118.423 $13,844.19
12/22/93 $40.0237 3.699 129.441 $37.6940 3.484 121.907 $14,044.35
12/31/93 $6.6662 0.614 130.055 $6.2782 0.579 122.486 $14,110.97
1/31/94 $6.4117 0.588 130.643 $6.0386 0.554 123.040 $14,240.09
2/28/94 $5.7091 0.538 131.181 $5.3768 0.507 123.547 $13,918.30
3/31/94 $6.4803 0.648 131.829 $6.1032 0.610 124.157 $13,182.90
4/29/94 $6.3673 0.635 132.464 $5.9968 0.598 124.755 $13,286.14
5/31/94 $6.6232 0.658 133.122 $6.2378 0.620 125.375 $13,392.07
6/30/94 $6.4032 0.647 133.769 $6.0305 0.610 125.985 $13,229.75
7/29/94 $6.7821 0.674 134.443 $6.3874 0.635 126.620 $13,524.97
8/31/94 $6.6684 0.663 135.106 $6.2804 0.624 127.244 $13,591.66
9/30/94 $6.6337 0.676 135.782 $6.2477 0.637 127.881 $13,320.21
10/31/94 $6.7076 0.706 136.488 $6.3173 0.665 128.546 $12,966.36
11/30/94 $6.4149 0.696 137.184 $6.0417 0.655 129.201 $12,648.36
12/31/94 $6.6809 0.720 137.904 $6.2921 0.678 129.879 102.881 $12,797.49
1/31/95 $6.8400 0.715 138.619 $6.4420 0.673 130.552 $5.1029 0.533 103.414 $13,265.84
2/28/95 $6.7633 0.684 139.303 $6.3697 0.644 131.196 $5.0456 0.510 103.924 $13,777.07
3/31/95 $6.4862 0.649 139.952 $6.1087 0.611 131.807 $4.8389 0.484 104.408 $13,981.20
4/30/95 $6.9296 0.694 140.646 $6.5263 0.654 132.461 $5.1697 0.518 104.926 $14,036.47
5/31/95 $6.7369 0.653 141.299 $6.3449 0.615 133.076 $5.0260 0.487 105.413 $14,582.06
6/30/95 $6.5464 0.649 141.948 $6.1654 0.612 133.688 $4.8838 0.485 105.898 $14,308.36
7/31/95 $6.3422 0.630 142.578 $5.9732 0.594 134.282 $4.7315 0.470 106.368 $14,343.35
8/31/95 $7.3342 0.724 143.302 $6.9075 0.682 134.964 $5.4716 0.540 106.908 $14,588.14
9/30/95 $6.6771 0.660 143.962 $6.2886 0.621 135.585 $4.9813 0.492 107.400 $14,669.73
10/31/95 $7.1457 0.691 144.653 $6.7299 0.651 136.236 $5.3309 0.516 107.916 $14,971.59
11/30/95 $6.9215 0.659 145.312 $6.5188 0.621 136.857 $5.1637 0.492 108.408 $15,344.95
12/31/95 $6.5228 0.612 145.924 $6.1433 0.576 137.433 $4.8663 0.457 108.865 $15,601.68
</TABLE>
<PAGE> 5
TRANSAMERICA CALIFORNIA
TAX-FREE INCOME FUND-CLASS A
SEC TOTAL RETURN FORMULA
Initial Investment: $1,000.00
<TABLE>
<CAPTION>
- ---------------------------------------------
Average Annual Total Return Rate:
Lipper JHA
<S> <C> <C>
6.00 Year Return: 8.42% 7.69%
5 Year Return: 8.81% 8.00%
1 Year Return: 17.72% 16.40%
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------
Investment Value at End of Period: CUMULATIVE
<S> <C> <C>
10 Year Value: $1,560.17 56.02%
5 Year Value: $1,469.38 46.94%
1 Year Value: $1,163.95 16.40%
- -----------------------------------------------------
</TABLE>
- ---------------
$10,000.00
Initial
Investment
$15,601.70
Since Inception
or 10 years
- ---------------
<TABLE>
<S> <C>
Constant Sales Charge: 4.50%
</TABLE>
<TABLE>
<S> <C>
Monthly Dividend Declared $0.0528
Dividends accrued since
last payment date: $0.0016
</TABLE>
<TABLE>
<CAPTION>
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains
Ended NAV Price Charge Date Amount Price Information
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
End of Period (update for formulas above):
10.690
- ------------------------------------------------------------------------------------------
<CAPTION>
10-Year 5-Year 1-Year
-------------------------------------------------------------------------------------------------
Month Dividend # of Shs Shares Dividend # of Shs Shares Dividend # of Shs Shares Plot Points
Ended Received Reinv. O/S Received Reinv. O/S Received Reinv. O/S for Graph
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
End of Period (update for formulas above):
145.924 137.433 108.865
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
TRANSAMERICA CALIFORNIA
TAX-FREE INCOME FUND (CLASS B)
SEC TOTAL RETURN
<TABLE>
<CAPTION>
<S> <C>
Initial Investment: $1,000.00
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
Average Annual Total Return
Excluding With
CDSC CDSC
<S> <C> <C>
10 Year Return: N/A N/A
4.00 Year Return: 7.38% 6.77%
1 Year Return: 20.89% 15.89%
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
Investment Value at End of Period
CDSC
Excluding % CDSC Ending
CDSC CDSC Amount Value
<S> <C> <C> <C>
N/A N/A N/A N/A
$1,329.47 3.00% $30.00 $1,299.47
$1,208.88 5.00% $50.00 $1,158.88
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE
Excluding With
CDSC CDSC
<S> <C>
N/A N/A
32.95% 29.95%
20.89% 15.89%
</TABLE>
<TABLE>
<CAPTION>
$10,000.00 $10,000.00
Initial Initial
Investment Investment
<S> <C>
$13,294.70 $12,994.70
</TABLE>
<TABLE>
<CAPTION>
$10,000.00 $10,000.00
Initial Initial
Investment Investment
<S> <C>
$13,294.70 $12,994.70
</TABLE>
<TABLE>
<S> <C>
# Since Inception
Constant Sales Charge: N/A
</TABLE>
<TABLE>
<S> <C>
Monthly Dividend Declared $0.0454
Dividends accrued since
last payment date: $0.0014
</TABLE>
<TABLE>
<CAPTION>
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains
Ended NAV Price Charge Date Amount Price Information
- ---------------------------------------------------------------------------------------------
12/31/91 $10.32 $10.32 0.00%
1/27/92 $10.26 $10.26 0.00% 1/27/92 0.05000 $10.30
2/24/92 $10.24 $10.24 0.00% 2/24/92 0.04900 $10.19
3/25/92 $10.22 $10.22 0.00% 3/25/92 0.05080 $10.19
4/24/92 $10.24 $10.24 0.00% 4/24/92 0.05000 $10.25
5/22/92 $10.32 $10.32 0.00% 5/22/92 0.05070 $10.31
6/30/92 $10.46 $10.46 0.00% 6/30/92 0.04840 $10.46
7/31/92 $10.71 $10.71 0.00% 7/31/92 0.04870 $10.71
8/31/92 $10.51 $10.51 0.00% 8/31/92 0.04930 $10.51
9/30/92 $10.50 $10.50 0.00% 9/30/92 0.04770 $10.50
10/30/92 $10.25 $10.25 0.00% 10/30/92 0.04930 $10.25
11/30/92 $10.48 $10.48 0.00% 11/30/92 0.04810 $10.48
12/24/92 $10.41 $10.41 0.00% 12/24/92 0.15400 $10.39
12/31/92 $10.41 $10.41 0.00% 12/31/92 0.04880 $10.41
1/29/93 $10.48 $10.48 0.00% 1/29/93 0.04810 $10.48
2/26/93 $10.84 $10.84 0.00% 2/26/93 0.04330 $10.84
3/31/93 $10.69 $10.69 0.00% 3/31/93 0.04750 $10.69
4/30/93 $10.78 $10.78 0.00% 4/30/93 0.04610 $10.78
5/28/93 $10.82 $10.82 0.00% 5/28/93 0.04710 $10.82
6/30/93 $10.95 $10.95 0.00% 6/30/93 0.04520 $10.95
7/30/93 $10.92 $10.92 0.00% 7/30/93 0.04540 $10.92
8/31/93 $11.09 $11.09 0.00% 8/31/93 0.04500 $11.09
9/30/93 $11.17 $11.17 0.00% 9/30/93 0.04330 $11.17
10/29/93 $11.16 $11.16 0.00% 10/29/93 0.04430 $11.16
11/30/93 $11.01 $11.01 0.00% 11/30/93 0.04230 $11.01
12/22/93 $10.85 $10.85 0.00% 12/22/93 0.31830 $10.81
12/31/93 $10.85 $10.85 0.00% 12/31/93 0.04440 $10.85
1/31/94 $10.90 $10.90 0.00% 1/31/94 0.04240 $10.90
2/28/94 $10.61 $10.61 0.00% 2/28/94 0.03750 $10.61
3/31/94 $10.00 $10.00 0.00% 3/31/94 0.04270 $10.00
4/29/94 $10.03 $10.03 0.00% 4/29/94 0.04220 $10.03
5/31/94 $10.06 $10.06 0.00% 5/31/94 0.04360 $10.06
6/30/94 $9.89 $9.89 0.00% 6/30/94 0.04190 $9.89
7/29/94 $10.06 $10.06 0.00% 7/29/94 0.04440 $10.06
8/31/94 $10.06 $10.06 0.00% 8/31/94 0.04320 $10.06
9/30/94 $9.81 $9.81 0.00% 9/30/94 0.04280 $9.81
10/31/94 $9.50 $9.50 0.00% 10/31/94 0.04320 $9.50
<CAPTION>
10-Year 5-Year 1-Year Initial Initial
-------------------------------------------------------------------------------------------
Month Dividend # of Shs Shares Dividend # of Shs Shares Dividend # of Shs Shares Investment Investment
Ended Received Reinv. O/S Received Reinv. O/S Received Reinv. O/S Excl CDSC Incl CDSC
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/91 96.899 $10,000.00 $9,699.98
1/27/92 $4.8450 0.470 97.369 $9,990.10 $9,690.06
2/24/92 $4.7711 0.468 97.837 $10,018.50 $9,718.51
3/25/92 $4.9701 0.488 98.325 $10,048.80 $9,748.82
4/24/92 $4.9163 0.480 98.805 $10,117.60 $9,817.63
5/22/92 $5.0094 0.486 99.291 $10,246.80 $9,946.83
6/30/92 $4.8057 0.459 99.750 $10,433.90 $10,133.85
7/31/92 $4.8578 0.454 100.204 $10,731.80 $10,431.85
8/31/92 $4.9401 0.470 100.674 $10,580.80 $10,280.84
9/30/92 $4.8021 0.457 101.131 $10,618.80 $10,318.76
10/30/92 $4.9858 0.486 101.617 $10,415.70 $10,115.74
11/30/92 $4.8878 0.466 102.083 $10,698.30 $10,398.30
12/24/92 $15.7208 1.513 103.596 $10,784.30 $10,484.34
12/31/92 $5.0555 0.486 104.082 $10,834.90 $10,534.94
1/29/93 $5.0063 0.478 104.560 $10,957.90 $10,657.89
2/26/93 $4.5274 0.418 104.978 $11,379.60 $11,079.62
3/31/93 $4.9865 0.466 105.444 $11,272.00 $10,971.96
4/30/93 $4.8610 0.451 105.895 $11,415.50 $11,115.48
5/28/93 $4.9877 0.461 106.356 $11,507.70 $11,207.72
6/30/93 $4.8073 0.439 106.795 $11,694.10 $11,394.05
7/30/93 $4.8485 0.444 107.239 $11,710.50 $11,410.50
8/31/93 $4.8258 0.435 107.674 $11,941.00 $11,641.05
9/30/93 $4.6623 0.417 108.091 $12,073.80 $11,773.76
10/29/93 $4.7884 0.429 108.520 $12,110.80 $11,810.83
11/30/93 $4.5904 0.417 108.937 $11,994.00 $11,693.96
12/22/93 $34.6746 3.208 112.145 $12,167.70 $11,867.73
12/31/93 $4.9792 0.459 112.604 $12,217.50 $11,917.53
1/31/94 $4.7744 0.438 113.042 $12,321.60 $12,021.58
2/28/94 $4.2391 0.400 113.442 $12,036.20 $11,736.20
3/31/94 $4.8440 0.484 113.926 $11,392.60 $11,092.60
4/29/94 $4.8077 0.479 114.405 $11,474.80 $11,174.82
5/31/94 $4.9881 0.496 114.901 $11,559.00 $11,259.04
6/30/94 $4.8144 0.487 115.388 $11,411.90 $11,111.87
7/29/94 $5.1232 0.509 115.897 $11,659.20 $11,359.24
8/31/94 $5.0068 0.498 116.395 $11,709.30 $11,409.34
9/30/94 $4.9817 0.508 116.903 $11,468.20 $11,168.18
10/31/94 $5.0502 0.532 117.435 $11,156.30 $10,856.33
</TABLE>
<PAGE> 7
TRANSAMERICA CALIFORNIA
TAX-FREE INCOME FUND (CLASS B)
SEC TOTAL RETURN
<TABLE>
<CAPTION>
<S> <C>
Initial Investment: $1,000.00
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
Average Annual Total Return
Excluding With
CDSC CDSC
<S> <C> <C>
10 Year Return: N/A N/A
4.00 Year Return: 7.38% 6.77%
1 Year Return: 20.89% 15.89%
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
Investment Value at End of Period
CDSC
Excluding % CDSC Ending
CDSC CDSC Amount Value
<S> <C> <C> <C>
N/A N/A N/A N/A
$1,329.47 3.00% $30.00 $1,299.47
$1,208.88 5.00% $50.00 $1,158.88
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE
Excluding With
CDSC CDSC
<S> <C>
N/A N/A
32.95% 29.95%
20.89% 15.89%
</TABLE>
<TABLE>
<CAPTION>
$10,000.00 $10,000.00
Initial Initial
Investment Investment
<S> <C>
$13,294.70 $12,994.70
</TABLE>
<TABLE>
<CAPTION>
$10,000.00 $10,000.00
Initial Initial
Investment Investment
<S> <C>
$13,294.70 $12,994.70
</TABLE>
<TABLE>
<S> <C>
# Since Inception
Constant Sales Charge: N/A
</TABLE>
<TABLE>
<S> <C>
Monthly Dividend Declared $0.0454
Dividends accrued since
last payment date: $0.0014
</TABLE>
<TABLE>
<CAPTION>
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains
Ended NAV Price Charge Date Amount Price Information
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11/30/94 $9.21 $9.21 0.00% 11/30/94 0.04140 $9.21
12/31/94 $9.28 $9.28 0.00% 12/30/94 0.04280 $9.28
1/31/95 $9.57 $9.57 0.00% 1/31/95 0.04360 $9.57
2/28/95 $9.88 $9.88 0.00% 2/28/95 0.04318 $9.88
3/31/95 $9.99 $9.99 0.00% 3/31/95 0.04024 $9.99
4/30/95 $9.98 $9.98 0.00% 4/28/95 0.04328 $9.98
5/31/95 $10.32 $10.32 0.00% 5/31/95 0.04064 $10.32
6/30/95 $10.08 $10.08 0.00% 6/29/95 0.03995 $10.08
7/31/95 $10.06 $10.06 0.00% 7/28/95 0.03863 $10.06
8/31/95 $10.17 $10.17 0.00% 8/30/95 0.04466 $10.13
9/30/95 $10.19 $10.19 0.00% 9/28/95 0.04051 $10.12
10/31/95 $10.34 $10.34 0.00% 10/30/95 0.04278 $10.34
11/30/95 $10.56 $10.56 0.00% 11/29/95 0.04142 $10.49
12/31/95 $10.68 $10.68 0.00% 12/28/95 0.03857 $10.66
- ---------------------------------------------------------------------------------------------
END OF PERIOD UPDATE (DO NOT DELETE)
10.680
- ---------------------------------------------------------------------------------------------
<CAPTION>
10-Year 5-Year 1-Year Initial Initial
-------------------------------------------------------------------------------------------
Month Dividend # of Shs Shares Dividend # of Shs Shares Dividend # of Shs Shares Investment Investment
Ended Received Reinv. O/S Received Reinv. O/S Received Reinv. O/S Excl CDSC Incl CDSC
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/30/94 $4.8618 0.528 117.963 $10,864.40 $10,564.39
12/31/94 $5.0488 0.544 118.507 107.759 $10,997.40 $10,697.45
1/31/95 $5.1669 0.540 119.047 $4.6983 0.491 108.250 $11,392.80 $11,092.80
2/28/95 $5.1404 0.520 119.567 $4.6742 0.473 108.723 $11,813.20 $11,513.22
3/31/95 $4.8115 0.482 120.049 $4.3751 0.438 109.161 $11,992.90 $11,692.90
4/30/95 $5.1961 0.521 120.570 $4.7248 0.473 109.634 $12,032.90 $11,732.89
5/31/95 $4.9000 0.475 121.045 $4.4555 0.432 110.066 $12,491.80 $12,191.84
6/30/95 $4.8357 0.480 121.525 $4.3971 0.436 110.502 $12,249.70 $11,949.72
7/31/95 $4.6945 0.467 121.992 $4.2687 0.424 110.926 $12,272.40 $11,972.40
8/31/95 $5.4482 0.538 122.530 $4.9540 0.489 111.415 $12,461.30 $12,161.30
9/30/95 $4.9633 0.490 123.020 $4.5130 0.446 111.861 $12,535.70 $12,235.74
10/31/95 $5.2633 0.509 123.529 $4.7859 0.463 112.324 $12,772.90 $12,472.90
11/30/95 $5.1166 0.488 124.017 $4.6525 0.444 112.768 $13,096.20 $12,796.20
12/31/95 $4.7835 0.449 124.466 $4.3496 0.408 113.176 $13,293.00 $12,992.97
- --------------------------------------------------------------------------------------------------------
END OF PERIOD UPDATE (DO NOT DELETE)
124.466 113.176
- --------------------------------------------------------------------------------------------------------
</TABLE>
