<PAGE> 1
Registration No. 33-32246
ICA No. 811-5968
AS FILED ON FEBRUARY 29, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 12 [x]
JOHN HANCOCK TAX-FREE BOND FUND
(Formerly Transamerica Tax-Free Bond 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)
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
______________________
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 TAX-FREE BOND FUND
(formerly Transamerica Tax-Free Bond Fund
__________________
CROSS-REFERENCE SHEET
<TABLE>
Caption>
Form N-1A
Item
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 The Fund and its Management
and History
13... Investment Objectives Investment Objective and Policies;
and Policies Investment Practices; Investment Restrictions;
Special Investment Techniques
14... Management of the Fund The Fund and its Management; Trustees
and Officers of the Fund
15... Control Persons and The Fund and its Management
Principal Holders of
Securities
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
16... Investment Advisory and The Fund and its Management
Other Services
17... Brokerage Allocation Portfolio Transactions and
Brokerage
18... Capital Stock and Additional Information
Other Securities
19... Purchase, Redemption and Purchase of Shares; Determination
Pricing of Securities of Net Asset Value; Shareholder
Being Offered Services; Redemption and Repurchase of Shares
20... Tax Status Dividends, Distributions and Tax Status
21... Underwriters Purchase of Shares-Distributors
22... Calculation of Additional Information Performance Information
Performance Data
23... Financial Statements 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
TAX-FREE
BOND FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MAY 1, 1996
- --------------------------------------------------------------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Expense Information........................................................ 2
The Fund's Financial Highlights............................................ 3
Investment Objective and Policies.......................................... 5
Organization and Management of the Fund.................................... 8
Alternative Purchase Arrangements.......................................... 9
The Fund's Expenses........................................................10
Dividends and Taxes........................................................11
Performance................................................................12
How to Buy Shares..........................................................14
Share Price................................................................15
How to Redeem Shares.......................................................21
Additional Services and Programs...........................................24
Investments, Techniques and Risk Factors...................................27
</TABLE>
This Prospectus sets forth the information about John Hancock Tax-Free Bond
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 purchase
(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***............................................ 0.25%++ 1.00%
Other expenses**........................................ 0.27% %
Total Fund operating expenses........................... 1.07% 1.82%
</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.
+ Redemption by wire fee (currently $4.00) not included.
++ The Trustees of the Fund have voted to recommend to the Class A shareholders
of the Fund that 12b-1 fee be increased from 0.15% of average daily net
assets to 0.25% effective December 23, 1996. Also effective December 23,
1996, the 12b-1 fee on Class B shares will be increased from 0.90% of
average daily net assets to 1.00%. Prior to the increase of the 12b-1 fee
for Class A and Class B shares, the total Fund operating expenses for Class
A and Class B shares should be approximately 0.97% and 1.72% of average
daily net assets, respectively.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
for the indicated period of years
on a hypothetical $1,000 investment,
assuming 5% annual return:
Class A Shares.............................. $55 $78 $101 $170
Class B Shares
-- Assuming complete redemption
at end of period.................... $68 $87 $119 $194
-- Assuming no redemption............... $18 $57 $ 99 $194
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the National Association of Securities Dealers,
Inc.'s Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Purchase of Shares."
2
<PAGE> 6
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of financial highlights has been audited by Ernst & Young
LLP, the Fund's independent auditors, whose unqualified report is included in
the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to Shareholders
which may be obtained free of charge by writing or telephoning John Hancock
Investor Services Corporation ("Investor Services"), at the address or telephone
number listed on the front page of this Prospectus.
<TABLE>
Selected data for each class of shares outstanding throughout each period is
as follows:
<CAPTION>
FOR THE PERIOD
JANUARY 5, 1990
(COMMENCEMENT
YEAR ENDED DECEMBER 31, OF OPERATIONS)
---------------------------------------------------------------------- TO DECEMBER
1995 1994(E) 1993 1992 1991 31, 1990
-------- -------- -------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
- -------
PER SHARE OPERATING PERFORMANCE
Net Asset Value,
Beginning of Period................. $ 9.39 $ 10.96 $ 10.47 $ 10.24 $ 9.90 $ 10.00(b)
Net Investment Income................. 0.57(d) 0.58 0.62 0.67 0.69 0.71
Net Realized and
Unrealized Gain (Loss)
on Investments...................... 1.28 (1.58) 0.93 0.42 0.72 (0.13)
======== ======== ======== ======= ======= =======
Total from Investment
Operations.......................... 1.85 (1.00) 1.55 1.09 1.41 0.58
LESS DISTRIBUTIONS
Dividends from Net
Investment Income................... (0.57) (0.57) (0.62) (0.68) (0.68) (0.68)
======== ======== ======== ======= ======= =======
Distributions from Net
Realized Gains on
Investments Sold.................... -- -- (0.44) (0.18) (0.39) --
Total Distributions................... (0.57) (0.57) (1.06) (0.86) (1.07) (0.68)
Net Asset Value,
End of Period....................... $ 10.67 $ 9.39 $10.96 $ 10.47 $ 10.24 $ 9.90
======== ======== ======== ======= ======= =======
Total Investment Return
at Net Asset Value.................. 20.20% (9.28)% 15.15% 10.97% 14.78% 6.04%(c)
Total Adjusted
Investment Return
at Net Asset
Value(a)............................ 20.08% (9.39)% 14.98% 10.67% 14.40% 5.18%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted)..................... $118,797 $114,539 $136,521 $99,523 $73,393 $45,437
Ratio of Expenses to
Average Net Assets.................. 0.85% 0.85% 0.78% 0.66% 0.60% 0.40%*
Ratio of Adjusted
Expenses to Average
Net Assets(a)....................... 0.97% 0.96% 0.95% 0.96% 0.98% 1.26%*
Ratio of Net Investment
Income to Average Net
Assets.............................. 5.67% 5.72% 5.57% 6.46% 6.86% 7.17%*
Ratio of Adjusted Net
Investment Income to
Average Net Assets(a)............... 5.55% 5.61% 5.40% 6.16% 6.48% 6.31%*
Portfolio Turnover Rate............... 113% 107% 116% 79% 123% 64%
<FN>
- ---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) On average month end shares outstanding.
(e) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
</TABLE>
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................ $ 9.38 $ 10.96 $ 10.47 $ 10.24
Net Investment Income................ 0.50(d) 0.50 0.54 0.59(d)
Net Realized and Unrealized
Gain (Loss) on Investments......... 1.28 (1.58) 0.93 0.42
------- ------- ------- -------
Total from Investment Operations..... 1.78 (1.08) 1.47 1.01
LESS DISTRIBUTIONS
Dividends from Net
Investment Income.................. (0.49) (0.50) (0.54) (0.60)
Distributions from Net Realized
Gains on Investments Sold.......... -- -- (0.44) (0.18)
------- ------- ------- -------
Total Distributions.................. (0.49) (0.50) (0.98) (0.78)
------- ------- ------- -------
Net Asset Value, End of Period....... $ 10.67 $ 9.38 $ 10.96 $ 10.47
======= ======= ======= =======
Total Investment Return
at Net Asset Value................. 19.41% (10.05)% 14.30% 10.15%
Total Adjusted Investment
Return at Net Asset Value(a)....... 19.29% (10.16)% 14.13% 9.85%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's Omitted).................... $76,824 $70,243 $56,384 $18,272
Ratio of Expenses to
Average Net Assets................. 1.60% 1.60% 1.53% 1.43%
Ratio of Adjusted Expenses
to Average Net Assets(a)........... 1.72% 1.71% 1.70% 1.73%
Ratio of Net Investment Income
to Average Net Assets.............. 4.90% 4.97% 4.66% 5.57%
Ratio of Adjusted Net Investment
Income to Average Net Assets(a).... 4.78% 4.86% 4.49% 5.27%
Portfolio Turnover Rate.............. 113% 107% 116% 79%
<FN>
- ---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) On average month end shares outstanding.
(e) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
</TABLE>
4
<PAGE> 8
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to obtain as high a level of interest income
exempt from federal income taxes as is consistent with preservation of capital.
The Fund seeks to achieve its objective by investing primarily in municipal
bonds, notes and commercial paper, the interest on which is exempt from federal
income taxes ("Municipal Obligations"). Municipal Obligations include debt
obligations issued by or on behalf of states, territories and possessions of
the United States; the District of Columbia; and the political subdivisions,
agencies or instrumentalities thereof.
- -------------------------------------------------------------------------------
THE FUND SEEKS TO PROVIDE INCOME EXEMPT
FROM FEDERAL INCOME TAX.
- -------------------------------------------------------------------------------
Under normal market conditions, at least 80% of the Fund's total assets will be
invested in Municipal Obligations. At least 65% of the Fund's assets will
normally be invested in municipal bonds. Pending the investment of Fund assets
in Municipal Obligations and to meet redemption requests, the Fund may invest
up to 20% of its total assets in private activity bonds (the interest on which
may be treated as a tax preference item under the Federal alternative minimum
tax) and in certain taxable money market securities, including: obligations
issued or guaranteed by the U.S. government, its agencies, instrumentalities or
authorities; corporate debt securities; commercial paper; certificates of
deposit of domestic banks with assets of $1 billion or more; and repurchase
agreements secured by U.S. Government securities.
When John Hancock Advisers, Inc. (the "Adviser") determines that unfavorable
investment conditions warrant a temporary defensive position, the Fund may
invest more than 20% of its assets in taxable money market securities rated in
the three highest ratings as determined by Moody's Investors Services, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service
("Fitch") or, if unrated, determined by the Adviser to be of comparable
quality. See the Statement of Additional Information for a description of those
ratings.
Municipal bonds generally are classified as either general obligation bonds or
revenue bonds. General obligation bonds are backed by the credit of an issuer
having taxing power and are payable from the issuer's general unrestricted
revenues. Their payment may depend on an appropriation of the issuer's
legislative body. Revenue bonds, by contrast, are payable only from the
revenues derived from a particular project, facility or a specific revenue
source. They are not generally payable from the unrestricted revenues of the
issuer. Municipal notes include tax anticipation notes, bond anticipation
notes, revenue anticipation notes and project notes. Municipal commercial paper
obligations are unsecured promissory notes issued by municipalities to meet
short-term credit needs.
- -------------------------------------------------------------------------------
THE FUND'S INVESTMENT IN MUNICIPAL
OBLIGATIONS INCLUDES MUNICIPAL BONDS,
MUNICIPAL NOTES AND MUNICIPAL COMMERCIAL
PAPER.
- -------------------------------------------------------------------------------
At the time of purchase, municipal bonds, including private activity bonds, and
Municipal notes must be rated at least Ba by Moody's, B by S&P or Fitch or, if
not rated, determined by the Adviser to be of comparable credit quality.
Municipal commercial paper must be rated at least Prime-2 by Moody's or A-1+ by
S&P. The Fund may retain Municipal Obligations whose ratings are downgraded
below
- -------------------------------------------------------------------------------
THE FUND INVESTS IN MUNICIPAL OBLIGATIONS.
- -------------------------------------------------------------------------------
5
<PAGE> 9
permissible ratings until the Adviser determines that disposing of such
Obligations is in the best interest of the Fund.
Municipal bonds and notes rated BBB or Baa are considered to have some
speculative characteristics and can pose special risks involving the ability of
the issuer to make payment of principal and interest to a greater extent than
higher rated securities. Municipal bonds and notes rated BB, B, Ba, or B are
considered speculative and are generally referred to as junk bonds. While
generally providing greater income than investments in higher quality
securities, these instruments involve greater risk of principal and income
loss, including the possibility of default. These instruments may have greater
price volatility, especially during periods of economic uncertainty or change.
Bonds rated B are currently meeting debt services requirements but provide a
limited margin of safety and are vulnerable to default in the event of adverse
business, financial or economic conditions. In addition, the market for these
instruments may be less liquid than the market for higher rated securities.
Therefore, the adviser's judgment at times play a greater role in the
performance and valuation of the Fund's investments in these instruments. See
Appendix A to the Statement of Additional Information for additional discussion
of the ratings assigned to Municipal Obligations.
The Adviser will purchase municipal bonds rated BBB or lower or Baa or lower
where, based upon price, yield and its assessment of quality, investment in
such bonds is determined to be consistent with the Fund's objective of
preservation of capital. The Adviser will evaluate and monitor the quality of
all investments, including bonds rated BBB or lower or Baa or lower, and will
dispose of such bonds necessary to assure that the Fund's overall portfolio is
constituted in manner consistent with the goal of preservation of capital. To
the extent that the Fund's investments in municipal bonds rated BBB or lower or
Baa or lower includes obligations believed to be consistent with the goal of
preserving capital, such bonds may not provide yields as high as those of other
obligations having such ratings and the differential in yields between such
bonds and obligations with higher quality ratings may not be as significant as
might otherwise be generally available.
Because there is no restriction on the maturities of the Municipal Obligations
in which the Fund may invest, the Fund's average portfolio maturity is not
subject to any limit. Generally, the longer the average portfolio maturity, the
greater will be the impact of fluctuations in interest rates on the values of
the Fund's assets and on the net asset value per share.
- -------------------------------------------------------------------------------
THERE IS NO RESTRICTION ON THE MATURITIES
OF THE FUND'S MUNICIPAL OBLIGATIONS.
- -------------------------------------------------------------------------------
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. The Fund may purchase call and put options on these securities and
indices. The Fund 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 such futures contracts to
hedge against changes in securities prices and interest rates.
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES TO HELP ACHIEVE ITS INVESTMENT
OBJECTIVE.
- -------------------------------------------------------------------------------
6
<PAGE> 10
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 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 assets in
Municipal Obligations are fundamental and may not be changed without the
approval of the Fund's shareholders. The Fund's other investment policies and
its nonfundamental restrictions, however, may be changed by a vote of the
Trustees without shareholder approval. Notwithstanding the Fund's fundamental
investment restriction prohibiting investments in other investment companies,
the Fund may, pursuant to an order granted by the SEC, invest in other
investment companies in connection with a deferred compensation plan for the
non-interested trustees of the John Hancock Group of Funds. There can be no
assurance that the Fund will achieve its investment objective.
- -------------------------------------------------------------------------------
THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
RISK FACTORS. An investment in the Fund is intended for long-term investors
who can accept the risks associated with investing primarily in fixed-income
securities. The Fund's investments will be subject to market fluctuation and
other risks inherent in all securities. The yield, return and price volatility
of the Fund 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."
7
<PAGE> 11
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 service.
Consideration may also be given to the broker's sales of Fund shares. Pursuant
to procedures determined by the Trustees, the Adviser may place securities
transactions with brokers affiliated with the Adviser. 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 1989. 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 have
authorized the issuance of two classes of the Fund, designated as Class A and
Class B. The shares of each class represent an interest in the same portfolio
of investments of the Fund. Each class has equal rights as to voting,
redemption, dividends and liquidation. However, each class bears different
distribution and transfer agent fees and other expenses. Also, Class A and
Class B shareholders have exclusive voting rights with respect to their
distribution plans.
- -------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE
INVESTMENT ADVISER WHO IS RESPONSIBLE FOR
THE DAY-TO-DAY OPERATIONS OF THE FUND,
SUBJECT TO THE TRUSTEES' POLICIES AND
SUPERVISION.
- -------------------------------------------------------------------------------
The Fund is not required to and does not intend to hold annual meetings of
shareholders, although special meetings may be held for such purposes as
electing or removing Trustees, changing fundamental policies or approving a
management contract. The Fund, under certain circumstances, will assist in
shareholder communications with other shareholders.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds
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.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $16 BILLION.
- -------------------------------------------------------------------------------
Thomas C. Goggins is Senior Vice President of the Adviser and portfolio manager
of the Fund. Mr. Goggins heads up John Hancock's team of municipal managers and
analysts. He joined the Adviser in 1995. Prior to that date, Mr. Goggins was a
municipal bond portfolio manager at Putnam Investments and Transamerica
Investment Services, 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.
8
<PAGE> 12
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.
- -------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
- -------------------------------------------------------------------------------
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 0.25% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A SHARES ARE SUBJECT
TO AN INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
Class A shares. To the extent that any dividends are paid by the Fund, these
higher expenses will also result in lower dividends than those paid on Class A
shares.
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE. The alternative purchase
arrangement allows you to choose the most beneficial way to buy shares, given
the amount of your purchase, the length of time you expect to hold your shares
and other circumstances. You should consider whether, during the anticipated
life of your Fund investment, the CDSC and accumulated fees on Class B shares
would be less than the initial sales charge and accumulated fees on Class A
shares purchased at the same time, and to what extent this differential would be
offset by the Class A shares' lower expenses. To help you make this
determination, the table under the caption "Expense Information" on the inside
cover page of this Prospectus shows examples of the charges applicable to each
class of shares. Class A shares will normally be more beneficial if you qualify
for reduced sales charges. See "Share Price--Qualifying for a Reduced Sales
Charge."
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
Class A shares are subject to lower distribution fees and, accordingly, pay
correspondingly higher dividends per share, to the extent any dividends are
paid.
9
<PAGE> 13
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 its 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.
However, because initial sales charges are deducted at the time of purchase,
you would not have all of your funds invested initially and, therefore, would
initially own fewer shares. If you do not qualify for reduced initial sales
charges and expect to maintain your investment for an extended period of time,
you might consider purchasing Class A shares. This is because the accumulated
distribution and service charges on Class B shares may exceed the initial sales
charge and accumulated distribution and service charges on Class A shares
during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution and service fees and, for a six-year period,
a CDSC.
In the case of Class A shares, the distribution expenses that John Hancock
Funds, Inc. ("John Hancock Funds") incurs in connection with the sale of the
shares will be paid from the proceeds of the initial sales charge and ongoing
distribution and service fees. In the case of Class B shares, the expenses will
be paid from the proceeds of the ongoing distribution and service fees, as well
as from the CDSC incurred upon redemption within six years of purchase. The
purpose and function of the Class B shares' CDSC and ongoing distribution and
service fees are the same as those of the Class A shares' initial sales charge
and ongoing distribution and service fees.
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 will also 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 % of the Fund's average daily net
assets. 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 0.25% (0.15% until December 23, 1996) 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% until December 23, 1996 of average daily net assets. In
each case, up to 0.25% is for service expenses and the remaining amount is for
distribution expenses. The distribution fees will be used to reimburse John
Hancock Funds for its distribution expenses, including but not limited to: (i)
initial and ongoing sales compensation to Selling Brokers and others (including
affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii)
marketing, promotional and
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
10
<PAGE> 14
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 its 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.
[/R]
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 $3,009,557 of distribution expenses or 4.0% of the
average net assets of the Fund's Class B shares was not reimbursed or
recommended by John Hancock Funds through receipt of deferred sales charges or
Rule 12b-1 fees in prior periods.
Information on the Fund's total expenses is in the Financial Highlights section
of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares dividends daily and distributes
dividends monthly, representing all or substantially all of its net investment
income. The Fund will distribute net realized long-term and short-term capital
gains, if any, annually before the close of the fiscal year (December 31).
- -------------------------------------------------------------------------------
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.
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
11
<PAGE> 15
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 your social security or other
tax payer identification number is correct and that you are 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 31% of the proceeds of
redemptions or exchanges.
In addition to Federal taxes, you may be subject to state and local taxes with
respect to your investment in and distributions from the Fund. A state income
(and possibly local income and/or intangible property) tax exemption is
generally available to the extent the Fund's distributions are derived from
interest on (or, in the case of intangibles taxes, the value of its assets is
attributable to) certain U.S. Government obligations and/or tax-exempt
municipal obligations issued by or on behalf of the particular state or a
political subdivision thereof, provided in some states that certain thresholds
for holdings of these obligations and/or reporting requirements are satisfied.
You will receive tax information each year showing the percentage of the Fund's
exempt-interest dividends attributable to each state. 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 AND TOTAL
RETURN.
- -------------------------------------------------------------------------------
12
<PAGE> 16
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period
of time. Average annual total return shows the cumulative return divided over
the number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
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 a lower sales charge would result in
higher performance figures. Total return and yield for Class B shares reflects
the deduction of the applicable CDSC 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. The
total return and yield of Class A and Class B shares will be calculated
separately and, because each class is subject to different expenses, the 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 Class A
and Class B shares in any advertisement or promotional materials including Fund
performance data. The value of Fund shares, when redeemed, may be more or less
than their original cost. Both yield and total return are historical
calculations, and are not an indication of future performance. See "Factors to
Consider in Choosing an Alternative."
13
<PAGE> 17
<TABLE>
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
<S> <C>
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 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 Tax-Free Bond 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, Selling Broker or mail it directly to
Investor Services.
- --------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application
ACCUMULATION designating a bank account from which funds may be drawn.
- --------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES
- --------------------------------------------------------------------------------
PROGRAM
(MAAP) 2. The amount you elect to invest will be withdrawn
automatically from your bank or credit union account.
- --------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information"
sections on the Account Privileges Application
designating a bank account from which your funds may be
drawn. Note that in order to invest by phone, your
account must be in a bank or credit union that is a
member of the Automated Clearing House system (ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free 1-800-225-5291.
3. Give the Investor Services representative the name(s) in
which your account is registered, the Fund name, the
class of shares you own, your account number, and the
amount you wish to invest.
4. Your investment normally will be credited to your
account the business day following your phone request.
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 18
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
BY CHECK 1. Either complete the detachable stub included on your
account statement or include a note with your investment
listing the name of the Fund, the class of shares you
own, your account number and the name(s) in which the
account is registered.
- -------------------------------------------------------------------------------
BUYING ADDITIONAL
CLASS A AND CLASS B
SHARES (CONTINUED)
- -------------------------------------------------------------------------------
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or
Selling Broker.
- --------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Tax Free-Bond Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
- --------------------------------------------------------------------------------
Other Requirements: All purchases must be made in U.S. dollars. Checks
written on foreign banks will delay purchases until U.S. funds are received
and a collection charge may be imposed. Shares of the Fund are priced at
the offering price based on the net asset value computed after Investor
Services receives notification of the dollar equivalent from the Fund's
custodian bank. Wire purchases normally take two or more hours to complete
and, to be accepted the same day, must be received by 4:00 P.M., New York
time. Your bank may charge a fee to wire funds. Telephone transactions are
recorded to verify information. Certificates are not issued unless a
request is made in writing to Investor Services.
- --------------------------------------------------------------------------------
</TABLE>
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
- -------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- -------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV per
share 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 Board
has determined approximates market value. If quotations are not readily
available, assets are valued by a method that the Trustees believe accurately
reflects fair value.
- -------------------------------------------------------------------------------
THE 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.
- -------------------------------------------------------------------------------
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.
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
15
<PAGE> 19
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.
<TABLE>
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
<CAPTION>
COMBINED
SALES REALLOWANCE REALLOWANCE
SALES CHARGE AS A AND SERVICE TO SELLING
CHARGE AS A PERCENTAGE FEE AS A BROKERS AS
AMOUNT INVESTED PERCENTAGE OF THE PERCENTAGE A PERCENTAGE
(INCLUDING SALES OF OFFERING AMOUNT OF OFFERING OF OFFERING
CHARGE) PRICE INVESTED PRICE (***) THE 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 3.00% 3.09% 2.50% 2.26%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
<FN>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. A Selling Broker to whom substantially the entire sales charge is
reallowed or who receives these incentives may be deemed to be an
underwriter under the Securities Act of 1933.
(**) 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 aggregate as follows:
1% on sales to $4,999,999, 0.50% on the next $5 million and 0.25% on
amounts over $10 million.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance in an amount equal to 0.25% of the net
assets invested in the Fund at the time of the sale. Thereafter, it pays
the service fee periodically in arrears in an amount up to 0.25% of the
Fund's average annual net assets. Selling Brokers receive the fee as
compensation for providing personal and account maintenance services to
shareholders.
</TABLE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate
of up to 0.05% of the daily net assets of accounts attributable to these
brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
16
<PAGE> 20
<TABLE>
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:
<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 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."
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
17
<PAGE> 21
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 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.
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE AVAILABLE WITHOUT A
SALES CHARGE TO CERTAIN INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
- - 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 types 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.
- - Members 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 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
18
<PAGE> 22
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 Charges"
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 acquired through dividend
reinvestment (10 X $12) -120
- - Minus appreciation on remaining shares,
also not subject to CDSC (40 X $2) - 80
----
- - 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>
YEAR IN WHICH
CLASS B SHARES CONTINGENT DEFERRED SALES
REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT SUBJECT TO 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.
19
<PAGE> 23
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
- - Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How
to Redeem Shares"), as long as your annual redemptions do not exceed 10% of
your account value at the time you establish your Systematic Withdrawal Plan
and 10% of the value of your subsequent investments (less redemptions) in that
account at the time you notify Investor Services. This waiver does not apply
to Systematic Withdrawal Plan redemptions of Class A shares that are subject
to a CDSC.
- -------------------------------------------------------------------------------
UNDER CERTAIN CIRCUMSTANCES, THE CDSC
ON CLASS B 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 the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into this Fund from another John Hancock
fund, the
20
<PAGE> 24
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.
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.
21
<PAGE> 25
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <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 or other
tax-qualified retirement plans or shares of the Fund
that are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to
implement due to a large volume of calls. During
these times, you should consider placing redemption
requests in writing or use EASI-Line. EASI-Line's
telephone number is 1-800-338-8080.
- --------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with
the Fund, redemption proceeds of $1,000 or more can be
wired on the next business day to your designated bank
account, and a fee (currently $4.00) will be deducted.
You may also use electronic funds transfer to your
assigned bank account, and the funds are usually
collectible after two business days. Your bank may or
may not charge a fee for this service. Redemptions of
less than $1,000 will be sent by check or electronic
funds transfer.
This feature may be elected by completing the
"Telephone Redemption" section on the Account
Privileges Application included with this Prospectus.
- --------------------------------------------------------------------------------
IN WRITING Send a stock power or "letter of instruction"
specifying the name of the Fund, the dollar amount or
the number of shares to be redeemed, your name, class
of shares, your account number and the additional
requirements listed below that apply to your
particular account.
- --------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 26
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
-------------------- ------------
<S> <C> <C>
Individual, Joint Tenants, Sole A letter of instruction signed (with
Proprietorship, Custodial titles where applicable) by all
(Uniform Gifts or Transfer to persons authorized to sign for the
Minors Act), General Partners account, exactly as it is registered
with the signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s)
authorized to act on the account with
the signature(s) guaranteed.
Trusts A letter of instruction signed by the
trustee(s) with the signature(s)
guaranteed. (If the Trustee's name is
not registered on your account, also
provide a copy of the trust document,
certified within the last 60 days.
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- --------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund
by verifying the signature on your request. It may not be provided by a
notary public. If the net asset value of the shares redeemed is $100,000
or less, John Hancock Funds may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the
institution meets credit standards established by Investor Services: (i) a
bank; (ii) a securities broker or dealer, including a government or
municipal securities broker or dealer, that is a member of a clearing
corporation or meets certain net capital requirements; (iii) a credit union
having authority to issue signature guarantees; (iv) a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association; or (v) a national securities exchange, a
registered securities exchange or a clearing agency.
- -------------------------------------------------------------------------------
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 instructions. Unless you specify to the contrary,
any outstanding Class A shares will be redeemed before Class B shares. You
may not redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account
which holds less than $100 (except accounts under retirement plans) and to
mail the proceeds to the shareholder, or the transfer agent may impose an
annual fee of $10.00. No account will be involuntarily redeemed or
additional fee imposed, if the value of the account is in excess of the
Fund's minimum initial investment or if the value of the account falls
below the required minimum as a result of market action. No CDSC will be
imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made
or this fee is imposed, and will have 30 days to purchase additional
shares to bring their account balance up to the required minimum. Unless
the number of shares acquired by further purchases and dividend
reinvestments, if any, exceeds the number of shares redeemed, repeated
redemptions from a smaller account may eventually trigger this policy.
- ---------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 27
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if 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.
- -------------------------------------------------------------------------------
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 that are subject to a CDSC may be exchanged
into Class B shares of another John Hancock fund without incurring the CDSC;
however, these shares will be subject to the CDSC schedule of the shares
acquired (except that exchanges into John Hancock Short-Term Strategic Income
Fund, John Hancock Limited-Term Government Fund and John Hancock Intermediate
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 continue to 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
24
<PAGE> 28
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.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Investor Services employs the following procedures to confirm that
instructions received by telephone are genuine. Your name, the account
number, taxpayer identification number applicable to the account and other
relevant information may be requested. In addition, telephone instructions
are recorded.
IN WRITING
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
25
<PAGE> 29
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares that you reinvest
in John Hancock funds that are 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 purposes of computing the CDSC payable
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 Fund shares or in shares
of any of the 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.
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.
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. 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 the Fund shares under the "Automatic Investing"
and "Bank Information" sections of the Account Privileges Application.
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
26
<PAGE> 30
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.
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% 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
27
<PAGE> 31
on a forward commitment basis to hedge against anticipated changes in interest
rates and prices. When the Fund engages in such 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 does not intend to invest for the purpose of seeking short-term
profits. The Fund's portfolio securities may be changed, however, without
regard to the holding period of these securities (subject to certain tax
restrictions), when the Adviser deems that this action will help achieve the
Fund's objective given a change in an issuer's operations or changes in general
market conditions. 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 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 taxable capital gains
or losses.
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
28
<PAGE> 32
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, which 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. Certain municipal lease
obligations may trade infrequently. Accordingly, COPs will be purchased and
monitored pursuant to analysis by the Adviser and reviewed according to
procedures by the Board of Trustees which consider various factors in
determining the liquidity risk. COPs will not be considered illiquid for
purposes of the Fund's 10% limitation on illiquid securities provided the
Adviser determines that there is a readily available market for such
securities. An investment in COPs is subject to the risk that a municipality
may not appropriate sufficient funds to meet payments on the underlying lease
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. 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. The Fund may realize taxable income or gain from its transactions in
derivative contracts, distributions of which will be taxable to shareholders.
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
29
<PAGE> 33
one or more interest rates, financial indices or other financial indicators
("reference prices"). An indexed security may be leveraged to the extent that
the magnitude of any change in the interest rate or principal payable on an
indexed security is a multiple of the change in the reference price. Thus,
indexed securities may decline in value due to adverse market changes in
interest rates or other reference prices.
RISKS ASSOCIATED WITH DERIVATIVE SECURITIES AND CONTRACTS. The risks
associated with the Fund's transactions in derivative securities and contracts
may include some or all of the following:
Market Risk. Investments in floating rate and indexed securities are subject
to the interest rate and other market risks described above. Entering into a
derivative contract involves a risk that the applicable market will move
against the Fund's position and that the Fund will incur a loss. For derivative
contracts other than purchased options, this loss may exceed the amount of the
initial investment made or the premium received by the Fund.
Leverage and Volatility Risk. Derivative instruments may sometimes increase or
leverage the Fund's exposure to a particular market risk. Leverage enhances the
price volatility of derivative instruments held by the Fund. The Fund may
partially offset the leverage inherent in derivative contracts by maintaining a
segregated account consisting of cash and liquid, high grade debt securities,
by holding offsetting portfolio securities or contracts or by covering written
options.
Correlation Risk. A Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative 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.
30
<PAGE> 34
APPENDIX A
EQUIVALENT YIELDS:
TAX EXEMPT VS. TAXABLE YIELD
<TABLE>
The table below shows the effect of the tax status of municipal obligations on
the yield received by their holders under the regular federal income tax laws
that apply to 1996. It gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields.
TAX-FREE YIELDS 1996 TAX TABLE
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX
------------- ------------ RATE
----------
(TAXABLE INCOME)
- -------------------------------------
<S> <C> <C>
$ 0-24,000 $ 0-40,100 15.0%
$ 24,001-58,150 $ 40,101-96,900 28.0%
$ 58,151-121,300 $ 96,901-147,700 31.0%
$121,301-263,750 $147,701-263,750 36.0%
Over $263,750 Over $263,750 39.6%
<CAPTION>
TAX-EXEMPT YIELD
- ------------------------------------------------------------------------
4% 5% 6% 7% 8% 9% 10%
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4.71% 5.88% 7.06% 8.24% 9.41% 10.59% 11.76%
5.56% 6.94% 8.33% 9.72% 11.11% 12.50% 13.89%
5.80% 7.25% 8.70% 10.14% 11.59% 13.04% 14.49%
6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63%
6.62% 8.28% 9.93% 11.59% 13.25% 14.90% 16.56%
</TABLE>
It is assumed that an investor filing a single return is not a "head of
household," a "married individual filing a separate return," or a "surviving
spouse." The table does not take into account the effects of reductions in the
deductibility of itemized deductions or the phaseout of personal exemptions for
taxpayers with adjusted gross incomes in excess of specified amounts. Further,
the table does not attempt to show any alternative minimum tax consequences,
which will depend on each shareholder's particular tax situation and may vary
according to what portion, if any, of the Fund's exempt-interest dividends is
attributable to interest on certain private activity bonds for any particular
taxable year. No assurance can be given that the Fund will achieve any specific
tax-exempt yield or that all of its income distributions will be tax-exempt.
Distributions attributable to any taxable income or capital gains realized by
the Fund will not be tax-exempt.
The information set forth above is as of the date of this Prospectus. Subsequent
tax law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax-equivalent yields set forth above.
This table is for illustrative purposes only and is not intended to imply or
guarantee any particular yield from the John Hancock High Yield Tax-Free Fund.
While it is expected that a substantial portion of the interest income
distributed to the Fund's shareholders will be exempt from federal income taxes,
portions of such distributions from time to time may be subject to federal
income taxes.
A-1
<PAGE> 35
APPENDIX B
DESCRIPTION OF BOND RATINGS AND FUND'S ASSET COMPOSITION
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: 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.
Aa: 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 fluctuations 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.
A: 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 at some time in the future.
Baa: 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.
Ba: 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.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest level assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
B-1
<PAGE> 36
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B: Debt rated BB, B is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
QUALITY DISTRIBUTION
<TABLE>
The average weighted quality distribution of the securities in the portfolio
for the year ended December 31, 1995:
<CAPTION>
RATING
AVERAGE % OF ASSIGNED
SECURITY RATINGS VALUE PORTFOLIO BY ADVISER
- ---------------- ------------ --------- -----------
<S> <C> <C> <C>
AAA................................... 41,620,864 22.1% 1,044,059
AA.................................... 9,121,111 4.8% 0
A..................................... 27,993,235 14.9% 0
BBB................................... 96,254,876 51.0% 7,931,388
BB.................................... 4,917,232 2.6% 5,015,317
B..................................... 1,179,936 0.6% 467,552
CCC................................... 0 0.0% 0
CC.................................... 0 0.0% 0
C..................................... 0 0.0% 0
D..................................... 0 0.0% 0
Debt Securities....................... 181,087,254 99.6% 14,458,316
Equity Securities..................... 0 0.0%
Short-Term Securities................. 833,750 0.4%
------------ ------
Total Portfolio....................... $188,447,932 100.0%
------------ ------
Other Assets -- Net................... $ 3,098,296
------------
Net Assets............................ $191,546,229
============
<CAPTION> RATING
% OF ASSIGNED % OF
SECURITY RATINGS PORTFOLIO BY SERVICE* PORTFOLIO
- ---------------- ---------- ------------ ----------
<S> <C> <C> <C>
AAA................................... 0.6% 40,576,806 21.5%
AA.................................... 0.0% 9,121,111 4.9%
A..................................... 0.0% 27,993,235 14.9%
BBB................................... 4.2% 88,323,488 46.9%
BB.................................... 2.7% (98,085) (0.1)%
B..................................... 0.2% 712,384 0.4%
CCC................................... 0.0% 0 0.0%
CC.................................... 0.0% 0 0.0%
C..................................... 0.0% 0 0.0%
D..................................... 0.0% 0 0.0%
---- ----------- -----
Debt Securities....................... 7.7% 166,628,938 88.4%
Equity Securities.....................
Short-Term Securities.................
Total Portfolio.......................
Other Assets -- Net...................
Net Assets............................
<FN>
The ratings are described in the Statement of Additional Information.
*S&P, Moody's and Fitch's
</TABLE>
B-2
<PAGE> 37
JOHN HANCOCK
TAX-FREE BOND FUND JOHN HANCOCK
TAX-FREE BOND FUND
INVESTMENT ADVISER CLASS A AND CLASS B SHARES
John Hancock Advisers, Inc. PROSPECTUS
101 Huntington Avenue
Boston, Massachusetts 02199-7603
MAY 1, 1996
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc. A MUTUAL FUND SEEKING
101 Huntington Avenue TO OBTAIN AS HIGH
Boston, Massachusetts 02199-7603 LEVEL OF INTEREST INCOME
EXEMPT FROM FEDERAL
CUSTODIAN INCOME TAXES AS
Investors Bank IN CONSISTENT WITH
& Trust Company PRESERVATION OF
24 Federal Street CAPITAL.
Boston, Massachusetts 02110
TRANSFER AGENT 101 HUNTINGTON AVENUE
John Hancock Investor Services BOSTON, MASSACHUSETTS 02199-7603
Corporation TELEPHONE 1-800-225-5291
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call
1-800-225-5291
For Investment-by-Phone
For Telephone Redemption
For TDD call 1-800-554-6713
JHD 5200P 5/96 (LOGO) Printed on
Recycled Paper
<PAGE> 38
JOHN HANCOCK TAX-FREE BOND FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
This Statement of Additional Information provides information about
John Hancock Tax-Free Bond (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>
<S> <C>
Organization of the Fund.................................................................... 2
Investment Objective and Policies........................................................... 2
Certain Investment Practices................................................................ 6
Investment Restrictions..................................................................... 11
Those Responsible for Management............................................................ 13
Investment Advisory and Other Services...................................................... 22
Distribution Contract....................................................................... 25
Net Asset Value............................................................................. 27
Initial Sales Charge On Class A Shares...................................................... 28
Deferred Sales Charge on Class B Shares..................................................... 30
Special Redemptions......................................................................... 30
Additional Services and Programs............................................................ 31
Description of the Fund's Shares............................................................ 32
Tax Status.................................................................................. 34
Calculation of Performance.................................................................. 38
Brokerage Allocation........................................................................ 40
Transfer Agent Services..................................................................... 42
Custody of Portfolio........................................................................ 42
Independent Auditors........................................................................ 42
Appendix A.................................................................................. A-1
Financial Statements........................................................................ F-1
</TABLE>
<PAGE> 39
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. Prior to the approval of John Hancock Advisers, Inc. (the
"Investment Adviser") as the Fund's adviser, the Fund was known as Transamerica
Tax-Exempt Bond 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 obtain
as high a level of income exempt from federal income taxes as is consistent
with preservation of capital.
DESCRIPTION OF MUNICIPAL OBLIGATIONS. In seeking to achieve its
investment objective, the Fund invests in a variety of Municipal Obligations
which consist of Municipal Bonds, Municipal Notes and Municipal Commercial
Paper, the interest on which in the opinion of the bond issuer's counsel (not
the Fund's counsel) is exempt from federal income tax.
Municipal Bonds. Municipal bonds are issued to obtain funds for
various public purposes including the construction of a wide range of public
facilities such as airports, highways, bridges, schools, hospitals, housing,
mass transportation, streets and water and sewer works. Other public purposes
for which Municipal Bonds may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining funds
to lend to other public institutions and facilities. In addition, certain
types of industrial development bonds are issued by or on behalf of public
authorities to obtain funds for many types of local, privately operated
facilities. Such debt instruments are considered municipal obligations if the
interest paid on them is exempt from federal income tax. The payment of
principal and interest by issuers of certain obligations purchased by the Fund
may be guaranteed by a letter of credit, note repurchase agreement, insurance
or other credit facility agreement offered by a bank or other financial
institution. Such guarantees and the creditworthiness of guarantors will be
considered by the Investment Adviser in determining whether a Municipal
Obligation meets the Fund's investment quality requirements. No assurance can
be given that a municipality or guarantor will be able to satisfy the payment
of principal or interest on a municipal obligation.
Municipal Notes. Municipal Notes are short-term obligations of
municipalities, generally with a maturity ranging from six months to three
years. The principal types of such Notes include tax, bond and revenue
anticipation notes and project notes.
Municipal Commercial Paper. Municipal Commercial Paper is a
short-term obligation of a municipality, generally issued at a discount with a
maturity of less than one year. Such paper is likely to be issued to meet
seasonal working capital needs of a municipality or interim construction
financing. Municipal Commercial Paper is backed in many cases by letters of
credit, lending agreements, note repurchase agreements or other credit facility
agreements offered by banks and other institutions.
2
<PAGE> 40
Federal tax legislation enacted in the 1980's placed substantial new
restrictions on the issuance of the bonds described above and in some cases
eliminated the ability of state or local governments to issue Municipal
Obligations for some of the above purposes. Such restrictions do not affect
the Federal income tax treatment of Municipal Obligations in which the Fund may
invest which were issued prior to the effective dates of the provisions
imposing such restrictions. The effect of these restrictions may be to reduce
the volume of newly issued Municipal Obligations.
Issuers of Municipal Obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any one or more issuers
to pay when due the principal of and interest on their Municipal Obligations
may be affected.
The yields of Municipal Bonds depend upon, among other things, general
money market conditions, general conditions of the Municipal Bond market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of S&P, Moody's and Fitch represent their respective
opinions of the quality of the Municipal Bonds they undertake to rate. It
should be emphasized, however, that ratings are general and not absolute
standards of quality. Consequently, Municipal Bonds with the same maturity,
coupon and rating may have different yields and Municipal Bonds of the same
maturity and coupon with different ratings may have the same yield. See
Appendix A for a description of ratings. Many issuers of securities choose not
to have their obligations rated. Although unrated securities eligible for
purchase by the Fund must be determined to be comparable in quality to
securities having certain specified ratings, the market for unrated securities
may not be as broad as for rated securities since many investors rely on rating
organizations for credit appraisal.
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
3
<PAGE> 41
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, which 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 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,
4
<PAGE> 42
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.
FUND CHARACTERISTICS AND OTHER POLICIES. The Fund may engage in
short-term trading consistent with its investment objective. Securities may be
sold in anticipation of a market decline (a rise in interest rates) or
purchased in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another security of comparable quality
purchased at approximately the same time to take advantage of what the
Investment Adviser believes to be a temporary disparity in the normal yield
relationship between the two securities. These yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for, or supply of, various types of tax-exempt securities.
In general, purchases and sales may also be made to restructure the
portfolio in terms of average maturity, quality, coupon yield or
diversification for any one or more of the following purposes: (a) to increase
income, (b) to improve portfolio quality, (c) to minimize capital depreciation,
(d) to realize gains or losses, or (e) for such other reasons as the Investment
Adviser deems relevant in light of economic market conditions.
The Fund is a "diversified" management investment company under the
Investment Company Act of 1940 (the "Act"). This means that with respect to
75% of its total assets: (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer other than U.S. government
securities and securities of other investment companies and (2) the Fund may
not own more than 10% of the outstanding voting securities of any one issuer.
In applying these limitations, a guarantee of a security will not be considered
a security of the guarantor, provided that the value of all securities issued
or guaranteed by that guarantor, and owned by the Fund, does not exceed 10% of
Fund's total assets. Since Municipal Obligations ordinarily purchased by the
Fund are not voting securities (notwithstanding the 75% limitation described
above), there is generally no limit on the percentage of a single issuer's
obligations which the Fund may own so long as it does not invest more than 5%
of its total assets in the securities of that issuer. Consequently, the Fund
may invest in a greater percentage of the outstanding securities of a single
issuer than would an investment company which invests in voting securities. In
determining the issuer of a security, each state and each political subdivision
agency, and instrumentality of each state and each multi-state agency of which
such state is a member is a separate issuer. Where securities are backed only
by assets and revenues of a particular instrumentality, facility or
subdivision, such entity is considered the issuer.
5
<PAGE> 43
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 levels of income
and lack of access to income during this period, and the expense of enforcing
its rights.
6
<PAGE> 44
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.
7
<PAGE> 45
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
8
<PAGE> 46
same time minimizing the effect of all or part of an increase in the market
price of the long-term debt security which the Fund intends to purchase in the
future. A rise in the price of the long-term debt security prior to its
purchase either would generally be offset by an increase in the value of the
futures contract purchased by the Fund or avoids 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.
9
<PAGE> 47
The Fund may hedge up to the full value of its portfolio through the
use of options and futures. At the time the Fund purchases a futures contract,
an amount of cash or U.S. Government securities at least equal to the market
value of the futures contract will be deposited in a segregated account with
the Fund's Custodian to collateralize the position and thereby insure that such
futures contract is unleveraged. The Fund may not purchase or sell futures
contracts or purchase or write related put or call options if immediately
thereafter the sum of the amount of margin deposits on the Fund's existing
futures and related options positions and the amount of premiums paid for
related options (measured at the time of investment) would exceed 5% of the
Fund's total assets.
While the Fund's hedging transactions may protect the Fund against
adverse movements in the general level of interest rates, such transactions
could also preclude the opportunity to benefit from favorable movements in the
level of interest rates. Due to the imperfect correlation between movements in
the prices of futures contracts and movements in the prices of the related
securities being hedged, the price of a futures contract may move more than or
less than the price of the securities being hedged. There is an increased
likelihood that this will occur when a tax-exempt security is hedged by a
futures contract on a taxable security. Options on futures contracts are
generally subject to the same risks applicable to all option transactions. In
addition, the Fund's ability to use this technique will depend in part on the
development and maintenance of a liquid secondary market for such options. For
a discussion of the inherent risks involved with futures contracts and options
thereon, see "Risks Relating to Transactions in Futures Contracts and Related
Options" below.
The Fund's policies permitting the purchase and sale of futures
contracts and the purchase and writing of related put or call options for
hedging purposes only may not be changed without the approval of shareholders
holding a majority of the Fund's outstanding voting securities. The Board of
Directors 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
Board of 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
10
<PAGE> 48
put options on futures contracts involves less potential dollar risk to the
Fund than an investment of equal amount in futures contracts, since the premium
is the maximum amount of risk the purchaser of the option assumes. The entire
amount of the premium paid for an option can be lost by the purchaser, but no
more than that amount.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions upon
its investments as set forth below which may not be changed without the
approval of the holders of a majority of the outstanding shares of the Fund. A
majority for this purpose means: (a) more than 50% of the outstanding shares of
the Fund or (b) 67% or more of the shares represented at a meeting where more
than 50% of the outstanding shares of the Fund are represented, whichever is
less. 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 borrowings was made. While borrowing exceed 5%
of the value of the Fund's total assets, the Fund will not
purchase any additional securities. Interest paid on
borrowing 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 borrowing 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 of 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.
11
<PAGE> 49
5. Purchase illiquid securities, including securities subject to
restrictions on disposition under the Securities Act of 1933,
repurchase agreements maturing in more than seven days, and
securities which do not have readily available market
quotations, if such purchase would cause the Fund to have more
than 10% of its net assets invested in such types of
securities.
6. Purchase or retain the securities of any issuer, if those
officers and Trustees of the Fund or the Investment Adviser
who own beneficially more than of 1% of the securities of such
issuer, together own more than 5% of the securities of such
issuer.
7. Write, purchase or sell puts, calls or combinations thereof,
except put and call options on debt securities, futures
contracts based on debt securities, indices of debt securities
and futures contracts based on indices of debt securities,
sell securities on margin or make short sales of securities or
maintain a short position, unless at all times when a short
position is open it owns an equal amount of such securities or
securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short, and
unless not more than 10% of the Fund's net assets (taken at
current value) is held as collateral for such sales at any one
time.
8. Underwrite the securities of other issuers, except insofar as
the Fund may be deemed an underwriter under the Securities Act
of 1933 in disposing of a portfolio security.
9. 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.
10. 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.
11. 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,
12
<PAGE> 50
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.
12. Invest more than 5% of its total assets in securities of any
issuers if the party responsible for payment, together with
any predecessor, has been in operation for less than three
years (except U.S. government and agency obligations and
obligations backed by the faith, credit and taxing power of
any person authorized to issue tax exempt securities).
13. Issue any senior securities, except insofar as the Fund may be
deemed to have issued a senior security by: entering into a
repurchase agreement; purchasing securities in a when-issued
or delayed delivery basis; purchasing or selling any options
or financial futures contract; borrowing money or lending
securities in accordance with applicable investment
restrictions.
In order to comply with certain state regulatory policies, the Fund
has adopted a non-fundamental policy prohibiting the purchase of warrants.
The Fund's Board of Trustees has 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 the Adviser or officers
and directors of John Hancock Funds.
13
<PAGE> 51
Set forth below is the principal occupation or employment of the
Trustees and principal officers of the Fund during the past five years.
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE COMPANY DURING THE PAST FIVE YEARS
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Chairman (1,2) Chairman and Chief Executive Officer, the
101 Huntington Avenue Adviser and The Berkeley Financial Group
Boston, MA 02199 ("Berkeley Group"); Chairman, NM Capital
Management, Inc. ("NM Capital"); John Hancock
Advisers International Limited ("Advisers
International"); John Hancock Funds, Inc.,
("John Hancock Funds"), John Hancock Investor
Services Corporation ("Investor Services") and
Sovereign Asset Management Corporation
("SAMCorp") (herein after the Adviser, The
Berkeley Group, NM Capital, Advisers
International, John Hancock Funds, Investor
Services and SAMCorp collectively referred to
as the "Affiliated Companies"); Chairman, First
Signature Bank & Trust; Director, John Hancock
Freedom Securities Corp., John Hancock Capital
Corp., New England/Canada Business Council;
Member, Investment Company Institute Board of
Governors; Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of Science;
President, the Adviser (until July 1992);
Chairman, John Hancock Distributors, Inc.
("Distributors") (until April 1994).
</TABLE>
___________________
* An "interested person" of the Company as such term is defined in the
Investment Company Act of 1940, as amended ("The Investment Company Act").
(1) Member of the Executive Committee. Under the Company's charter, 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 Committee on Administration.
14
<PAGE> 52
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE COMPANY DURING THE PAST FIVE YEARS
- ---------------- ---------------- --------------------------
<S> <C> <C>
James F. Carlin Trustee(3) Chairman and CEO, Carlin Consolidated, Inc.
233 West Central Street (insurance); Chairman, Massachusetts Higher
Natick, MA 01760 Education Coordinating Council (since 1995);
Trustee, Massachusetts Health and Education
Tax-Exempt Trust (Financial); Director, Rizzo
Associates, Inc. (Engineering), Arbella Mutual
Insurance Company (insurance), Consolidated
Group Trust (group health plan), Carlin
Insurance Agency, Inc., West Insurance Agency,
Inc., Allied American Agency, Inc.
(insurance); Treasurer, Alpha Analytical, Inc.
(Chemistry Lab); Receiver, the City of Chelsea
(until August 1992).
William H. Cunningham Trustee(3) Chancellor, University of Texas System and
601 Colorado Street former President of the University of Texas,
O'Henry Hall Austin, Texas; Regents Chair for Free
Austin, TX 78701 Enterprise; Director, LaQuinta Motor Inns, Inc.
(hotel management company); Director,
Jefferson-Pilot Corporation (diversified life
insurance company); LBJ Foundation Board
(education foundation); and Advisory Director,
Texas Commerce Bank - Austin.
Charles F. Fretz Trustee (3) Consultant, self employed; Vice President and
RD #5, Box 300B Director, Towers, Perrin, Foster & Crosby, Inc.
Clothier Springs Road (international management consultants) (until
Malvern, PA 19355 1985).
</TABLE>
___________________
* An "interested person" of the Company as such term is defined in the
Investment Company Act of 1940, as amended ("The Investment Company Act").
(1) Member of the Executive Committee. Under the Company's charter, 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 Committee on Administration.
15
<PAGE> 53
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE COMPANY DURING THE PAST FIVE YEARS
- ---------------- ---------------- --------------------------
<S> <C> <C>
Harold R. Hiser, Jr. Trustee Executive Vice President, Schering-Plough
123 Highland Avenue Corporation (pharmaceuticals) (until 1995);
Short Hill, NJ 07078 Director, ReCapital Corporation (reinsurance).
Charles L. Ladner Trustee (3) Director, Energy North, Inc. (public utility
UGI Corporation holding company) (until 1992); Senior Vice
P.O. Box 858 President and Chief Financial Officer of UGI
Valley Forge, PA 19482 Corp. (public utility holding company).
Leo E. Linbeck, Jr. Trustee(3) Chairman, President, Chief Executive Officer
3810 W. Alabama and Director, Linbeck Corporation (a holding
Houston, TX 77027 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); Daniel Industries, Inc.
(manufacturer of gas measuring products and
energy related equipment); GeoQuest
International, Inc. (a geophysical consulting
firm); and Director, Greater Houston
Partnership.
</TABLE>
___________________
* An "interested person" of the Company as such term is defined in the
Investment Company Act of 1940, as amended ("The Investment Company Act").
(1) Member of the Executive Committee. Under the Company's charter, 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 theAudit Committee and the Committee on Administration.
16
<PAGE> 54
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE COMPANY DURING THE PAST FIVE YEARS
- ---------------- ---------------- --------------------------
<S> <C> <C>
Patricia P. McCarter Trustee (3) Director and Secretary of the McCarter Corp.
1230 Brentford Road (machine manufacturer).
Malvern, PA 19355
Steven R. Pruchansky Trustee (1,3) Director and President, Mast Holdings, Inc.;
6920 Daniel Road Director, First Signature Bank & Trust Company
Naples, FL 33942 (until August 1991);Trustee, Mast Realty Trust
(until 1994); President, Maxwell Building Corp.
(until 1991).
*Richard S. Scipione Trustee (3) General Counsel, the Life Company; Director, the
John Hancock Place Adviser, the Affiliated Companies, John Hancock
P.O. Box 111 Distributors, Inc., JH Networking Insurance
Boston, Massachusetts Agency, Inc., John Hancock Subsidiaries, Inc.,
SAMCorp, NM Capital and John Hancock Property and
Casualty Insurance and its affiliates (until
November, 1993); Trustee, The Berkeley Group.
Norman H. Smith Trustee (3) Retired. Lieutenant General, United States Marine
243 Mt. Oriole Lane Corps; Deputy Chief of Staff for Manpower and
Linden, VA 22642 Reserve Affairs, Headquarters Marine Corps;
Commanding General, III Marine Expeditionary
Force/3rd Marine Division (retired 1991).
</TABLE>
___________________
* An "interested person" of the Company as such term is defined in the
Investment Company Act of 1940, as amended ("The Investment Company Act").
(1) Member of the Executive Committee. Under the Company's charter, 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 Committee on Administration.
17
<PAGE> 55
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE COMPANY DURING THE PAST FIVE YEARS
- ---------------- ---------------- --------------------------
<S> <C> <C>
John P. Toolan Trustee (3) Director, The Muni Bond Funds, National Liquid
13 Chadwell Place Reserves, Inc., The Tax Free Money Fund, Inc.
Morristown, NJ 07960 and Vantage Money Market Funds (mutual funds),
and The Inefficient-Market Fund, Inc. (closed-
end investment company; Chairman, Smith Barney
Trust Company (retired December, 1991); Director,
Smith Barney, Inc., Mutual Management Company and
Smith Barney Advisers, Inc. (investment
advisers) (until December 1991).
Robert G. Freedman* Vice Chairman and Chief Vice Chairman and Chief Investment Officer, the
101 Huntington Avenue Investment Officer (2) Adviser; President, the Adviser (until December
Boston, MA 02199 1994).
Anne C. Hodsdon* President (2) President and Chief Operating Officer, the
101 Huntington Avenue Adviser; Executive Vice President, the Adviser
Boston, MA 02199 (until December 1994); Senior Vice President; the
Adviser (until December 1993); Vice President,
the Adviser, 1991.
Thomas H. Drohan* Senior Vice President Senior Vice President and Secretary of the
101 Huntington Avenue and Secretary Adviser.
Boston, MA 02199
James B. Little* Senior Vice President Senior Vice President, the Adviser.
101 Huntington Avenue and Chief Financial
Boston, MA 02199 Officer
Susan S. Newton* Vice President, Vice President and Assistant Secretary, the
101 Huntington Avenue Assistant Secretary and Adviser.
Boston, MA 02199 Compliance Officer
- ----------------
</TABLE>
* An "interested person" of the Company as such term is defined in the
Investment Company Act of 1940, as amended ("The Investment Company Act").
(1) Member of the Executive Committee. Under the Company's charter, 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 Committee on Administration.
18
<PAGE> 56
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE COMPANY DURING THE PAST FIVE YEARS
- ---------------- ---------------- --------------------------
<S> <C> <C>
John A. Morin* Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
James J. Stokowski* Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, MA 02199
</TABLE>
________________
* An "interested person" of the Company as such term is defined in the
Investment Company Act of 1940, as amended ("The Investment Company Act").
(1) Member of the Executive Committee. Under the Company's charter, 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 Committee on Administration.
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.
19
<PAGE> 57
As of January 31, 1996, there were 18,020,112 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 Inc., Trade House Account Team B, 4800 Deerlake
Drive East, Jacksonville, FL. held 892,875 shares representing 12.45% of the
Funds Class B shares. At such date, no 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.
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.
20
<PAGE> 58
COMPENSATION OF THE BOARD OF 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
Pension or Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Trustees from the Fund Fund's Expenses Trustees**
- -------- ------------- ------------------- ------------------
<S> <C> <C> <C>
James F. Carlin $ 1,572 $ 0 $ 60,700
William H. Cunningham 704 2,950 69,700
Charles F. Fretz 245 0 56,200
Harold R. Hiser, Jr. 0 121 60,200
Charles L. Ladner 1,967 0 60,700
Leo E. Linbeck, Jr. 3,654 0 73,200
Patricia P. McCarter 1,967 0 60,700
Steven R. Pruchansky 2,033 0 62,700
Norman H. Smith 2,033 0 62,700
John P. Toolan 0 1,967 60,700
------ ----------------- ----------------
Total $ 14,175 $ 5,038 $ 627,500
</TABLE>
* Compensation made pursuant to different compensation
arrangements then 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/Directors of 30 funds
21
<PAGE> 59
<TABLE>
<CAPTION>
Pension Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Fund Fund's Expenses Advisory Board***
- -------------- ------------- ---------------- ------------------
<S> <C> <C> <C>
R. Trent Campbell $ 3,672 $ 0 $ 70,000
Mrs. Lloyd Bentsen $ 3,783 $ 0 $ 63,000
Thomas R. Powers $ 3,672 $ 0 $ 63,000
Thomas B. McDade $ 3,672 $ 0 $ 63,000
-------- ---------
TOTAL $14,799 $ 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 has 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 1,060,000 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.
As described in the Prospectus under the caption, "Organization and
Management of the Fund," the Fund has entered into an investment management
contract with the Investment Adviser. Under the investment management
contract, the Investment Adviser provides the Fund with (i) a continuous
investment program, consistent with the Fund's stated investment objective and
policies, (ii) supervision of all aspects of the Fund's operations except those
that are delegated to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and equipment as are
necessary for the conduct of its business. The Investment Advisor is
responsible for the management of the Fund's portfolio assets.
22
<PAGE> 60
No person other than the Investment Adviser, 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.
The Investment Adviser may voluntarily and temporarily reduce its
advisory fee or make other arrangements to limit the Fund's expenses to a
specified percentage of average daily net assets. The Investment Adviser
retains the right to re-impose the advisory fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any state limit
where the Fund is registered to sell shares of beneficial interest, the fee
payable to the Investment Adviser will be reduced to the extent required by
law. At this time, the most restrictive limit on expenses imposed by a state
requires that expenses charged to the Fund in any fiscal year not exceed 2.5%
of the first $30,000,000 of the Fund's average daily net asset value, 2% of the
next $70,000,000 and 1.5% of the remaining average daily net asset value. When
calculating the limit above, the Fund may exclude interest, brokerage
commissions and extraordinary expenses.
Pursuant to the investment management contract, the Investment Adviser
is not liable to the Fund or its shareholders for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which its contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment
Adviser in the performance of its duties or from its reckless disregard of the
obligations and duties under the contract.
23
<PAGE> 61
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 or more 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 respective affiliates may
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.
Under the investment management contract, the Fund may use the name
"John Hancock" or any name derived from or similar to it only for so long as
the investment management contract or any extension, renewal or amendment
thereof remains in effect. If the Fund's investment management contract is no
longer in effect, the Fund (to the extent that it lawfully can) will cease to
use such name or any other name indicating that it is advised by or otherwise
connected with the Investment Adviser. In addition, the Investment Adviser or
the Life Company may grant the non-exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
For the fiscal years ended December 31, 1993 and 1994 advisory fees
payable by the Fund to TFMC, the Fund's former investment adviser, amounted to
$888,791 and $1,136,532, respectively; however, a portion of such fees were not
imposed pursuant to the voluntary fee and expense assumption and fee waiver
then in effect (see "The Fund's Expenses" in the Prospectus). For the fiscal
year ended December 31, 1995, advisory fees paid to the Fund's Adviser amounted
to $1,048,120.
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
24
<PAGE> 62
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 was 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 fiscal year 1995.
For the fiscal years ended December 31, 1993 and 1994 the Fund paid to
TFMC (pursuant to the Services Agreement) $94,272 and $116,742, respectively,
of which $62,855 and $81,515, respectively, was paid to TFMC and $31,417 and
$35,227, respectively, were paid for certain data processing and pricing
information services. No fees relating to the Services Agreement was paid or
incurred during the fiscal year 1995.
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 Agreement dated December 22, 1994 (the "Distribution Agreement"),
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 Agreement 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
Agreement 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 interest persons of any such party, cast in person at a
meeting called for such purpose. The Distribution Agreement 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 $1,224,810,
$149,847 and $158,248, respectively. Of such amounts $108,653 and $47,967 were
retained by the Fund's former distributor, Transamerica Fund Distributors, Inc.
For the fiscal year end December 31, 1995, underwriting commissions of $74,621
were retained by the Fund's current distributor, John Hancock Funds.
25
<PAGE> 63
DISTRIBUTION PLAN. The Board of 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 services fee 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). The Board of Trustees has voted to
recommend to the shareholders that the distribution and service fee on Class A
Shares be increased to 0.25% of the average daily net asset value effective
after December 22, 1996. 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
services fee to be paid by the Fund will not exceed an annual rate of 1.00% of
the average daily net assets of the Class B Shares of the Fund (determined in
accordance with such Fund's prospectus as from time to time in effect);
provided that the portion of such fee used to cover Service Expenses (described
below) shall not exceed an annual rate of 0.25% of the average daily net asset
value of the Class B Shares of the Fund. The Distributor has agreed to limit
the payment of expenses pursuant to the Class B Plan to 0.90% of the average
daily net assets of the Class B Shares of the Fund until December 23, 1996.
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.
26
<PAGE> 64
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>
Interest,
Printing and Mailing Carrying or
of Prospectuses to Compensation to Other Finance
Advertising New Shareholders Selling Brokers Charges Other
----------- -------------------- --------------- -------------
<S> <C> <C> <C> <C>
Class A shares $13,395 $518 $116,514 $ 0
Class B shares $17,054 $707 $247,449 $ 338,251
</TABLE>
Each of the Plans provides that it will continue in effect only so
long as its continuance is approved at least annually by a majority of both the
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.
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.
27
<PAGE> 65
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
Investment 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.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset
value plus a sales charge which, at the option of the purchaser, may be imposed
either at the time of purchase (the "initial sales charge alternative") or on a
contingent deferred basis (the "deferred sales charge alternative"). Share
certificates will not be issued unless requested by the shareholder in writing,
and then only will be issued for full shares. The Board of Trustees reserves
the right to change or waive the minimum investment requirements and to reject
any order to purchase shares (including purchase by exchange) when in the
judgment of the Investment Adviser such rejection is in the Fund's best
interest.
INITIAL SALES CHARGE ON CLASS A SHARES. The sales charges applicable
to purchases of Class A Shares of the Fund are described in the Fund's Class A
and Class B Prospectus. Methods of obtaining reduced sales charges referred to
generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A Shares, the investor is
entitled to cumulate current purchases with the greater of the current value
(at offering price) of the Class A Shares of the Fund, or if Investor Services
is notified by the investor's dealer or the investor at the time of the
purchase, the cost of the Class A Shares owned.
COMBINED PURCHASES. In calculating the sales charge applicable to
purchases of Class A Shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age
of 21 purchasing securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
WITHOUT SALES CHARGE. As described in the Class A and Class B
Prospectus, Class A shares of the Fund may be sold without a sales charge to
certain persons described in the prospectus.
28
<PAGE> 66
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.
The 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 not 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 charges as may be
due. By signing the LOI, the investor authorizes Investor Services to act as
his attorney-in-fact to redeem any escrowed shares and adjust the sales charge,
if necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by the Fund to sell, any additional shares and may be terminated
at any time.
29
<PAGE> 67
DEFERRED SALES CHARGE ON CLASS B SHARES
CONTINGENT DEFERRED SALES CHARGE. Investments in Class B shares are
purchased at net asset value per share without the imposition of a sales charge
so that the Fund will receive the full amount of the purchase payment. Class B
Shares which are redeemed within six years of purchase will be subject to a
contingent deferred sales charge ("CDSC") at the rates set forth in the Class A
and Class B Prospectus as a percentage of the dollar amount subject to the
CDSC. The charge will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the Class B Shares being
redeemed. Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B Shares derived from
reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B Shares until the
time of redemption of such shares. Solely for purposes of determining the
number of years from the time of any payment for the purchases of shares, all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.
Proceeds from the CDSC are paid to the Distributor and are used in
whole or in part by the Distributor to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B Shares, such as the payment of compensation to select Selling Brokers
for selling Class B Shares. The combination of the CDSC and the distribution
and service fees facilitates the ability of the Fund to sell the Class B Shares
without a sales charge being deducted at the time of the purchase. See the
Class A and Class B Prospectus for additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it is the Fund's present policy to make payment of redemption
proceeds in cash, if the Board of Trustees determines that a material adverse
effect would otherwise be experienced by remaining investors, redemption
proceeds may be paid in whole or in part by a distribution in kind of
securities from the Fund in conformity with rules of the Securities and
Exchange Commission, valuing such securities in the same manner they are valued
in determining NAV, and selecting the securities in such manner as the Board
may deem fair and equitable. If such a distribution occurs, investors
receiving securities and selling them before their maturity could receive less
than the redemption value of such securities and, in addition, could incur
certain transaction costs. Such a redemption is not as liquid as a redemption
paid in cash or federal funds. The Fund has elected to be governed by Rule
18f-1 under the 1940 Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90 day period for any one account.
30
<PAGE> 68
ADDITIONAL SERVICES AND PROGRAM
EXCHANGE PRIVILEGE. As described more fully in the Class A and Class
B Prospectus, the Fund permits exchanges of shares of any class of the Fund for
shares of the same class in any other John Hancock fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Class A and
Class B Prospectus, the Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of Fund shares may be
more or less than the shareholder's cost, depending upon the market value of
the securities owned by the Fund at the time of redemption, the distribution of
cash pursuant to this plan may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional Class A or
Class B Shares of the Fund could be disadvantageous to a shareholder because of
the initial sales charge payable on such purchases of Class A Shares and the
CDSC imposed on redemptions of Class B Shares and because redemptions are
taxable events. Therefore, a shareholder should not purchase Fund shares at
the same time as a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Fund Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is
explained fully in the Fund's Class A and Class B Prospectus and the Account
Privileges Application. The program, as it relates to automatic investment
checks, is subject to the following conditions;
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice
if any investment is not honored by the shareholder's bank. The bank shall be
under no obligation to notify the shareholder as to the non-payment of any
check.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares
may, within 120 days after the date of redemption, reinvest without payment of
a sales charge any part of the redemption proceeds in shares of the same class
of the Fund or another John Hancock mutual fund, subject to the minimum
investment limit in that fund. The proceeds from the redemption of Class A
Shares may be reinvested at net asset value without paying a sales charge in
Class A Shares of the Fund or in Class A Shares of another John Hancock mutual
fund. If a CDSC was paid upon a redemption, a shareholder may reinvest the
proceeds from that redemption at net
31
<PAGE> 69
asset value in additional shares of the class from which the redemption was
made. The shareholder's account will be credited with the amount of any CDSC
charged upon the prior redemption and the new shares will continue to be
subject to the CDSC. The holding period of the shares acquired through
reinvestment will, for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares. The Fund may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes. Even if the reinvestment privilege is exercised,
and any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE 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 Board of 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 Board of
Trustees determines 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
32
<PAGE> 70
the aggregate net asset values attributable to that class of the Fund. Holders
of Class A Shares and Class B Shares each have certain exclusive voting rights
on matters relating to the Class A Plan and the Class B Plan, respectively.
The different classes of the Fund may bear different expenses relating to the
cost of holding shareholder meetings necessitated by the exclusive voting
rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except for differences caused by the fact
that (i) Class B Shares will pay higher distribution and service fees than
Class A Shares and (ii) each of Class A Shares and Class B Shares will bear any
class expenses properly allocable to such class of shares, subject to the
conditions set forth in a private letter ruling that the Fund has received from
the Internal Revenue Service relating to its multiple- class structure.
Similarly, the net asset value per share may vary depending whether Class A
Shares or Class B Shares are purchased.
VOTING RIGHTS. Shareholders are entitled to a full vote for each full
share held. The Trustees themselves have the power to alter the number and the
terms of office of Trustees, and they may at any time lengthen their own terms
or make their terms of unlimited duration (subject to certain removal
procedures) and appoint their own successors, provided that at all times at
least a majority of the Trustees have been elected by shareholders. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to 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.
33
<PAGE> 71
REPORTS TO SHAREHOLDERS. Shareholders of the Fund will receive annual
and semi-annual reports showing diversification of investments, securities
owned and other information regarding the Fund's activities. The financial
statements of the Fund are audited at least once a year by the Fund's
independent auditors.
REGISTRATION STATEMENT. This Statement of Additional Information and
the Prospectus do not contain all of the information set forth in the Fund's
Registration Statement filed with the Securities and Exchange Commission. The
complete Registration Statement may be obtained from the Securities and
Exchange Commission upon payment of the fee prescribed by the rules and
regulations of the Commission.
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.
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.
34
<PAGE> 72
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.
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 identical or substantially identical
securities 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
35
<PAGE> 73
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 carry forward 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 net 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 $12,505,428 of capital loss
carry forwards, $7,349,795 expires in 2002 and $5,155,633 expires in 2003 which
are available to offset future net capital gains.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Fund will not be deductible for Federal income tax purposes
to the extent it is deemed related to exempt-interest dividends paid by the
Fund. Pursuant to published guidelines, the Internal Revenue Service may deem
indebtedness to have been incurred for the purpose of purchasing or carrying
shares of the Fund even though the borrowed funds may not be directly traceable
to the purchase of shares.
Dividends paid by the Fund to its corporate shareholders will not
qualify for the corporate dividends received deduction in their hands.
If the Fund invests in zero coupon securities or, in general, any
other securities with original issue discount (or with market discount if the
Fund elects to include accrued market discount in income currently), the Fund
must accrue income on such investments prior to the receipt of the
corresponding cash payments. However, the Fund must distribute, at least
annually, all or substantially all of its net income, including such accrued
income, to shareholders to qualify
36
<PAGE> 74
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.
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.
37
<PAGE> 75
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 5.11% and 4.61%,
respectively.
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 January 5,
1990 were 14.79% and 8.39%, respectively 14.67% and 8.06%, respectively,
without taking into account the expense limitation arrangements). As of
December 31, 1995, the average annual returns for the Fund's Class B Shares for
the one year period and since inception on December 31, 1991 were 14.20% and
7.24%, respectively 14.30% and 7.07%, respectively, without taking into account
the expense limitation arrangements).
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).
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 36% tax rate for the 30-day
period ended December 31, 1995 were 7.98% and 7.20%, respectively.
38
<PAGE> 76
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 purposes, as well a the Russell and Wilshire Indices.
39
<PAGE> 77
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 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.
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 its investment committee, 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
Investment Adviser, will offer the best price and market for the execution of
each such transaction. Purchases from underwriters of portfolio securities may
include a commission or commissions paid by the issuer and transactions with
dealers serving as market makers reflect a "spread." Investments in debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing
primary policy, the Rules of Fair Practice of the NASD and other policies that
the Trustees may determine, the Investment Adviser may consider sales of shares
of the Fund as a factor in the selection of broker- dealers to execute the
Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed
in the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research
information and to a lesser extent statistical assistance furnished to the
Investment Adviser of the Fund, and their value and expected contribution to
the performance of the Fund. It is not possible
40
<PAGE> 78
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 Tucker Anthony Incorporated ("Tucker Anthony")
John Hancock Distributors, Inc. ("John Hancock Distributors") and Sutro &
Company, Inc. ("Sutro"), which 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 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
41
<PAGE> 79
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 107% and 113%, respectively.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Investor
Services a monthly transfer agent fee of $19 per account for the Class A Shares
and $22.50 per account for the Class B Shares, plus out-of- pocket expenses.
These expenses are aggregated and charged to the fund and allocated to each
class on the basis of the relative net asset values.
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.
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.
42
<PAGE> 80
APPENDIX A
TAX EXEMPT BOND RATINGS
Below is a description of the six ratings that may apply to the Fund's
investments in Tax-Exempt Bonds.
TAX-EXEMPT BOND RATINGS
Moody's describes its six 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.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
A-1
<PAGE> 81
The six highest ratings of Standard & Poor's for Tax-Exempt Bonds are
AAA (Prime), AA (High Grade), A (Good Grade), BBB (Medium Grade), BB and B:
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.
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.
B Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- 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.
A-2
<PAGE> 82
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.
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.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.
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.
A-3
<PAGE> 83
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+.
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.
A-4
<PAGE> 84
C-1
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:
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
Class A Shares - 2,755
Class B Shares - 1,928
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.
C-1
<PAGE> 85
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
C-2
<PAGE> 86
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.
C-3
<PAGE> 87
<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
P.O. Box 111 Compliance Officer
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 None
101 Huntington Avenue Director
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
</TABLE>
C-4
<PAGE> 88
<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>
C-5
<PAGE> 89
<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.
C-6
<PAGE> 90
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.
C-7
<PAGE> 91
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 TAX-FREE BOND 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> 92
<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> 93
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
----------- ----------- -----------
<S> <C> <C>
99.B1 Amended and Restated Declaration of Trust dated November 9,
1989; Amendment to Declaration of Trust dated October 22,
1991; Amendment to Declaration of Trust dated December 16,
1994; Amendment to Declaration of Trust dated 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> 94
<TABLE>
<S> <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 TAX-FREE BOND FUND
THIS AMENDED AND RESTATED DECLARATION OF TRUST of Transamerica Tax-Free
Bond Fund 1000 Louisiana , Houston, Texas 77002, is made the 18th day 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 persons 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 Tax-Free Bond Fund originally made the 9th
day of November, 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 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:
<PAGE> 2
ARTICLE I
NAME AND DEFINITIONS
1.1 Name. The name of the trust created hereby (the "Trust") shall be
"Transamerica Tax-Free Bond 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 (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.
1.2 DEFINITIONS. As used in this Declaration, the following terms
shall have the following meaning:
The terms "AFFILIATED PERSON", "ASSIGNMENT", "COMMISSION", "INTERESTED
PERSON", and "PRINCIPAL UNDERWRITER" shall have the meanings given them in the
1940 Act, as amended from time to time.
"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 objective, 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 Shareholders 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, is 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.
1
<PAGE> 3
"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 equal proportionate 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.
"TRUST PROPERTY" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees.
"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 provisions
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.
The "1940 ACT" refers to the Investment Company Act of 1940 and the
rules and regulations thereunder, as amended from time to time.
2
<PAGE> 4
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 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 (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.
3
<PAGE> 5
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.
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.
4
<PAGE> 6
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 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 or 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
5
<PAGE> 7
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,
including, without limitation, the right to consent and
descriptionotherwise 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
the 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.
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.
6
<PAGE> 8
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 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
7
<PAGE> 9
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 to 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 be named individually therein, or the subject matter arises by
reason of business for or on behalf of the Trust.
8
<PAGE> 10
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 contract 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 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
9
<PAGE> 11
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.
10
<PAGE> 12
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 other 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
11
<PAGE> 13
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 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 an 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).
12
<PAGE> 14
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, 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
13
<PAGE> 15
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.
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, and on liquidation, and
conversion rights, 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
14
<PAGE> 16
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 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
or class, 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 or class,
the Trustees shall allocate them among any one or more of
the series or class 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 or class 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
allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding
upon the holders 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.
15
<PAGE> 17
(e) In the event the Trustees create more than one class of
Shares, each class shall represent interests in the Trust
property and have identical voting, dividend, liquidation
and other rights and the same terms and conditions except
that expenses related directly or indirectly to the
distribution of the Shares of a class may be borne solely by
such class (as shall be determined by the Trustees) and, as
provided in Section 10.1, a class may have exclusive voting
rights with respect to matters relating to the expenses
being borne solely by such class. The bearing of such
expenses solely by a class of Shares shall be appropriately
reflected (in the manner determined by the Trustees) in the
net asset value, dividend and liquidation rights of the
Shares of such class. The division of the Shares into
classes and the terms and conditions pursuant to which the
Shares of each class will be issued and governed is subject
to compliance with the requirements of the 1940 Act or any
applicable exemption therefrom available either in the 1940
Act, any rule or regulation thereunder or any order
promulgated by the Securities and Exchange Commission. No
division of Shares into classes shall result in the creation
of a class of Shares having a preference as to dividends or
distributions or a preference in the event of any
liquidation, termination or winding up of the Trust.
(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 with respect to any one or more series or
classes which represents the interests in the assets of the
Trust immediately prior to the establishment of two or more
series or classes. With respect to any other series or
class, dividends and distributions on Shares of a particular
series or class 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, to the holders of Shares of that series or class,
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 distribution 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.
16
<PAGE> 18
(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.
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
17
<PAGE> 19
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.
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
18
<PAGE> 20
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 make 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 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
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.
19
<PAGE> 21
ARTICLE X
SHAREHOLDER 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 (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 vote 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.
20
<PAGE> 22
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.
(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.
21
<PAGE> 23
(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 hereto, 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 shall be deemed for all
purposes to have been accomplished under and pursuant to the
22
<PAGE> 24
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, 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.
23
<PAGE> 25
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.
24
<PAGE> 26
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
5005 Riverway, Suite #240 P.O. Box T
Houston, Texas 77027 Austin, Texas 78713
25
<PAGE> 27
TRANSAMERICA TAX-FREE BOND 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:
Class No. of Shares Authorized
----- ------------------------
Class A Shares Unlimited
Class B Shares Unlimited
<PAGE> 28
; 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> 29
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> 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 TAX-FREE BOND FUND
Instrument Increasing the Number of Trustees and
------------------------------------------------
Appointing Individuals To Fill the Vacancies
--------------------------------------------
The Trustees of John Hancock Tax-Free Bond Fund (the "Trust"), hereby
amend the Trust's Declaration of Trust, dated November 9, 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
- ------------------------------- -----------------------------------
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 4
<PAGE> 2
JOHN HANCOCK TAX-FREE BOND FUND- B
fully paid and non-assessable Shares of Beneficial Interest, of JOHN HANCOCK
TAX-FREE BOND FUND -B, 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> 3
JOHN HANCOCK TAX-FREE BOND FUND- A
fully paid and non-assessable Shares of Beneficial Interest, of JOHN HANCOCK
TAX-FREE BOND 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> 1
EXHIBIT 16
<PAGE> 2
Exhibit 16
<TABLE>
JOHN HANCOCK TAX FREE BOND FUND - SEC TOTAL RETURN - CLASS B
- ------------------------------------------------------------
Initial Investment: $1,000.00
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period $10,000.00
CDSC Initial
Excluding With Excluding % CDSC Ending CUMULATIVE Investment
CDSC CDSC CDSC CDSC Amount Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 Year Return: # 0.00% 0.00% $ 0.00 0.00% $ 0.00 $ 0.00 $0.00
4.00 Year Return: 7.84% 7.24% $1,352.39 3.00% $30.00 $1,322.39 35.24% 32.24% Since inception
or 10 years
1 Year Return: 19.42% 14.42% $1,194.20 5.00% $50.00 $1,144.20 19.42% 14.42%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
# Since Inception NOTE: YTD includes Ex-dividend for the period
$0.0014
Monthly Declared Dividend
Constant Sales Charge: N/A $0.0440
</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 / 91 $10.24 $10.24 N/A
1 / 92 $10.15 $10.15 N/A 1/31/92 0.0525 $10.19
2 / 92 $10.15 $10.15 N/A 2/28/92 0.0525 $10.08
3 / 92 $10.16 $10.16 N/A 3/31/92 0.0525 $10.13
4 / 92 $10.22 $10.22 N/A 4/30/92 0.0500 $10.22
5 / 92 $10.31 $10.31 N/A 5/29/92 0.0501 $10.30
6 / 92 $10.49 $10.49 N/A 6/30/92 0.0495 $10.49
7 / 92 $10.85 $10.85 N/A 7/31/92 0.0500 $10.85
8 / 92 $10.64 $10.64 N/A 8/31/92 0.0510 $10.64
9 / 92 $10.61 $10.61 N/A 9/30/92 0.0479 $10.61
10 / 92 $10.31 $10.31 N/A 10/30/92 0.0493 $10.31
11 / 92 $10.56 $10.56 N/A 11/30/92 0.0484 $10.56
12 / 92 $10.47 $10.47 N/A 12/31/92 0.1740 $10.46 0.1740
12 / 92 $10.47 $10.47 N/A 12/31/92 0.0502 $10.47
1 / 93 $10.57 $10.57 N/A 1/29/93 0.0495 $10.57
2 / 93 $10.98 $10.98 N/A 2/26/93 0.0431 $10.98
3 / 93 $10.83 $10.83 N/A 3/31/93 0.0479 $10.83
4 / 93 $10.92 $10.92 N/A 4/30/93 0.0455 $10.92
5 / 93 $10.97 $10.97 N/A 5/28/93 0.0475 $10.97
6 / 93 $11.13 $11.13 N/A 6/30/93 0.0463 $11.13
7 / 93 $11.10 $11.10 N/A 7/30/93 0.0450 $11.10
8 / 93 $11.30 $11.30 N/A 8/31/93 0.0445 $11.30
9 / 93 $11.40 $11.40 N/A 9/30/93 0.0439 $11.40
10 / 93 $11.37 $11.37 N/A 10/29/93 0.0402 $11.37
11 / 93 $11.22 $11.22 N/A 11/30/93 0.0405 $11.22
12 / 93 $10.96 $10.96 N/A 12/31/93 0.4390 $10.94 0.4390
12 / 93 $10.96 $10.96 N/A 12/31/93 0.0441 $10.96
1 / 94 $11.05 $11.05 N/A 1/31/94 0.0426 $11.05
2 / 94 $10.72 $10.72 N/A 2/28/94 0.0380 $10.72
3 / 94 $10.05 $10.05 N/A 3/31/94 0.0426 $10.05
4 / 94 $10.08 $10.08 N/A 4/29/94 0.0418 $10.08
5 / 94 $10.12 $10.12 N/A 5/31/94 0.0407 $10.12
</TABLE>
<TABLE>
Excluding
CDSC CDSC
$13,523.90 $13,223.90
<CAPTION>
10-Year 5-Year 1-Year
- -----------------------------------------------------------------------------------------------------------------
Dividend # of Shares Shares Dividend # of Shares Shares Dividend # of Share Shares
Received Reinv. Outstanding Received Reinv. Outstanding Received Reinv. Outstanding
- ------------------------------------------------------------------------------------------------------------------
<S> <C> C> <C> <C> <C> <C> <C> <C>
97.656
$ 5.1269 0.503 98.159
$ 5.1533 0.511 98.670
$ 5.1802 0.511 99.181
$ 4.9591 0.485 99.666
$ 4.9933 0.485 100.151
$ 4.9575 0.473 100.624
$ 5.0312 0.464 101.088
$ 5.1555 0.485 101.573
$ 4.8653 0.459 102.032
$ 5.0302 0.488 102.520
$ 4.9620 0.470 102.990
$17.9203 1.713 104.703
$ 5.2561 0.502 105.205
$ 5.2076 0.493 105.698
$ 4.5556 0.415 106.113
$ 5.0828 0.469 106.582
$ 4.8495 0.444 107.026
$ 5.0837 0.463 107.489
$ 4.9767 0.447 107.936
$ 4.8571 0.438 108.374
$ 4.8226 0.427 108.801
$ 4.7764 0.419 109.220
$ 4.3906 0.386 109.606
$ 4.4390 0.396 110.002
$48.2909 4.414 114.416
$ 5.0457 0.460 114.876
$ 4.8937 0.443 115.319
$ 4.3821 0.409 115.728
$ 4.9300 0.491 116.219
$ 4.8580 0.482 116.701
$ 4.7497 0.469 117.170
</TABLE>
<PAGE> 3
<TABLE>
JOHN HANCOCK TAX FREE BOND FUND - SEC TOTAL RETURN - CLASS B
- ------------------------------------------------------------
Initial Investment: $1,000.00
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period $10,000.00
CDSC Initial
Excluding With Excluding % CDSC Ending CUMULATIVE Investment
CDSC CDSC CDSC CDSC Amount Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 Year Return: # 0.00% 0.00% $ 0.00 0.00% $ 0.00 $ 0.00 $0.00
4.00 Year Return: 7.84% 7.24% $1,352.39 3.00% $30.00 $1,322.39 35.24% 32.24% Since inception
or 10 years
1 Year Return: 19.42% 14.42% $1,194.20 5.00% $50.00 $1,144.20 19.42% 14.42%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
# Since Inception NOTE: YTD includes Ex-dividend for the period
$0.0014
Monthly Declared Dividend
Constant Sales Charge: N/A $0.0440
</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>
6 / 94 $ 9.98 $ 9.98 N/A 6/30/94 0.0403 $ 9.98
7 / 94 $10.12 $10.12 N/A 7/29/94 0.0438 $10.12
8 / 94 $10.09 $10.09 N/A 8/31/94 0.0415 $10.09
9 / 94 $ 9.83 $ 9.83 N/A 9/30/94 0.0404 $ 9.83
10 / 94 $ 9.50 $ 9.50 N/A 10/31/94 0.0415 $ 9.50
11 / 94 $ 9.18 $ 9.18 N/A 11/30/94 0.0409 $ 9.18
12 / 94 $ 9.38 $ 9.38 N/A 12/30/94 0.0432 $ 9.38
1 / 95 $ 9.68 $ 9.68 N/A 1/31/95 0.0434 $ 9.68
2 / 95 $10.01 $10.01 N/A 2/28/95 0.0434 $10.01
3 / 95 $10.07 $10.07 N/A 3/31/95 0.0415 $10.07
4 / 95 $ 9.99 $ 9.99 N/A 4/28/95 0.0420 $ 9.99
5 / 95 $10.27 $10.27 N/A 5/31/95 0.0387 $10.27
6 / 95 $10.05 $10.05 N/A 6/29/95 0.0397 $10.06
7 / 95 $10.09 $10.09 N/A 7/28/95 0.0388 $10.08
8 / 95 $10.17 $10.17 N/A 8/30/95 0.0431 $10.13
9 / 95 $10.18 $10.18 N/A 9/28/95 0.0403 $10.12
10 / 95 $10.32 $10.32 N/A 10/30/95 0.0418 $10.31
11 / 95 $10.53 $10.53 N/A 11/29/95 0.0414 $10.45
12 / 95 $10.67 $10.67 N/A 12/28/95 0.0386 $10.65
1 / 96 $10.65 $10.65 N/A 1/30/95 0.0439 $10.63
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Excluding
CDSC CDSC
$13,523.90 $13,223.90
<CAPTION>
10-Year 5-Year 1-Year
- -----------------------------------------------------------------------------------------------------------------
Dividend # of Shares Shares Dividend # of Shares Shares Dividend # of Share Shares
Received Reinv. Outstanding Received Reinv. Outstanding Received Reinv. Outstanding
- ------------------------------------------------------------------------------------------------------------------
<S> <C> C> <C> <C> <C> <C> <C> <C>
$4.7220 0.473 117.643
$5.1528 0.509 118.152
$4.9033 0.486 118.638
$4.7930 0.488 119.126
$4.9437 0.520 119.646
$4.8935 0.533 120.179
$5.1917 0.553 120.732 106.610
$5.2398 0.541 121.273 $4.6269 0.478 107.088
$5.2632 0.526 121.799 $4.6476 0.464 107.552
$5.0547 0.502 122.301 $4.4634 0.443 107.995
$5.1366 0.514 122.815 $4.5358 0.454 108.449
$4.7566 0.463 123.278 $4.2002 0.409 108.858
$4.8880 0.486 123.764 $4.3162 0.429 109.287
$4.8033 0.477 124.241 $4.2414 0.421 109.708
$5.3598 0.529 124.770 $4.7328 0.467 110.175
$5.0220 0.496 125.266 $4.4345 0.438 110.613
$5.2374 0.508 125.774 $4.6247 0.449 111.062
$5.2020 0.498 126.272 $4.5935 0.440 111.502
$4.8754 0.458 126.730 $4.3051 0.404 111.906
$5.5647 0.523 127.253 $4.9138 0.462 112.368
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
<TABLE>
JOHN HANCOCK TAX FREE BOND FUND - SEC TOTAL RETURN - CLASS A
- -------------------------------------------------------------
Initial Investment: $1,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Average Annual Total Return Rate Investment Value @ End of Period CUMULATIVE $10,000.00
<S> <C> <C> <C> <C> Initial
5.99 Year Return: 8.39%* 10 Year Value: $1,619.99 62.00% Investment
5 Year Return: 8.83% 5 Year Value: $1,526.95 52.70%
$15,269.50
Since Inception or
10 Years
1 Year Return: 14.82% 1 Year Value: $1,148.24 14.82%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Since Inception Note: YTD includes Ex-dividend for the period
$0.0017
Constant Sales Charge: 4.50% Monthly Declared Div $0.0512
</TABLE>
<TABLE>
<CAPTION>
Payment/
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>
1 / 5 / 90 $10.00 $10.47 4.50%
1 / 90 $ 9.94 $10.41 4.50%
2 / 90 $ 9.95 $10.42 4.50% 3/5/90 0.0620 $ 9.95
3 / 90 $ 9.87 $10.34 4.50% 4/4/90 0.0620 $ 9.87
4 / 90 $ 9.71 $10.17 4.50% 5/3/90 0.0620 $ 9.71
5 / 90 $ 9.89 $10.36 4.50% 6/5/90 0.0620 $ 9.89
6 / 90 $10.00 $10.47 4.50% 7/5/90 0.0620 $10.00
7 / 90 $10.11 $10.59 4.50% 8/3/90 0.0620 $10.11
8 / 90 $ 9.84 $10.30 4.50% 9/5/90 0.0620 $ 9.84
9 / 90 $ 9.82 $10.28 4.50% 10/3/90 0.0620 $ 9.82
10 / 90 $ 9.83 $10.29 4.50% 11/5/90 0.0620 $ 9.83
11 / 90 $ 9.92 $10.39 4.50% 12/5/90 0.0620 $ 9.92
12 / 90 $ 9.90 $10.37 4.50% 1/8/91 0.0620 $ 9.89
1 / 91 $ 9.94 $10.41 4.50% 2/5/91 0.0590 $ 9.94
2 / 91 $ 9.96 $10.43 4.50% 3/5/91 0.0590 $ 9.96
3 / 91 $ 9.97 $10.44 4.50% 3/28/91 0.0590 $ 9.93
4 / 91 $10.10 $10.58 4.50% 4/30/91 0.0590 $10.05
5 / 91 $10.17 $10.65 4.50% 5/31/91 0.0590 $10.12
6 / 91 $10.14 $10.62 4.50% 6/28/91 0.0590 $10.09
7 / 91 $10.26 $10.74 4.50% 7/31/91 0.0590 $10.23
8 / 91 $10.34 $10.83 4.50% 8/30/91 0.0590 $10.31
9 / 91 $10.42 $10.91 4.50% 9/30/91 0.0590 $10.39
10 / 91 $10.46 $10.95 4.50% 10/31/91 0.0590 $10.43
11 / 91 $10.47 $10.96 4.50% 11/29/91 0.0590 $10.45
12 / 91 $10.24 $10.72 4.50% 12/31/91 0.4209 $10.20 0.3850
1 / 92 $10.16 $10.64 4.50% 1/31/92 0.0590 $10.20
2 / 92 $10.16 $10.64 4.50% 2/28/92 0.0590 $10.09
3 / 92 $10.17 $10.65 4.50% 3/31/92 0.0590 $10.13
4 / 92 $10.22 $10.70 4.50% 4/30/92 0.0564 $10.22
5 / 92 $10.32 $10.81 4.50% 5/29/92 0.0565 $10.30
6 / 92 $10.49 $10.98 4.50% 6/30/92 0.0550 $10.49
7 / 92 $10.85 $11.36 4.50% 7/31/92 0.0567 $10.85
8 / 92 $10.64 $11.14 4.50% 8/31/92 0.0579 $10.64
9 / 92 $10.61 $11.11 4.50% 9/30/92 0.0545 $10.61
10 / 92 $10.31 $10.80 4.50% 10/30/92 0.0560 $10.31
11 / 92 $10.56 $11.06 4.50% 11/30/92 0.0548 $10.56
12 / 92 $10.47 $10.96 4.50% 12/31/92 0.1740 $10.46 0.1740
12 / 92 $10.47 $10.96 4.50% 12/31/92 0.0567 $10.47
</TABLE>
<TABLE>
<CAPTION>
10-Year 5-Year 1-Year
- ---------------------------------------------------------------------------------------------------------------
Dividend # of Share Shares Dividend # of Shares Shares Dividend # of Share Shares
Received Reinv. Outstanding Received Reinv. Outstanding Received Reinv. Outstanding
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95.511
95.511
$ 5.9217 0.595 96.106
$ 5.9586 0.604 96.710
$ 5.9960 0.618 97.328
$ 6.0343 0.610 97.938
$ 6.0722 0.607 98.545
$ 6.1098 0.604 99.149
$ 6.1472 0.625 99.774
$ 6.1860 0.630 100.404
$ 6.2250 0.633 101.037
$ 6.2643 0.631 101.668
$ 6.3034 0.637 102.305 96.432
$ 6.0360 0.607 102.912 $ 5.6895 0.572 97.004
$ 6.0718 0.610 103.522 $ 5.7232 0.575 97.579
$ 6.1078 0.615 104.137 $ 5.7572 0.580 98.159
$ 6.1441 0.611 104.748 $ 5.7914 0.576 98.735
$ 6.1801 0.611 105.359 $ 5.8254 0.576 99.311
$ 6.2162 0.616 105.975 $ 5.8593 0.581 99.892
$ 6.2525 0.611 106.586 $ 5.8936 0.576 100.468
$ 6.2886 0.610 107.196 $ 5.9276 0.575 101.043
$ 6.3246 0.609 107.805 $ 5.9615 0.574 101.617
$ 6.3605 0.610 108.415 $ 5.9954 0.575 102.192
$ 6.3965 0.612 109.027 $ 6.0293 0.577 102.769
$45.8895 4.499 113.526 $43.2555 4.241 107.010
$ 6.6980 0.657 114.183 $ 6.3136 0.619 107.629
$ 6.7368 0.668 114.851 $ 6.3501 0.629 108.258
$ 6.7762 0.669 115.520 $ 6.3872 0.631 108.889
$ 6.5153 0.638 116.158 $ 6.1413 0.601 109.490
$ 6.5629 0.637 116.795 $ 6.1862 0.601 110.091
$ 6.4237 0.612 117.407 $ 6.0550 0.577 110.668
$ 6.6570 0.614 118.021 $ 6.2749 0.578 111.246
$ 6.8334 0.642 118.663 $ 6.4411 0.605 111.851
$ 6.4671 0.610 119.273 $ 6.0959 0.575 112.426
$ 6.6793 0.648 119.921 $ 6.2959 0.611 113.037
$ 6.5717 0.622 120.543 $ 6.1944 0.587 113.624
$20.9745 2.005 122.548 $19.7706 1.890 115.514
$ 6.9485 0.664 123.212 $ 6.5496 0.626 116.140
</TABLE>
<PAGE> 5
<TABLE>
JOHN HANCOCK TAX FREE BOND FUND - SEC TOTAL RETURN - CLASS A
- -------------------------------------------------------------
Initial Investment: $1,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Average Annual Total Return Rate Investment Value @ End of Period CUMULATIVE $10,000.00
<S> <C> <C> <C> <C> Initial
5.99 Year Return: 8.39%* 10 Year Value: $1,619.99 62.00% Investment
5 Year Return: 8.83% 5 Year Value: $1,526.95 52.70%
$15,269.50
Since Inception or
10 Years
1 Year Return: 14.82% 1 Year Value: $1,148.24 14.82%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Since Inception Note: YTD includes Ex-dividend for the period
$0.0017
Constant Sales Charge: 4.50% Monthly Declared Div $0.0512
</TABLE>
<TABLE>
<CAPTION>
Payment/
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>
1 / 93 $10.57 $11.07 4.50% 1/29/93 0.0561 $10.57
2 / 93 $10.98 $11.50 4.50% 2/26/93 0.0491 $10.98
3 / 93 $10.83 $11.34 4.50% 3/31/93 0.0549 $10.83
4 / 93 $10.92 $11.43 4.50% 4/30/93 0.0522 $10.92
5 / 93 $10.97 $11.49 4.50% 5/28/93 0.0545 $10.97
6 / 93 $11.13 $11.65 4.50% 6/30/93 0.0530 $11.13
7 / 93 $11.10 $11.62 4.50% 7/30/93 0.0520 $11.10
8 / 93 $11.30 $11.83 4.50% 8/31/93 0.0515 $11.30
9 / 93 $11.40 $11.94 4.50% 9/30/93 0.0509 $11.40
10 / 93 $11.37 $11.91 4.50% 10/29/93 0.0475 $11.37
11 / 93 $11.22 $11.75 4.50% 11/30/93 0.0475 $11.22
12 / 93 $10.96 $11.48 4.50% 12/31/93 0.4390 $10.94 0.4390
12 / 93 $10.96 $11.48 4.50% 12/31/93 0.0513 $10.96
1 / 94 $11.05 $11.57 4.50% 1/31/94 0.0495 $11.05
2 / 94 $10.72 $11.23 4.50% 2/28/94 0.0444 $10.72
3 / 94 $10.05 $10.52 4.50% 3/31/94 0.0494 $10.05
4 / 94 $10.09 $10.57 4.50% 4/29/94 0.0480 $10.09
5 / 94 $10.12 $10.60 4.50% 5/31/94 0.0471 $10.12
6 / 94 $ 9.98 $10.45 4.50% 6/30/94 0.0466 $ 9.98
7 / 94 $10.12 $10.60 4.50% 7/29/94 0.0501 $10.12
8 / 94 $10.10 $10.58 4.50% 8/31/94 0.0480 $10.10
9 / 94 $ 9.83 $10.29 4.50% 9/30/94 0.0465 $ 9.83
10 / 94 $ 9.50 $ 9.95 4.50% 10/31/94 0.0478 $ 9.50
11 / 94 $ 9.18 $ 9.61 4.50% 11/30/94 0.0465 $ 9.18
12 / 94 $ 9.39 $ 9.83 4.50% 12/30/94 0.0491 $ 9.39
1 / 95 $ 9.69 $10.15 4.50% 1/31/95 0.0495 $ 9.69
2 / 95 $10.01 $10.48 4.50% 2/28/95 0.0491 $10.01
3 / 95 $10.07 $10.54 4.50% 3/31/95 0.0479 $10.07
4 / 95 $ 9.99 $10.46 4.50% 4/28/95 0.0494 $ 9.99
5 / 95 $10.27 $10.75 4.50% 5/31/95 0.0459 $10.27
6 / 95 $10.05 $10.52 4.50% 6/29/95 0.0458 $10.06
7 / 95 $10.09 $10.57 4.50% 7/28/95 0.0448 $10.08
8 / 95 $10.17 $10.65 4.50% 8/30/95 0.0500 $10.13
9 / 95 $10.18 $10.66 4.50% 9/28/95 0.0463 $10.12
10 / 95 $10.32 $10.81 4.50% 10/30/95 0.0486 $10.31
11 / 95 $10.53 $11.03 4.50% 11/29/95 0.0478 $10.45
12 / 95 $10.67 $11.17 4.50% 12/28/95 0.0449 $10.65
</TABLE>
<TABLE>
<CAPTION>
10-Year 5-Year 1-Year
- ---------------------------------------------------------------------------------------------------------------
Dividend # of Share Shares Dividend # of Shares Shares Dividend # of Share Shares
Received Reinv. Outstanding Received Reinv. Outstanding Received Reinv. Outstanding
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6.9122 0.654 123.866 $ 6.5155 0.616 116.756
$ 6.0818 0.554 124.420 $ 5.7327 0.522 117.278
$ 6.8307 0.631 125.051 $ 6.4386 0.595 117.873
$ 6.5277 0.598 125.649 $ 6.1530 0.563 118.436
$ 6.8479 0.624 126.273 $ 6.4548 0.588 119.024
$ 6.6925 0.601 126.874 $ 6.3083 0.567 119.591
$ 6.5974 0.594 127.468 $ 6.2187 0.560 120.151
$ 6.5646 0.581 128.049 $ 6.1878 0.548 120.699
$ 6.5177 0.572 128.621 $ 6.1436 0.539 121.238
$ 6.1095 0.537 129.158 $ 5.7588 0.506 121.744
$ 6.1350 0.547 129.705 $ 5.7828 0.515 122.259
$56.9405 5.205 134.910 $53.6717 4.906 127.165
$ 6.9209 0.631 135.541 $ 6.5236 0.595 127.760
$ 6.7093 0.607 136.148 $ 6.3241 0.572 128.332
$ 6.0450 0.564 136.712 $ 5.6979 0.532 128.864
$ 6.7536 0.672 137.384 $ 6.3659 0.633 129.497
$ 6.5944 0.654 138.038 $ 6.2159 0.616 130.113
$ 6.5016 0.642 138.680 $ 6.1283 0.606 130.719
$ 6.4625 0.648 139.328 $ 6.0915 0.610 131.329
$ 6.9803 0.690 140.018 $ 6.5796 0.650 131.979
$ 6.7209 0.665 140.683 $ 6.3350 0.627 132.606
$ 6.5418 0.665 141.348 $ 6.1662 0.627 133.233
$ 6.7564 0.711 142.059 $ 6.3685 0.670 133.903
$ 6.6057 0.720 142.779 $ 6.2265 0.678 134.581
$ 7.0104 0.747 143.526 $ 6.6079 0.704 135.285 101.729
$ 7.1045 0.733 144.259 $ 6.6966 0.691 135.976 $5.0356 0.520 102.249
$ 7.0831 0.708 144.967 $ 6.6764 0.667 136.643 $5.0204 0.502 102.751
$ 6.9439 0.690 145.657 $ 6.5452 0.650 137.293 $4.9218 0.489 103.240
$ 7.1955 0.720 146.377 $ 6.7823 0.679 137.972 $5.1001 0.511 103.751
$ 6.7227 0.655 147.032 $ 6.3366 0.617 138.589 $4.7650 0.464 104.215
$ 6.7282 0.669 147.701 $ 6.3418 0.630 139.219 $4.7689 0.474 104.689
$ 6.6229 0.657 148.358 $ 6.2426 0.619 139.838 $4.6943 0.466 105.155
$ 7.4105 0.732 149.090 $ 6.9849 0.690 140.528 $5.2525 0.519 105.674
$ 6.9088 0.683 149.773 $ 6.5121 0.643 141.171 $4.8969 0.484 106.158
$ 7.2730 0.705 150.478 $ 6.8553 0.665 141.836 $5.1550 0.500 106.658
$ 7.1868 0.688 151.166 $ 6.7741 0.648 142.484 $5.0940 0.487 107.145
$ 6.7874 0.637 151.803 $ 6.3975 0.601 143.085 $4.8108 0.452 107.597
</TABLE>
<PAGE> 6
<TABLE>
FUND# 99915 11/1/95
JH TAX FREE BD CL B DAILY SUMMARY AND DETAIL REPORT
DETAIL INFORMATION: INCOME,EXPENSES,SHARES OUTSTANDING & MAX OFFERING PRICE
<CAPTION>
DAY DATE INCOME EXPENSES SHARES MAX OFFERING PRICE YIELD
<S> <C> <C> <C> <C> <C> <C>
01 11/30/95 13,169.5905 3,278.66 7,173,084.076
02 12/01/95 13,117.4042 3,310.58 7,167,366.065
03 12/02/95 13,117.4042 3,316.35 7,167,366.065
04 12/03/95 13,117.4042 3,316.35 7,167,366.065
05 12/04/95 13,197.8779 3,316.35 7,169,312.795
06 12/05/95 13,201.2225 3,329.65 7,172,264.786
07 12/06/95 13,016.1586 3,333.80 7,172,308.038
08 12/07/95 12,931.0291 3,342.17 7,172,308.038
09 12/08/95 13,716.7475 3,333.79 7,173,820.626
10 12/09/95 13,716.7475 3,337.26 7,173,820.626
11 12/10/95 13,716.7475 3,337.26 7,173,820.626
12 12/11/95 13,738.7125 3,337.26 7,180,819.564
13 12/12/95 13,781.2360 3,338.02 7,177,814.457
14 12/13/95 13,214.6774 3,322.47 7,177,814.457
15 12/14/95 13,234.8005 3,317.16 7,173,806.483
16 12/15/95 12,307.8604 3,306.76 7,172,394.269
17 12/16/95 12,307.8604 3,306.96 7,172,394.269
18 12/17/95 12,307.8604 3,306.96 7,172,394.269
19 12/18/95 12,383.3182 3,306.96 7,173,114.662
20 12/19/95 12,493.1280 3,282.13 7,170,271.506
21 12/20/95 12,503.4321 3,291.29 7,166,577.552
22 12/21/95 12,952.1311 3,301.50 7,165,114.834
23 12/22/95 12,914.0440 3,304.29 7,176,552.748
24 12/23/95 12,914.0440 3,333.98 7,176,552.748
25 12/24/95 12,914.0440 3,333.98 7,176,552.748
26 12/25/95 12,914.0440 3,333.98 7,176,552.748
27 12/26/95 12,984.0483 3,333.98 7,182,049.626
28 12/27/95 12,962.6510 3,339.55 7,184,492.901
29 12/28/95 12,950.0865 3,349.48 7,185,863.369
30 12/29/95 12,941.5701 3,355.17 7,203,105.739
TOTAL: 390,737.8826 99,654.10 215,247,076.755 10.67 4.60626%
AVERAGE SHARES: 7,174,902.559
</TABLE>
<PAGE> 7
<TABLE>
FUND# 99914 11/1/95
JH TAX FREE BD CL B DAILY SUMMARY AND DETAIL REPORT
DETAIL INFORMATION: INCOME, EXPENSES, SHARES OUTSTANDING & MAX OFFERING PRICE
<CAPTION>
DAY DATE INCOME EXPENSES SHARES MAX OFFERING PRICE YIELD
<S> <C> <C> <C> <C> <C> <C>
01 11/30/95 20,796.3996 2,750.94 11,327,851.966
02 12/01/95 20,705.7981 2,775.93 11,314,340.425
03 12/02/95 20,705.7981 2,779.05 11,314,340.425
04 12/03/95 20,705.7981 2,779.05 11,314,340.425
05 12/04/95 20,823.0549 2,779.05 11,312,114.878
06 12/05/95 20,816.8687 2,789.25 11,310,541.831
07 12/06/95 20,438.9414 2,786.10 11,260,032.601
08 12/07/95 20,299.6288 2,787.98 11,260,032.601
09 12/08/95 21,524.2878 2,779.33 11,257,801.056
10 12/09/95 21,524.2878 2,779.45 11,257,801.056
11 12/10/95 21,524.2878 2,779.45 11,257,801.056
12 12/11/95 21,528.6082 2,779.45 11,253,026.123
13 12/12/95 21,609.5404 2,780.38 11,249,469.532
14 12/13/95 20,709.5605 2,767.58 11,249,469.532
15 12/14/95 20,755.1823 2,763.77 11,250,824.183
16 12/15/95 19,301.1980 2,755.34 11,248,418.235
17 12/16/95 19,301.1980 2,753.14 11,248,418.235
18 12/17/95 19,301.1980 2,753.14 11,248,418.235
19 12/18/95 19,406.7675 2,753.14 11,242,154.041
20 12/19/95 19,565.8982 2,730.17 11,230,264.717
21 12/20/95 19,589.6644 2,737.36 11,228,850.120
22 12/21/95 20,288.0666 2,746.87 11,224,014.120
23 12/22/95 20,182.3267 2,737.19 11,216,310.032
24 12/23/95 20,182.3267 2,746.21 11,216,310.032
25 12/24/95 20,182.3267 2,746.21 11,216,310.032
26 12/25/95 20,182.3267 2,746.21 11,216,310.032
27 12/26/95 20,126.4066 2,746.21 11,133,444.111
28 12/27/95 20,069.7928 2,746.59 11,124,235.386
29 12/28/95 20,032.3166 2,753.33 11,116,354.149
30 12/29/95 20,008.0924 2,756.33 11,136,875.868
TOTAL: 612,187.9464 82,865.20 337,236,475.035 11.17 5.11227%
AVERAGE SHARES: 11,241,215.835
</TABLE>
