-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PJ48QHD+olBi7r8hJRK7yhqbWhmzJ2quHX2+BgzMMzuIL1M8Mmci6Y7DHUJAKoA8 rb5D5s7UysS8utj/f70/qQ== 0000950135-95-001190.txt : 19950516 0000950135-95-001190.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950135-95-001190 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 38 FILED AS OF DATE: 19950515 EFFECTIVENESS DATE: 19950515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN SERIES INC CENTRAL INDEX KEY: 0000819300 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-16048 FILM NUMBER: 95539173 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVENUE STREET 2: STE 6000 CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 7137512400 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE STREET 2: 10TH FLOOR CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: TRANSAMERICA SERIES INC DATE OF NAME CHANGE: 19940729 FORMER COMPANY: FORMER CONFORMED NAME: TRANSAMERICA SPECIAL SERIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CRITERION SPECIAL SERIES INC DATE OF NAME CHANGE: 19890718 485BPOS 1 JOHN HANCOCK SERIES, INC. 1 Registration No. 33-16048 ICA No. 811-5254 AS FILED ON MAY 15, 1995 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. 19 /x/ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/ Amendment No. 21 /x/ JOHN HANCOCK SERIES, INC. (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) 375-1700 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) - --- X on May 15, 1995 pursuant to paragraph (b) - --- 60 days after filing pursuant to paragraph (a) - --- on [date] 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 or about December 21, 1994. 2 JOHN HANCOCK SERIES, INC. CROSS REFERENCE SHEET Cross Reference Sheet --------------------- Pursuant to Rule 495(a) under the Securities Act of 1933
ITEM NUMBER FORM N-1A, PROSPECTUS CAPTION STATEMENT OF ADDITIONAL PART A INFORMATION CAPTION - ----------------------------------------------------------------------------- 1 Front Cover Page * 2 Expense Information; The * Fund's Expenses; Share Price 3 The Fund's Financial * Highlights; Performance 4 Investment Objectives and * Policies; Organization and Management of the Fund 5 Organization and Management * of the Fund; The Fund's Expenses; Back Cover Page 6 Organization and Management * of the Fund; Dividends and Taxes; How to Buy Shares; How to Redeem Shares; Additional Services and Programs 7 How to Buy Shares; Share * Price; Additional Services and Programs; Alternative Purchase Arrangements; The Fund's Expenses; Back Cover Page 8 How to Redeem Shares * 9 Not Applicable * 10 * Front Cover Page 11 * Table of Contents 12 * Organization of the Corporation
3 13 * Investment Objectives and Policies; Certain Investment Practices; Investment Restrictions 14 * Those Responsible for Management 15 * Those Responsible for Management 16 * Investment Advisory and Other Services; Distribution Contract; Transfer Agent Services; Custody of Portfolio; Independent Auditors 17 * Brokerage Allocation 18 * Description of Corporation's Shares 19 * Net Asset Value; Additional Services and Programs 20 * Tax Status 21 * Distribution Contract 22 * Calculation of Performance 23 * Financial Statements
4 JOHN HANCOCK MONEY MARKET FUND B PROSPECTUS MAY 15, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- Expense Information................................................................... 2 The Fund's Financial Highlights....................................................... 3 Investment Objective and Policies..................................................... 4 Organization and Management of the Fund............................................... 6 The Fund's Expenses................................................................... 7 Dividends and Taxes................................................................... 8 How to Buy Shares..................................................................... 9 Share Price........................................................................... 10 How to Redeem Shares.................................................................. 13 Additional Services and Programs...................................................... 15 Investments, Techniques and Risk Factors.............................................. 18
This Prospectus sets forth the information about John Hancock Money Market Fund B (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Company"), that you should know before investing. Please read and retain it for future reference. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. Additional information about the Fund and the Company has been filed with the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement of Additional Information, dated May 15, 1995 and incorporated by reference into this Prospectus, free of charge by writing or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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 fees and expenses for the Fund's fiscal year ended October 31, 1994. Actual fees and expenses of Fund shares in the future may be greater or less than those indicated. SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge imposed on purchases (as a percentage of offering price)...................................... None Maximum sales charge imposed on reinvested dividends............................................................... None Maximum deferred sales charge...................................................................................... 5.00% * Redemption fee+.................................................................................................... None Exchange fee....................................................................................................... None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management fee..................................................................................................... 0.50% 12b-1 fee**........................................................................................................ 1.00% Other expenses***.................................................................................................. 0.56% Total Fund operating expenses...................................................................................... 2.06%
* A contingent deferred sales charge will be imposed on redemptions of amounts exchanged into the Fund from other John Hancock funds if the shareholder's combined holding period for the exchanged shares and the Fund shares is six years or less (four years or less, in the case of exchanges from John Hancock Short-Term Strategic Income Fund, John Hancock Limited-Term Government Fund and John Hancock Adjustable U.S. Government Trust). See "Share Price". The contingent deferred sales charge will be waived for redemptions of Fund shares purchased (other than pursuant to an exchange) on or after the date of this Prospectus and not exchanged into another fund. ** The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of the Fund's average net assets, and the remaining portion will be used to cover distribution expenses. *** Other Expenses include transfer agent, legal, audit, custody and other expenses. + Redemption by wire fee (currently $4.00) not included.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- You would pay the following expenses for the indicated period of years on a hypothetical $1,000 investment, assuming 5% annual return: -- Assuming complete redemption at end of period......................... $ 71 $95 $ 131 $239 -- Assuming no redemption................................................ $ 21 $65 $ 111 $239
(This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown.) The Fund's payment of a distribution fee may result in a long-term shareholder indirectly paying more than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. The management and 12b-1 fees referred to above are more fully explained in this Prospectus under the caption "The Fund's Expenses" and in the Statement of Additional Information under the captions "Investment Advisory and Other Services" and "Distribution Contract." 2 6 THE FUND'S FINANCIAL HIGHLIGHTS The information in the following table of financial highlights has been audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified report is included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's Annual Report to shareholders which may be obtained free of charge by writing or telephoning John Hancock Investor Services Corporation ("Investor Services") at the address or telephone number listed on the front page of this Prospectus. Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED OCTOBER 31, ------------------------------------------------------------------------ PERIOD ENDED 1994 1993 1992 1991 1990 1989 1988 OCTOBER 31, 1987(1) ------ ------ ------ ------ ------ ------ ------ ------------------- Per share income and capital changes for a share outstanding during each period: Net asset value, beginning of period......................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income............ 0.018 0.009 0.017 0.045 0.061 0.072 0.059 0.0007 LESS DISTRIBUTIONS Dividends from net investment income......................... (0.018) (0.009) (0.017) (0.045) (0.061) (0.072) (0.059) (0.0007) ------ ------ ------ ------ ------ ------ ------ ------- Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== ====== ====== ================= Total Return(2).................. 1.87% 0.85% 1.73% 4.61% 6.30% 7.40% 6.06% 0.06% ====== ====== ====== ====== ====== ====== ====== ================= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets......................... 2.06% 2.44% 2.47% 2.23% 2.31% 2.59% 2.41% 0.03% Ratio of expense reimbursement to average net assets..................... -- -- -- (0.12)% (0.15)% (0.47)% (0.90)% (0.02)% ------ ------ ------ ------ ------ ------ ------ ------- Ratio of net expenses to average net assets..................... 2.06% 2.44% 2.47% 2.11% 2.16% 2.12% 1.51% 0.01% ====== ====== ====== ====== ====== ====== ====== ================= Ratio of net investment income to average net assets............. 1.97% 0.85% 1.69% 4.45% 6.11% 7.16% 6.01% 0.07% Net Assets, end of period (in thousands)..................... $58,366 $31,546 $31,480 $20,763 $21,099 $13,610 $7,692 $2,535 - --------------- (1) Financial highlights, including total return, are for the period from October 26, 1987 (date of the Fund's initial offering of shares to the public) to October 31, 1987 and have not been annualized. (2) Total return does not include the effect of the contingent deferred sales charge.
YIELD INFORMATION For the seven days ended December 31, 1994, the Fund's annualized yield and effective yield were 3.28% and 1.87%, respectively. On December 31, 1994, the Fund's average portfolio maturity was 28 days. Current information on the Fund's annualized yield during a recent seven-day period may be obtained by calling the Easi-Line at 1-800-338-8080 or a customer service representative, 1-800-225-5291. For information on how the Fund calculates its annualized yield see the Statement of Additional Information. 3 7 INVESTMENT OBJECTIVE AND POLICIES The Fund seeks to provide maximum current income consistent with the preservation of capital and maintenance of liquidity by investing in high quality money market instruments. Securities in which the Fund invests may not earn as high a level of current income as longer term or lower quality securities, which generally have less liquidity, greater market risk, and more fluctuation in market value. The Fund is intended only as a temporary investment for investors who are considering which of the other funds in the John Hancock group of funds offered subject to the imposition of contingent deferred sales charges to invest in, or as an investment for shareholders of such funds whose investment goals have changed after their initial investment in such funds so that investment in a short term, high grade money market portfolio like the Fund is suitable. This is because investment in the Fund, unlike investment in most money market funds, is subject to certain contingent deferred sales charges. See "Additional Services and Programs -- Exchange Privilege." - ------------------------------------------------------------------------------- THE FUND SEEKS TO PROVIDE MAXIMUM CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL AND MAINTENANCE OF LIQUIDITY BY INVESTING IN HIGH QUALITY MONEY MARKET INSTRUMENTS. - ------------------------------------------------------------------------------- The Fund pursues its objective by investing in any combination of the following money market securities: (i) U.S. Government securities; (ii) repurchase agreements; (iii) bank obligations such as bank certificates of deposit and bankers' acceptances; (iv) commercial paper and certain debt obligations; and (v) U.S. dollar-denominated certificates of deposit and bankers' acceptances issued by foreign branches of major American and foreign commercial banks ("Eurodollar CDs" and "Eurodollar BAs") and foreign banks with branch offices in the United States ("Yankee CDs" and "Yankee BAs"). See "Investments, Techniques and Risk Factors" in this Prospectus and "Certain Investment Practices" in the Statement of Additional Information. The market values of the securities purchased by the Fund will generally fluctuate inversely with changes in interest rates. In order to minimize these fluctuations to the extent reasonably possible and to maintain the net asset value per share of the Fund at $1, the Fund utilizes amortized cost valuation. In addition, the Fund will not purchase any security with a remaining effective maturity of more than 13 months from the date of purchase. Exception: The Fund may purchase a security with a maturity of more than one year if it is coupled with a put that can be exercised in less than one year. The dollar weighted average maturity of the Fund will not exceed 90 days. These restrictions do not apply to the underlying securities acquired pursuant to repurchase agreements. With regard to the Fund's investments in both rated (all ratings are at the time of investment) and unrated (excluding U.S. Government securities) obligations, the Fund will purchase only: (1) a short term obligation (including a long term corporate debt obligation having one year or less remaining to maturity whose issuer has high quality rated short term debt obligations, hereinafter referred to as a "corporate bond"), which is: (a) rated in the highest category by both Standard and Poor's Ratings Group ("S&P") and Moody's Investor's Services ("Moody's"); or 4 8 (b) rated in the highest category by only one of the rating services described in (a) and also rated in the highest category by any other nationally recognized statistical rating organization (hereinafter together with S&P and Moody's, collectively referred to as "rating services"); or (c) rated by only one rating service, which rating is in its highest category, and the purchase of such obligation is approved or ratified by the Board of Directors; or (d) unrated and whose issuer has short-term securities rated as described in (a), (b) and (c); or (e) unrated, other than those described in (d), and which is determined by the Adviser to be of comparable quality to obligations rated in (a), (b) or (c) and such determination is approved or ratified by the Board of Directors (hereinafter, obligations described under (a), (b), (c), (d) and (e) are collectively referred to as "premium obligations"; and (2) any of the following obligations, not included as a premium obligation referenced above (collectively "other eligible obligations"), which is: (a) a corporate bond rated by only one rating service, which rating is in its second highest category, and the purchase of such corporate bond is approved or ratified by the Board of Directors; or (b) a corporate bond rated in the highest category by only one rating service and also rated in the second highest category by another rating service; or (c) an unrated obligation which is determined by the Adviser to be of comparable quality to the rating of any other eligible obligation and such determination is approved or ratified by the Board of Directors; and the purchase of such obligation would not cause this category (i.e., total assets of Fund held in other eligible obligations) to exceed 5% of Fund's total assets. The credit quality limitations applicable to securities do not apply to deposits at the bank or banks in which cash is maintained by the Fund. See "Investment, Techniques and Risk Factors" for a description of the Fund's investments in repurchase agreements, reverse repurchase agreements and restricted securities and the use of portfolio securities lending. RISK FACTORS. Since available yields and yield differentials vary over time, no specific level of income or yield differential can ever be assured. Also, the dividends paid by the Fund, if any, will increase or decrease in relation to the income received by the Fund from its investments, which would in any case be reduced by the Fund's expenses before it is distributed to shareholders. 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 investment policies (except for its policy on concentration) are nonfundamental and may be changed by a vote of the Board of Directors without shareholder approval upon 30 days' prior written notice to shareholders. 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 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. - ------------------------------------------------------------------------------- 5 9 The primary consideration in choosing brokerage firms to carry out the Fund's transactions is execution at the most favorable prices, taking into account the broker's professional ability and quality of service. Consideration may also be given to the broker's sales of Fund shares. Pursuant to procedures determined by the Board of Directors, John Hancock Advisers, Inc. (the "Adviser") may place securities transactions with brokers affiliated with the Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life Company"), which in turn indirectly owns the Adviser. - ------------------------------------------------------------------------------- BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION. - ------------------------------------------------------------------------------- ORGANIZATION AND MANAGEMENT OF THE FUND The Fund is a diversified series of the Company, which is an open-end management investment company organized as a Maryland corporation in 1987. The Company reserves the right to create and issue a number of series of shares, or funds or classes thereof, which are separately managed and have different investment objectives. The Company is not required to and does not intend to hold annual meetings of shareholders, although special meetings may be held for such purposes as electing or removing Directors, changing fundamental policies or approving a management contract. The Fund, under certain circumstances, will assist in shareholder communications with other shareholders. - ------------------------------------------------------------------------------- THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTOR'S POLICIES AND SUPERVISION. - ------------------------------------------------------------------------------- The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of the Life Company, a financial services company. The Adviser provides the Fund, and other investment companies in the John Hancock group of funds, with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of the John Hancock mutual funds through brokers who have arrangements with John Hancock Funds ("Selling Brokers"). Certain Fund officers are also officers of the Adviser and John Hancock Funds. [/R] - ------------------------------------------------------------------------------- JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL ASSET VALUE OF MORE THAN $13 BILLION. - ------------------------------------------------------------------------------- In order to avoid any conflict with portfolio trades for the Fund, the Adviser and the Fund have adopted extensive restrictions on personal securities trading by personnel of the Adviser and its affiliates. Some of these restrictions are: preclearance for all personal trades and a ban on the purchase of initial public offerings, as well as contributions to specified charities of profits on securities held for less than 91 days. These restrictions are a continuation of the basic principle that the interests of the Fund and its shareholders come first. 6 10 THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a monthly fee to the Adviser based on a stated percentage of the Fund's average daily net assets as follows:
NET ASSET VALUE ANNUAL RATE - ----------------------------------------------------------------------------------- First $500,000,000...................................................... 0.50 % Next $250,000,000....................................................... 0.425% Next $250,000,000....................................................... 0.375% Next $500,000,000....................................................... 0.35 % Next $500,000,000....................................................... 0.325% Next $500,000,000....................................................... 0.30 % Amount Over $2,500,000,000.............................................. 0.275%
During the fiscal year ended October 31, 1994, the Fund paid advisory fees in an amount equal to 0.50% of the Fund's average daily net assets to the Fund's former investment adviser. The shareholders have adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Under the Plan, the Fund will pay distribution and service fees at an aggregate annual rate of 1.00% of the Fund's average daily net assets. 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 overhead expenses incurred in connection with the distribution of Fund shares; (iii) unreimbursed distribution expenses under the Fund's prior distribution plans; (iv) distribution expenses incurred by other investment companies which sell all or substantially all of their assets to, merge with or otherwise engage in a reorganization transaction with the Fund; and (v) interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers for providing personal and account maintenance services to shareholders. - ------------------------------------------------------------------------------- THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED SHAREHOLDER SERVICING. - ------------------------------------------------------------------------------- Unreimbursed expenses under the Plan will be carried forward together with interest on the balance of these unreimbursed expenses. For the fiscal year ended October 31, 1994, an aggregate of $1,233,281 of distribution expenses or 2.88% of the average net assets of the Fund was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. Information on the Fund's total expenses is in the Financial Highlights section of this Prospectus. 7 11 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 capital gains, if any, annually. Dividends are reinvested in additional shares of the Fund unless you elect the option to receive them in cash. If you elect the cash option and the U.S. Postal Service cannot deliver your checks, your election will be converted to the reinvestment option. - ------------------------------------------------------------------------------- THE FUND GENERALLY DECLARES DIVIDENDS DAILY AND DISTRIBUTES DIVIDENDS MONTHLY. - ------------------------------------------------------------------------------- TAXATION. Dividends from the Fund's net investment income and net short-term capital gains are taxable to you as ordinary income. Dividends from the Fund's net long-term capital gains, if any, are taxable as long-term capital gain. The Fund does not anticipate that it will generally realize any long-term capital gains. Dividends are taxable, whether received in cash or reinvested in additional shares. Certain dividends may be paid by the Fund in January of a given year but may be treated as if you received them the previous December. The Fund has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, the Fund will not be subject to Federal income tax on any net investment income or net realized capital gains distributed to its shareholders within the time period prescribed by the Code. On the account application, you must certify that the social security or other taxpayer identification number you provide is your correct number and that you are not subject to backup withholding of Federal income tax. If you do not provide this information or are otherwise subject to this withholding, the Fund may be required to withhold 31% of your dividends. In addition to Federal taxes, you may be subject to state and local or foreign taxes with respect to your investment in and distributions from the Fund. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent the Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders are subject to different tax rules not described herein. You should consult your tax adviser for specific advice. 8 12 HOW TO BUY SHARES Initial purchases of shares of the Fund may be made by exchanging amounts invested in Class B shares of other John Hancock funds into shares of the Fund. In addition, investors who elect the Systematic Exchange Plan will be able to make direct, initial investments in shares of the Fund. See "Additional Services and Programs." Shares of the Fund also may be purchased with reinvested dividends and pursuant to additional investments, including additional investments made pursuant to the Monthly Automatic Accumulation Plan described below. - -------------------------------------------------------------------------------- The minimum initial investment is $1,000 ($250 for group investments and retirement plans). Complete the Account Application attached to this Prospectus. - ------------------------------------------------------------------------------- OPENING AN ACCOUNT - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- BY CHECK 1. Make your check payable to John Hancock Investor Services Corporation, P.O. Box 9115, Boston, MA 02205-9115. 2. Deliver the completed application and check to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- BY WIRE 1. Obtain an acount number by contacting your registered representative or Selling Broker, or by calling 1-800-225-5291. 2. Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Money Market Fund B Your Account Number Name(s) under which account is registered 3. Deliver the completed application to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- MONTHLY 1. Complete the "Automatic Investing" and "Bank Information" AUTOMATIC sections on the Account Privileges Application designating a ACCUMULATION bank account from which funds may be drawn. PROGRAM 2. The amount you elect to invest will be automatically withdrawn (MAPP) from your bank or credit union account. - ------------------------------------------------------------------------------- BUYING ADDITIONAL FUND SHARES - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account Privileges Application designating a bank account from which your funds may be drawn. Note that in order to invest by phone, 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 shares of the Fund 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. - ---------------------------------------------------------------------------------
[/R] 9 13 - -------------------------------------------------------------------------------- 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, your account number and the name(s) in which the account is registered. - ------------------------------------------------------------------------------- BUYING ADDITIONAL FUND 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 Money Market Fund B Your Account Number Name(s) under which account is registered - --------------------------------------------------------------------------------- Other Requirements: All purchases must be made in U.S. dollars. Checks written on foreign banks will delay purchases until U.S. funds are received, and a collection charge may be imposed. Shares of the Fund are priced at the offering price based on the net asset value computed after Investor Services receives notification of the dollar equivalent from the Fund's custodian bank. Wire purchases normally take two or more hours to complete and, to be accepted the same day, must be received by 4:00 p.m., New York time. Your bank may charge a fee to wire funds. Telephone transactions are recorded to verify information. Certificates are not issued unless a request is made to Investor Services. - ---------------------------------------------------------------------------------
[/R] 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 STATEMENTS REGARDING YOUR ACCOUNT, WHICH YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL RECORDKEEPING. - ------------------------------------------------------------------------------- SHARE PRICE The net asset value per share ("NAV") is the value of one share. The NAV is calculated by dividing the Fund's net assets by the number of outstanding shares of the Fund. Securities in the Fund's portfolio are valued at amortized cost which the Board has determined approximates market value. Under the amortized cost pricing method, a portfolio investment is valued at its cost and thereafter any discount or premium is amortized to maturity, regardless of the impact of fluctuating interest rates on the market value of the investment. Amortized cost pricing facilitates the maintenance of a $1.00 constant net asset value per share, but, or course, this cannot be guaranteed. - ------------------------------------------------------------------------------- THE PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PER SHARE, WHICH WILL NORMALLY BE CONSTANT AT $1.00. - ------------------------------------------------------------------------------- The NAV is calculated twice daily, at 12:00 noon Eastern time and as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on each day that the Exchange is open. Shares of the Fund are sold at the NAV computed after your investment request is received in good order by John Hancock Funds, which will normally be constant at $1.00 per share. You will not incur a sales charge when you purchase shares of the Fund, but the shares are subject to a CDSC if you redeem them within six or four years of 10 14 your original purchase. If you buy shares of the Fund through a Selling Broker, the Selling Broker must receive your investment before the close of regular trading on the Exchange and transmit it to John Hancock Funds before its close of business to receive that day's price. CONTINGENT DEFERRED SALES CHARGE. Fund shares are offered at net asset value per share without a sales charge so that your entire initial investment will go to work at the time of purchase. However, shares redeemed within six or four years of original purchase will be subject to a CDSC, unless you are eligible for a waiver of the CDSC as described below. This charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the 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 will be assumed that your redemption comes first from shares you have held beyond the applicable CDSC redemption period or those you acquired through reinvestment of dividends, and next from the shares you have held the longest during the CDSC redemption period. The CDSC is waived on redemptions in certain circumstances. See discussion "Waiver of Contingent Deferred Sales Charges" below. Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses part of them to defray its expenses related to providing the Fund with distribution services connected to the sale of Fund shares. The combination of the CDSC and the distribution and service fees makes it possible for the Fund to sell Fund shares without deducting a sales charge at the time of the purchase. The amount of the CDSC, if any, will vary depending on the number of years from the time you purchase your shares (or, in the case of shares of the Fund acquired pursuant to an exchange made from another John Hancock fund, from the time you purchased shares of such other fund) until the time you redeem them. Solely for the purpose of determining this holding period, any payments you make during the month will be aggregated and deemed to have been made on the last day of the month. Shares of the Fund are subject to the following CDSC schedule, except that shares of the Fund acquired pursuant to an exchange made from John Hancock Short-Term Strategic Income Fund, John Hancock Limited-Term Government Fund and John Hancock Adjustable U.S. Government Trust are subject to the respective CDSC schedules set forth in these funds' prospectuses. 11 15
YEAR IN WHICH FUND SHARES CONTINGENT DEFERRED SALES REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC - ------------------ ----------------------------- First 5.0% Second 4.0% Third 3.0% Fourth 3.0% Fifth 2.0% Sixth 1.0% Seventh and thereafter None
If Fund shares purchased other than pursuant to an exchange (excluding shares derived from dividend reinvestment) are exchanged into Class B shares of another John Hancock fund, they will become subject to the other fund's CDSC, but the applicable CDSC redemption period will be measured from the time of the original purchase. WAIVER OF CONTINGENT SALES CHARGES. The CDSC will be waived on redemptions of Fund shares, unless indicated otherwise, in these circumstances: - - Redemptions of shares purchased on or after May 15, 1995 other than pursuant to an exchange and held as shares of the Fund (i.e., not exchanged) until redemption. - ------------------------------------------------------------------------------- UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON SHARE REDEMPTIONS WILL BE WAIVED. - ------------------------------------------------------------------------------- - - Redemptions of shares made under Systematic Withdrawal Plan (see "How to Redeem Shares"), as long as your annual redemptions do not exceed 10% of your account value, at the time you establish your Systematic Withdrawal Plan and 10% of the value of your subsequent investments (less redemptions) in that account at the time you notify Investor Services. - - Redemptions made to effect distributions from an Individual Retirement Account either before or after age 59 1/2, as long as the distributions are based on the life expectancy or the joint-and-last survivor life expectancy of you and your beneficiary. These distributions must be free from penalty under the Code. - - Redemptions made to effect mandatory distributions under the Code after age 70 1/2 from a tax-deferred retirement plan. - - Redemptions made to effect distributions to participants or beneficiaries from certain employer-sponsored retirement plans including those qualified under Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the Code and deferred compensation plans under Section 457 of the Code. The waiver also applies to certain returns of excess contributions made to these plans. In all cases, the distributions must be free from penalty under the Code. - - Redemptions due to death or disability. - - Redemptions made under the Reinvestment Privilege, as described in "Additional Services and Programs" of this Prospectus. - - Redemptions made pursuant to the Fund's right to liquidate your account if you have less than $500 invested in the Fund. 12 16 - - 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. HOW TO REDEEM SHARES You may redeem all or a portion of your shares on any business day. Your shares will be redeemed at the next NAV calculated after your redemption request is received in good order by Investor Services, less any applicable CDSC. The Fund may hold payment until reasonably satisfied that investments which were recently made by check or Invest-by-Phone have been collected (which may take up to 10 calendar days). - ------------------------------------------------------------------------------- TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE PROCEDURES. - ------------------------------------------------------------------------------- Once your shares are redeemed, the Fund generally sends you payment on the next business day. When you redeem your shares, you may realize a taxable gain or loss depending usually on the difference between what you paid for them and what you receive for them, subject to certain tax rules. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities laws. - ------------------------------------------------------------------------------- BY TELEPHONE All Fund shareholders are automatically eligible for the telephone redemption privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time), Monday through Friday, excluding days on which the Exchange is closed. Investor Services employs the following procedures to confirm that instructions received by telephone are genuine. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. You may redeem up to $100,000 by telephone, but the address on the account must not have changed for the last thirty days. A check will be mailed to the exact name(s) 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 instructions. In all other cases, neither the Fund nor Investor Services will be liable for any loss or expense for acting upon telephone instructions made in accordance with the telephone transaction procedures mentioned above. Telephone redemption is not available for IRAs or other tax-qualified retirement plans or shares of the Fund that are in certificated form. During periods of extreme economic conditions or market changes, telephone requests may be difficult to implement due to a large volume of calls. During these times, you should consider placing redemption requests in writing or use EASI-Line. EASI-Line's telephone number is 1-800-338-8080. - ---------------------------------------------------------------------------------
13 17 - -------------------------------------------------------------------------------- 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 attached to the 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, your account number and the additional requirements listed below that apply to your particular account. - ---------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS --------------------------------- -------------------------------------------- Individual, Joint Tenants, Sole A letter of instruction signed (with titles Proprietorship, Custodial where applicable) by all persons authorized (Uniform Gifts or Transfer to to sign for the account, exactly as it is Minors Act), General Partners registered with the signature(s) 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. 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 all shares in an account which holds less than $500 (except accounts under retirement plans) and to mail the proceeds to the shareholder, or the transfer agent may impose an annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value of the account is in excess of the Fund's minimum initial investment. No CDSC will be imposed on involuntary redemptions of shares. Shareholders will be notified before these redemptions are to be made or this fee is imposed and will have 60 days to purchase additional shares to bring their account balance up to the required minimum. Unless the number of shares acquired by further purchases and dividend reinvestments, if any, exceeds the number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this policy. - ---------------------------------------------------------------------------------
14 18 ADDITIONAL SERVICES AND PROGRAMS EXCHANGE PRIVILEGE John Hancock offers other funds with a wide range of investment goals. Contact your registered representative or Selling Broker and request a prospectus for the John Hancock funds that interest you. Read the prospectus carefully before exchanging your shares. You can exchange shares of the Fund for Class B shares of another John Hancock fund. - ------------------------------------------------------------------------------- YOU MAY EXCHANGE SHARES OF THE FUND FOR CLASS B SHARES OF OTHER JOHN HANCOCK FUNDS. - ------------------------------------------------------------------------------- Shares of the Fund may be exchanged into Class B shares of another John Hancock fund without incurring the CDSC; however, these shares will be subject to the CDSC schedule of the shares acquired (except that exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock Limited-Term Government Fund and John Hancock Adjustable U.S. Government Trust will be subject to the initial fund's CDSC schedule). 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 shares purchased prior to January 1, 1994 for Class B shares of any other John Hancock fund, you will be subject to the CDSC schedule in effect on your initial purchase date. When you make an exchange, your account registration in both the existing and new account must be identical. The exchange privilege is available only in states where the exchange can be made legally. Under exchange agreements with John Hancock Funds, certain dealers, brokers and investment advisers may exchange their clients' Fund shares, subject to the terms of those agreements and John Hancock Funds' right to reject or suspend those exchanges at any time. Because of the restrictions and procedures under those agreements, the exchanges may be subject to timing limitations and other restrictions that do not apply to exchanges requested by shareholders directly, as described above. Because Fund performance and shareholders can be hurt by excessive trading, the Fund reserves the right to terminate the exchange privilege for any person or group that, in John Hancock Funds' judgment, is involved in a pattern of exchanges that coincide with a "market timing" strategy that may disrupt the Fund's ability to invest effectively according to its investment objective and policies, or might otherwise affect the Fund and its shareholders adversely. The Fund may also temporarily or permanently terminate the exchange privilege for any person who makes seven or more exchanges out of the Fund per calendar year. Accounts under common control or ownership will be aggregated for this purpose. Although the Fund will attempt to give you prior notice whenever it is reasonably able to do so, it may impose these restrictions at any time. SYSTEMATIC EXCHANGE PLAN 1. You can elect the Systematic Exchange Plan at any time by completing the Account Privileges Application which is attached to this Prospectus. You can 15 19 also obtain this application by calling your registered representative or by calling 1-800-225-5291. 2. Only investors who elect the Systematic Exchange Plan will be able to make direct, initial investments in the Fund. 3. When you elect the Systematic Exchange Plan, you must specify the John Hancock fund(s) into which you wish to exchange. You should carefully read these funds' prospectuses before specifying them. You can change your fund selections at any time. 4. Amounts exchanged for Class B shares of another John Hancock fund will need to satisfy that fund's minimum investment requirement. 5. You can terminate your Systematic Exchange Plan at any time. 6. There is no charge to you for this program, and there is no cost to the Fund. MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) 1. You can authorize an investment to be automatically withdrawn each month from your bank, for investment in Fund shares under the "Automatic Investing" and "Bank Information" sections of the Account Privileges Application. - ------------------------------------------------------------------------------- YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING. - ------------------------------------------------------------------------------- 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 2. You can also authorize automatic investment through payroll deduction by completing the "Direct Deposit Investing" section of the Account Privileges Application. 3. You can terminate your Monthly Automatic Accumulation Program plan at any time. 4. There is no charge to you for this program, and there is no cost to the Fund. 5. If you have payments being withdrawn from a bank account and we are notified that the account has been closed, your withdrawals will be discontinued. 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. 16 20 3. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. IN WRITING 1. In a letter, request an exchange and list the following: -- the name 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 SYSTEMATIC WITHDRAWAL PLAN 1. You can elect the Systematic Withdrawal Plan at any time by completing the Account Privileges Application which is attached to this Prospectus. You can also obtain this application by calling your registered representative or by calling 1-800-225-5291. 2. To be eligible, you must have at least $5,000 in your account. 3. Payments from your account can be made monthly, quarterly, semi-annually or annually or on a selected monthly basis to yourself or any other designated payee. - ------------------------------------------------------------------------------- YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS. - ------------------------------------------------------------------------------- 4. There is no limit on the number of payees you may authorize, but all payments must be made at the same time or intervals. 5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently with purchases of additional shares, because you may be subject to a CDSC on your redemptions of Fund shares. 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. RETIREMENT PLANS 1. You may use the Fund as a funding medium for various types of qualified retirement plans, including Individual Retirement Accounts, Keough Plans (H.R. 10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax Sheltered Annuity Retirement Plans (403(b) Plans) and 457 Plans. 2. The initial investment minimum or aggregate minimum for any of the above plans is $250. However, accounts being established as group IRA, SEP, SARSEP, TSA, 401(k) and 457 Plans will be accepted without an initial minimum investment. 17 21 INVESTMENTS, TECHNIQUES AND RISK FACTORS MONEY MARKET SECURITIES. Money market securities include obligations of the U.S. Government that are issued or guaranteed as to principal and interest by the U.S. Government or one of its agencies or instrumentalities, certificates of deposit and bankers' acceptances, commercial paper and other debt obligations and Eurodollar CDs and BAs and Yankee CDs and BAs. The Fund's investments in bank certificates of deposit and bankers' acceptances are limited to domestic banks having total assets in excess of $1 billion and whose depositors are insured up to a maximum amount of $100,000 by the Federal Deposit Insurance Corporation ("FDIC"). Investments in certificates and savings accounts of savings and loan associations are limited to domestic institutions having total assets in excess of $1 billion; or capital, surplus and undivided profits of $100 million, the accounts of which are insured by the FDIC. The Fund's investments in commercial paper are limited to direct obligations that are rated "P-1" by Moody's or "A-1" by S&P, or issued by companies having an outstanding unsecured debt issue rated "Aa" or better by Moody's or "AA" or better by S&P. The Fund's investments in Eurodollar and Yankee CDs and BAs will be limited to those rated in the two top classifications by the Keefe International Bank Watch Service, a rating service that assesses the stability, creditworthiness and other indications of the financial well being of banks and the quality of their obligations. Investments in Eurodollar CDs and Yankee CDs and BAs are traded in the secondary market and are subject to the same risks as investment in CDs of domestic banks, including interest rate fluctuations and creditworthiness of the issuing banks. Eurodollar CDs issued by foreign banks are also subject to certain risks not associated with similar investments in domestic obligations, such as the risk that the country where the branch is located might impose currency controls, interest limitations or a moratorium which could terminate or modify the issuing bank's liability against its outstanding Eurodollar obligation. Additionally, there currently are no reserve requirements for Eurodollar CDs and they are not insured by the FDIC or any other U.S. governmental agency. In the case of Eurodollar CDs issued by foreign branches of domestic banks, the issuing branch is subject to similar such risks. To the extent however, that payment on such Eurodollar CDs is ultimately the obligation of the domestic parent if the issuing branch fails to make payment, such Eurodollar CDs do not present risks significantly greater than those associated with CDs issued by domestic banks. In the case of Yankee CDs and BAs, while foreign banks are not subject to the same regulatory system as domestic banks, domestic branches of foreign banks are subject to federal or state regulation. Yankee CDs with maturities of less than 18 months are subject to the Federal Reserve System's reserve requirements; however, they may or may not be insured by the FDIC. The markets for Eurodollar CDs and Yankee CDs and BAs may be less liquid than the market for similar obligations issued by domestic branches of U.S. banks. See "Certain Investment Practices" in the Statement of Additional Information for a further description of money market instruments. 18 22 CONCENTRATION POLICY. As a matter of fundamental policy, the Fund will not invest more than 25% of its total assets (taken at market value) in the securities of issuers engaged in any one industry. However, the Fund may invest up to 75% of its assets in the securities of all domestic banks and holding companies as a group and all utilities companies as a group when, in the opinion of the Adviser, yield differentials and money market conditions suggest and when cash is available for such investment and instruments are available for purchase which fulfill the Fund's objective in terms of quality and marketability. The Fund may invest up to 40% of its assets in Eurodollar and Yankee CDs and BAs, but as a fundamental policy, the Fund will not make an investment in a Eurodollar BA and/or CD, if such investment would cause more than 25% of the Fund's total assets to be invested in Eurodollar CDs and BAs issued (i) by foreign branches of U.S. banks where it has been determined by the Adviser that the U.S. bank is not unconditionally responsible for payment if the issuing branch fails to make payment and (ii) by foreign banks. Obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and obligations of U.S. banks (including those of their foreign branches where the U.S. bank is unconditionally responsible for the foreign branch obligations) are not subject to the 25% limitation set forth above regarding investment in any one industry. In addition, for purposes of such limitation, determinations of what constitute an industry are made in accordance with specific industry codes set forth in the Standard Industrial Classification Manual and without considering groups of industries (e.g., all finance companies or all utilities) to be an industry. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in illiquid investments, which include repurchase agreements maturing in more than seven days, restricted securities and securities not readily marketable. The Fund may also invest up to 10% of its assets in restricted securities eligible for resale to certain institutional investors pursuant to Rule 144A under the Securities Act of 1933. LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing additional 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, these transactions 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. REVERSE REPURCHASE AGREEMENTS. The Fund may invest in reverse repurchase agreements. A reverse repurchase agreement involves the sale of a security by the Fund and its agreement to repurchase the instrument at a specified time and price. To cover its obligations under reverse repurchase agreements, the Fund will 19 23 maintain a segregated account consisting of cash, U.S. Government securities or high grade debt obligations that mature before the reverse repurchase agreement expires. Reverse repurchase agreements are considered to be borrowings by the Fund and as an investment practice may be considered speculative. Repurchase agreements magnify the potential for gain or loss on the portfolio securities of the Fund and therefore increase the possibility of fluctuation in the Fund's net asset value. The Fund may borrow money for temporary administrative or emergency purposes. To avoid the potential leveraging effects of the Fund's borrowings, additional investments will not be made while borrowings are in excess of 5% of its total assets. The Fund will limit its investments in reverse repurchase agreements and other borrowings to no more than one-third of its total assets. See the Statement of Additional Information for a further discussion. 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 "the Fund's Financial Highlights." 20 24 (NOTES) 25 (NOTES) 26 (NOTES) 27 JOHN HANCOCK JOHN HANCOCK MONEY MARKET MONEY MARKET FUND B FUND B INVESTMENT ADVISER John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 PROSPECTUS PRINCIPAL DISTRIBUTOR MAY 15, 1995 John Hancock Funds, Inc. 101 Huntington Avenue A MONEY MARKET FUND THAT Boston, Massachusetts 02199-7603 SEEKS TO PROVIDE MAXIMUM CURRENT INCOME CONSISTENT CUSTODIAN WITH THE PRESERVATION OF Investors Bank & Trust Company CAPITAL AND MAINTENANCE OF 24 Federal Street LIQUIDITY BY INVESTING IN HIGH Boston, Massachusetts 02199-7603 QUALITY MONEY MARKET INSTRUMENTS. TRANSFER AGENT John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 HOW TO OBTAIN INFORMATION ABOUT THE FUND For Service Information For Telephone Exchange call 1-800-225-5291 For Investment-by-Phone For Telephone Redemption 101 HUNTINGTON AVENUE BOSTON, MASSACHUSETTS 02199-7603 For TDD call 1-800-554-6713 TELEPHONE 1-800-225-5291 T050P 5/95 (LOGO) Printed on Recycled Paper 28 JOHN HANCOCK GLOBAL RESOURCES FUND CLASS A AND CLASS B SHARES PROSPECTUS MAY 15, 1995 - ---------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- Expense Information........................................................ 2 The Fund's Financial Highlights............................................ 3 Investment Objective and Policies.......................................... 4 Organization and Management of the Fund.................................... 8 Alternative Purchase Arrangements.......................................... 8 The Fund's Expenses........................................................ 10 Dividends and Taxes........................................................ 11 Performance................................................................ 12 How to Buy Shares.......................................................... 13 Share Price................................................................ 14 How to Redeem Shares....................................................... 20 Additional Services and Programs........................................... 22 Investments, Techniques and Risk Factors................................... 25
This Prospectus sets forth the information about John Hancock Global Resources Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Company"), that you should know before investing. Please read and retain it for future reference. Additional information about the Fund and the Company has been filed with the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement of Additional Information, dated May 15, 1995 and incorporated by reference into this Prospectus, free of charge by writing or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD). SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 29 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 fees and expenses for the Fund for the fiscal year ended October 31, 1994 adjusted to reflect current sales charges. Actual fees and expenses of the Class A and Class B shares in the future may be greater or less than those indicated.
CLASS A CLASS B SHARES SHARES ------- ------- SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge imposed on purchases (as a percentage of offering price)........................ 5.00% 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....................................................................................... 0.75% 0.75% 12b-1 fee**.......................................................................................... 0.25% 1.00% Other expenses***.................................................................................... 0.79% 0.79% Total Fund operating expenses........................................................................ 1.79% 2.54% - ------------ * No sales charge is payable at the time of purchase on investments of $1 million or more, but for these investments a contingent deferred sales charge may be imposed, as described below under the caption "Share Price," in the event of certain redemption transactions within one year of purchase. ** The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of the Fund's average net assets, and the remaining portion will be used to cover distribution expenses. *** Other Expenses include transfer agent, legal, audit, custody and other expenses. + Redemption by wire fee (currently $4.00) not included.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- 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............................................................... $ 67 $ 104 $ 142 $250 Class B Shares -- Assuming complete redemption at end of period......................... $ 76 $ 109 $ 155 $269 -- Assuming no redemption................................................ $ 26 $ 79 $ 135 $269
(This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown.) The Fund's payment of a distribution fee may result in a long-term shareholder indirectly paying more than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. The management and 12b-1 fees referred to above are more fully explained in this Prospectus under the caption "The Fund's Expenses" and in the Statement of Additional Information under the captions "Investment Advisory and Other Services" and "Distribution Contract." 2 30 THE FUND'S FINANCIAL HIGHLIGHTS The information in the following table of financial highlights has been audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified report is included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's Annual Report to shareholders which may be obtained free of charge by writing or telephoning John Hancock Investor Services Corporation ("Investor Services") at the address or telephone number listed on the front page of this Prospectus. Selected data for each class of shares outstanding throughout each period is as follows:
CLASS A SHARES CLASS B SHARES --------------- ------------------------------------------------------------ PERIOD FROM JUNE 15, 1994 TO OCT. 31, 1994(1) 1994 1993 1992 1991 1990 1989 ------------- ------- ------- ------ ------- ------ ------ PER SHARE INCOME AND CAPITAL CHANGES FOR A SHARE OUTSTANDING DURING EACH PERIOD(3): Net asset value, beginning of period........... $14.89 $ 15.69 $ 12.41 $12.20 $ 11.57 $11.99 $10.29 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)................... (0.08) (0.23) (0.24) (0.24) (0.17) (0.10) 0.06 Net realized and unrealized gain on investments................................... 0.81 0.12 3.52 0.58 1.24 0.16 1.82 ------ ------- ------- ------ ------- ------ ------ Total from Investment Operations............... 0.73 (0.11) 3.28 0.34 1.07 0.06 1.88 LESS DISTRIBUTIONS Dividends from net investment income........... -- -- -- -- -- (0.01) (0.06) Distributions from realized gains.............. -- -- -- (0.13) (0.44) (0.47) (0.12) ------ ------- ------- ------ ------- ------ ------ Total Distributions............................ -- -- -- (0.13) (0.44) (0.48) (0.18) ------ ------- ------- ------ ------- ------ ------ Net asset value, end of period................. $15.62 $ 15.58 $ 15.69 $12.41 $ 12.20 $11.57 $11.99 ====== ======= ======= ====== ======= ====== ====== TOTAL RETURN(4)................................ 4.90% (0.70)% 26.43% 2.93% 9.81% 0.09% 18.60% ====== ======= ======= ====== ======= ====== ====== RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets........ 0.73% 2.54% 2.92% 3.75% 3.64% 3.55% 4.85% Ratio of expense reimbursement to average net assets............................ -- -- -- -- -- (0.05)% (1.40)% ------ ------- ------- ------ ------- ------ ------ Ratio of net expenses to average net assets.... 0.73% 2.54% 2.92% 3.75% 3.64% 3.50% 3.45% ====== ======= ======= ====== ======= ====== ====== Ratio of net investment income (loss) to average net assets............................ (0.42)% (1.52)% (1.65)% (2.01)% (1.47)% (0.82)% 0.55% Portfolio turnover............................. 96% 96% 83% 59% 93% 59% 63% Net Assets, end of period (in thousands)....... $5,372 $36,937 $19,498 $7,428 $10,766 $7,746 $3,655 PERIOD ENDED OCT. 31, 1988 1987(2) ------ -------- PER SHARE INCOME AND CAPITAL CHANGES FOR A SHARE OUTSTANDING DURING EACH PERIOD(3): Net asset value, beginning of period........... $ 8.91 $ 8.71 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)................... 0.16 (0.0020) Net realized and unrealized gain on investments................................... 1.22 0.2020 ------ -------- Total from Investment Operations............... 1.38 0.2000 LESS DISTRIBUTIONS Dividends from net investment income........... -- -- Distributions from realized gains.............. -- -- ------ -------- Total Distributions............................ -- -- ------ -------- Net asset value, end of period................. $10.29 $ 8.91 ====== ======== TOTAL RETURN(4)................................ 15.49% 2.30% ====== ======== RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets........ 9.03% 0.40% Ratio of expense reimbursement to average net assets............................ (5.94)% (0.37)% ------ -------- Ratio of net expenses to average net assets.... 3.09% 0.03% ====== ======== Ratio of net investment income (loss) to average net assets............................ 1.61% (0.02)% Portfolio turnover............................. 191% 0% Net Assets, end of period (in thousands)....... $1,746 $ 113 - --------------- (1) Financial highlights, including total return, have not been annualized. Portfolio turnover is for the year ended October 31, 1994. (2) Financial highlights, including total return, are for the period from October 26, 1987 (date of the Fund's initial offering of shares to the public) to October 31, 1987 and have not been annualized. (3) Per share information has been calculated using the average number of shares outstanding. (4) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares.
3 31 INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objectives are to protect the purchasing power of shareholders' capital and to achieve growth of capital. The first of these objectives means that the Fund seeks to protect generally shareholders' invested capital against erosion of the value of the U.S. dollar through inflation. Current income will not be a primary consideration in selecting securities. However, it will be an important factor in making selections among securities believed otherwise comparable by John Hancock Advisers, Inc. (the "Adviser"). - ------------------------------------------------------------------------------- THE FUND'S INVESTMENT OBJECTIVES ARE TO PROTECT THE PURCHASING POWER OF SHAREHOLDERS' CAPITAL AND TO ACHIEVE GROWTH OF CAPITAL. - ------------------------------------------------------------------------------- The Fund pursues its objectives by investing at all times (except during periods when it is investing defensively) at least 65% of its total assets in: (1) equity securities of domestic and foreign companies (a) with substantial natural resource assets, natural resource-related or energy-related activities or (b) that provide equipment or services primarily devoted to the natural resource or energy-related activities of companies described in (a) ("Natural Resource Companies"); and (2) asset-based securities (defined below). Natural resource assets consist of precious metals (e.g., gold, silver and platinum), ferrous and nonferrous metals (e.g., iron, aluminum and copper), strategic metals (e.g., uranium and titanium), hydrocarbons (e.g., coal, oil and natural gas), water, cement and aggregates, timberland, developed and undeveloped real property and agricultural commodities. The Adviser will identify companies that, in its opinion, have substantial holdings of natural resource assets so that when compared to the company's capitalization, revenues or operating profits, such assets are of enough magnitude that changes in the assets' economic value will affect the market value of the company. The Fund will consider a company to be a Natural Resource Company if, at the time the Fund acquires its securities, at least 50% of the company's noncurrent assets, capitalization, gross revenues or operating profits in the most recent or current fiscal year are: (1) involved in or result from (directly or indirectly through subsidiaries) exploring, mining, refining, processing, transporting, fabricating, dealing in or owning natural resource assets; or (2) involved in or result from energy-related activities directly or indirectly through subsidiaries. The Fund presently does not intend to invest directly in natural resource assets or contracts related to natural resource assets, other than gold bullion (directly or through warehouse receipts for gold) and gold coins. Although the Fund is authorized to invest a majority of its assets in (1) gold and (2) gold-related securities or securities of gold-related companies, it does not presently anticipate such investments to exceed 25% of its total assets (including its 10% limitation in gold bullion or gold coins). See "Risk Factors." Energy-related activities consist of those which relate to the development and use of energy sources, such as: (1) the generation of power from hydroelectric, geothermal, tidal, or other naturally-occurring sources, or from natural resource manufacturing by-products or refuse; 4 32 (2) the development of synthetic fuels; (3) transportation of energy producing sources such as coal, oil, electricity or nuclear fuels; (4) the development and application of techniques and devices for conservation or efficient use of energy; and (5) the control of pollution related to energy industries and waste disposal. Generally, a company will be considered to provide equipment or services to Natural Resource Companies if a significant part (at least 50%) of the company's business or its profit relates to resource-related or energy-related activities. Examples of this kind of company are: (1) manufacturers of mining or earth moving equipment; (2) providers of seismology testing services; and (3) providers of supplies and maintenance services to offshore drilling sites. Although it is not required to do so, the Fund will consider selling securities of companies held in its portfolio that no longer meet the 50% test described above. The Fund may invest in "asset-based securities," which are debt securities, preferred stocks or convertible securities, when the principal amount, redemption terms or conversion terms of these investments are related to the market price of some natural resource asset such as gold bullion. The Fund will purchase only asset-based securities that are rated investment grade (i.e., "AAA," "AA," "A" or "BBB" by Standard & Poors Ratings Group ("S&P"); or "Aaa," "Aa," "A" or "Baa" by Moody's Investors Service, Inc. ("Moody's"); or commercial paper rated "A-1" by S&P or "Prime-1" by Moody's); or, if not rated by S&P or Moody's or unrated, securities determined by the Adviser to be of similar credit quality. Subsequent to its purchase by the Fund, a security may be assigned a lower rating or cease to be rated. Such a downgrading would not require the Fund to sell the security, but in the event of such a downgrade the Adviser will consider whether the Fund should continue to hold the security in its portfolio. Securities rated BBB or Baa, although considered to be investment grade, may have speculative characteristics in that changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case for higher grade securities. The Fund will seek securities that are attractively priced relative to the intrinsic values of the relevant natural resource or that are of companies which are positioned to benefit under existing or anticipated economic conditions. Accordingly, the Fund may shift its emphasis from one natural resource industry to another depending upon prevailing trends or developments, provided that the Fund will not invest 25% or more of its total assets in the securities of companies in any one natural resource industry. There are also no geographic limitations on natural resource companies in which the Fund may invest. However, as a nonfundamental policy, the Fund will be invested in securities of issuers, with respect to foreign investments, in at least three countries. In light of the geographic concentration of many natural resources, the Fund anticipates that many of the companies in which it invests will be located 5 33 in Canada, Australia, New Zealand, Malaysia, the United Kingdom and the United States. Investments may also be made in companies located in Japan, Western Europe, Latin America, Southeast Asia and other countries and regions as the Adviser may from time to time determine. In connection with the Fund's investments in foreign securities, the Adviser will consider factors such as the expected levels of inflation and interest rates, government policies influencing business conditions, the range of investment opportunity and other pertinent financial, tax, social, political and national factors -- all in relation to the prevailing prices of the securities of foreign issuers. The Fund is permitted, but presently does not intend, to invest up to 100% of its assets in securities of non-U.S. companies and may engage in various hedging instruments related to foreign securities. Concentration of investments by the Fund in foreign securities may involve special considerations and additional investment risks. See "Investments, Techniques and Risk Factors." During periods when the Adviser views the potential for total returns from corporate or government debt obligations to be greater than the potential for total returns from equities, fixed income securities, up to a normal limit of 35% of the Fund's total assets, will be included in the Fund's portfolio. More than 35% of the Fund's total assets may be invested in fixed income securities, cash and cash equivalents as the result of temporary defensive investments. The Fund will purchase only corporate debt securities of domestic or foreign issuers which are rated investment grade (i.e., "AAA," "AA," "A" or "BBB" by S&P; or "Aaa," "Aa," "A" or "Baa" by Moody's or commercial paper rated "A-1" by S&P or "Prime-1" by Moody's), or unrated securities determined by the Adviser to be of equivalent credit quality. The foregoing credit quality limitations do not apply to deposits at banks in which cash is maintained by the Fund. As noted above, securities that are rated "BBB" or "Baa" are considered to have speculative characteristics. As to the balance of the Fund's assets, the Fund may: 1. invest (for liquidity purposes) in short term debt securities with remaining maturities of one year or less ("money market instruments") such as U.S. Government securities, certificates of deposit, bankers' acceptances, commercial paper, corporate debt securities and related repurchase agreements; 2. enter into repurchase agreements and reverse repurchase agreements, lend its portfolio securities and make short sales "against the box"; 3. invest in options on securities and stock indexes; 4. invest in when-issued securities and restricted securities; and 5. employ certain hedging techniques such as options on stock indexes, stock index futures contracts and options thereon, foreign currency futures contracts and forward foreign currency exchange contracts and options on foreign currencies. These techniques may involve certain risks and are further described under "Investments, Techniques and Risk Factors." Options and futures contracts are generally considered to be "derivative" instruments because they derive their value from the performance of an underlying asset, index or other economic 6 34 benchmark. See "Investments, Techniques and Risk Factors" for additional discussion of derivative instruments. 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 objectives and investment policies are nonfundamental, which means that they may be changed by the Board of Directors without shareholder approval. However, the Fund's investment objectives may not be changed without 30 days' prior written notice first having been given to shareholders. If there is a change in the Fund's investment objectives, you should consider whether the Fund remains an appropriate investment in light of your current financial position and needs. 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 and Directors of the John Hancock funds. - ------------------------------------------------------------------------------- THE FUND FOLLOWS CERTAIN POLICIES WHICH MAY HELP TO REDUCE INVESTMENT RISK. - ------------------------------------------------------------------------------- RISK FACTORS. The value of equity securities of Natural Resource Companies will fluctuate due to various factors including changes in the market for the particular natural resource in which the issuer is involved. Events occurring in nature, inflationary pressures and international polities can affect the overall supply and demand of a natural resource and thereby the value of companies involved in such natural resources. Additionally, the prices of gold stocks and the price of gold are subject to substantial fluctuations, and may be affected by unpredictable international monetary and political circumstances such as currency revaluations, national and world economic conditions, social conditions within a country (particularly South Africa and Russia, which are among the world's largest producers of gold), trade imbalances or trade and currency restrictions between countries. These price fluctuations may adversely affect the value of an investment in the Fund. The only major gold-producing countries are the United States, Russia, Canada, Australia and South Africa. (See Statement of Additional Information "Certain Investment Practices--Special Considerations Related to Investment in Gold" for further discussion.) Because of its emphasis on securities of companies with substantial natural resource assets or natural resource asset-related or energy-related businesses, the Fund should be considered as a focused investment to achieve diversification and not as a balanced or complete investment program. The primary consideration in choosing brokerage firms to carry out the Fund's transactions is execution at the most favorable prices, taking into account the broker's professional ability and quality of service. Consideration may also be given to the broker's sales of Fund shares. Pursuant to procedures determined by the Board of Directors, the Adviser may place securities transactions with brokers affiliated with the Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life Company"), which in turn indirectly owns the Adviser. - ------------------------------------------------------------------------------- BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION. - ------------------------------------------------------------------------------- 7 35 ORGANIZATION AND MANAGEMENT OF THE FUND The Fund is a diversified series of the Company, an open-end management investment company organized as a Maryland corporation in 1987. The Company reserves the right to create and issue a number of series of shares, or funds or classes thereof, which are separately managed and have different investment objectives. The Board of Directors has authorized the issuance of two classes of the Fund, designated 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 Company is not required to and does not intend to hold annual meetings of shareholders, although special meetings may be held for such purposes as electing or removing Directors, changing fundamental policies or approving a management contract. The Company, under certain circumstances, will assist in shareholder communications with other shareholders. - ------------------------------------------------------------------------------- THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTORS' POLICIES AND SUPERVISION. - ------------------------------------------------------------------------------- The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of the Life Company, a financial services company. The Adviser provides the Fund and other investment companies in the John Hancock group of funds with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of the John Hancock mutual funds through brokers that have agreements with John Hancock Funds ("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 $13 BILLION. - ------------------------------------------------------------------------------- Investment decisions are made by the Fund's portfolio manager, Burton J. Willingham, Senior Vice President of the Adviser. Mr. Willingham has served in an equity portfolio management position with the Adviser and predecessor investment advisers since 1976. In order to avoid any conflict with portfolio trades for the Fund, the Adviser and the Fund have adopted extensive restrictions on personal securities trading by personnel of the Adviser and its affiliates. Some of these restrictions are: preclearance for all personal trades and a ban on the purchase of initial public offerings, as well as contributions to specified charities of profits on securities held for less than 91 days. These restrictions are a continuation of the basic principle that the interests of the Fund and its shareholders come first. 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. - ------------------------------------------------------------------------------- 8 36 CLASS A SHARES. If you elect to purchase Class A shares, you will incur an initial sales charge unless the amount of your purchase is $1 million or more. If you purchase $1 million or more of Class A shares, you will not be subject to an initial sales charge, but you will incur a sales charge if you redeem your shares within one year of purchase. Class A shares are subject to ongoing distribution and service fees at a combined annual rate of up to 0.25% of the Fund's average daily net assets attributable to the Class A shares. Certain purchases of Class A shares qualify for reduced initial sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES CHARGE. - ------------------------------------------------------------------------------- CLASS B SHARES. You will not incur a sales charge when you purchase Class B shares, but the shares are subject to a sales charge if you redeem them within six years of purchase (the "contingent deferred sales charge" or the "CDSC"). Class B shares are subject to ongoing distribution and service fees at a combined annual rate of up to 1.00% of the Fund's average daily net assets attributable to the Class B shares. Investing in Class B shares permits all of your dollars to work from the time you make your investment, but the higher ongoing distribution fee will cause these shares to have higher expenses than those of Class A shares. To the extent that any dividends are paid by the Fund, these higher expenses will also result in lower dividends than those paid on Class A shares. - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS B SHARES ARE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. - ------------------------------------------------------------------------------- Class B shares are not available for full-service defined contribution plans administered by Investor Services or the Life Company that had more than 100 eligible employees at the inception of the Fund account. FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE The alternative purchase arrangement allows you to choose the most beneficial way to buy shares, given the amount of your purchase, the length of time you expect to hold your shares and other circumstances. You should consider whether, during the anticipated life of your Fund investment, the CDSC and accumulated fees on Class B shares would be less than the initial sales charge and accumulated fees on Class A shares purchased at the same time, and to what extent this differential would be offset by the Class A shares' lower expenses. To help you make this determination, the table under the caption "Expense Information" on the inside cover page of this Prospectus shows examples of the charges applicable to each class of shares. Class A shares will normally be more beneficial if you qualify for reduced sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- YOU SHOULD CONSIDER WHICH CLASS OF SHARES WOULD BE MORE BENEFICIAL TO YOU. - ------------------------------------------------------------------------------- Class A shares are subject to lower distribution fees and, accordingly, pay correspondingly higher dividends per share, to the extent any dividends are paid. However, because initial sales charges are deducted at the time of purchase, you would not have all of your funds invested initially and, therefore, would initially own fewer shares. If you do not qualify for reduced initial sales charges and expect to maintain your investment for an extended period of time, you might consider purchasing Class A shares. This is because the accumulated distribution and service charges on Class B shares may exceed the initial sales charge and accumulated distribution and service charges on Class A shares during the life of your investment. 9 37 Alternatively, you might determine that it is more advantageous to purchase Class B shares to have all of your funds invested initially. However, you will be subject to higher distribution and service fees and, for a six-year period, a CDSC. In the case of Class A shares, the distribution expenses that John Hancock Funds incurs in connection with the sale of the shares will be paid from the proceeds of the initial sales charge and ongoing distribution and service fees. In the case of Class B shares, the expenses will be paid from the proceeds of the ongoing distribution and service fees, as well as from the CDSC incurred upon redemption within six years of purchase. The purpose and function of the Class B shares' CDSC and ongoing distribution and service fees are the same as those of the Class A shares' initial sales charge and ongoing distribution and service fees. Sales personnel distributing the Fund's shares may receive different compensation for selling each class of shares. Dividends, if any, on Class A and Class B shares will be calculated in the same manner, at the same time and on the same day. They also will be in the same amount, except for differences resulting from each class bearing only its own distribution and service fees, shareholder meeting expenses and any incremental transfer agency costs. See "Dividends and Taxes." THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a monthly fee to the Adviser at an annual rate of 0.75% of the Fund's average daily net assets. For the fiscal year ended October 31, 1994, the Fund paid an advisory fee of 0.75% of the Fund's average daily net assets to the Fund's former investment adviser. 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% 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. In each case, up to 0.25% for Class A shares and Class B shares is for service expenses and the remaining amount is for distribution expenses. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; (iii) unreimbursed distribution expenses under the Fund's prior distribution plans; (iv) distribution expenses incurred by other investment companies which sell all or substantially all of their assets to, merge with or otherwise engage in a reorganization transaction with the Fund; and (v) with respect to Class B shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers for providing personal and account maintenance services to shareholders. - ------------------------------------------------------------------------------- THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED SHAREHOLDER SERVICING. - ------------------------------------------------------------------------------- 10 38 In the event John Hancock Funds is not fully reimbursed for payments it makes or expenses incurred by it under the Class A Plan, these expenses will not be carried beyond one year from the date they were incurred. Unreimbursed expenses under the Class B Plan will be carried forward together with interest on the balance of these unreimbursed expenses. For the fiscal year ended October 31, 1994, an aggregate of $965,044 of distribution expenses or 3.43% of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. Information on the Fund's total expenses is in the Financial Highlights section of this Prospectus. DIVIDENDS AND TAXES DIVIDENDS. The Fund generally declares and distributes dividends representing all or substantially all of its net investment income, if any, annually. The Fund will also distribute net short-term or long-term capital gains, if any, at least annually. - ------------------------------------------------------------------------------- THE FUND GENERALLY DECLARES AND DISTRIBUTES DIVIDENDS ANNUALLY. - ------------------------------------------------------------------------------- Dividends are reinvested on the record date in additional shares of your class unless you elect the option to receive them in cash. If you elect the cash option and the U.S. Postal Service cannot deliver your checks, your election will be converted to the reinvestment option. Because of the higher expenses associated with Class B shares, any dividends on these shares will be lower than those on Class A shares. See "Share Price." TAXATION. Dividends from the Fund's net investment income, certain net foreign currency gains, and 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 gains. These dividends are taxable whether received in cash or reinvested in additional shares. Corporate shareholders may be entitled to take a dividends-received deduction for any dividends paid by the Fund that are attributable to the dividends it receives from U.S. domestic corporations, subject to certain restrictions in the Internal Revenue Code of 1986, as amended (the "Code"). Certain dividends paid by the Fund in January of a given year may be taxable to you as if you received them the prior December. The Fund has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of 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 that are 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. The Fund anticipates that it will be subject to foreign withholding taxes or other foreign taxes on income (possibly including capital gains) on certain foreign investments, which will reduce the yield or return from those investments. However, if more than 50% of the Fund's total assets at the close of its taxable year consists of securities of foreign corporations and if the Fund so elects, shareholders will include in their gross incomes their pro-rata shares of qualified 11 39 foreign taxes paid by the Fund and may be entitled subject to certain conditions and limitations under the Code, to claim a Federal income tax credit or deduction for their share of these taxes. On the account application you must certify that the social security or other taxpayer identification number you provide is your correct number and that you are not subject to backup withholding of Federal income tax. If you do not provide this information or are otherwise subject to this withholding, the Fund may be required to withhold 31% of your dividends and the proceeds of redemptions or exchanges. In addition to Federal taxes, you may be subject to state and local taxes or foreign taxes with respect to your investment in and distributions from the Fund. Non-U.S. shareholders and tax-exempt shareholders are subject to different tax treatment not described above. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent the Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S.Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. You should consult your tax adviser for specific advice. PERFORMANCE The Fund's total return shows the overall dollar or percentage change in value of a hypothetical investment in the Fund, assuming the reinvestment of all dividends. Cumulative total return shows the Fund's performance over a period of time. Average annual total return shows the cumulative return of the Fund's respective class of shares divided by 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. - ------------------------------------------------------------------------------- THE FUND MAY ADVERTISE ITS TOTAL RETURN. - ------------------------------------------------------------------------------- Total return 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 rate would result in higher performance figures. Total return calculations for the Class B shares reflect deduction of the applicable contingent deferred sales charge imposed on a redemption of shares held for the applicable period. All calculations assume that dividends are reinvested at net asset value on the reinvestment dates during the periods. Total return for 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 each class for the same period. The relative performance of the Class A and Class B shares will be affected by a variety of factors, including the higher operating expenses attributable to the Class B shares, whether the Fund's investment performance is better in the earlier or later portions of the period measured and the level of net assets of the classes during the period. The Fund will include the total return of both classes in any advertisement or promotional materials including Fund performance data. The value of the Fund's shares, when redeemed, may be more or less than their original cost. Total return is an historical calculation and is not an indication of future performance. See "Factors to Consider in Choosing an Alternative." 12 40 HOW TO BUY SHARES - -------------------------------------------------------------------------------- The minimum initial investment in Class A and Class B shares is $1,000 ($250 for group investments and retirement plans). Complete the Account Application attached to this Prospectus. Indicate whether you are purchasing Class A or Class B shares. If you do not specify which class of shares you are purchasing, Investor Services will assume that you are investing in Class A shares. - ------------------------------------------------------------------------------- OPENING AN ACCOUNT - ------------------------------------------------------------------------------- BY CHECK 1. Make your check payable to John Hancock Investor Services Corporation, P.O. Box 9115, Boston, MA, 02205-9115. 2. Deliver the completed application and check to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- BY WIRE 1. Obtain an account number by contacting your registered representative or Selling Broker, or by calling 1-800-225-5291. 2. Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Global Resources Fund Class A or Class B shares Your Account Number Name(s) under which account is registered 3. Deliver the completed application to your registered representative or Selling Broker or mail it directly to Investor Services. - ------------------------------------------------------------------------------- BUYING ADDITIONAL CLASS A AND CLASS B SHARES - ------------------------------------------------------------------------------- MONTHLY 1. Complete the "Automatic Investing" and "Bank Information" AUTOMATIC sections on the Account Privileges Application designating a ACCUMULATION bank account from which funds may be drawn. PROGRAM 2. The amount you elect to invest will be automatically withdrawn (MAAP) 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. - ---------------------------------------------------------------------------------
13 41 - -------------------------------------------------------------------------------- BY CHECK 1. Either complete the detachable stub included on your account statement or include a note with your investment listing the name of the Fund, the class of shares you own, your account number and the name(s) in which the account is registered. 2. Make your check payable to John Hancock Investor Services Corporation. 3. Mail the account information and check to: John Hancock Investor Services Corporation P.O. Box 9115 Boston, MA 02205-9115 or deliver it to your registered representative or Selling Broker. - --------------------------------------------------------------------------------- BY WIRE Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Global Resources 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. - ---------------------------------------------------------------------------------
You will receive a statement of your account after any transaction that affects your share balance or registration (statements related to reinvestment of dividends and automatic investment/withdrawal plans will be sent to you quarterly). A tax information statement will be mailed to you by January 31 of each year. - ------------------------------------------------------------------------------- YOU WILL RECEIVE ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL RECORDKEEPING. - ------------------------------------------------------------------------------- SHARE PRICE The net asset value per share ("NAV") is the value of one share. The NAV is calculated by dividing the net assets of each class by the number of outstanding shares of that class. The NAV of each class can differ. Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Board of Directors. Short-term debt investments maturing within 60 days are valued at amortized cost, which the Board of Directors has determined approximates market value. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. If quotations are not readily available or the values have been materially affected by events occurring after the closing of a foreign market, assets are valued by a method that the Board believes accurately reflects fair value. The NAV is calculated once daily as of the close of regular trading on the New York - ------------------------------------------------------------------------------- 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. - ------------------------------------------------------------------------------- 14 42 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 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. 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:
COMBINED SALES CHARGE AS REALLOWANCE REALLOWANCE TO SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS AMOUNT INVESTED A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF (INCLUDING SALES CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*) - ------------------------ ---------------- --------------- ------------------ --------------------- Less than $50,000 5.00% 5.26% 4.25% 4.01% $50,000 to $99,999 4.50% 4.71% 3.75% 3.51% $100,000 to $249,999 3.50% 3.63% 2.85% 2.61% $250,000 to $499,999 2.50% 2.56% 2.10% 1.86% $500,000 to $999,999 2.00% 2.04% 1.60% 1.36% $1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***) (*) 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. In addition to the reallowance allowed to all Selling Brokers, John Hancock Funds will pay the following: round trip airfare to a resort will be offered to each registered representative of a Selling Broker (if the Selling Broker has agreed to participate) who sells certain amounts of shares of John Hancock funds. John Hancock Funds will make these incentive payments out of its own resources. 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. Other than distribution and service fees, the Fund does not bear distribution expenses. (**) No sales charge is payable at the time of purchase of Class A shares of $1 million or more, but a CDSC may be imposed in the event of certain redemption transactions within one year of purchase. (***) John Hancock Funds may pay a commission and the first year's service fee (as described in (+) below) to Selling Brokers who initiate and are responsible for purchases of Class A shares 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 of $10 million and over. (+) At the time of sale, John Hancock Funds pays to Selling Brokers the first year's service fee in advance in an amount equal to 0.25% of the net assets invested in the Fund at the time of the sale, and thereafter, it pays the service fee periodically in arrears in an amount up to 0.25% of the Fund's average annual net assets. Selling Brokers receive the fee as compensation for providing personal and account maintenance services to shareholders.
15 43 Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional Class A shares of the Fund. In addition, John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate of up to 0.05% of the daily net assets of accounts attributable to these brokers. Under certain circumstances described below, investors in Class A shares may be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales Charge." CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A SHARES. Purchases of $1 million or more of Class A shares will be made at net asset value with no initial sales charge, but if the shares are redeemed within 12 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:
AMOUNT INVESTED CDSC RATE - --------------- --------- $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%
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 redeemed Class A shares. 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 Charges" below. QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $50,000 in Class A shares of the Fund or a combination of funds within the John Hancock family of funds (except money market funds), you may qualify for a reduced sales charge on your investments in Class A shares through a LETTER OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE to take advantage of the value of your previous investments in Class A shares of the John Hancock funds in meeting the breakpoints for a - ------------------------------------------------------------------------------- YOU MAY QUALIFY FOR A REDUCED SALES CHARGE ON YOUR INVESTMENT IN CLASS A SHARES. - ------------------------------------------------------------------------------- 16 44 reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales charge will be based on the total of: 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." - ------------------------------------------------------------------------------- CLASS A SHARES MAY BE AVAILABLE WITHOUT A SALES CHARGE TO CERTAIN INDIVIDUALS AND ORGANIZATIONS. - ------------------------------------------------------------------------------- EXAMPLE: If you hold Class A shares of a John Hancock fund with a net asset value of $20,000 and, subsequently, invest $30,000 in Class A shares of the Fund, the sales charge on this subsequent investment would be 4.50% and not 5.00% (the rate that would otherwise be applicable to investments of less than $50,000. 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 Director or officer of the Fund; a Director or officer of the Adviser and its affiliates or Selling Brokers; employees or sales representatives of any of the foregoing; retired officers, employees or Directors of any of the foregoing; a member of the immediate family of any of the foregoing; or any fund, pension, profit sharing or other benefit plan for the individuals described above. - - Any state, county, city or any instrumentality, department, authority, or agency of these entities that is prohibited by applicable investment laws from paying a sales charge or commission when it purchases shares of any registered investment management company.* - - A bank, trust company, credit union, savings institution or other type of depository institution, its trust departments or common trust funds if it is purchasing $1 million or more for non-discretionary customers or accounts.* - - A broker, dealer or registered investment adviser that has entered into an agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products made available to their clients. - - A former participant in an employee benefit plan with John Hancock Funds, when he/she withdraws from his/her plan and transfers any or all of his/her plan distributions directly to the Fund. - ------------------ *For investments made under these provisions, John Hancock Funds may make a payment out of its own resources to the Selling Broker in an amount not to exceed 0.25% of the amount invested. Class A shares of the Fund may be purchased without an initial sales charge in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares are offered at net asset value per share without a sales charge so that your entire initial investment will go to work at the time of purchase. However, Class B 17 45 shares redeemed within six years of purchase will be subject to a CDSC at the rates set forth below. This charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. Accordingly, you will not be assessed a CDSC on increases in account value above the initial purchase price, including shares derived from dividend reinvestment. In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from shares you have held beyond the six-year CDSC redemption period or those you acquired through reinvestment of dividends, and next from the shares you have held the longest during the six-year period. The CDSC is waived on redemptions in certain circumstances. See the discussion "Waiver of Contingent Deferred Sales 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: - - 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
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses part of them to defray its expenses related to providing the Fund with distribution services connected to the sale of Class B shares, such as compensating Selling Brokers for selling these shares. The combination of the CDSC and the distribution and service fees makes it possible for the Fund to sell Class B shares without deducting a sales charge at the time of the purchase. The amount of the CDSC, if any, will vary depending on the number of years from the time you purchase your Class B shares until the time you redeem them. Solely for the purposes of determining this holding period, any payments you make during the month will be aggregated and deemed to have been made on the last day of the month.
YEAR IN WHICH CLASS B SHARES CONTINGENT DEFERRED SALES REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC - ------------------ ----------------------------- First 5.0% Second 4.0% Third 3.0% Fourth 3.0% Fifth 2.0% Sixth 1.0% Seventh and thereafter None
18 46 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. 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 or the joint-and-last survivor life expectancy of you and your beneficiary. These distributions must be free from penalty under the Code. - - Redemptions made to effect mandatory distributions under the Code after age 70 1/2 from a tax-deferred retirement plan. - - Redemptions made to effect distributions to participants or beneficiaries from certain employer-sponsored retirement plans including those qualified under Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the Code and deferred compensation plans under Section 457 of the Code. The waiver also applies to certain returns of excess contributions made to these plans. In all cases, the distributions must be free from penalty under the Code. - - Redemptions due to death or disability. - - Redemptions made under the Reinvestment Privilege, as described in "Additional Services and Programs" of this Prospectus. - - Redemptions made pursuant to the Fund's right to liquidate your account if you have less than $500 invested in the Fund. - - Redemptions made in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. - - Redemptions from certain IRA and retirement plans that purchased shares prior to October 1, 1992. If you qualify for a CDSC waiver under one of these situations, you must notify Investor Services either directly or through your Selling Broker at the time you make your redemption. The waiver will be granted once Investor Services has confirmed that you are entitled to the waiver. CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of reinvested dividends on those shares will be converted into Class A shares 19 47 automatically. This will occur no later than the month following eight years after the shares were purchased, and will result in lower annual distribution fees. If you exchanged Class B shares into the Fund from another John Hancock fund, the calculation will be based on the time you purchased the shares in the original fund. The Fund has been advised that the conversion of Class B shares to Class A shares should not be taxable for Federal income tax purposes and should not change a shareholder's tax basis or tax holding period for the converted shares. HOW TO REDEEM SHARES You may redeem all or a portion of your shares on any business day. Your shares will be redeemed at the next NAV calculated after your redemption request is received in good order by Investor Services, less any applicable CDSC. The Fund may hold payment until it is reasonably satisfied that investments recently made by check or Invest-by-Phone have been collected (which may take up to 10 calendar days). - ------------------------------------------------------------------------------- TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE PROCEDURES. - ------------------------------------------------------------------------------- Once your shares are redeemed, the Fund generally sends you payment on the next business day. When you redeem your shares, you may realize a taxable gain or loss depending usually on the difference between what you paid for them and what you receive for them, subject to certain tax rules. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities laws. - -------------------------------------------------------------------------------- BY TELEPHONE All Fund shareholders are automatically eligible for the telephone redemption privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time), Monday through Friday, excluding days on which the Exchange is closed. Investor Services employs the following procedures to confirm that instructions received by telephone are genuine. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. You may redeem up to $100,000 by telephone, but the address on the account must not have changed for the last thirty days. A check will be mailed to the exact name(s) and address shown on the account. If reasonable procedures, such as those described above, are not followed, the Fund may be liable for any loss due to unauthorized or fraudulent telephone instructions. In all other cases, neither the Fund nor Investor Services will be liable for any loss or expense for acting upon telephone instructions made in accordance with the telephone transaction procedures mentioned above. Telephone redemption is not available for IRAs or other tax-qualified retirement plans or shares of the Fund that are in certificated form. During periods of extreme economic conditions or market changes, telephone requests may be difficult to implement due to a large volume of calls. During these times, you should consider placing redemption requests in writing or use EASI-Line. EASI-Line's telephone number is 1-800-338-8080. - ---------------------------------------------------------------------------------
20 48 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. - ---------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS --------------------------------- -------------------------------------------- Individual, Joint Tenants, Sole A letter of instruction signed (with titles Proprietorship, Custodial where applicable) by all persons authorized (Uniform Gifts or Transfer to sign for the account, exactly as it is to Minors Act), General Partners registered with the signature(s) guaranteed. Corporation, Association A letter of instruction and a corporate resolution, signed by person(s) authorized to act on the account with the signature(s) guaranteed. Trusts A letter of instruction signed by the trustee(s) with the signature(s) guaranteed. (If the trustee's name is not registered on your account, also provide a copy of the trust document, certified within the last 60 days.) If you do not fall into any of these registration categories, please call 1-800-225-5291 for further instructions. - --------------------------------------------------------------------------------- A signature guarantee is a widely accepted way to protect you and the Fund by verifying the signature on your request. It may not be provided by a notary public. If the net asset value of the shares redeemed is $100,000 or less, John Hancock Funds may guarantee the signature. The following institutions may provide you with a signature guarantee, provided that the institution meets credit standards established by Investor Services: (i) a bank; (ii) a securities broker or dealer, including a government or municipal securities broker or dealer, that is a member of a clearing corporation or meets certain net capital requirements; (iii) a credit union having authority to issue signature guarantees; (iv) a savings and loan association, a building and loan association, a cooperative bank, a federal savings bank or association; or (v) a national securities exchange, a registered securities exchange or a clearing agency. - ------------------------------------------------------------------------------- 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 $500 (except accounts under retirement plans) and to mail the proceeds to the shareholder, or the transfer agent may impose an annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value of the account is in excess of the Fund's minimum initial investment or if the value of the account falls below the required minimum as a result of market action. No CDSC will be imposed on involuntary redemptions of shares. Shareholders will be notified before these redemptions are to be made or this fee is imposed, and will have 60 days to purchase additional shares to bring their account balance up to the required minimum. Unless the number of shares acquired by further purchases and dividend reinvestments, if any, exceeds the number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this policy. - ---------------------------------------------------------------------------------
21 49 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 Adjustable U.S. Government Trust will be subject to the initial fund's CDSC). For purposes of computing the CDSC payable upon redemption of shares acquired in an exchange, the holding period of the original shares is added to the holding period of the shares acquired in an exchange. However, if you exchange Class B shares purchased prior to January 1, 1994 for Class B shares of any other John Hancock fund, you will be subject to the CDSC schedule in effect on your initial purchase date. You may exchange Class B shares of the Fund into shares of a John Hancock money market fund at net asset value. However, you will continue to be subject to a CDSC upon redemption. The rate of the CDSC will be the rate in effect for the original Fund at the time of exchange. The Fund reserves the right to require you to keep previously exchanged shares (and reinvested dividends) in the Fund for 90 days before you are permitted to execute a new exchange. The Fund may also terminate or alter the terms of the exchange privilege, upon 60 days' notice to shareholders. An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares in another for Federal income tax purposes. An exchange may result in a taxable gain or loss. When you make an exchange, your account registration in both the existing and new account must be identical. The exchange privilege is available only in states where the exchange can be made legally. 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 22 50 restrictions that do not apply to exchanges requested by shareholders directly, as described above. Because Fund performance and shareholders can be hurt by excessive trading, the Fund reserves the right to terminate the exchange privilege for any person or group that, in John Hancock Funds' judgment, is involved in a pattern of exchanges that coincide with a "market timing" strategy that may disrupt the Fund's ability to invest effectively according to its investment objective and policies, or might otherwise affect the Fund and its shareholders adversely. The Fund may also temporarily or permanently terminate the exchange privilege for any person who makes seven or more exchanges out of the Fund per calendar year. Accounts under common control or ownership will be aggregated for this purpose. Although the Fund will attempt to give you prior notice whenever it is reasonably able to do so, it may impose these restrictions at any time. BY TELEPHONE 1. When you complete the application for your initial purchase of Fund shares, you automatically authorize exchanges by telephone unless you check the box indicating that you do not wish to authorize telephone exchanges. 2. Call 1-800-225-5291. Have the account number of your current fund and the exact name in which it is registered available to give to the telephone representative. 3. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. IN WRITING 1. In a letter, request an exchange and list the following: -- the name and class of the Fund whose shares you currently own -- your account number -- the name(s) in which the account is registered -- the name of the fund in which you wish your exchange to be invested -- the number of shares, all shares or dollar amount you wish to exchange Sign your request exactly as the account is registered. 2. Mail the request and information to: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 23 51 REINVESTMENT PRIVILEGE 1. You will not be subject to a sales charge on Class A shares reinvested in shares of any John Hancock fund that is otherwise subject to a sales charge as long as you reinvest within 120 days from the redemption date. If you paid a CDSC upon a redemption, you may reinvest at net asset value in the same class of shares from which you redeemed within 120 days. Your account will be credited with the amount of the CDSC previously charged, and the reinvested shares will continue to be subject to a CDSC. For purposes of computing the CDSC payable upon a subsequent redemption, the holding period of the shares acquired through reinvestment will include the holding period of the redeemed shares. - ------------------------------------------------------------------------------- IF YOU REDEEM SHARES OF THE FUND, YOU MAY BE ABLE TO REINVEST ALL OR PART OF THE PROCEEDS IN THE 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 by calling your registered representative or by calling 1-800-225-5291. 2. To be eligible, you must have at least $5,000 in your account. 3. Payments from your account can be made monthly, quarterly, semi-annually or annually or on a selected monthly basis to yourself or any other designated payee. - ------------------------------------------------------------------------------- YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS. - ------------------------------------------------------------------------------- 4. There is no limit on the number of payees you may authorize, but all payments must be made at the same time or intervals. 5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently with purchases of additional Class A or Class B shares, because you may be subject to initial sales charges on your purchases of Class A shares or to a CDSC on your redemptions of Class B shares. In addition, your redemptions are taxable events. 6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver your checks or if deposits to a bank account are returned for any reason. MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) 1. You can authorize an investment to be automatically withdrawn each month from your bank for investment in Fund shares under the "Automatic Investing" and "Bank Information" sections of the Account Privileges Application. - ------------------------------------------------------------------------------- YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING. - ------------------------------------------------------------------------------- 24 52 2. You can also authorize automatic investment through payroll deduction by completing the "Direct Deposit Investing" section of the Account Privileges Application. 3. You can terminate your Monthly Automatic Accumulation Program plan at any time. 4. There is no charge to you for this program, and there is no cost to the Fund. 5. If you have payments being withdrawn from a bank account and we are notified that the account has been closed, your withdrawals will be discontinued. - ------------------------------------------------------------------------------- ORGANIZED GROUPS OF AT LEAST FOUR PERSONS MAY ESTABLISH ACCOUNTS. - ------------------------------------------------------------------------------- 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. 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. RETIREMENT PLANS 1. You may use the Fund as a funding medium for various types of qualified retirement plans, including Individual Retirement Accounts, Keough Plans (H.R. 10), Pension and Profit Sharing Plans (including 401(k) plans), Tax Sheltered Annuity Retirement Plans (403(b) Plans) and 457 Plans. 2. The initial investment minimum or aggregate minimum for any of the above plans is $250. However, accounts being established as group IRA, SEP, SARSEP, TSA, 401(k) and 457 Plans will be accepted without an initial minimum investment. INVESTMENTS, TECHNIQUES AND RISK FACTORS SECURITIES OF FOREIGN ISSUERS. Investments in foreign securities may involve a greater degree of risk than those in domestic securities due to exchange controls, less publicly available information, more volatile or less liquid securities markets, and the possibility of expropriation, confiscatory taxation or political, economic or social instability. There may be difficulty in enforcing legal rights outside the United States. Some foreign companies are not generally subject to the same uniform accounting, auditing and financial reporting requirements as domestic companies; also foreign regulation may differ considerably from domestic regulation of stock exchanges, brokers and securities. Security trading practices abroad may offer less protection to investors such as the Fund. 25 53 Additionally, because foreign securities may be quoted or denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the Fund's net asset value, the value of dividends and interest earned, gains and losses realized on the sale of securities, and net investment income and gains, if any, that the Fund distributes to shareholders. Securities transactions undertaken in some foreign markets may not be settled promptly. Therefore, the Fund's investments on foreign exchanges may be less liquid and subject to the risk of fluctuating currency exchange rates pending settlement. The expense ratios of funds investing significant amounts of their assets in foreign securities can be expected to be higher than those of mutual funds investing solely in domestic securities since the expenses of these funds, such as the cost of maintaining custody of foreign securities and advisory fees, are higher. These risks of foreign investing may be intensified in the case of investments in emerging markets or countries with limited or developing capital markets. These countries generally are located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. Security prices in these markets can be significantly more volatile than in more developed countries, reflecting the greater uncertainties of investing in less established markets and economies. Political, legal and economic structures in many of these emerging market countries may be undergoing significant evolution and rapid development, and they may lack the social, political, legal and economic stability characteristic of more developed countries. Emerging market countries may have failed in the past to recognize private property rights. They may have relatively unstable governments, present the risk of nationalization of businesses, restrictions on foreign ownership, or prohibitions on repatriation of assets, and may have less protection of property rights than more developed countries. Their economies may be predominantly based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of substantial holdings difficult or impossible at times. The Fund may be required to establish special custodial or other arrangements before making certain investments in these countries. Securities of issuers located in these countries may have limited marketability and may be subject to more abrupt or erratic price movements. FOREIGN CURRENCY TRANSACTIONS. The Fund may purchase securities quoted or denominated in foreign currencies. The value of investments in these securities and the value of dividends and interest earned, if any, may be significantly affected by changes in currency exchange rates. Some foreign currency values may be volatile, and there is the possibility of governmental control on currency exchange or governmental intervention in currency markets, which could adversely affect the Fund. As a result, the Fund may enter into forward foreign currency exchange contracts to protect against changes in foreign currency exchange rates. The Fund will not speculate in foreign currencies or in forward foreign currency exchange contracts, but will enter into these transactions only in connection with its hedging strategies. A forward foreign currency exchange contract involves an obligation to 26 54 purchase or sell a specific currency at a future date at a price set at the time of the contract. Although certain strategies could minimize the risk of loss due to a decline in the value of the hedged foreign currency, they could also limit any potential gain which might result from an increase in the value of the currency. See the Statement of Additional Information for further discussion of the uses and risks of forward foreign currency exchange contracts. 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 that are not readily marketable. Without regard to this limitation, the Fund may invest in restricted securities eligible for resale to certain institutional investors pursuant to Rule 144A under the Securities Act of 1933 as long as such securities meet liquidity guidelines established by the Board of Directors. LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing additional 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 counterparty 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, liquid debt securities. However, these transactions 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. REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase agreements which involve the sale of a security by the Fund to a bank or securities firm and its agreement to repurchase the instrument at a specified time and price plus an agreed amount of interest. The Fund will use the proceeds to purchase other investments. Reverse repurchase agreements are considered to be borrowings by the Fund and as an investment practice may be considered speculative. The Fund will enter into a reverse repurchase agreement only when the Adviser determines that the interest income to be earned from the investment of the proceeds is greater than the interest expense of the transaction. To minimize various risks associated with reverse repurchase agreements, the Fund will establish and maintain with the Custodian a separate account consisting of cash or liquid, high grade debt securities in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. In addition, the Fund's investment restrictions provide that the Fund will not enter into reverse repurchase agreements exceeding, in the aggregate, 33 1/3% of the value of its total assets (including for this purpose other borrowings of the Fund). The Fund will enter into reverse repurchase agreements only with selected registered broker/dealers or with federally insured banks or savings and loan associations which are approved in advance as being creditworthy by the Board of Directors. Under procedures established by the Board of Directors, the Adviser will monitor the creditworthiness of the firms involved. 27 55 The use of reverse repurchase agreements involves leverage. Leverage allows any investment gains made with the additional monies received (in excess of the costs of the reverse repurchase agreement) to increase the net asset value of the Fund's shares faster than would otherwise be the case. On the other hand, if the additional monies received are invested in ways that do not fully recover the costs of such transactions to the Fund, the net asset value of the Fund would fall faster than would otherwise be the case. SHORT SALES AGAINST-THE-BOX. The Fund may make short sales against-the-box for the purpose of deferring realization of gain or loss for Federal income tax purposes. A short sale "against-the-box" is a short sale in which the Fund owns an equal amount of the securities sold short 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. The Fund may engage in such short sales only to the extent that not more than 10% of the Fund's total assets (determined at the time of the short sale) is held as collateral for such sales. 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 "The Fund's Financial Highlights." OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts on equity securities, stock indices and foreign currencies, stock index and currency futures contracts and options on such futures contracts. Options and futures contracts are bought and sold to enhance return or to manage the Fund's exposure to changing security prices. Some options and futures strategies, including selling futures, buying puts and writing calls, tend to hedge a Fund's investments 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. All of the Fund's futures contracts and options on futures contracts will be traded on a U.S. commodity exchange or board of trade. The Fund's transactions in options and futures contracts may be limited by the requirements of the Code for qualification as a regulated investment company. See the Statement of Additional Information for further discussion of options and futures transactions, including tax effects and investment risks. 28 56 RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. The risks associated with the Fund's transactions in options, futures and other derivative instruments may include some or all of the following: Market Risk. Options and futures transactions, as well as other derivative instruments, involve the risk that the applicable market will move against the Fund's derivative 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 increase or leverage the Fund's exposure to a particular market risk, which may increase the volatility of the Fund's net asset value. The Fund may partially offset the leverage inherent in certain derivative instruments by maintaining a segregated account consisting of cash and liquid, high grade debt securities, by holding offsetting portfolio securities or currency positions or by covering written options. Correlation Risk. The 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 instruments, the assets underlying the derivative instrument and the Fund's portfolio assets. Credit Risk. Over-the-counter instruments involve a risk that the issuer or counterparty will fail to perform its contractual obligations. Liquidity and Valuation Risk. Some derivative instruments are not readily marketable or may become illiquid under adverse market conditions. In addition, during periods of extreme market volatility, an exchange may suspend or limit trading in an exchange-traded derivative instrument, 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. 29 57 (NOTES) 58 (NOTES) 59 JOHN HANCOCK JOHN HANCOCK GLOBAL GLOBAL RESOURCES FUND RESOURCES FUND INVESTMENT ADVISER John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 PRINCIPAL DISTRIBUTOR John Hancock Funds, Inc. CLASS A AND CLASS B SHARES 101 Huntington Avenue PROSPECTUS Boston, Massachusetts 02199-7603 MAY 15, 1995 CUSTODIAN A MUTUAL FUND SEEKING TO PROTECT Investors Bank & Trust Company THE PURCHASING POWER OF INVESTORS' 24 Federal Street CAPITAL AND TO ACHIEVE GROWTH OF Boston, Massachusetts 02110 CAPITAL. TRANSFER AGENT John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 HOW TO OBTAIN INFORMATION ABOUT THE FUND For Service Information For Telephone Exchange call 1-800-225-5291 For Investment-by-Phone 101 HUNTINGTON AVENUE For Telephone Redemption BOSTON, MASSACHUSETTS 02199-7603 TELEPHONE 1-800-225-5291 For TDD call 1-800-554-6713 T570P 5/95 [RECYCLE LOGO] Printed on Recycled Paper 60 JOHN HANCOCK GOVERNMENT INCOME FUND CLASS A AND CLASS B SHARES PROSPECTUS MAY 15, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- Expense Information...................................................... 2 The Fund's Financial Highlights.......................................... 3 Investment Objective and Policies........................................ 4 Organization and Management of the Fund.................................. 6 Alternative Purchase Arrangements........................................ 7 The Fund's Expenses...................................................... 9 Dividends and Taxes...................................................... 10 Performance.............................................................. 11 How to Buy Shares........................................................ 12 Share Price.............................................................. 13 How to Redeem Shares..................................................... 20 Additional Services and Programs......................................... 22 Investments, Techniques and Risk Factors................................. 25
This Prospectus sets forth the information about John Hancock Government Income Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Company"), that you should know before investing. Please read and retain it for future reference. Additional information about the Fund and the Company has been filed with the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement of Additional Information, dated May 15, 1995 and incorporated by reference into this Prospectus, free of charge by writing or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD). SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 61 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 fees and expenses for the Fund's fiscal year ended October 31, 1994 adjusted to reflect current sales charges. Actual fees and expenses in the future of the Class A and Class B shares may be greater or less than those indicated.
CLASS A CLASS B SHARES SHARES ------- ------- SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge imposed on purchases (as a percentage of offering price)....................... 4.50% None Maximum sales charge imposed on reinvested dividends................................................ None None Maximum deferred sales charge....................................................................... None * 5.00% Redemption fee+..................................................................................... None None Exchange fee........................................................................................ None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management fee...................................................................................... 0.65% 0.65% 12b-1 fee**......................................................................................... 0.25% 1.00% Other expenses***................................................................................... 0.29% 0.29% Total Fund operating expenses....................................................................... 1.19% 1.94% * No sales charge is payable at the time of purchase on investments of $1 million or more, but for these investments a contingent deferred sales charge may be imposed, as described below under the caption "Share Price," in the event of certain redemption transactions within one year of purchase. ** The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of the Fund's average net assets, and the remaining portion will be used to cover distribution expenses. *** Other Expenses include transfer agent, legal, audit, custody and other expenses. +Redemption by wire fee (currently $4.00) not included.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- 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............................................................... $56 $81 $107 $183 Class B Shares -- Assuming complete redemption at end of period......................... $70 $91 $125 $207 -- Assuming no redemption................................................ $20 $61 $105 $207 (This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder indirectly paying more than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. The management and 12b-1 fees referred to above are more fully explained in this Prospectus under the caption "The Fund's Expenses" and in the Statement of Additional Information under the captions "Investment Advisory and Other Services" and "Distribution Contract." 2 62 THE FUND'S FINANCIAL HIGHLIGHTS The information in the following table of financial highlights has been audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified report is included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's Annual Report to shareholders which may be obtained free of charge by writing or telephoning John Hancock Investor Services Corporation ("Investor Services") at the address or telephone number listed on the front page of this Prospectus. Selected data for each class of shares outstanding throughout each period is as follows:
CLASS B SHARES CLASS A SHARES ----------------------------------------------------------------------- ---------------------- PERIOD PERIOD FROM YEAR ENDED OCTOBER 31, ENDED SEPTEMBER 30, 1994 TO -------------------------------------------------------- OCTOBER 31, OCTOBER 31, 1994(1) 1994 1993 1992 1991 1990 1989 1988(2) ---------------------- ------ ------ ------ ------ ------ ------ ----------- Net asset value, beginning of period.......................... $8.85 $10.05 $9.83 $9.79 $9.37 $9.98 $10.01 $10.58 INCOME FROM INVESTMENT OPERATIONS Net investment income............. 0.06 0.65 0.70 0.80 0.89 0.88 0.98 0.69 Net realized and unrealized gain (loss) on securities................... (0.10) (1.28) 0.24 0.03 0.40 (0.54) (0.01) (0.45) ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Operations...................... (0.04) (0.63) 0.94 0.83 1.29 0.34 0.97 0.24 LESS DISTRIBUTIONS Dividends from net investment income.......................... (0.06) (0.65) (0.72) (0.79) (0.87) (0.95) (1.00) (0.64) Distributions from realized gains........................... -- (0.02) -- -- -- -- -- (0.17) ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions............... (0.06) (0.67) (0.72) (0.79) (0.87) (0.95) (1.00) (0.81) ------ ------ ------ ------ ------ ------ ------ ------ Net asset value, end of period.... $ 8.75 $ 8.75 $10.05 $ 9.83 $ 9.79 $ 9.37 $ 9.98 $10.01 ====== ====== ====== ====== ====== ====== ====== ====== Total Return(3)................... (0.45)% (6.42)% 9.86% 8.81% 14.38% 3.71% 10.22% 2.40% ====== ====== ====== ====== ====== ====== ====== ====== RATIOS AND SUPPLEMENTAL DATA Ratio of operating expenses to average net assets.............. 0.12% 1.93% 2.00% 2.00% 2.00% 2.04% 2.82% 2.76% Ratio of interest expense to average net assets.............. -- 0.01% 0.01% 0.15% -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ Ratio of total expenses to average net assets...................... 0.12% 1.94% 2.01% 2.15% 2.00% 2.04% 2.82% 2.76% Ratio of expense reimbursement to average net assets.............. -- -- -- -- -- (0.04)% (0.82)% (1.38)% ------ ------ ------ ------ ------ ------ ------ ------ Ratio of net expenses to average net assets...................... 0.12% 1.94% 2.01% 2.15% 2.00% 2.00% 2.00% 1.38% ======= ====== ====== ====== ====== ====== ====== ====== Ratio of net investment income to average net assets.............. 0.71% 6.98% 7.06% 8.03% 9.09% 9.22% 9.64% 6.34% Portfolio turnover................ 92% 92% 138% 112% 162% 83% 151% 174% Net Assets, end of period (in thousands)...................... $223 $241,061 $293,413 $225,540 $129,014 $64,707 $26,568 $6,966 Debt outstanding at end of period (in thousands)(4)............... $0 $0 $0 $0 -- -- -- -- Average daily amount of debt outstanding during the period (in thousands)(4)................... $349 $349 $503 $6,484 -- -- -- -- Average monthly number of shares outstanding during the period (in thousands).................. 28,696 28,696 26,378 18,572 -- -- -- -- Average daily amount of debt outstanding per share during the period(4)....................... $0.01 $0.01 $0.02 $0.35 -- -- -- -- - --------------- (1) Financial highlights, including total return, have not been annualized. Portfolio turnover and information regarding debt outstanding are for the year ended October 31, 1994 and are not class specific. (2) Financial highlights, including total return, are for the period from February 23, 1988 (date of the Fund's initial offering of shares to the public) to October 31, 1988 and have not been annualized. Per share information has been calculated using the average number of shares outstanding. (3) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares. (4) Debt outstanding consists of reverse repurchase agreements entered into during the year.
3 63 INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is to earn a high level of current income consistent with preservation of capital by investing primarily in securities that are issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities ("U.S. Government securities"). The Fund may seek to enhance its current return and may seek to hedge against changes in interest rates by engaging in transactions involving options (subject to certain limits), futures and options on futures. The Fund expects that under normal market conditions it will invest at least 80% of its total assets in U.S. Government securities (and related repurchase agreements and forward commitments) which include: - ------------------------------------------------------------------------------- THE FUND SEEKS TO EARN A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT SECURITIES. - ------------------------------------------------------------------------------- (1) Obligations issued by the U.S. Treasury differing only in their interest rates, maturities and times of issuance: (a) U.S. Treasury bills with a maturity of one year or less; (b) U.S. Treasury notes with maturities of one to ten years; or (c) U.S. Treasury bonds generally with maturities greater than ten years; and (2) Obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities which may be supported by: (a) the full faith and credit of the U.S. Government (e.g., direct pass- through certificates of the Government National Mortgage Association ("Ginnie Mae")); (b) the right of the issuer to borrow from the U.S. Government (e.g., securities of the Federal Home Loan banks); or (c) the credit of the instrumentality (e.g., bonds issued by Federal National Mortgage Association.) John Hancock Advisers, Inc. (the "Adviser") will attempt to minimize excessive fluctuations in net asset value per share, so at times the highest yielding government securities then available may not be selected for investment if, in the view of the Adviser, future interest rate movements could result in depreciation of value of such securities. The Fund may take full advantage of the entire range of maturities of U.S. Government securities and may adjust the dollar-weighted average maturity of its portfolio from time to time based in large part on the Adviser's expectation as to future changes in interest rates. As to the balance of the Fund's assets, where consistent with the investment objective, the Fund may: 1. invest in U.S. dollar denominated securities issued or guaranteed by foreign governments which are considered stable by the Adviser, or any of the political subdivisions, instrumentalities, authorities or agencies of these governments. Such securities will generally be rated within the four highest rating categories by a nationally recognized rating organization (e.g., Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's")) or if not so rated, determined to be of equivalent quality in the opinion of the Adviser; 4 64 provided that the Fund may invest up to 10% of its total assets in securities which may be rated B or better by a nationally recognized rating organization. 2. invest in other "asset backed securities" which are not included as "government asset backed" securities and are rated in one of the two highest rating categories by a nationally recognized credit rating organization or if not so rated, determined to be of equivalent investment quality in the opinion of the Adviser; 3. engage in hedging transactions, including options, interest rate futures contracts and options thereon, subject to certain limitations described below (see "Investments, Techniques and Risk Factors"); 4. enter into repurchase agreements and reverse repurchase agreements and invest in when issued securities and restricted securities, subject to certain limitations described below (see "Investments, Techniques and Risk Factors"); and 5. invest in (for liquidity purposes) high quality, short-term debt securities with remaining maturities of one year or less ("money market instruments") such as certificates of deposit, bankers' acceptances, corporate debt securities, commercial paper and related repurchase agreements. Asset backed securities, like Ginnie Mae certificates, are securities which represent a participation in or are secured by and payable from, a stream of payments generated by particular assets, most often a pool of assets similar to one another. Types of other asset backed securities include automobile receivable securities, credit card receivable securities and mortgage backed securities such as collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"). See "Investments, Techniques and Risk Factors" and the Statement of Additional Information for a discussion of government and non-government asset backed securities and for a description of securities lending, short-term obligations, government securities, options, futures and forward contracts, as well as the ratings of various fixed income securities by Moody's and S&P. See "Investments, Techniques and Risk Factors." The U.S. Government guarantees the payment of principal and interest of the Fund's U.S. Government securities, but does not guarantee the value or yield of such securities or the Fund's shares of common stock. To the extent the Fund invests in government asset backed (e.g., Ginnie Mae Certificates) and non- government asset backed securities, it may experience a high rate of repayment when interest rates decline and may therefore face the necessity of reinvesting at a time when rates of return are relatively low which could result in a reduction in principal if the securities were acquired at a premium. See "Certain Investment Practices" in the Statement of Additional Information for further discussion. The value of the securities held by the Fund, and therefore the net asset value per share, will fluctuate with interest rate changes. Generally, a rise in interest rates will result in a decrease in the Fund's net asset value, while a decline will result in an increase in the Fund's net asset value. Therefore at the time of redemption, your shares may be worth more or less than the value at the time of purchase. 5 65 The Fund will employ certain hedging techniques to seek to reduce risks associated with changes in interest rates. However, these hedging techniques will result in transaction costs to the Fund and there can be no assurance the interest rate risks will be eliminated. Zero coupon bonds are issued at a significant discount from their principal amount in lieu of paying interest periodically; therefore, their value is subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest currently. See "Investments, Techniques and Risk Factors." Foreign government obligations which are appropriate for investment by the Fund may be subject to risks generally applicable to foreign securities. See "Investments, Techniques and Risk Factors." 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 to invest (under normal market conditions) 80% of its assets in U.S. Government securities and its investment policies are nonfundamental and may be changed by a vote of the Board of Directors without shareholder approval, upon 30 days' prior written notice to shareholders. 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 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. - ------------------------------------------------------------------------------- The primary consideration in choosing brokerage firms to carry out the Fund's transactions is execution at the most favorable prices, taking into account the broker's professional ability and quality of service. Consideration may also be given to the broker's sales of Fund shares. Pursuant to procedures determined by the Board of Directors, the Adviser may place securities transactions with brokers affiliated with the Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life Company"), which in turn indirectly owns the Adviser. - ------------------------------------------------------------------------------- BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION. - ------------------------------------------------------------------------------- ORGANIZATION AND MANAGEMENT OF THE FUND The Fund is organized as a separate, diversified portfolio of the Company, an open-end management investment company organized as a Maryland corporation in 1987. The Company reserves the right to create and issue a number of series of shares, or funds or classes thereof, which are separately managed and have different investment objectives. The Board of Directors has authorized the issuance of two classes of the Fund, designated 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 Company does not intend to hold annual meetings of shareholders, except when required by federal or state law, although special meetings may be held for such purposes as electing or removing Directors, changing fundamental policies or approving a management contract. The Company, under certain circumstances, will assist in shareholder communications with other shareholders. - ------------------------------------------------------------------------------- THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTORS' POLICIES AND SUPERVISION. - ------------------------------------------------------------------------------- 6 66 The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of the Life Company, a financial services company. The Adviser provides the Fund, and other investment companies in the John Hancock group of funds, with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of the John Hancock mutual funds through brokers that have agreements with John Hancock Funds ("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 $13 BILLION. - ------------------------------------------------------------------------------- All investment decisions are made by a committee and no single person is primarily responsible for making recommendations to the committee. In order to avoid any conflict with portfolio trades for the Fund, the Adviser and the Fund have adopted extensive restrictions on personal securities trading by personnel of the Adviser and its affiliates. Some of these restrictions are: preclearance for all personal trades and a ban on the purchase of initial public offerings, as well as contributions to specified charities of profits on securities held for less than 91 days. These restrictions are a continuation of the basic principle that the interests of the Fund and its shareholders come first. 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 of your purchase is $1 million or more. If you purchase $1 million or more of Class A shares, you will not be subject to an initial sales charge, but you will incur a sales charge if you redeem your shares within one year of purchase. Class A shares are subject to ongoing distribution and service fees at a combined annual rate of up to 0.25% of the Fund's average daily net assets attributable to the Class A shares. Certain purchases of Class A shares qualify for reduced initial sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES CHARGE. - ------------------------------------------------------------------------------- 7 67 CLASS B SHARES. You will not incur a sales charge when you purchase Class B shares, but the shares are subject to a sales charge if you redeem them within six years of purchase (the "contingent deferred sales charge" or the "CDSC"). Class B shares are subject to ongoing distribution and service fees at a combined annual rate of up to 1.00% of the Fund's average daily net assets attributable to the Class B shares. Investing in Class B shares permits all of your dollars to work from the time you make your investment, but the higher ongoing distribution fee will cause these shares to have higher expenses than those of Class A shares. To the extent that any dividends are paid by the Fund, these higher expenses will also result in lower dividends than those paid on Class A shares. - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS B SHARES ARE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. - ------------------------------------------------------------------------------- Class B shares are not available for full-service defined contribution plans administered by Investor Services or the Life Company that had more than 100 eligible employees at the inception of the Fund account. FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE The alternative purchase arrangement allows you to choose the most beneficial way to buy shares, given the amount of your purchase, the length of time you expect to hold your shares and other circumstances. You should consider whether, during the anticipated life of your Fund investment, the CDSC and accumulated fees on Class B shares would be less than the initial sales charge and accumulated fees on Class A shares purchased at the same time, and to what extent this differential would be offset by the Class A shares' lower expenses. To help you make this determination, the table under the caption "Expense Information" on the inside cover page of this Prospectus shows examples of the charges applicable to each class of shares. Class A shares will normally be more beneficial if you qualify for reduced sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- YOU SHOULD CONSIDER WHICH CLASS OF SHARES WOULD BE MORE BENEFICIAL TO YOU. - ------------------------------------------------------------------------------- Class A shares are subject to lower distribution fees and, accordingly, pay correspondingly higher dividends per share, to the extent any dividends are paid. However, because initial sales charges are deducted at the time of purchase, you would not have all of your funds invested initially and, therefore, would initially own fewer shares. If you do not qualify for reduced initial sales charges and expect to maintain your investment for an extended period of time, you might consider purchasing Class A shares. This is because the accumulated distribution and service charges on Class B shares may exceed the initial sales charge and accumulated distribution and service charges on Class A shares during the life of your investment. Alternatively, you might determine that it is more advantageous to purchase Class B shares to have all of your funds invested initially. However, you will be subject to higher distribution and service fees and, for a six-year period, a CDSC. In the case of Class A shares, the distribution expenses that John Hancock Funds incurs in connection with the sale of the shares will be paid from the proceeds of the initial sales charge and ongoing distribution and service fees. In the case of Class B shares, the expenses will be paid from the proceeds of the ongoing 8 68 distribution and service fees, as well as from the CDSC incurred upon redemption within six years of purchase. The purpose and function of the Class B shares' CDSC and ongoing distribution and service fees are the same as those of the Class A shares' initial sales charge and ongoing distribution and service fees. Sales personnel distributing the Fund's shares may receive different compensation for selling each class of shares. Dividends, if any, on Class A and Class B shares will be calculated in the same manner, at the same time and on the same day. They also will be in the same amount, except for differences resulting from each class bearing only its own distribution and service fees, shareholder meeting expenses and any incremental transfer agency costs. See "Dividends and Taxes." THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a monthly fee to the Adviser which is based on a stated percentage of the Fund's average daily net assets as follows:
NET ASSET VALUE ANNUAL RATE --------------- ----------- First $200,000,000..................................................... 0.65% Next $300,000,000...................................................... 0.625% Amount over $500,000,000............................................... 0.60%
For the fiscal year ended October 31, 1994, the Fund paid an advisory fee of 0.64% of the Fund's average daily net assets to the Fund's former investment adviser. The Class A and Class B shareholders have adopted distribution plans (each a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Under these Plans, the Fund will pay distribution and service fees at an aggregate annual rate of up to 0.25% 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. In each case, up to 0.25% for both Class A and Class B shares is for service expenses and the remaining amount is for distribution expenses. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; (iii) unreimbursed distribution expenses under the Fund's prior distribution plans; (iv) distribution expenses incurred by other investment companies which sell all or substantially all of their assets to, merge with or otherwise engage in a reorganization transaction with the Fund; and (v) with respect to Class B shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers for providing personal and account maintenance services to shareholders. - ------------------------------------------------------------------------------- THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED SHAREHOLDER SERVICING. - ------------------------------------------------------------------------------- In the event John Hancock Funds is not fully reimbursed for payments it makes or expenses it incurs under the Class A Plan, these expenses will not be carried beyond one year from the date they were incurred. Unreimbursed expenses under 9 69 the Class B Plan will be carried forward together with interest on the balance of these unreimbursed expenses. For the fiscal year ended October 31, 1994, an aggregate of $10,485,386 of distribution expenses or 4.35% of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. Information on the Fund's total expenses is in the Financial Highlights section of this Prospectus. DIVIDENDS AND TAXES DIVIDENDS. The Fund generally declares daily and distributes dividends monthly, representing all or substantially all of its net investment income. The Fund will distribute net realized capital gains, if any, annually. - ------------------------------------------------------------------------------- THE FUND GENERALLY DECLARES DAILY AND DISTRIBUTES DIVIDENDS MONTHLY. - ------------------------------------------------------------------------------- Dividends are reinvested in additional shares of your class unless you elect the option to receive them in cash. If you elect the cash option and the U.S. Postal Service cannot deliver your checks, your election will be converted to the reinvestment option. Because of the higher expenses associated with Class B shares, any dividends on these shares will be lower than those on the Class A shares. See "Share Price." TAXATION. Dividends from the Fund's net investment income, certain net foreign exchange gains and net short-term capital gains are taxable to you as ordinary income and dividends from the Fund's net long-term capital gains are taxable as long-term capital gains. These dividends are taxable whether you take them in cash or reinvest in additional shares. Certain dividends may be paid in January of a given year but may be taxable 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 that are distributed to its shareholders within the time period prescribed by the Code. When you redeem (sell) or exchange shares, you may realize a taxable gain or loss. On the account application you must certify that the social security or other taxpayer identification number you provide is correct and that you are not subject to backup withholding of Federal income tax. If you do not provide this information or are otherwise subject to this withholding, the Fund may be required to withhold 31% of your dividends and the proceeds of redemptions or exchanges. In addition to Federal taxes, you may be subject to state, local or foreign taxes with respect to your investment in and distributions from the Fund. Non-U.S. shareholders and tax-exempt shareholders are subject to different tax treatment not described above. 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 10 70 its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. 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 ADVERTISE ITS YIELD AND TOTAL RETURN. - ------------------------------------------------------------------------------- The Fund's total return shows the overall dollar or percentage change in value of a hypothetical investment in the Fund, assuming the reinvestment of all dividends. Cumulative total return shows the Fund's performance over a period of time. Average annual total return shows the cumulative return 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 reflect 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. 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 and yield 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 "Alternative Purchase Arrangements -- Factors to Consider in Choosing an Alternative." 11 71 HOW TO BUY SHARES - -------------------------------------------------------------------------------- The minimum initial investment in Class A and Class B shares is $1,000 ($250 for group investments and retirement plans). Complete the Account Application attached to this Prospectus. Indicate whether you are purchasing Class A or Class B shares. If you do not specify which class of shares you are purchasing, Investor Services will assume that you are investing in Class A shares. - ------------------------------------------------------------------------------- OPENING AN ACCOUNT - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- BY CHECK 1. Make your check payable to John Hancock Investor Services Corporation, P.O. Box 9115, Boston, MA 02205-9115. 2. Deliver the completed application and check to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- BY WIRE 1. Obtain an account number by contacting your registered representative or Selling Broker, or by calling 1-800-225-5291. 2. Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Government Income Fund Class A or Class B shares Your Account Number Name(s) under which account is registered 3. Deliver the completed application to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- MONTHLY 1. Complete the "Automatic Investing" and "Bank Information" AUTOMATIC sections on the Account Privileges Application designating a ACCUMULATION bank account from which funds may be drawn. PROGRAM 2. The amount you elect to invest will be automatically withdrawn (MAAP) from your bank or credit union account. - ------------------------------------------------------------------------------- BUYING ADDITIONAL CLASS A AND CLASS B SHARES - ------------------------------------------------------------------------------- BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account Privileges Application designating a bank account from which your funds may be drawn. Note that in order to invest by phone, 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. - ---------------------------------------------------------------------------------
[/R] 12 72 - ------------------------------------------------------------------------------- BUYING ADDITIONAL CLASS A AND CLASS B SHARES (CONTINUED) - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 share you own, your account number and the name(s) in which the account is registered. 2. Make your check payable to John Hancock Investor Services Corporation. 3. Mail the account information and check to: John Hancock Investor Services Corporation P.O. Box 9115 Boston, MA 02205-9115 or deliver it to your registered representative or Selling Broker. - --------------------------------------------------------------------------------- BY WIRE Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Government Income Fund Class A or Class B shares Your Account Number Name(s) under which account is registered - --------------------------------------------------------------------------------- Other Requirements: All purchases must be made in U.S. dollars. Checks written on foreign banks will delay purchases until U.S. funds are received, and a collection charge may be imposed. Shares of the Fund are priced at the offering price based on the net asset value computed after Investor Services receives notification of the dollar equivalent from the Fund's custodian bank. Wire purchases normally take two or more hours to complete and, to be accepted the same day, must be received by 4:00 P.M., New York time. Your bank may charge a fee to wire funds. Telephone transactions are recorded to verify information. Certificates are not issued unless a request is made in writing to Investor Services. - ---------------------------------------------------------------------------------
You will receive a statement of your account after any transaction that affects your share balance or registration (statements related to reinvestment of dividends and automatic investment/withdrawal plans will be sent to you quarterly). A tax information statement will be mailed to you by January 31 of each year. - ------------------------------------------------------------------------------- YOU WILL RECEIVE ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL RECORDKEEPING. - ------------------------------------------------------------------------------- SHARE PRICE The net asset value per share ("NAV") is the value of one share. The NAV is calculated by dividing the net assets of each class by the number of outstanding shares of that class. The NAV of each class can differ. Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith according to procedures approved by the Board of Directors. Short-term debt investments maturing within 60 days are valued at amortized cost which the Board has determined approximates market value. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. If quotations are not readily available, or the value has been materially affected by events occurring after the closing of a foreign market, assets are valued by a method that the Board of Directors believes accurately reflects fair value. The NAV is calculated once daily as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on each day that the Exchange is open. - ------------------------------------------------------------------------------- THE OFFERING PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PLUS A SALES CHARGE, IF APPLICABLE, WHICH WILL VARY WITH THE PURCHASE ALTERNATIVE YOU CHOOSE. - ------------------------------------------------------------------------------- 13 73 Shares of the Fund are sold at the offering price based on the NAV computed after your investment request is received in good order by John Hancock Funds. If you buy shares of the Fund through a Selling Broker, the Selling Broker must receive your investment before the close of regular trading on the Exchange and transmit it to John Hancock Funds before its close of business, to receive that day's offering price. 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:
COMBINED SALES CHARGE AS REALLOWANCE REALLOWANCE TO SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS AMOUNT INVESTED A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF (INCLUDING SALES OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*) CHARGE) ---------------- --------------- --------------- ------------------ --------------------- Less than $100,000 4.50% 4.71% 4.00% 3.76% $100,000 to $249,999 3.75% 3.90% 3.25% 3.01% $250,000 to $499,999 2.75% 2.83% 2.30% 2.06% $500,000 to $999,999 2.00% 2.04% 1.75% 1.51% $1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
(*) 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. In addition to the reallowance allowed to all Selling Brokers, John Hancock Funds will pay the following: round trip airfare to a resort will be offered to each registered representative of a Selling Broker (if the Selling Broker has agreed to participate) who sells certain amounts of shares of John Hancock funds. John Hancock Funds will make these incentive payments out of its own resources. 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. Other than distribution and service fees, the Fund does not bear distribution expenses. (**) No sales charge is payable at the time of purchase of Class A shares of $1 million or more, but a CDSC may be imposed in the event of certain redemption transactions within one year of purchase. (***) John Hancock Funds may pay a commission and the first year's service fee (as described in (+) below) to Selling Brokers who initiate and are responsible for purchases of Class A shares 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 of $10 million and over. (+) At the time of sale, John Hancock Funds pays to Selling Brokers the first year's service fee in advance in an amount equal to 0.25% of the net assets invested in the Fund, and thereafter, it pays the service fee periodically in arrears in an amount up to 0.25% of the Fund's average annual net assets. Selling Brokers receive the fee as compensation for providing personal and account maintenance services to shareholders. Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional Class A shares of the Fund. 14 74 In addition, John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate of up to 0.05% of the daily net assets of accounts attributable to these brokers. Under certain circumstances described below, investors in Class A shares may be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales Charge." CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A SHARES. Purchases of $1 million or more of Class A shares will be made at net asset value with no initial sales charge, but if the shares are redeemed within 12 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:
AMOUNT INVESTED CDSC RATE --------------- --------- $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%
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 redeemed Class A shares. 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 Charges" below. QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in Class A shares of the Fund or a combination of funds within the John Hancock family of funds (except money market funds), you may qualify for a reduced sales charge on your investments in Class A shares through a LETTER OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE to take advantage of the value of your previous investments in Class A shares of the John Hancock funds in meeting the breakpoints for a - ------------------------------------------------------------------------------- YOU MAY QUALIFY FOR A REDUCED SALES CHARGE ON YOUR INVESTMENT IN CLASS A SHARES. - ------------------------------------------------------------------------------- 15 75 reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales charge will be based on the total of: 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 $20,000 and, subsequently, invest $80,000 in Class A shares of the Fund, the sales charge on this subsequent investment would be 3.75% and not 4.50% (the rate that would otherwise be applicable to investments of less than $100,000. See "Initial Sales Charge Alternative -- Class A Shares"). If you are in one of the following categories, you may purchase Class A shares of the Fund without paying a sales charge: - - A Director or officer of the Fund; a Director or officer of the Adviser and its affiliates or Selling Brokers; employees or sales representatives of any of the foregoing; retired officers, employees or Directors of any of the foregoing; a member of the immediate family of any of the foregoing; or any fund, pension, profit sharing or other benefit plan for the individuals described above. - ------------------------------------------------------------------------------- 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 type of depository institution, its trust departments or common trust funds if it is purchasing $1 million or more for non-discretionary customers or accounts.* - - A broker, dealer or registered investment adviser that has entered into an agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products made available to their clients. - - A former participant in an employee benefit plan with John Hancock Funds, when he/she withdraws from his/her plan and transfers any or all of his/her plan distributions directly to the Fund. - ------------------ *For investments made under these provisions, John Hancock Funds may make a payment out of its own resources to the Selling Broker in an amount not to exceed 0.25% of the amount invested. Class A shares of the Fund may be purchased without an initial sales charge in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. 16 76 CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares are offered at net asset value per share without a sales charge so that your entire initial investment will go to work at the time of purchase. However, Class B shares redeemed within six years of purchase will be subject to a CDSC at the rates set forth below. This charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. Accordingly, you will not be assessed a CDSC on increases in account value above the initial purchase price, including shares derived from dividend reinvestment. In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from shares you have held beyond the six-year CDSC redemption period or those you acquired through reinvestment of dividends, and next from the shares you have held the longest during the six-year period. The CDSC is waived on redemptions in certain circumstances. See the discussion "Waiver of Contingent Deferred Sales 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: - - 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
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses part of them to defray its expenses related to providing the Fund with distribution services connected to the sale of Class B shares, such as compensating Selling Brokers for selling these shares. The combination of the CDSC and the distribution and service fees makes it possible for the Fund to sell Class B shares without deducting a sales charge at the time of the purchase. 17 77 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 this holding period, any payments you make during the month will be aggregated and deemed to have been made on the last day of the month.
YEAR IN WHICH CLASS B SHARES CONTINGENT DEFERRED SALES REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC - ------------------ ----------------------------- First 5.0% Second 4.0% Third 3.0% Fourth 3.0% Fifth 2.0% Sixth 1.0% Seventh and thereafter None
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. 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: - ------------------------------------------------------------------------------- UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON CLASS B AND CERTAIN CLASS A SHARE REDEMPTIONS WILL BE WAIVED. - ------------------------------------------------------------------------------- - - 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. - - Redemptions made to effect distributions from an Individual Retirement Account either before or after age 59 1/2, as long as the distributions are based on the life expectancy or the joint-and-last survivor life expectancy of you and your beneficiary. These distributions must be free from penalty under the Code. - - Redemptions made to effect mandatory distributions under the Code after age 70 1/2 from a tax-deferred retirement plan. - - Redemptions made to effect distributions to participants or beneficiaries from certain employer-sponsored retirement plans including those qualified under Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the Code and deferred compensation plans under Section 457 of the Code. The waiver also applies to certain returns of excess contributions made to these plans. In all cases, the distributions must be free from penalty under the Code. - - Redemptions due to death or disability. 18 78 - - Redemptions made under the Reinvestment Privilege, as described in "Additional Services and Programs" of this Prospectus. - - Redemptions made pursuant to the Fund's right to liquidate your account if you have less than $500 invested in the Fund. - - Redemptions made in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. - - Redemptions from certain IRA and retirement plans that purchased shares prior to October 1, 1992. If you qualify for a CDSC waiver under one of these situations, you must notify Investor Services either directly or through your Selling Broker at the time you make your redemption. The waiver will be granted once Investor Services has confirmed that you are entitled to the waiver. CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of reinvested dividends on those shares will be converted into Class A shares automatically. This will occur no later than the month following eight years after the shares were purchased, and will result in lower annual distribution fees. If you exchanged Class B shares into the Fund from another John Hancock fund, the calculation will be based on the time you purchased the shares in the original fund. The Fund has been advised that the conversion of Class B shares to Class A shares should not be taxable for Federal income tax purposes and should not change a shareholder's tax basis or tax holding period for the converted shares. 19 79 HOW TO REDEEM SHARES You may redeem all or a portion of your shares on any business day. Your shares will be redeemed at the next NAV calculated after your redemption request is received in good order by Investor Services, less any applicable CDSC. The Fund may hold payment until it is reasonably satisfied that investments recently made by check or Invest-by-Phone have been collected (which may take up to 10 calendar days). - ------------------------------------------------------------------------------- TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE PROCEDURES. - ------------------------------------------------------------------------------- Once your shares are redeemed, the Fund generally sends you payment on the next business day. When you redeem your shares, you may realize a taxable gain or loss depending usually on the difference between what you paid for them and what you receive for them, subject to certain tax rules. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities laws. - -------------------------------------------------------------------------------- BY TELEPHONE All Fund shareholders are automatically eligible for the telephone redemption privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time), Monday through Friday, excluding days on which the Exchange is closed. Investor Services employs the following procedures to confirm that instructions received by telephone are genuine. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. You may redeem up to $100,000 by telephone, but the address on the account must not have changed for the last thirty days. A check will be mailed to the exact name(s) and address shown on the account. If reasonable procedures, such as those described above, are not followed, the Fund may be liable for any loss due to unauthorized or fraudulent telephone instructions. In all other cases, neither the Fund nor Investor Services will be liable for any loss or expense for acting upon telephone instructions made in accordance with the telephone transaction procedures mentioned above. Telephone redemption is not available for IRAs or other tax-qualified retirement plans or shares of the Fund that are in certificated form. During periods of extreme economic conditions or market changes, telephone requests may be difficult to implement due to a large volume of calls. During these times, you should consider placing redemption requests in writing or use EASI-Line. EASI-Line's telephone number is 1-800-338-8080. - --------------------------------------------------------------------------------- BY WIRE If you have a telephone redemption form on file with the Fund, redemption proceeds of $1,000 or more can be wired on the next business day to your designated bank account, and a fee (currently $4.00) will be deducted. You may also use electronic funds transfer to your assigned bank account, and the funds are usually collectable 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 attached to the Prospectus. - ---------------------------------------------------------------------------------
20 80 - -------------------------------------------------------------------------------- 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. - ---------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS -------------------- ------------ Individual, Joint Tenants, Sole A letter of instruction signed (with titles Proprietorship, Custodial where applicable) by all persons authorized (Uniform Gifts or Transfer to to sign for the account, exactly as it is Minors Act), General Partners registered with the signature(s) guaran- teed. Corporation, Association A letter of instruction and a corporate resolution, signed by person(s) authorized to act on the account with the 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 $500 (except accounts under retirement plans) and to mail the proceeds to the shareholder, or the transfer agent may impose an annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value of the account is in excess of the Fund's minimum initial investment or if the value of the account falls below the required minimum as a result of market action. No CDSC will be imposed on involuntary redemptions of shares. Shareholders will be notified before these redemptions are to be made or this fee is imposed, and will have 60 days to purchase additional shares to bring their account balance up to the required minimum. Unless the number of shares acquired by further purchases and dividend reinvestments, if any, exceeds the number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this policy. - -------------------------------------------------------------------------------- 21 81 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 Adjustable U.S. Government Trust will be subject to the initial fund's CDSC). For purposes of computing the CDSC payable upon redemption of shares acquired in an exchange, the holding period of the original shares is added to the holding period of the shares acquired in an exchange. However, if you exchange Class B shares purchased prior to January 1, 1994 for Class B shares of any other John Hancock Fund, you will be subject to the CDSC schedule in effect on your initial purchase date. You may exchange Class B shares of the Fund into shares of a John Hancock money market fund at net asset value. However, you will continue to be subject to a CDSC upon redemption. The rate of the CDSC will be the rate in effect for the original Fund at the time of exchange. The Fund reserves the right to require you to keep previously exchanged shares (and reinvested dividends) in the Fund for 90 days before you are permitted to execute a new exchange. The Fund may also terminate or alter the terms of the exchange privilege, upon 60 days' notice to shareholders. An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares in another for Federal income tax purposes. An exchange may result in a taxable gain or loss. When you make an exchange, your account registration in both the existing and new account must be identical. The exchange privilege is available only in states where the exchange can be made legally. 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 22 82 restrictions that do not apply to exchanges requested by shareholders directly, as described above. Because Fund performance and shareholders can be hurt by excessive trading, the Fund reserves the right to terminate the exchange privilege for any person or group that, in John Hancock Funds' judgment, is involved in a pattern of exchanges that coincide with a "market timing" strategy that may disrupt the Fund's ability to invest effectively according to its investment objective and policies, or might otherwise affect the Fund and its shareholders adversely. The Fund may also temporarily or permanently terminate the exchange privilege for any person who makes seven or more exchanges out of the Fund per calendar year. Accounts under common control or ownership will be aggregated for this purpose. Although the Fund will attempt to give you prior notice whenever it is reasonably able to do so, it may impose these restrictions at any time. BY TELEPHONE 1. When you complete the application for your initial purchase of Fund shares, you automatically authorize exchanges by telephone unless you check the box indicating that you do not wish to authorize telephone exchanges. 2. Call 1-800-225-5291. Have the account number of your current fund and the exact name in which it is registered available to give to the telephone representative. 3. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. IN WRITING 1. In a letter, request an exchange and list the following: -- the name and class of the Fund whose shares you currently own -- your account number -- the name(s) in which the account is registered -- the name of the fund in which you wish your exchange to be invested -- the number of shares, all shares or dollar amount you wish to exchange Sign your request exactly as the account is registered. 2. Mail the request and information to: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 23 83 REINVESTMENT PRIVILEGE 1. You will not be subject to a sales charge on Class A shares reinvested in shares of any John Hancock fund that is otherwise subject to a sales charge as long as you reinvest within 120 days from the redemption date. If you paid a CDSC upon a redemption, you may reinvest at net asset value in the same class of shares from which you redeemed within 120 days. Your account will be credited with the amount of the CDSC previously charged, and the reinvested shares will continue to be subject to a CDSC. For purposes of computing the CDSC payable upon a subsequent redemption, the holding period of the shares acquired through reinvestment will include the holding period of the redeemed shares. - ------------------------------------------------------------------------------- IF YOU REDEEM SHARES OF THE FUND, YOU MAY BE ABLE TO REINVEST ALL OR PART OF THE PROCEEDS IN THE 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 by calling your registered representative or by calling 1-800-225-5291. 2. To be eligible, you must have at least $5,000 in your account. 3. Payments from your account can be made monthly, quarterly, semi-annually or annually or on a selected monthly basis to yourself or any other designated payee. - ------------------------------------------------------------------------------- YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS. - ------------------------------------------------------------------------------- 4. There is no limit on the number of payees you may authorize, but all payments must be made at the same time or intervals. 5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently with purchases of additional Class A or Class B shares, because you may be subject to initial sales charges on your purchases of Class A shares or to a CDSC on your redemptions of Class B shares. In addition, your redemptions are taxable events. 6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver your checks or if deposits to a bank account are returned for any reason. MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) 1. You can authorize an investment to be automatically withdrawn each month from your bank for investment in Fund shares under the "Automatic Investing" and "Bank Information" sections of the Account Privileges Application. - ------------------------------------------------------------------------------- YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING. - ------------------------------------------------------------------------------- 24 84 2. You can also authorize automatic investment through payroll deduction by completing the "Direct Deposit Investing" section of the Account Privileges Application. 3. You can terminate your Monthly Automatic Accumulation Program plan at any time. 4. There is no charge to you for this program, and there is no cost to the Fund. 5. If you have payments being withdrawn from a bank account and we are notified that the account has been closed, your withdrawals will be discontinued. GROUP INVESTMENT PROGRAM 1. An individual account will be established for each participant, but the initial sales charge for Class A shares will be based on the aggregate dollar amount of all participants' investments. To determine how to qualify for this program, contact your registered representative or call 1-800-225-5291. - ------------------------------------------------------------------------------- ORGANIZED GROUPS OF AT LEAST FOUR PERSONS MAY ESTABLISH ACCOUNTS. - ------------------------------------------------------------------------------- 2. The initial aggregate investment of all participants in the group must be at least $250. 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. RETIREMENT PLANS 1. You may use the Fund as a funding medium for various types of qualified retirement plans, including Individual Retirement Accounts, Keough Plans (H.R. 10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax Sheltered Annuity Retirement Plans (403(b) Plans) and 457 Plans. 2. The initial investment minimum or aggregate minimum for any of the above plans is $250. However, accounts being established as group IRA, SEP, SARSEP, TSA, 401(k) and 457 Plans will be accepted without an initial minimum investment. INVESTMENTS, TECHNIQUES AND RISK FACTORS RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its total assets in illiquid investments, which include repurchase agreements maturing in more than seven days, restricted securities and securities not readily marketable. Although the Fund may purchase restricted securities which can be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act, its present investment restriction limits such investment to the foregoing 10% limitation. LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing additional 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 25 85 security subject to the right and obligation to sell it back to the counterparty 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, liquid debt securities. However, these transactions 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. REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement involves the sale of a security by the Fund and its agreement to repurchase the instrument at a specified time and price. The Fund will maintain a segregated account consisting of liquid, high grade debt securities to cover its obligations under reverse repurchase agreements with selected firms approved in advance by the Board of Directors. The Fund will use the proceeds to purchase other investments. Reverse repurchase agreements are considered to be borrowings by the Fund and as an investment practice may be considered speculative. Repurchase agreements magnify the potential for gain or loss on the portfolio securities of the Fund and therefore increase the possibility of fluctuation in the Fund's net asset value. The Fund may borrow money for temporary administrative or emergency purposes. To avoid the potential leveraging effects of the Fund's borrowings, additional investments will not be made while borrowings are in excess of 5% of the Fund's total assets. The Fund will limit its investments in reverse repurchase agreements and other borrowings to no more than 33 1/3% of it total assets. WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities on a forward or "when-issued" or "delayed delivery" basis and may purchase or sell securities on a forward commitment basis to hedge against anticipated changes in interest rates and prices. When the Fund engages in 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 or delayed delivery security prior to its acquisition or dispose of its right to deliver or receive against a forward commitment, it can incur a gain or a loss. SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities issued or guaranteed by foreign governments or any of the political subdivisions, instrumentalities, authorities or agencies of these governments. Investments in foreign securities may involve a greater degree of risk than those in domestic securities due to exchange controls, less publicly available information, more volatile or less liquid securities markets, and the possibility of expropriation, confiscatory taxation or political, economic or social instability. There may be difficulty in enforcing legal rights outside the United States. Some foreign governments are not generally subject to the same uniform accounting, auditing and financial reporting requirements as the U.S. government; also foreign regulation may differ considerably from domestic regulation of stock exchanges, brokers and securities. Security trading practices abroad may offer less protection to investors such as the Fund. Securities transactions undertaken in some foreign markets may not be settled 26 86 promptly. Therefore, the Fund's investments on foreign exchanges may be less liquid and subject to the risk of fluctuating currency exchange rates pending settlement. The Fund may also invest in so-called "Brady Bonds" and other sovereign debt securities of countries that have restructured or are in the process of restructuring sovereign debt pursuant to the Brady Plan. The Brady Plan contemplates the exchange of commercial bank debt for newly issued bonds (Brady Bonds). Multilateral institutions such as the World Bank and the International Monetary Fund the ("IMF") support the restructuring by providing funds pursuant to loan agreements or other arrangements which enable the debtor nation to collateralize the new Brady Bonds or to repurchase outstanding bank debt at a discount. Brady Bonds may involve a high degree of risk or present the risk of default. As of the date of this Prospectus, the Fund is not aware of the occurrence of any payment defaults on Brady Bonds. Investors should recognize however, that Brady Bonds have been issued only recently, and accordingly, they do not have a long payment history. Although Brady Bonds may be collateralized by U.S. Government securities, repayment of principal and interest is not guaranteed by the U.S. Government. INVESTMENT GRADE AND LOWER RATED SECURITIES. The Fund may invest in securities that are rated in the lowest category of "investment grade" (BBB by S&P or Baa by Moody's) or, with respect to 10% of its total assets, in lower rated securities or unrated securities determined to be of comparable quality. Securities in the lowest investment grade are considered medium grade obligations and normally exhibit adequate protection parameters. However, these securities also have speculative characteristics. Adverse changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than in the case of higher grade obligations. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the ability of the issuer to make payments of interest and principal. The market price and liquidity of lower rated fixed-income securities generally respond to short-term economic and market developments to a greater extent than do the price and liquidity of higher rated securities, because these developments are perceived to have a more direct relationship to the ability of an issuer of lower rated securities to meet its ongoing debt obligations. See the Statement of Additional Information for a description of the risks associated with investing in high-yield, high-risk securities. 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 of fixed-income securities should not increase direct transaction costs since fixed-income securities are normally traded on a principal basis without brokerage commissions. 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 27 87 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 "The Fund's Financial Highlights." TEMPORARY DEFENSIVE INVESTMENTS. During periods of unusual market conditions when the Adviser believes that investing for temporary defensive purposes is appropriate, part or all of the assets of the Fund may be invested in cash or cash equivalents consisting of (i) obligations of banks (including certificates of deposit, bankers' acceptances and repurchase agreements) with assets of $100,000,000 or more; (ii) commercial paper rated within the two highest rating categories of a nationally recognized rating organization; (iii) investment grade short-term notes; and (iv) related repurchase agreements. OPTIONS AND FUTURES TRANSACTIONS. The Fund may write (sell) covered call and cash secured put options and purchase call and put options on debt securities and may enter into interest rate 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 also write straddles, which are combinations of put and call options on the same security. The Fund does not currently engage in the writing of options for the purpose of enhancing its total return and has undertaken not to commence such investment activity without having first given 60 days' written notice to shareholders in advance thereof. 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 total assets. The Fund will not purchase a call or put option if as a result the premium paid for the option together with premiums paid for all other options, interest rate futures contracts and options thereon then held by the Fund, exceed 10% of the Fund's total net assets. The loss incurred by the Fund investing in futures contracts and in writing options on futures is potentially unlimited and may exceed the amount of any premium received. The Fund's transactions in options and futures contracts may be limited by the requirements of the Code for qualification as a regulated investment company. See the Statement of Additional Information for further discussion of options and futures transactions, including tax effects and investment risks. MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed securities. A mortgage-backed security may be an obligation of the issuer backed by a mortgage or pool of mortgages or a direct interest in an underlying pool of 28 88 mortgages. Some mortgage-backed securities, such as collateralized mortgage obligations (CMOs), make payments of both principal and interest at a variety of intervals; others make semiannual interest payments at a predetermined rate and pay principal at maturity (like a typical bond). Mortgage-backed securities are based on different types of mortgages including those on commercial real estate or residential properties. Mortgage-backed securities often have stated maturities of up to thirty years when they are issued, depending upon the length of the mortgages underlying the securities. In practice, however, unscheduled or early payments of principal and interest on the underlying mortgages may make the securities effective maturity shorter than this, and the prevailing interest rates may be higher or lower than the current yield of the Fund's portfolio at the time the Fund receives the payments for reinvestment. Mortgage-backed securities may have less potential for capital appreciation than comparable fixed-income securities, due to the likelihood of increased prepayments of mortgages as interest rates decline. If the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and prepayments of principal by mortgagors (which may be made at any time without penalty) may result in some loss of the Fund's principal investment to the extent of the premium paid. The value of mortgage-backed securities may also change due to shifts in the market's perception of issuers. In addition, regulatory or tax changes may adversely affect the mortgage securities market as a whole. Non-government mortgage-backed securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. "Stripped" mortgage-backed securities are created when a U.S. Government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the "principal-only" security ("PO") receives the principal payments made by the underlying mortgage-backed security, while the holder of the "interest-only" security ("IO") receives interest payments from the same underlying security. The Fund has no present intention of investing in IO's and PO's. Other types of mortgage-backed securities will likely be developed in the future and the Fund may invest in them if the Adviser determines they are consistent with the Fund's investment objectives and policies. ZERO COUPON BONDS. Zero coupon Treasury securities are (i) U.S. Treasury bills, and both notes and bonds which have been stripped of their unmatured interests coupons and receipts or (ii) certificates representing interest in such stripped obligations. A zero coupon security pays no interest in cash to its holder during its life although interest is accrued currently for federal income tax purposes. Its value to an investor consists of the difference between its face value at the time of maturity and the price for which it was acquired, which is generally an amount significantly less than its face value (sometimes referred to as a "deep discount" price). Investing in "zero coupon" Treasury securities may help to preserve capital during periods of declining interest rates. For example, if interest rates decline, Ginnie Mae certificates owned by the Fund which were purchased at greater than 29 89 par are more likely to be prepaid, which would cause a loss of principal. In anticipation of this, the Fund might purchase zero coupon Treasury securities, the value of which would be expected to increase when interest rates decline. Zero coupon Treasury securities do not entitle the holder to any periodic payments of interest prior to maturity. Accordingly, such securities usually trade at a deep discount from their face or par value and will be subject to greater fluctuations of market value in response to changing interest rates than debt obligations of comparable maturities which make periodic distributions of interest. On the other hand, because there are not periodic interest payments to be reinvested prior to maturity, zero coupon securities eliminate the reinvestment risk and lock in a rate of return to maturity. Current federal tax law requires that a holder (such as the Fund) of a zero coupon security accrue a portion of the discount at which the security was purchased as income each year even though the Fund receives no interest payment in cash on the security during the year. In order to satisfy the income distribution requirements applicable to regulated investment companies under the Code, the Fund may therefore be required to obtain cash for distribution corresponding to such accrued income by selling portfolio securities, possibly under disadvantageous circumstances, or through borrowing. RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. The risks associated with the Fund's transactions in options, futures and other derivative instruments including mortgaged and asset back securities may include some or all of the following: Market Risk. Options and futures transactions, as well as other derivative instruments, involve the risk that the applicable market will move against the Fund's derivative 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. Investments in mortgage-backed and indexed securities are subject to the prepayment, extension, interest rate and other market risks described above. Leverage and Volatility Risk. Derivative instruments may increase or leverage the Fund's exposure to a particular market risk, which may increase the volatility of the Fund's net assets value. The Fund may partially offset the leverage inherent in derivative instruments by maintaining a segregated account consisting of cash and liquid, high grade debt securities, by holding offsetting portfolio securities or currency positions or by covering written options. Correlation Risk. The 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 instruments, the assets underlying the derivative instrument and the Fund's portfolio assets. Credit Risk. Over-the-counter instruments involve a risk that the issuer or counterparty will fail to perform its contractual obligations. 30 90 Liquidity and Valuation Risk. Some derivative instruments are not readily marketable or may become illiquid under adverse market conditions. In addition, during periods of extreme market volatility, an exchange may suspend or limit trading in an exchange-traded derivative instrument, 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 instruments may depend on the cooperation of the counterparties to these instruments. For derivative instruments that are not heavily traded, the only source of price quotations may be the selling dealer or counterparty. 31 91 JOHN HANCOCK JOHN HANCOCK GOVERNMENT INCOME FUND GOVERNMENT INCOME FUND INVESTMENT ADVISER John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 CLASS A AND CLASS B SHARES PRINCIPAL DISTRIBUTOR PROSPECTUS John Hancock Funds, Inc. MAY 15, 1995 101 Huntington Avenue Boston, Massachusetts 02199-7603 CUSTODIAN A MUTUAL FUND SEEKING TO Investors Bank & Trust Company EARN A HIGH LEVEL OF CURRENT 24 Federal Street INCOME CONSISTENT WITH PRESERVATION Boston, Massachusetts 02110 OF CAPITAL BY INVESTING IN U.S. GOVERNMENT SECURITIES. TRANSFER AGENT John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 HOW TO OBTAIN INFORMATION ABOUT THE FUND For Service Information For Telephone Exchange call 1-800-225-5291 For Investment-by-Phone For Telephone Redemption 101 HUNTINGTON AVENUE For TDD call 1-800-554-6713 BOSTON, MASSACHUSETTS 02199-7603 TELEPHONE 1-800-225-5291 T430P 5/95 (LOGO) Printed on Recycled Paper 92 JOHN HANCOCK HIGH YIELD BOND FUND CLASS A AND CLASS B SHARES PROSPECTUS MAY 15, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- 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................................................................... 11 Dividends and Taxes................................................................... 11 Performance........................................................................... 12 How to Buy Shares..................................................................... 14 Share Price........................................................................... 16 How to Redeem Shares.................................................................. 22 Additional Services and Programs...................................................... 24 Investments, Techniques and Risk Factors.............................................. 27 Appendix A............................................................................ A-1
This Prospectus sets forth the information about John Hancock High Yield Bond Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Company"), that you should know before investing. Please read and retain it for future reference. Additional information about the Fund and the Company has been filed with the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement of Additional Information, dated May 15, 1995 and incorporated by reference into this Prospectus, free of charge by writing or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD). THE FUND INVESTS PRIMARILY (AND IS PERMITTED TO INVEST UP TO 100% OF ITS ASSETS) IN NON-INVESTMENT GRADE DEBT SECURITIES ISSUED BY DOMESTIC ISSUERS (COMMONLY KNOWN AS "JUNK BONDS") AND FOREIGN ISSUERS, WHICH SECURITIES (I) ENTAIL PRICE VOLATILITY, DEFAULT AND OTHER RISKS GREATER THAN THOSE ASSOCIATED WITH HIGHER RATED SECURITIES AND (II) MAY PRESENT PROBLEMS OF LIQUIDITY AND VALUATION. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. SEE "INVESTMENTS, TECHNIQUES AND RISK FACTORS." 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. 93 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 fees and expenses for the Fund for the fiscal year ended October 31, 1994 adjusted to reflect current sales charges. Actual fees and expenses of the Class A and Class B shares in the future may be greater or less than those indicated.
CLASS A CLASS B SHARES SHARES ------- ------- SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge imposed on purchases (as a percentage of offering price)......................... 4.50% None Maximum sales charge imposed on reinvested dividends.................................................. None None Maximum deferred sales charge......................................................................... None* 5.00% Redemption fee+....................................................................................... None None Exchange fee.......................................................................................... None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management fee........................................................................................ 0.58% 0.58% 12b-1 fee**........................................................................................... 0.25% 1.00% Other expenses***..................................................................................... 0.33% 0.33% Total Fund operating expenses......................................................................... 1.16% 1.91% - ------------ * No sales charge is payable at the time of purchase on investments of $1 million or more, but for these investments a contingent deferred sales charge may be imposed, as described below under the caption "Share Price," in the event of certain redemption transactions within one year of purchase. ** The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of the Fund's average net assets, and the remaining portion will be used to cover distribution expenses. *** Other Expenses include transfer agent, legal, audit, custody and other expenses. + Redemption by wire fee (currently $4.00) not included.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- 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.............................................................. $ 56 $80 $ 106 $180 Class B Shares -- Assuming complete redemption at end of period........................ $ 69 $90 $ 123 $204 -- Assuming no redemption............................................... $ 19 $60 $ 103 $204
(This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown.) The Fund's payment of a distribution fee may result in a long-term shareholder indirectly paying more than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. The management and 12b-1 fees referred to above are more fully explained in this Prospectus under the caption "The Fund's Expenses" and in the Statement of Additional Information under the captions "Investment Advisory and Other Services" and "Distribution Contract." 2 94 THE FUND'S FINANCIAL HIGHLIGHTS The information in the following table of financial highlights has been audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified report is included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's Annual Report to shareholders which may be obtained free of charge by writing or telephoning John Hancock Investor Services Corporation ("Investor Services") at the address or telephone number listed on the front page of this Prospectus. Selected data for Class A shares outstanding throughout each period is as follows:
CLASS A SHARES ---------------------------------- PERIOD FROM YEAR ENDED JUNE 30, 1993 OCTOBER 31, TO OCTOBER 31, 1994(2) 1993(1) ----------- -------------- PER SHARE INCOME AND CAPITAL CHANGES FOR A SHARE OUTSTANDING DURING EACH PERIOD: Net asset value, beginning of period...................................................... $8.23 $8.10 INCOME FROM INVESTMENT OPERATIONS Net investment income..................................................................... 0.80 0.33 Net realized and unrealized gain (loss) on investments.................................... (0.83) 0.09 ----- ----- Total from Investment Operations.......................................................... (0.03) 0.42 LESS DISTRIBUTIONS Dividends from net investment income...................................................... (0.82) (0.29) Distributions from realized gains......................................................... (0.05) -- ----- ----- Total Distributions....................................................................... (0.87) (0.29) ----- ----- Net asset value, end of period............................................................ $7.33 $8.23 ===== ===== TOTAL RETURN(3)........................................................................... (0.59)% 4.96% ===== ===== RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets................................................... 1.16% 0.31% Ratio of net investment income to average net assets...................................... 10.14% 4.38% Portfolio turnover........................................................................ 153% 204% Net Assets, end of period (in thousands).................................................. $11,696 $2,344 - --------------- (1) Financial highlights, including total return, have not been annualized. Portfolio turnover is for the year ended October 31, 1993. (2) Per share information has been calculated using the average number of shares outstanding. (3) Total return does not include the effect of the initial sales charge for Class A Shares.
3 95 Selected data for Class B shares outstanding throughout each period is as follows:
CLASS B SHARES --------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED OCTOBER 31, OCT. --------------------------------------------------------------------------------- 31, 1994(2) 1993 1992 1991 1990 1989 1988(2) 1987(1) -------- -------- ------- ------- ------- ------- ------- ------- PER SHARE INCOME AND CAPITAL CHANGES FOR A SHARE OUTSTANDING DURING EACH PERIOD: Net asset value, beginning of period........................ $ 8.23 $ 7.43 $ 7.44 $ 6.45 $ 8.14 $ 9.70 $ 9.94 $ 9.95 INCOME FROM INVESTMENT OPERATIONS Net investment income........... 0.74 0.80 0.87 0.98 1.09 1.16 1.07 0.01 Net realized and unrealized gain (loss) on investments......... (0.83) 0.75 (0.04) 1.06 (1.68) (1.55) (0.14) (0.02) -------- -------- ------- ------- ------- ------- ------- ------- Total from Investment Operations.................... (0.09) 1.55 0.83 2.04 (0.59) (0.39) 0.93 (0.01) LESS DISTRIBUTIONS Dividends from net investment income........................ (0.76) (0.75) (0.84) (0.98) (1.09) (1.14) (1.17) -- Distributions from realized gains......................... (0.05) -- -- -- -- -- -- -- Returns of capital.............. -- -- -- (0.07) (0.01) (0.03) -- -- -------- -------- ------- ------- ------- ------- ------- ------- Total Distributions............. (0.81) (0.75) (0.84) (1.05) (1.10) (1.17) (1.17) -- -------- -------- ------- ------- ------- ------- ------- ------- Net asset value, end of period........................ $ 7.33 $ 8.23 $ 7.43 $ 7.44 $ 6.45 $ 8.14 $ 9.70 $ 9.94 ======== ======== ======= ======= ======= ======= ======= ======= TOTAL RETURN(3)................. (1.33)% 21.76% 11.56% 34.21% (8.04)% (4.51)% 9.77% (0.10)% ======== ======== ======= ======= ======= ======= ======= ======= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets........................ 1.91% 2.08% 2.25% 2.24% 2.25% 2.51% 2.76% 0.34% Ratio of expense reimbursement to average net assets......... -- -- -- -- (0.03)% (0.31)% (0.76)% (0.31)% -------- -------- ------- ------- ------- ------- ------- ------- Ratio of net expenses to average net assets.................... 1.91% 2.08% 2.25% 2.24% 2.22% 2.20% 2.00% 0.03% -------- -------- ------- ------- ------- ------- ------- ------- Ratio of net investment income to average net assets......... 9.39% 10.07% 11.09% 13.73% 14.59% 12.23% 10.97% 0.09% Portfolio turnover.............. 153% 204% 206% 93% 96% 100% 60% 0% Net Assets, end of period (in thousands).................... $ 160,739 $ 154,214 $ 98,560 $ 72,023 $ 37,097 $ 33,964 $ 20,852 $ 110 - --------------- (1) Financial highlights, including total return, are for the period October 26, 1987 (date of the Fund's initial offering of shares to the public) to October 31, 1987 and have not been annualized. (2) Per share information has been calculated using the average number of shares outstanding. (3) Total return does not include the effect of the contingent deferred sales charge for Class B Shares.
4 96 INVESTMENT OBJECTIVE AND POLICIES The Fund's primary investment objective is to maximize current income without assuming undue risk by investing in a diversified portfolio consisting primarily of lower-rated, high yielding, fixed income securities, such as (1) domestic and foreign corporate bonds; (2) debentures and notes; (3) convertible securities; (4) preferred stocks; and (5) domestic and foreign government obligations. As a secondary objective, the Fund seeks capital appreciation, but only when it is consistent with the primary objective of maximizing current income. There is no assurance that the Fund will achieve its investment objectives. - ------------------------------------------------------------------------------- THE FUND SEEKS TO MAXIMIZE CURRENT INCOME WITHOUT ASSUMING UNDUE RISK. - ------------------------------------------------------------------------------- The higher yields sought by the Fund are generally obtainable from securities rated in the lower categories by recognized rating services, i.e. rated lower than "Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard and Poor's Ratings Group ("S&P"), or unrated securities determined by John Hancock Advisers, Inc. (the "Adviser") to be of comparable credit quality (commonly called "junk bonds"). While providing higher yields, these lower quality securities generally involve greater volatility of price and greater risk of principal and income than securities in the higher rating categories and, accordingly, may be considered speculative. In general, these risks include: (1) substantial market price volatility; (2) changes in credit status, including weaker overall credit condition of issuers and risks of default; and (3) industry, market and economic risks, including limited liquidity and secondary market support. The risks of lower rated securities are discussed in greater detail under "Investments, Techniques and Risk Factors" and should be carefully considered by investors. Under normal market conditions, at least 65% of the Fund's total assets may be invested in bonds or debentures rated "Baa" or lower by Moody's, or "BBB" or lower by S&P; however, no more than 10% of the Fund's total assets may be invested in securities that are rated as low as "CC" by S&P or "Ca" by Moody's. Unrated securities will also be considered for investment by the Fund when the Adviser believes that the issuer's financial condition, or the protection afforded by the terms of the securities themselves, limits the risk to the Fund to a degree comparable to that of rated securities consistent with the Fund's objectives and policies. The rating limitations applicable to the Fund's investments apply at the time of acquisition of a security; any subsequent change in the rating or quality of a security will not require the Fund to sell the security. A general description of Moody's and S&P's ratings and the distribution of the Fund's assets across the various ratings categories are set forth in Appendix A. The Fund's investments in debt securities may at times include zero coupon bonds and payment-in-kind bonds. Zero coupon bonds are issued at a significant discount from their principal amount in lieu of paying interest periodically. Payment-in-kind bonds allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. The market prices of zero coupon and payment-in-kind bonds are affected to a greater extent by interest rate changes, and thereby tend to be more volatile than securities which pay interest periodically and in cash. The Fund accrues income on these securities for tax and accounting purposes, and this income is required to be distributed to 5 97 shareholders. Because no cash is received at the time income accrues on these securities, the Fund may be forced to liquidate other investments to make distributions. At times when the Fund invests in zero-coupon and payment-in-kind bonds, it will not be pursuing its primary objective of maximizing current income. Although the Fund intends to maintain investment emphasis in debt securities of domestic issuers, the Fund may invest without limitation in debt securities of foreign issuers, including those issued by supranational entities (such as the World Bank). The Fund may also purchase debt securities issued in any country, developed or undeveloped. Investments in securities of issuers in non-industrialized countries generally involve more risk and may be considered speculative. The Fund may also enter into forward foreign currency exchange contracts for the purchase or sale of foreign currency for hedging purposes. The risks of foreign investments should be carefully considered by investors. See "Investments, Techniques and Risk Factors." Included among domestic debt securities eligible for purchase by the Fund are adjustable and variable or floating rate securities, mortgage related securities (including stripped securities, collateralized mortgage obligations and multi-class pass-through securities), asset-backed securities and callable bonds. Callable bonds have a provision permitting the issuer, at its option to "call" or redeem the bonds. If an issuer were to redeem bonds held by the Fund during a time of declining interest rates, the Fund might not be able to reinvest the proceeds in bonds providing the same coupon return as the bonds redeemed. To the extent that the Fund does not invest in the securities described above, the Fund may: 1. invest (for liquidity purposes) in high quality, short-term debt securities with remaining maturities of one year or less ("money market instruments"), including government obligations, certificates of deposit, bankers' acceptances, short-term corporate debt securities, commercial paper and related repurchase agreements; 2. invest up to 10% of its total assets in municipal obligations, including municipal bonds issued at a discount, in circumstances where the Adviser determines that investing in such obligations would facilitate the Fund's ability to accomplish its investment objectives; 3. lend its portfolio securities, enter into repurchase agreements and reverse repurchase agreements, purchase restricted and illiquid securities and purchase securities on a when-issued or forward commitment basis. 4. write (sell) covered call and put options and purchase call and put options on debt securities and securities indices in an effort to increase current income and for hedging purposes; and 5. purchase and sell interest rate futures contracts on debt securities and securities index futures contracts, and write and purchase options on such futures contracts for hedging purposes. 6 98 During periods of unusual market conditions when the Adviser believes that investing for temporary defensive purposes is appropriate, part or all of the assets of the Fund may be invested in cash or cash equivalents consisting of: 1. obligations of banks (including certificates of deposit, bankers' acceptances and repurchase agreements) with assets of $100,000,000 or more; 2. commercial paper rated within the two highest rating categories of a nationally recognized rating organization; 3. investment grade short-term notes; 4. obligations issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities; and 5. related repurchase agreements. As a matter of fundamental policy, the Fund will not invest more than 25% of its total assets (taken at market value) in the securities of issuers engaged in any one industry, except that the Fund may invest up to 40% of the value of its total assets in the securities of issuers engaged in the electric utility and telephone industries. The Adviser follows a policy under which it will not cause the Fund to invest more than 25% of its total assets in the securities of issuers engaged in the electric utility industry or the telephone industry unless yields available for four consecutive weeks in the four highest rating categories on new issue bonds in this industry (issue size of $50 million or more) have averaged greater than the yields of new issue long-term industrial bonds similarly rated (issue size of $50 million or more) and, in the opinion of the Adviser, the relative return available from the electric utility or telephone industry and the relative risk, marketability, quality and availability of securities of this industry justifies such an investment. Obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities are not subject to the foregoing 25% limitation. In addition, for purposes of this limitation, determinations of what constitutes an industry are made in accordance with specific industry codes set forth in the Standard Industrial Classification Manual and without considering groups of industries (e.g., all utilities) to be an industry. 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 objectives and investment policies (except for its policy on concentration) are nonfundamental, which means that they may be changed by the Board of Directors without shareholder approval. However, the Fund's investment objectives may not be changed without 30 days' prior written notice first having been given to shareholders. If there is a change in the Fund's investment objectives, you should consider whether the Fund remains an appropriate investment in light of your current financial position and needs. 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 funds. - ------------------------------------------------------------------------------- THE FUND FOLLOWS CERTAIN POLICIES WHICH MAY HELP TO REDUCE INVESTMENT RISK. - ------------------------------------------------------------------------------- 7 99 RISK FACTORS. An investment in the Fund is intended for long-term investors who can accept the risks associated with investing primarily in lower rated 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." The primary consideration in choosing brokerage firms to carry out the Fund's transactions is execution at the most favorable prices, taking into account the broker's professional ability and quality of service. Consideration may also be given to the broker's sales of Fund shares. Pursuant to procedures determined by the Board of Directors, the Adviser may place securities transactions with brokers affiliated with the Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life Company"), which in turn indirectly owns the Adviser. Fixed-income securities are generally purchased and sold in transactions directly with dealers acting as principal and involve a "spread" rather than a commission. - ------------------------------------------------------------------------------- BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION. - ------------------------------------------------------------------------------- ORGANIZATION AND MANAGEMENT OF THE FUND The Fund is a diversified series of the Company, an open-end management investment company organized as a Maryland corporation in 1987. The Company reserves the right to create and issue a number of series of shares, or funds or classes thereof, which are separately managed and have different investment objectives. The Board of Directors has authorized the issuance of two classes of the Fund, designated 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 Company is not required to and does not intend to hold annual meetings of shareholders, although special meetings may be held for such purposes as electing or removing Directors, changing fundamental policies or approving a management contract. The Company, under certain circumstances, will assist in shareholder communications with other shareholders. - ------------------------------------------------------------------------------- THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTORS' POLICIES AND SUPERVISION. - ------------------------------------------------------------------------------- The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of the Life Company, a financial services company. The Adviser provides the Fund and other investment companies in the John Hancock group of funds with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of the John Hancock mutual funds through brokers that have agreements with John Hancock Funds ("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 $13 BILLION. - ------------------------------------------------------------------------------- 8 100 All investment decisions are made by the Adviser's fixed-income portfolio management team and no single person is primarily responsible for making recommendations to the team. In order to avoid any conflict with portfolio trades for the Fund, the Adviser and the Fund have adopted extensive restrictions on personal securities trading by personnel of the Adviser and its affiliates. Some of these restrictions are: preclearance for all personal trades and a ban on the purchase of initial public offerings, as well as contributions to specified charities of profits on securities held for less than 91 days. These restrictions are a continuation of the basic principle that the interests of the Fund and its shareholders come first. 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 of your purchase is $1 million or more. If you purchase $1 million or more of Class A shares, you will not be subject to an initial sales charge, but you will incur a sales charge if you redeem your shares within one year of purchase. Class A shares are subject to ongoing distribution and service fees at a combined annual rate of up to 0.25% of the Fund's average daily net assets attributable to the Class A shares. Certain purchases of Class A shares qualify for reduced initial sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES CHARGE. - ------------------------------------------------------------------------------- CLASS B SHARES. You will not incur a sales charge when you purchase Class B shares, but the shares are subject to a sales charge if you redeem them within six years of purchase (the "contingent deferred sales charge" or the "CDSC"). Class B shares are subject to ongoing distribution and service fees at a combined annual rate of up to 1.00% of the Fund's average daily net assets attributable to the Class B shares. Investing in Class B shares permits all of your dollars to work from the time you make your investment, but the higher ongoing distribution fee will cause these shares to have higher expenses than those of Class A shares. To the extent that any dividends are paid by the Fund, these higher expenses will also result in lower dividends than those paid on Class A shares. - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS B SHARES ARE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. - ------------------------------------------------------------------------------- Class B shares are not available for full-service defined contribution plans administered by Investor Services or the Life Company that had more than 100 eligible employees at the inception of the Fund account. 9 101 FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE The alternative purchase arrangement allows you to choose the most beneficial way to buy shares, given the amount of your purchase, the length of time you expect to hold your shares and other circumstances. You should consider whether, during the anticipated life of your Fund investment, the CDSC and accumulated fees on Class B shares would be less than the initial sales charge and accumulated fees on Class A shares purchased at the same time, and to what extent this differential would be offset by the Class A shares' lower expenses. To help you make this determination, the table under the caption "Expense Information" on the inside cover page of this Prospectus shows examples of the charges applicable to each class of shares. Class A shares will normally be more beneficial if you qualify for reduced sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- YOU SHOULD CONSIDER WHICH CLASS OF SHARES WOULD BE MORE BENEFICIAL TO YOU. - ------------------------------------------------------------------------------- Class A shares are subject to lower distribution fees and, accordingly, pay correspondingly higher dividends per share, to the extent any dividends are paid. However, because initial sales charges are deducted at the time of purchase, you would not have all of your funds invested initially and, therefore, would initially own fewer shares. If you do not qualify for reduced initial sales charges and expect to maintain your investment for an extended period of time, you might consider purchasing Class A shares. This is because the accumulated distribution and service charges on Class B shares may exceed the initial sales charge and accumulated distribution and service charges on Class A shares during the life of your investment. Alternatively, you might determine that it is more advantageous to purchase Class B shares to have all of your funds invested initially. However, you will be subject to higher distribution and service fees and, for a six-year period, a CDSC. In the case of Class A shares, the distribution expenses that John Hancock Funds incurs in connection with the sale of the shares will be paid from the proceeds of the initial sales charge and ongoing distribution and service fees. In the case of Class B shares, the expenses will be paid from the proceeds of the ongoing distribution and service fees, as well as from the CDSC incurred upon redemption within six years of purchase. The purpose and function of the Class B shares' CDSC and ongoing distribution and service fees are the same as those of the Class A shares' initial sales charge and ongoing distribution and service fees. Sales personnel distributing the Fund's shares may receive different compensation for selling each class of shares. Dividends, if any, on Class A and Class B shares will be calculated in the same manner, at the same time and on the same day. They also will be in the same amount, except for differences resulting from each class bearing only its own distribution and service fees, shareholder meeting expenses and any incremental transfer agency costs. See "Dividends and Taxes." 10 102 THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a monthly fee to the Adviser at the following annual rates of the Fund's average daily net assets: 0.625% on the first $75 million of assets, 0.5625% on the next $75 million of assets and 0.50% on assets over $150 million. During the Fund's most recent fiscal year, the advisory fee was 0.58% of the Fund's average daily net assets. 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% 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. Up to 0.25% for Class A shares and Class B shares is for service expenses and the remaining amount is for distribution expenses. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; (iii) unreimbursed distribution expenses under the Fund's prior distribution plans; (iv) distribution expenses incurred by other investment companies which sell all or substantially all of their assets to, merge with or otherwise engage in a reorganization transaction with the Fund; and (v) with respect to Class B shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers for providing personal and account maintenance services to shareholders. - ------------------------------------------------------------------------------- THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES RELATED SHAREHOLDER SERVICING. - ------------------------------------------------------------------------------- In the event John Hancock Funds is not fully reimbursed for payments made or expenses incurred by it under the Class A Plan, these expenses will not be carried beyond one year from the date they were incurred. Unreimbursed expenses under the Class B Plan will be carried forward together with interest on the balance of these unreimbursed expenses. For the fiscal year ended October 31, 1994, an aggregate of $6,398,026 of distribution expenses or 4.02% of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. Information on the Fund's total expenses is in the Financial Highlights section of this Prospectus. DIVIDENDS AND TAXES DIVIDENDS. The Fund generally declares daily and distributes monthly dividends representing all or substantially all net investment income. The Fund will distribute net short-term and long-term capital gains, if any, at least annually. Dividends are reinvested in additional shares of your class unless you elect the option to receive them in cash. If you elect the cash option and the U.S. Postal Service cannot deliver your checks, your election will be converted to the reinvestment option. Because of the higher expenses associated with Class B shares, any dividends on these shares will be lower than those on the Class A shares. See "Share Price." - ------------------------------------------------------------------------------- THE FUND GENERALLY DECLARES DAILY AND DISTRIBUTES MONTHLY DIVIDENDS. - ------------------------------------------------------------------------------- 11 103 TAXATION. Dividends from the Fund's net investment income, certain net foreign exchange gains and 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 gains. These dividends are taxable whether received in cash or reinvested in additional shares. Certain dividends may be paid in January of a given year but may be taxable 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 that are 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. The Fund anticipates that it will be subject to foreign withholding taxes or other foreign taxes on income (possibly including capital gains) on certain foreign investments, which will reduce the yield or return from those investments. The Fund expects that it usually will not qualify to pass such taxes and any associated deductions or credits through to its shareholders. On the account application you must certify that the social security or other taxpayer identification number you provide is your correct number and that you are not subject to backup withholding of Federal income tax. If you do not provide this information or are otherwise subject to this withholding, the Fund may be required to withhold 31% of your dividends and the proceeds of redemptions or exchanges. In addition to Federal taxes, you may be subject to state, local or foreign taxes with respect to your investment in and distributions from the Fund. Non-U.S. shareholders and tax-exempt shareholders are subject to different tax treatment not described above. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent the Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. 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 ADVERTISE ITS YIELD AND TOTAL RETURN. - ------------------------------------------------------------------------------- 12 104 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'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 by 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 calculations for Class B shares reflect 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. 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 and yield may differ with respect to each 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." 13 105 HOW TO BUY SHARES - -------------------------------------------------------------------------------- The minimum initial investment in Class A and Class B shares is $1,000 ($250 for group investments and retirement plans). Complete the Account Application attached to this Prospectus. Indicate whether you are purchasing Class A or Class B shares. If you do not specify which class of shares you are purchasing, Investor Services will assume that you are investing in Class A shares.
- ------------------------------------------------------------------------------- OPENING AN ACCOUNT - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- BY CHECK 1. Make your check payable to John Hancock Investor Services Corporation, P.O. Box 9115, Boston, MA, 02205-9115. 2. Deliver the completed application and check to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- BY WIRE 1. Obtain an account number by contacting your registered representative or Selling Broker, or by calling 1-800-225-5291. 2. Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock High Yield 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 or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- MONTHLY 1. Complete the "Automatic Investing" and "Bank Information" AUTOMATIC sections on the Account Privileges Application designating a ACCUMULATION bank account from which funds may be drawn. PROGRAM 2. The amount you elect to invest will be automatically withdrawn (MAAP) from your bank or credit union account. - ------------------------------------------------------------------------------- BUYING ADDITIONAL CLASS A AND CLASS B SHARES - ------------------------------------------------------------------------------- BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account Privileges Application designating a bank account from which your funds may be drawn. Note that in order to invest by phone, 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. - ---------------------------------------------------------------------------------
14 106 - -------------------------------------------------------------------------------- BY CHECK 1. Either complete the detachable stub included on your account statement or include a note with your investment listing the name of the Fund, the class of shares you own, your account number and the name(s) in which the account is registered. 2. Make your check payable to John Hancock Investor Services Corporation. 3. Mail the account information and check to: John Hancock Investor Services Corporation P.O. Box 9115 Boston, MA 02205-9115 or deliver it to your registered representative or Selling Broker. - --------------------------------------------------------------------------------- BY WIRE Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock High Yield 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. - ---------------------------------------------------------------------------------
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. - ------------------------------------------------------------------------------- 15 107 SHARE PRICE The net asset value per share ("NAV") is the value of one share. The NAV is calculated by dividing the net assets of each class by the number of outstanding shares of that class. The NAV of each class can differ. Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith according to procedures approved by the Board of Directors. Short-term debt investments maturing within 60 days are valued at amortized cost, which the Board of Directors has determined approximates market value. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. If quotations are not readily available or the values have been materially affected by events occurring after the closing of a foreign market, assets are valued by a method that the Board believes accurately reflects fair value. The NAV is calculated once daily as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on each day that the Exchange is open. - ------------------------------------------------------------------------------- THE OFFERING PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PLUS A SALES CHARGE, IF APPLICABLE, WHICH WILL VARY WITH THE PURCHASE ALTERNATIVE YOU CHOOSE. - ------------------------------------------------------------------------------- Shares of the Fund are sold at the offering price based on the NAV computed after your investment request is received in good order by John Hancock Funds. If you buy shares of the Fund through a Selling Broker, the Selling Broker must receive your investment before the close of regular trading on the Exchange and transmit it to John Hancock Funds before its close of business to receive that day's offering price. 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:
COMBINED SALES CHARGE AS REALLOWANCE REALLOWANCE TO AMOUNT INVESTED SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS (INCLUDING SALES A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*) - --------------------------------------- --------------- ------------------ --------------------- Less than $100,000...... 4.50% 4.71% 4.00% 3.76% $100,000 to $249,999.... 3.75% 3.90% 3.25% 3.01% $250,000 to $499,999.... 2.75% 2.83% 2.30% 2.06% $500,000 to $999,999.... 2.00% 2.04% 1.75% 1.51% $1,000,000 and over..... 0.00%(**) 0.00(**) (***) 0.00(***)
(*) 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. In addition to the reallowance allowed to all Selling Brokers, John Hancock Funds will pay the following: round trip airfare to a resort will be offered to each registered representative of a Selling Broker (if the Selling Broker has agreed to participate) who sells certain amounts of shares of John Hancock funds. 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. John Hancock Funds will make these incentive payments out of its own resources. Other than distribution and service fees, the Fund does not bear distribution expenses. 16 108 (**) No sales charge is payable at the time of purchase of Class A shares of $1 million or more, but a CDSC may be imposed in the event of certain redemption transactions within one year of purchase. (***) John Hancock Funds may pay a commission and the first year's service fee (as described in (+) below) to Selling Brokers who initiate and are responsible for purchases of Class A shares 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 of $10 million and over. (+) At the time of sale, John Hancock Funds pays to Selling Brokers the first year's service fee in advance in an amount equal to 0.25% of the net assets invested in the Fund at the time of the sale, and thereafter, it pays the service fee periodically in arrears in an amount up to 0.25% of the Fund's average annual net assets. Selling Brokers receive the fee as compensation for providing personal and account maintenance services to shareholders. Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional Class A shares of the Fund. In addition, John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate of up to 0.05% of the daily net assets of accounts attributable to these brokers. Under certain circumstances described below, investors in Class A shares may be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales Charge." CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A SHARES. Purchases of $1 million or more of Class A shares will be made at net asset value with no initial sales charge, but if the shares are redeemed within 12 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:
AMOUNT INVESTED CDSC RATE ---------------- --------- $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%
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, but 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 redeemed Class A shares. Accordingly, no CDSC will be imposed on increases in account value above the initial purchase 17 109 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 Charges" below. QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in Class A shares of the Fund or a combination of funds within the John Hancock family of funds (except money market funds), you may qualify for a reduced sales charge on your investments in Class A shares through a LETTER OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE to take advantage of the value of your previous investments in Class A shares of the John Hancock funds in meeting the breakpoints for a reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales charge will be based on the total of: - ------------------------------------------------------------------------------- YOU MAY QUALIFY FOR A REDUCED SALES CHARGE ON YOUR INVESTMENT IN CLASS A SHARES. - ------------------------------------------------------------------------------- 1. Your current purchase of Class A shares of the Fund. 2. The net asset value (at the close of business on the previous day) of (a) all Class A shares of the Fund you hold, and (b) all Class A shares of any other John Hancock funds you hold; and 3. The net asset value of all shares held by another shareholder eligible to combine his or her holdings with you into a single "purchase." EXAMPLE: If you hold Class A shares of a John Hancock fund with a net asset value of $20,000 and, subsequently, invest $80,000 in Class A shares of the Fund, the sales charge on this subsequent investment would be 3.75% and not 4.50% (the rate that would otherwise be applicable to investments of less than $100,000. See "Initial Sales Charge Alternative -- Class A Shares.") If you are in one of the following categories, you may purchase Class A shares of the Fund without paying a sales charge: - - A Director or officer of the Fund; a Director or officer of the Adviser and its affiliates or Selling Brokers; employees or sales representatives of any of the foregoing; retired officers, employees or Directors of any of the foregoing; a member of the immediate family of any of the foregoing; or any fund, pension, profit sharing or other benefit plan for the individuals described above. - ------------------------------------------------------------------------------- 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.* 18 110 - - A bank, trust company, credit union, savings institution or other type of depository institution, its trust departments or common trust funds if it is purchasing $1 million or more for non-discretionary customers or accounts.* - - A broker, dealer or registered investment adviser that has entered into an agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products made available to their clients. - - A former participant in an employee benefit plan with John Hancock Funds, when he/she withdraws from his/her plan and transfers any or all of his/her plan distributions directly to the Fund. - ------------------ * For investments made under these provisions, John Hancock Funds may make a payment out of its own resources to the Selling Broker in an amount not to exceed 0.25% of the amount invested. Class A shares of the Fund may be purchased without an initial sales charge in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares are offered at net asset value per share without a sales charge so that your entire initial investment will go to work at the time of purchase. However, Class B shares redeemed within six years of purchase will be subject to a CDSC at the rates set forth below. This charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. Accordingly, you will not be assessed a CDSC on increases in account value above the initial purchase price, including shares derived from dividend reinvestment. In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from shares you have held beyond the six-year CDSC redemption period or those you acquired through reinvestment of dividends, and next from the shares you have held the longest during the six-year period. The CDSC is waived on redemptions in certain circumstances. See the discussion "Waiver of Contingent Deferred Sales 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: - - 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
19 111 Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses part of them to defray its expenses related to providing the Fund with distribution services connected to the sale of Class B shares, such as compensating Selling Brokers for selling these shares. The combination of the CDSC and the distribution and service fees makes it possible for the Fund to sell Class B shares without deducting a sales charge at the time of the purchase. The amount of the CDSC, if any, will vary depending on the number of years from the time you purchase your Class B shares until the time you redeem them. Solely for the purposes of determining this holding period, any payments you make during the month will be aggregated and deemed to have been made on the last day of the month.
YEAR IN WHICH CLASS B SHARES CONTINGENT DEFERRED SALES REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC - ----------------------- ----------------------------- First 5.0% Second 4.0% Third 3.0% Fourth 3.0% Fifth 2.0% Sixth 1.0% Seventh and thereafter None
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. 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 or the joint-and-last survivor life expectancy of you and your beneficiary. These distributions must be free from penalty under the Code. - - Redemptions made to effect mandatory distributions under the Code after age 70 1/2 from a tax-deferred retirement plan. - - Redemptions made to effect distributions to participants or beneficiaries from certain employer-sponsored retirement plans including those qualified under Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of 20 112 the Code and deferred compensation plans under Section 457 of the Code. The waiver also applies to certain returns of excess contributions made to these plans. In all cases, the distributions must be free from penalty under the Code. - - Redemptions due to death or disability. - - Redemptions made under the Reinvestment Privilege, as described in "Additional Services and Programs" of this Prospectus. - - Redemptions made pursuant to the Fund's right to liquidate your account if you have less than $500 invested in the Fund. - - Redemptions made in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. - - Redemptions from certain IRA and retirement plans that purchased shares prior to October 1, 1992. If you qualify for a CDSC waiver under one of these situations, you must notify Investor Services either directly or through your Selling Broker at the time you make your redemption. The waiver will be granted once Investor Services has confirmed that you are entitled to the waiver. CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of reinvested dividends on those shares will be converted into Class A shares automatically. This will occur no later than the month following eight years after the shares were purchased, and will result in lower annual distribution fees. If you exchanged Class B shares into the Fund from another John Hancock fund, the calculation will be based on the time you purchased the shares in the original fund. The Fund has been advised that the conversion of Class B shares to Class A shares should not be taxable for Federal income tax purposes and should not change a shareholder's tax basis or tax holding period for the converted shares. 21 113 HOW TO REDEEM SHARES You may redeem all or a portion of your shares on any business day. Your shares will be redeemed at the next NAV calculated after your redemption request is received in good order by Investor Services, less any applicable CDSC. The Fund may hold payment until it is reasonably satisfied that investments recently made by check or Invest-by-Phone have been collected (which may take up to 10 calendar days). - ------------------------------------------------------------------------------- TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE PROCEDURES. - ------------------------------------------------------------------------------- Once your shares are redeemed, the Fund generally sends you payment on the next business day. When you redeem your shares, you may realize a taxable gain or loss depending usually on the difference between what you paid for them and what you receive for them, subject to certain tax rules. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities laws. - -------------------------------------------------------------------------------- BY TELEPHONE All Fund shareholders are automatically eligible for the telephone redemption privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time), Monday through Friday, excluding days on which the Exchange is closed. Investor Services employs the following procedures to confirm that instructions received by telephone are genuine. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. You may redeem up to $100,000 by telephone, but the address on the account must not have changed for the last thirty days. A check will be mailed to the exact name(s) and address shown on the account. If reasonable procedures, such as those described above, are not followed, the Fund may be liable for any loss due to unauthorized or fraudulent telephone instructions. In all other cases, neither the Fund nor Investor Services will be liable for any loss or expense for acting upon telephone instructions made in accordance with the telephone transaction procedures mentioned above. Telephone redemption is not available for IRAs or other tax-qualified retirement plans or shares of the Fund that are in certificated form. During periods of extreme economic conditions or market changes, telephone requests may be difficult to implement due to a large volume of calls. During these times, you should consider placing redemption requests in writing or use EASI-Line. EASI-Line's telephone number is 1-800-338-8080. - --------------------------------------------------------------------------------- BY WIRE If you have a telephone redemption form on file with the Fund, redemption proceeds of $1,000 or more can be wired on the next business day to your designated bank account, and a fee (currently $4.00) will be deducted. You may also use electronic funds transfer to your assigned bank account, and the funds are usually collectible after two business days. Your bank may or may not charge a fee for this service. Redemptions of less than $1,000 will be sent by check or electronic funds transfer. This feature may be elected by completing the "Telephone Redemption" section on the Account Privileges Application included with this Prospectus. - ---------------------------------------------------------------------------------
22 114 - -------------------------------------------------------------------------------- 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. - ---------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS -------------------- ------------ Individual, Joint Tenants, Sole A letter of instruction signed (with titles Proprietorship, Custodial where applicable) by all persons authorized (Uniform Gifts or Transfer to to sign for the account, exactly as it is Minors Act), General Partners registered with the signature(s) 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 $500 (except accounts under retirement plans) and to mail the proceeds to the shareholder, or the transfer agent may impose an annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value of the account is in excess of the Fund's minimum initial investment or if the value of the account falls below the required minimum as a result of market action. No CDSC will be imposed on involuntary redemptions of shares. Shareholders will be notified before these redemptions are to be made or this fee is imposed, and will have 60 days to purchase additional shares to bring their account balance up to the required minimum. Unless the number of shares acquired by further purchases and dividend reinvestments, if any, exceeds the number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this policy. - ---------------------------------------------------------------------------------
23 115 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 Adjustable U.S. Government Trust will be subject to the initial fund's CDSC). For purposes of computing the CDSC payable upon redemption of shares acquired in an exchange, the holding period of the original shares is added to the holding period of the shares acquired in an exchange. However, if you exchange Class B shares purchased prior to January 1, 1994 for Class B shares of any other John Hancock fund, you will be subject to the CDSC schedule in effect on your initial purchase date. You may exchange Class B shares of the Fund into shares of a John Hancock money market fund at net asset value. However, you will continue to be subject to a CDSC upon redemption. The rate of the CDSC will be the rate in effect for the original Fund at the time of exchange. The Fund reserves the right to require you to keep previously exchanged shares (and reinvested dividends) in the Fund for 90 days before you are permitted to execute a new exchange. The Fund may also terminate or alter the terms of the exchange privilege, upon 60 days' notice to shareholders. An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares in another for Federal income tax purposes. An exchange may result in a taxable gain or loss. When you make an exchange, your account registration in both the existing and new account must be identical. The exchange privilege is available only in states where the exchange can be made legally. 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 24 116 restrictions that do not apply to exchanges requested by shareholders directly, as described above. Because Fund performance and shareholders can be hurt by excessive trading, the Fund reserves the right to terminate the exchange privilege for any person or group that, in John Hancock Funds' judgment, is involved in a pattern of exchanges that coincide with a "market timing" strategy that may disrupt the Fund's ability to invest effectively according to its investment objective and policies, or might otherwise affect the Fund and its shareholders adversely. The Fund may also temporarily or permanently terminate the exchange privilege for any person who makes seven or more exchanges out of the Fund per calendar year. Accounts under common control or ownership will be aggregated for this purpose. Although the Fund will attempt to give you prior notice whenever it is reasonably able to do so, it may impose these restrictions at any time. BY TELEPHONE 1. When you complete the application for your initial purchase of Fund shares, you automatically authorize exchanges by telephone unless you check the box indicating that you do not wish to authorize telephone exchanges. 2. Call 1-800-225-5291. Have the account number of your current fund and the exact name in which it is registered available to give to the telephone representative. 3. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. IN WRITING 1. In a letter, request an exchange and list the following: -- the name and class of the Fund whose shares you currently own -- your account number -- the name(s) in which the account is registered -- the name of the fund in which you wish your exchange to be invested -- the number of shares, all shares or dollar amount you wish to exchange Sign your request exactly as the account is registered. 2. Mail the request and information to: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 25 117 REINVESTMENT PRIVILEGE 1. You will not be subject to a sales charge on Class A shares reinvested in shares of any John Hancock fund that is otherwise subject to a sales charge as long as you reinvest within 120 days from the redemption date. If you paid a CDSC upon a redemption, you may reinvest at net asset value in the same class of shares from which you redeemed within 120 days. Your account will be credited with the amount of the CDSC previously charged, and the reinvested shares will continue to be subject to a CDSC. For purposes of computing the CDSC payable upon a subsequent redemption, the holding period of the shares acquired through reinvestment will include the holding period of the redeemed shares. - ------------------------------------------------------------------------------- IF YOU REDEEM SHARES OF THE FUND, YOU MAY BE ABLE TO REINVEST ALL OR PART OF THE PROCEEDS IN THE 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 by calling your registered representative or by calling 1-800-225-5291. - ------------------------------------------------------------------------------- YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS. - ------------------------------------------------------------------------------- 2. To be eligible, you must have at least $5,000 in your account. 3. Payments from your account can be made monthly, quarterly, semi-annually or annually or on a selected monthly basis to yourself or any other designated payee. 4. There is no limit on the number of payees you may authorize, but all payments must be made at the same time or intervals. 5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently with purchases of additional Class A or Class B shares, because you may be subject to initial sales charges on your purchases of Class A shares or to a CDSC on your redemptions of Class B shares. In addition, your redemptions are taxable events. 6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver your checks or if deposits to a bank account are returned for any reason. MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) 1. You can authorize an investment to be automatically withdrawn each month from your bank for investment in Fund shares under the "Automatic Investing" and "Bank Information" sections of the Account Privileges Application. - ------------------------------------------------------------------------------- YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING. - ------------------------------------------------------------------------------- 26 118 2. You can also authorize automatic investment through payroll deduction by completing the "Direct Deposit Investing" section of the Account Privileges Application. 3. You can terminate your Monthly Automatic Accumulation Program plan at any time. 4. There is no charge to you for this program, and there is no cost to the Fund. 5. If you have payments being withdrawn from a bank account and we are notified that the account has been closed, your withdrawals will be discontinued. GROUP INVESTMENT PROGRAM 1. An individual account will be established for each participant, but the initial sales charge for Class A shares will be based on the aggregate dollar amount of all participants' investments. To determine how to qualify for this program, contact your registered representative or call 1-800-225-5291. - ------------------------------------------------------------------------------- ORGANIZED GROUPS OF AT LEAST FOUR PERSONS MAY ESTABLISH ACCOUNTS. - ------------------------------------------------------------------------------- 2. The initial aggregate investment of all participants in the group must be at least $250. 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. RETIREMENT PLANS 1. You may use the Fund as a funding medium for various types of qualified retirement plans, including Individual Retirement Accounts, Keough Plans (H.R. 10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax Sheltered Annuity Retirement Plans (403(b) Plans) and 457 Plans. 2. The initial investment minimum or aggregate minimum for any of the above plans is $250. However, accounts being established as group IRA, SEP, SARSEP, TSA, 401(k) and 457 Plans will be accepted without an initial minimum investment. INVESTMENTS, TECHNIQUES AND RISK FACTORS LOWER RATED SECURITIES. Debt obligations that are rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the ability of the issuer to make payments of interest and principal. The market price and liquidity of lower rated fixed income securities generally respond to short-term corporate and market developments to a greater extent than the price and liquidity of higher rated securities, because these developments are perceived to have a more direct relationship to the ability of an issuer of lower rated securities to meet its ongoing debt obligations. 27 119 Reduced volume and liquidity in the high yield high risk bond market or the reduced availability of market quotations may make it more difficult to dispose of the bonds and to value accurately the Fund's assets. The reduced availability of reliable, objective data may increase the Fund's reliance on management's judgment in valuing high yield high risk bonds. In addition, the Fund's investments in high yield high risk securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. The Fund's investments, and consequently its net asset value, will be subject to the market fluctuations and risk inherent in all securities. SECURITIES OF FOREIGN ISSUERS. Investments in foreign securities may involve a greater degree of risk than those in domestic securities due to exchange controls, less publicly available information, more volatile or less liquid securities markets, and the possibility of expropriation, confiscatory taxation or political, economic or social instability. There may be difficulty in enforcing legal rights outside the United States. Some foreign companies are not generally subject to the same uniform accounting, auditing and financial reporting requirements as domestic companies; also foreign regulation may differ considerably from domestic regulation of stock exchanges, brokers and securities. Security trading practices abroad may offer less protection to investors such as the Fund. Additionally, because foreign securities may be quoted or denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the Fund's net asset value, the value of dividends and interest earned, gains and losses realized on the sale of securities, and net investment income and gains, if any, that the Fund distributes to shareholders. Securities transactions undertaken in some foreign markets may not be settled promptly. Therefore, the Fund's investments on foreign exchanges may be less liquid and subject to the risk of fluctuating currency exchange rates pending settlement. The expense ratios of funds investing significant amounts of their assets in foreign securities can be expected to be higher than those of mutual funds investing solely in domestic securities since the expenses of these funds, such as the cost of maintaining custody of foreign securities and advisory fees, are higher. These risks of foreign investing may be intensified in the case of investments in emerging markets or countries with limited or developing capital markets. These countries generally are located in the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. Security prices in these markets can be significantly more volatile than in more developed countries, reflecting the greater uncertainties of investing in less established markets and economies. Political, legal and economic structures in many of these emerging market countries may be undergoing significant evolution and rapid development, and they may lack the social, political, legal and economic stability characteristic of more developed countries. Emerging market countries may have failed in the past to recognize private property rights. They may have relatively unstable governments, present the risk of nationalization of businesses, restrictions on foreign ownership, or prohibitions on repatriation of assets, and may have less protection of property rights than more developed countries. Their economies may be predominantly 28 120 based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of substantial holdings difficult or impossible at times. The Fund may be required to establish special custodian or other arrangements before making certain investments in these countries. Securities of issuers located in these countries may have limited marketability and may be subject to more abrupt or erratic price movements. Certain realized gains or losses on the sale of international bonds and debt held by the Fund, to the extent attributable to fluctuations in foreign currency exchange rates, as well as certain other gains or losses attributable to exchange rate fluctuations, may be treated as ordinary income or loss. Such income or loss may increase or decrease (or possibly eliminate) the Fund's income available for distribution to shareholders. FOREIGN CURRENCY TRANSACTIONS. The Fund may purchase securities quoted or denominated in foreign currencies. The value of investments in these securities and the value of dividends and interest earned may be significantly affected by changes in currency exchange rates. Some foreign currency values may be volatile, and there is the possibility of governmental controls on currency exchange or governmental intervention in currency markets, which could adversely affect the Fund. As a result, the Fund may enter into forward foreign currency exchange contracts to protect against changes in foreign currency exchange rates. The Fund will not speculate in foreign currencies or in forward foreign currency exchange contracts, but will enter into these transactions only in connection with its hedging strategies. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract. Although certain strategies could minimize the risk of loss due to a decline in the value of the hedged foreign currency, they could also limit any potential gain which might result from an increase in the value of the currency. See the Statement of Additional Information for further discussion of the uses and risks of forward foreign currency exchange contracts. MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed securities, including real estate mortgage investment conduits (REMICs), collateralized mortgage obligations (CMOs) and multi-class pass-through securities. A mortgage-backed security may be an obligation of the issuer backed by a mortgage or pool of mortgages or a direct interest in an underlying pool of mortgages. Some mortgage-backed securities, such as CMOs, make payments of both principal and interest at a variety of intervals; others make semiannual interest payments at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-backed securities may have less potential for capital appreciation than comparable fixed-income securities, due to the likelihood of increased prepayments of mortgages as interest rates decline. If the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and prepayments of principal by mortgagors 29 121 (which may be made at any time without penalty) may result in some loss of the Fund's principal investment to the extent of the premium paid. The value of mortgage-backed securities may also change due to shifts in the market's perception of issuers. In addition, regulatory or tax changes may adversely affect the mortgage securities market as a whole. Non-government mortgage-backed securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. Non-government mortgage-backed securities are not considered U.S. Government securities for purposes of the investment policies of the Fund. Non-government CMOs, REMICs and multi-class pass-through securities may be purchased only if they are rated at the time of purchase in the two highest grades by either Moody's or S&P. "Stripped" mortgage-backed securities are created when a U.S. Government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the "principal-only" security ("PO") receives the principal payments made by the underlying mortgage-backed security, while the holder of the "interest-only" security ("IO") receives interest payments from the same underlying security. The prices of stripped mortgage-backed securities may be particularly affected by changes in interest rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs. Rising interest rates can have the opposite effect. Although the market for such securities is increasingly liquid, the Adviser may, in accordance with guidelines adopted by the Board of Directors, determine that certain stripped mortgage-backed securities issued by the U.S. Government, its agencies or instrumentalities are not readily marketable. If so, these securities, together with privately-issued stripped mortgage-backed securities, will be considered illiquid for purposes of the Fund's limitation of investments in illiquid securities. Other types of mortgage-backed securities will likely be developed in the future and the Fund may invest in them if the Adviser determines they are consistent with the Fund's investment objectives and policies. ZERO COUPON BONDS. Zero coupon Treasury securities are (i) U.S. Treasury bills, and both notes and bonds which have been stripped of their unmatured interest coupons and receipts or (ii) certificates representing interests in such stripped obligations. A zero coupon security pays no interest in cash to its holder during its life although interest is accrued for Federal income tax purposes. Its value to an investor consists of the difference between its face value at the time of maturity and the price for which it was acquired, which is generally an amount significantly less than its face value (sometimes referred to as a "deep discount" price). Investing in "zero coupon" Treasury securities may help to preserve capital during periods of declining interest rates. For example, if interest rates decline, Ginnie Mae certificates owned by the Fund which were purchased at greater than par are more likely to be prepaid, which would cause a loss of principal. In anticipation of this, the Fund might purchase zero coupon Treasury securities, the value of which would be expected to increase when interest rates decline. Zero coupon Treasury 30 122 securities do not entitle the holder to any periodic payments of interest prior to maturity. Accordingly, such securities usually trade at a deep discount from their face or par value and will be subject to greater fluctuations of market value in response to changing interest rates than debt obligations of comparable maturities which make periodic distributions of interest. On the other hand, because there are no periodic interest payments to be reinvested prior to maturity, zero coupon securities eliminate the reinvestment risk and lock in a rate of return to maturity. Current Federal tax law requires that a holder (such as the Fund) of a zero coupon security accrue a portion of the discount at which the security was purchased as income each year even though the Fund received no interest payment in cash on the security during the year. The Fund must distribute all or substantially all of its income for each taxable year, including this accrued income, in order to satisfy certain requirements of the Code and may be required to sell securities under disadvantageous circumstances or leverage itself to obtain the cash necessary for this purpose. ASSET-BACKED SECURITIES. The Fund may invest in securities that represent individual interests in pools of consumer loans and trade receivables similar in structure to mortgage-backed securities. The assets are securitized either in a pass-through structure (similar to a mortgage pass-through structure) or in a pay-through structure (similar to a CMO structure). Although the collateral supporting asset-backed securities generally is of a shorter maturity than mortgage loans and historically has been less likely to experience substantial prepayments, no assurance can be given as to the actual maturity of an asset-backed security because prepayments of principal may be made at any time. Payments of principal and interest typically are supported by some form of credit enhancement, such as a letter of credit, surety bond, limited guarantee by another entity or having a priority to certain of the borrower's other securities. The degree of credit enhancement varies, and generally applies to only a fraction of the asset-backed security's par value until exhausted. If the credit enhancement of an asset-backed security held by the Fund has been exhausted, and if any required payments of principal and interest are not made with respect to the underlying loans, the Fund may experience losses or delays in receiving payment. Asset-backed securities entail certain risks not presented by mortgage-backed securities. Asset-backed securities do not have the benefit of the same type of security interest in the related collateral. Credit card receivables are generally unsecured and a number of state and Federal consumer credit laws give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the outstanding balance. In the case of automobile receivables, there is a risk that the holders may not have either a proper or first security interest in all of the obligations backing such receivables due to the large number of vehicles involved in typical issuance, and technical requirements under state laws. Therefore, recoveries on repossessed collateral may not always be available to support payments on these securities. For a further discussion of the risks of investing in asset-backed securities, see the Statement of Additional Information. The Fund will invest in asset-backed securities only if they are rated at the time of purchase in the two highest grades by a nationally-recognized rating agency. 31 123 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 that are not readily marketable. The Fund's investments in restricted securities eligible for resale to certain institutional investors pursuant to Rule 144A under the Securities Act of 1933 are subject to the foregoing limitation. LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing additional 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 counterparty 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, liquid debt securities. However, these transactions 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. REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase agreements, which involve the sale of a security by the Fund to a bank or securities firm and its agreement to repurchase the instrument at a specified time and price plus an agreed amount of interest. The Fund will use the proceeds of reverse repurchase agreements to purchase other investments. Reverse repurchase agreements are considered to be borrowings by the Fund and as an investment practice may be considered speculative. The Fund will enter into a reverse repurchase agreement only when the Adviser determines that the interest income to be earned from the investment of the proceeds is greater than the interest expense of the transaction. To minimize various risks associated with reverse repurchase agreements, the Fund will establish and maintain with the Custodian a separate account consisting of cash or liquid, high grade debt securities in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. In addition, the Fund's investment restrictions provide that the Fund will not enter into reverse repurchase agreements exceeding, in the aggregate, 33 1/3% of the value of its total assets (including for this purpose other borrowings of the Fund). The Fund will enter into reverse repurchase agreements only with selected registered broker/dealers or with federally insured banks or savings and loan associations which are approved in advance as being creditworthy by the Board of Directors. Under procedures established by the Board of Directors, the Adviser will monitor the creditworthiness of the firms involved. The use of reverse repurchase agreements involves leverage. Leverage allows any investment gains made with the additional monies received (in excess of the costs of the reverse repurchase agreement) to increase the net asset value of the Fund's shares faster than would otherwise be the case. On the other hand, if the additional monies received are invested in ways that do not fully recover the costs of such 32 124 transactions to the Fund, the net asset value of the Fund would fall faster than would otherwise be the case. WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities on a forward or "when-issued" basis and may purchase or sell securities on a forward commitment basis to hedge against anticipated changes in interest rates and prices. When the Fund engages in 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 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, may increase net short-term capital gains, distributions from which would be taxable to shareholders as ordinary income and may under certain circumstances make it more difficult for the Fund to qualify as a regulated investment company under the Code. 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. A rate of turnover of 100% would occur if the value of the lesser of purchases and sales of portfolio securities for a particular year equaled the average monthly value of portfolio securities owned during the year (excluding short-term securities). A high rate of portfolio turnover (100% or more) involves a correspondingly greater amount of brokerage commissions and other costs which must be borne directly by the Fund and thus indirectly by its shareholders. The Fund's portfolio turnover rate is set forth in the table under the caption "The Fund's Financial Highlights." OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts on debt securities and securities indices, interest rate and securities index futures contracts and options on such futures contracts. The Fund may also write straddles, which are combinations of put and call options on the same security. 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 the Fund's investments 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. All of the Fund's futures contracts and options on futures contracts will be traded on a U.S. commodity exchange or board of trade. 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 33 125 for further discussion of options and futures transactions, including tax effects and investment risks. RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. Options and futures contracts are generally considered to be "derivative" instruments because they derive their value from the performance of an underlying asset, index or other economic benchmark. Certain mortgage-backed securities and indexed securities in which the Fund may invest also are considered to be derivative instruments. The risks associated with the Fund's transactions in options, futures and other derivative instruments may include some or all of the following: Market Risk. Options and futures transactions, as well as other derivative instruments, involve the risk that the applicable market will move against the Fund's derivative 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. Investments in mortgage-backed and indexed securities are subject to the prepayment, extension, interest rate and other market risks described above. Leverage and Volatility Risk. Derivative instruments may increase or leverage the Fund's exposure to a particular market risk, which may increase the volatility of the Fund's net asset value. The Fund may partially offset the leverage inherent in certain derivative instruments by maintaining a segregated account consisting of cash and liquid, high grade debt securities, by holding offsetting portfolio securities or currency positions 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 instruments, the assets underlying the derivative instrument and the Fund's portfolio assets. Credit Risk. Over-the-counter instruments involve a risk that the issuer or counterparty will fail to perform its contractual obligations. Liquidity and Valuation Risk. Some derivative instruments are not readily marketable or may become illiquid under adverse market conditions. In addition, during periods of extreme market volatility, an exchange may suspend or limit trading in an exchange-traded derivative instrument, 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. 34 126 APPENDIX A 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. Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. A-1 127 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. 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, CCC, CC: Debt rated BB, B, CCC and CC 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 and CC the highest 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 During the fiscal year ended October 31, 1994, the percentages of the Fund's assets invested in securities rated in particular rating categories by Moody's (or, if not by Moody's, by S&P) were, on a weighted average basis, as follows*:
PERCENTAGE OF MOODY'S (OR S&P) RATINGS TOTAL INVESTMENTS ------------------------ ----------------- Ba........................................................................... 9.58% (BB+, BB, BB-)............................................................. 0.25% B............................................................................ 52.96% (B+, B, B-)................................................................ 5.00% Caa.......................................................................... 19.56% (CCC+, CCC, CCC-).......................................................... 1.50% Ca........................................................................... 0.11% Not Rated**.................................................................. 11.04%** ------ Total........................................................................ 100.00% ====== - --------------- * Based on average of month end portfolio holdings during fiscal year ended 10/31/94. Asset composition does not represent actual holdings on 10/31/94 nor does it imply that the overall quality of portfolio holdings is fixed. ** Of this amount, the following percentages of the Fund's assets represent quality standards attributed by the Adviser to such non-rated securities at the time of purchase: 8.56%, B; and 2.48%, Caa.
A-2 128 (NOTES) 129 (NOTES) 130 (NOTES) 131 JOHN HANCOCK JOHN HANCOCK HIGH YIELD BOND FUND HIGH YIELD BOND FUND INVESTMENT ADVISER John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 CLASS A AND CLASS B SHARES PRINCIPAL DISTRIBUTOR PROSPECTUS John Hancock Funds, Inc. MAY 15, 1995 101 Huntington Avenue Boston, Massachusetts 02199-7603 A MUTUAL FUND SEEKING TO MAXIMIZE CURRENT INCOME WITHOUT ASSUMING UNDUE RISK. CUSTODIAN Investors Bank & Trust Company 24 Federal Street Boston, Massachusetts 02110 TRANSFER AGENT John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 INDEPENDENT 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 101 HUNTINGTON AVENUE For Telephone Redemption BOSTON, MASSACHUSETTS 02199-7603 TELEPHONE 1-800-225-5291 For TDD call 1-800-554-6713 T450P 5/95 (LOGO) Printed on Recycled Paper 132 JOHN HANCOCK HIGH YIELD TAX-FREE FUND CLASS A AND CLASS B SHARES PROSPECTUS MAY 15, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- Expense Information................................................................... 2 The Fund's Financial Highlights....................................................... 3 Investment Objective and Policies..................................................... 5 Organization and Management of the Fund............................................... 8 Alternative Purchase Arrangements..................................................... 8 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...................................................... 23 Investments, Techniques and Risk Factors.............................................. 26 Appendix A............................................................................ A-1 Appendix B............................................................................ B-1
This Prospectus sets forth the information about John Hancock High Yield Tax-Free Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Company"), that you should know before investing. Please read and retain it for future reference. Additional information about the Fund and the Company has been filed with the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement of Additional Information, dated May 15, 1995 and incorporated by reference into this Prospectus, free of charge by writing or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD). THE FUND MAY INVEST PRIMARILY (AND IS PERMITTED TO INVEST UP TO 100% OF ITS ASSETS) IN LOWER RATED (I.E., BELOW INVESTMENT GRADE) OR UNRATED (AND DETERMINED TO BE NON-INVESTMENT GRADE) MUNICIPAL OBLIGATIONS COMMONLY KNOWN AS "JUNK BONDS" WHICH ENTAIL PRICE VOLATILITY, DEFAULT AND OTHER RISKS GREATER THAN THOSE ASSOCIATED WITH HIGHER RATED/HIGHER QUALITY SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. SEE "INVESTMENTS, TECHNIQUES AND RISK FACTORS." 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. 133 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 fees and expenses for the Fund for the fiscal year ended October 31, 1994 adjusted to reflect current sales charges. Actual fees and expenses of Class A and Class B shares in the future may be greater or less than those indicated.
CLASS A CLASS B SHARES SHARES ------- ------- SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge imposed on purchases (as a percentage of offering price)....................... 4.50% None Maximum sales charge imposed on reinvested dividends................................................ None None Maximum deferred sales charge....................................................................... None* 5.00% Redemption fee+..................................................................................... None None Exchange fee........................................................................................ None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management fee...................................................................................... 0.59% 0.59% 12b-1 fee**......................................................................................... 0.25% 1.00% Other expenses***................................................................................... 0.26% 0.26% Total Fund operating expenses....................................................................... 1.10% 1.85% * No sales charge is payable at the time of purchase on investments of $1 million or more, but for these investments a contingent deferred sales charge may be imposed, as described below under the caption "Share Price," in the event of certain redemption transactions within one year of purchase. ** The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of the Fund's average net assets, and the remaining portion will be used to cover distribution expenses. *** Other Expenses include transfer agent, legal, audit, custody and other expenses. + Redemption by wire fee (currently $4.00) not included.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- 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............................................................... $56 $78 $103 $173 Class B Shares -- Assuming complete redemption at end of period......................... $69 $88 $120 $197 -- Assuming no redemption................................................ $19 $58 $100 $197
(This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown.) The Fund's payment of a distribution fee may result in a long-term shareholder indirectly paying more than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. The management and 12b-1 fees referred to above are more fully explained in this Prospectus under the caption "The Fund's Expenses" and in the Statement of Additional Information under the captions "Investment Advisory and Other Services" and "Distribution Contract." 2 134 THE FUND'S FINANCIAL HIGHLIGHTS The information in the following table of financial highlights has been audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified report is included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's Annual Report to shareholders which may be obtained free of charge by writing or telephoning John Hancock Investor Services Corporation ("Investor Services") at the address or telephone number listed on the front page of this Prospectus. Selected data for Class A shares outstanding throughout each period is as follows:
CLASS A SHARES ------------------ PERIOD FROM DECEMBER 31, 1993 TO OCT. 31, 1994(2) ------------------ Per share income and capital changes for a Class A Share outstanding during the period: Net asset value, beginning of period...................................................................... $ 9.85 INCOME FROM INVESTMENT OPERATIONS Net investment income..................................................................................... 0.48 Net realized and unrealized loss on investments........................................................... (0.94) ------- Total from Investment Operations.......................................................................... (0.46) LESS DISTRIBUTIONS Dividends from net investment income...................................................................... (0.48) Dividends in excess of net investment income.............................................................. (0.09) ------- Total Distributions....................................................................................... (0.57) ------- Net asset value, end of period............................................................................ $ 8.82 ======= TOTAL RETURN(1)........................................................................................... (4.82)% ======= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets................................................................... 0.96% Ratio of net investment income to average net assets...................................................... 5.08% Portfolio turnover........................................................................................ 62% Net Assets, end of period (in thousands).................................................................. $15,401 - --------------- (1) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares. (2) Financial highlights, including total return, have not been annualized. Per share information has been calculated using the average number of shares outstanding. Portfolio turnover is for the year ended October 31, 1994.
3 135 Selected data for Class B shares outstanding throughout each period is as follows:
CLASS B SHARES ------------------------------------------------------------------------------------------------- PERIODS ENDED YEAR ENDED OCTOBER 31, ------------------------- --------------------------------------------------------------------- OCTOBER 31, APRIL 30, 1994 1993 1992 1991 1990 1989 1988 1987(1)(4) 1987(2)(4) -------- -------- ------- ------- ------- ------- ------- ------------ ---------- Per share income and capital changes for a Class B Share outstanding during each period: Net asset value, beginning of period.................. $9.98 $9.39 $9.31 $9.07 $9.29 $9.25 $8.62 $9.49 $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment income....... 0.48 0.53 0.55 0.54 0.55 0.55 0.62 0.37 0.53 Net realized and unrealized gain (loss) on investments................ (0.90) 0.72 0.17 0.34 (0.14) 0.13 0.70 (0.87 ) (0.51 ) -------- -------- ------- ------- ------- ------- ------- ------ ---------- Total from Investment Operations................. (0.42) 1.25 0.72 0.88 0.41 0.68 1.32 (0.50) 0.02 LESS DISTRIBUTIONS Dividends from net investment income.......... (0.48) (0.56) (0.55) (0.54) (0.55) (0.51) (0.66) (0.37) (0.53) Dividends in excess of net investment income.......... (0.07) -- -- -- -- -- -- -- -- Distributions from realized gains...................... (0.19) (0.10) (0.09) -- -- -- (0.03) -- -- Returns of capital.......... -- -- -- (0.10) (0.08) (0.13) -- -- -- -------- -------- ------- ------- ------- ------- ------- ------ ---------- Total Distributions......... (0.74) (0.66) (0.64) (0.64) (0.63) (0.64) (0.69) (0.37) (0.53) -------- -------- ------- ------- ------- ------- ------- ------ ---------- Net asset value, end of period..................... $8.82 $9.98 $9.39 $9.31 $9.07 $9.29 $9.25 $8.62 $9.49 ========= ========= ======== ======== ======== ======== ======== ============= ============ TOTAL RETURN(3)............. (4.44)% 13.69% 7.89% 10.07% 4.60% 7.54% 15.88% (5.13)% 0.12% ========= ========= ======== ======== ======== ======== ======== ============= ============ RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets................. 1.85% 2.06% 2.17% 2.36% 2.20% 2.32% 2.05% 0.82% 1.07% Ratio of expense reimbursement to average net assets................. -- -- -- -- -- -- -- (0.21)% (0.51)% -------- -------- ------- ------- ------- ------- ------- ------ ---------- Ratio of net expenses to average net assets......... 1.85% 2.06% 2.17% 2.36% 2.20% 2.32% 2.05% 0.61% 0.56% ========= ========= ======== ======== ======== ======== ======== ============= ============ Ratio of net investment income to average net assets..................... 5.36% 5.23% 5.78% 5.61% 5.96% 5.79% 6.66% 4.05% 4.96% Portfolio turnover.......... 62% 100% 40% 83% 41% 29% 82% 42% 153% Net Assets, end of period (in thousands)............. $151,069 $113,442 $65,933 $51,467 $35,820 $29,841 $24,278 $ 15,026 $ 15,753
- --------------- [FN] (1) Financial highlights, including total return, are for the period from May 1, 1987 (date of Fund's initial offering of shares to the public as a Portfolio of the Company) to October 31, 1987 and have not been annualized. (2) Financial highlights, including total return, are for the period from August 25, 1986 (date of Fund's initial offering of shares to the public) to April 30, 1987 and have not been annualized. (3) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares. (4) Financial highlights, including total return, have not been annualized. Per share information has been calculated using the average number of shares outstanding. Portfolio turnover is for the year ended October 31, 1994. 4 136 INVESTMENT OBJECTIVE AND POLICIES The Fund's primary investment objective is to obtain a high level of current income that is largely exempt from federal income taxes and is consistent with the preservation of capital. The Fund pursues this objective by normally investing substantially all of its assets in medium and lower quality obligations, including bonds, notes and commercial paper, issued by or on behalf of states, territories and possessions of the United States, the District of Columbia and their political subdivisions, agencies or instrumentalities, the interest on which is exempt from federal income tax ("tax-exempt securities"). The Fund seeks as its secondary objective preservation of capital by purchasing and selling interest rate futures contracts ("financial futures") and tax-exempt bond index futures contracts ("index futures"), and by purchasing and writing put and call options on debt securities, financial futures, tax-exempt bond indices and index futures to hedge against changes in the general level of interest rates. - ------------------------------------------------------------------------------- THE FUND SEEKS TO OBTAIN A HIGH LEVEL OF CURRENT INCOME THAT IS LARGELY EXEMPT FROM FEDERAL INCOME TAXES AND IS CONSISTENT WITH THE PRESERVATION OF CAPITAL. - ------------------------------------------------------------------------------- As a fundamental policy, the Fund invests, in normal circumstances, at least 80% of its total assets in municipal bonds ("Municipal Bonds") rated, at the time of purchase, "A", "Baa" or "Ba" by Moody's Investor Services, Inc. ("Moody's"); or "A", "BBB" or "BB" by Standard and Poor's Ratings Group ("S&P"); or, if unrated, that are of comparable quality as determined by John Hancock Advisers, Inc. (the "Adviser"). Municipal Bonds rated lower than "Ba" or "BB" may be bought by the Fund. However, the Fund will limit its investments in such securities to not more than 5% of its total assets at the time of purchase. The Fund may invest in Municipal Bonds with ratings as low as "CC" by S&P or "Ca" by Moody's, but will invest in securities rated lower than "Ba" or "BB" only where, in the opinion of the Adviser, the rating does not accurately reflect the true quality of the credit of the issuer and the quality of such securities is comparable to that of securities rated at least "Ba" or "BB". The rating limitations applicable to the Fund's investments apply at the time of acquisition of a security; any subsequent change in the rating or quality of a security will not require the Fund to sell the security. A general description of Moody's and S&P's ratings and the distribution of the Fund's assets across the various rating categories are set forth in Appendix B. Municipal Bonds rated lower than Baa or BBB by Moody's or S&P, respectively, and unrated Municipal Bonds of comparable quality (commonly called "junk bonds") generally have larger price fluctuations and involve increased risks to the principal and interest than do higher rated securities. Many of these securities are considered to be speculative investments. In general, these risks include: (1) substantial market price volatility; (2) changes in credit status, including weaker overall credit condition of issuers and risks of default; and (3) industry, market and economic risks, including limited liquidity and secondary market support. The risks of lower rated and unrated securities are discussed in greater detail under "Investments, Techniques and Risk Factors" and should be carefully considered by investors. "Tax-exempt securities" are debt obligations generally issued by or on behalf of states, territories and possessions of the United States, the District of Columbia 5 137 and their political subdivisions, agencies or instrumentalities the interest on which, in the opinion of the bond issuer's counsel (not the Fund's counsel), is excluded from gross income for federal income tax purposes. These securities consist of Municipal Bonds, municipal notes and municipal commercial paper as well as variable or floating rate obligations and participation interests. In addition to the hedging strategies employed by the Fund in pursuit of its secondary objective of preservation of capital, the Fund can purchase bonds rated "BBB" and "BB" or "Baa" and "Ba," where based upon price, yield and the Adviser's assessment of quality, investment in such bonds is determined to be consistent with the Fund's secondary objective of preserving capital. To the extent that the Fund purchases, retains or disposes of such bonds for this purpose, the Fund may not earn as high a yield as might otherwise be obtainable from lower quality securities. While the Fund normally will invest primarily in medium and lower quality Municipal Bonds as indicated above, it may invest in higher quality tax-exempt securities, particularly when the difference in returns between rating classifications is very narrow. To the extent that the Fund does not invest in medium and lower quality Municipal Bonds, it will attempt to invest its assets in tax-exempt securities that are rated at least as high as follows: (1) Municipal Commercial Paper rated "MIG-3" by Moody's, or "A-3" by S&P; (2) Municipal Notes rated "MIG-3" by Moody's or "SP-2" by S&P; and (3) Municipal Variable Rate Demand Obligations rated "VMIG3" by Moody's, or "SP2/A-3" and "A/A-3" by S&P. The Fund may write (sell) covered call and put options on debt securities and interest rate and tax-exempt bond index futures contracts. The Fund may purchase call and put options on these securities, futures 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 tax-exempt bond index futures contracts and options on such futures contracts to hedge against changes in interest rates. The Fund may invest in variable rate and floating rate obligations, including inverse floating rate obligations, on which the interest rate is adjusted at predesignated periodic intervals or when there is a change in the market rate of interest on which the interest rate payable on the obligation is 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 and certain other investments. The Fund may purchase tax-exempt participation interests and certificates of participation ("COPs"), lend its portfolio securities, enter into repurchase agree- 6 138 ments, 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. For temporary purposes (such as pending new investments) or liquidity purposes (such as to meet redemption obligations), the Fund may invest up to 20% of its total assets in taxable short-term debt securities with remaining maturities of one year or less ("money market instruments"), including obligations guaranteed or issued by the U.S. Government, its agencies or instrumentalities ("U.S. Government securities"), high quality corporate debt securities, high quality commercial paper, certificates of deposit, bankers' acceptances and related repurchase agreements. For defensive purposes, the Fund may temporarily invest more than 20% of the value of its total assets in taxable money market instruments to enhance liquidity or preserve capital when, in the Adviser's opinion, it is advisable to do so because of prevailing market conditions so long as at the end of any quarter of its taxable year, tax-exempt securities comprise at least 50% of the Fund's total assets. 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 objectives and its policy to invest (under normal circumstances) 80% of its total assets in Municipal Bonds rated "A," "Baa" or "Ba" by Moody's; "A" "BBB" or "BB" by S&P; or, if unrated, that are of comparable quality, 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 Board of Directors without shareholder approval. Notwithstanding the Fund's fundamental investment restriction prohibiting investments in other investment companies, the Fund may, pursuant to an order granted by the SEC, invest in other investment companies in connection with a deferred compensation plan for the non-interested Trustees of the John Hancock funds. - ------------------------------------------------------------------------------- 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." The primary consideration in choosing brokerage firms to carry out the Fund's transactions is execution at the most favorable prices, taking into account the broker's professional ability and quality of service. Consideration may also be given to the broker's sales of Fund shares. Pursuant to procedures determined by the Board of Directors, the Adviser may place securities transactions with brokers affiliated with the Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life Company"), which in turn indirectly owns the Adviser. - ------------------------------------------------------------------------------- BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION. - ------------------------------------------------------------------------------- 7 139 ORGANIZATION AND MANAGEMENT OF THE FUND The Fund is a diversified series of the Company, an open-end management investment company organized as a Maryland corporation in 1987. The Company reserves the right to create and issue a number of series of shares, or funds or classes thereof, which are separately managed and have different investment objectives. The Board of Directors has authorized the issuance of two classes of the Fund, designated 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 Company is not required to and does not intend to hold annual meetings of shareholders, although special meetings may be held for such purposes as electing or removing Directors, changing fundamental policies or approving a management contract. The Company, under certain circumstances, will assist in shareholder communications with other shareholders. - ------------------------------------------------------------------------------- THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTORS' POLICIES AND SUPERVISION. - ------------------------------------------------------------------------------- The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of the Life Company, a financial services company. The Adviser provides the Fund and other investment companies in the John Hancock group of funds with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of the John Hancock mutual funds through brokers that have agreements with John Hancock Funds ("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 $13 BILLION. - ------------------------------------------------------------------------------- All investment decisions are made by the Adviser's fixed-income portfolio management team and no single person is primarily responsible for making recommendations to the team. In order to avoid any conflict with portfolio trades for the Fund, the Adviser and the Fund have adopted extensive restrictions on personal securities trading by personnel of the Adviser and its affiliates. Some of these restrictions are: preclearance for all personal trades and a ban on the purchase of initial public offerings, as well as contributions to specified charities of profits on securities held for less than 91 days. These restrictions are a continuation of the basic principle that the interests of the Fund and its shareholders come first. 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. - ------------------------------------------------------------------------------- 8 140 CLASS A SHARES. If you elect to purchase Class A shares, you will incur an initial sales charge unless the amount of your purchase is $1 million or more. If you purchase $1 million or more of Class A shares, you will not be subject to an initial sales charge, but you will incur a sales charge if you redeem your shares within one year of purchase. Class A shares are subject to ongoing distribution and service fees at a combined annual rate of up to 0.25% of the Fund's average daily net assets attributable to the Class A shares. Certain purchases of Class A shares qualify for reduced initial sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES CHARGE. - ------------------------------------------------------------------------------- CLASS B SHARES. You will not incur a sales charge when you purchase Class B shares, but the shares are subject to a sales charge if you redeem them within six years of purchase (the "contingent deferred sales charge" or the "CDSC"). Class B shares are subject to ongoing distribution and service fees at a combined annual rate of up to 1.00% of the Fund's average daily net assets attributable to the Class B shares. Investing in Class B shares permits all of your dollars to work from the time you make your investment, but the higher ongoing distribution fee will cause these shares to have higher expenses than those of Class A shares. To the extent that any dividends are paid by the Fund, these higher expenses will also result in lower dividends than those paid on Class A shares. - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS B SHARES ARE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. - ------------------------------------------------------------------------------- Class B shares are not available for full-service defined contribution plans administered by Investor Services or the Life Company that had more than 100 eligible employees at the inception of the Fund account. FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE The alternative purchase arrangement allows you to choose the most beneficial way to buy shares, given the amount of your purchase, the length of time you expect to hold your shares and other circumstances. You should consider whether, during the anticipated life of your Fund investment, the CDSC and accumulated fees on Class B shares would be less than the initial sales charge and accumulated fees on Class A shares purchased at the same time, and to what extent this differential would be offset by the Class A shares' lower expenses. To help you make this determination, the table under the caption "Expense Information" on the inside cover page of this Prospectus shows examples of the charges applicable to each class of shares. Class A shares will normally be more beneficial if you qualify for reduced sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- YOU SHOULD CONSIDER WHICH CLASS OF SHARES WOULD BE MORE BENEFICIAL TO YOU. - ------------------------------------------------------------------------------- Class A shares are subject to lower distribution fees and, accordingly, pay correspondingly higher dividends per share, to the extent any dividends are paid. However, because initial sales charges are deducted at the time of purchase, you would not have all of your funds invested initially and, therefore, would initially own fewer shares. If you do not qualify for reduced initial sales charges and expect to maintain your investment for an extended period of time, you might consider 9 141 purchasing Class A shares. This is because the accumulated distribution and service charges on Class B shares may exceed the initial sales charge and accumulated distribution and service charges on Class A shares during the life of your investment. Alternatively, you might determine that it is more advantageous to purchase Class B shares to have all of your funds invested initially. However, you will be subject to higher distribution and service fees and, for a six-year period, a CDSC. In the case of Class A shares, the distribution expenses that John Hancock Funds incurs in connection with the sale of the shares will be paid from the proceeds of the initial sales charge and ongoing distribution and service fees. In the case of Class B shares, the expenses will be paid from the proceeds of the ongoing distribution and service fees, as well as from the CDSC incurred upon redemption within six years of purchase. The purpose and function of the Class B shares' CDSC and ongoing distribution and service fees are the same as those of the Class A shares' initial sales charge and ongoing distribution and service fees. Sales personnel distributing the Fund's shares may receive different compensation for selling each class of shares. Dividends, if any, on Class A and Class B shares will be calculated in the same manner, at the same time and on the same day. They also will be in the same amount, except for differences resulting from each class bearing only its own distribution and service fees, shareholder meeting expenses and any incremental transfer agency costs. See "Dividends and Taxes." THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a monthly fee to the Adviser at the following annual rates of the Fund's average daily net assets: 0.625% on assets up to $75 million, 0.5625% on assets of $75 million up to $150 million and 0.50% on assets of $150 million and over. During the Fund's most recent fiscal year, the advisory fee was 0.59% of the Fund's average daily net assets. 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% 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. Up to 0.25% for Class A shares and Class B shares is for service expenses and the remaining amount is for distribution expenses. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; (iii) unreimbursed distribution expenses under the Fund's prior distribution plans; (iv) distribution expenses incurred by other investment companies which sell all or substantially all of their assets to, merge with or otherwise engage in a reorganization transaction with the Fund; and (v) with respect to Class B shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers for providing personal and account maintenance services to shareholders. - ------------------------------------------------------------------------------- THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED SHAREHOLDER SERVICING. - ------------------------------------------------------------------------------- 10 142 In the event John Hancock Funds is not fully reimbursed for payments made or expenses incurred by it under the Class A Plan, these expenses will not be carried beyond one year from the date they were incurred. Unreimbursed expenses under the Class B Plan will be carried forward together with interest on the balance of these unreimbursed expenses. For the fiscal year ended October 31, 1994, an aggregate of $6,227,263 of distribution expenses or 4.35% of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. Information on the Fund's total expenses is in the Financial Highlights section of this Prospectus. DIVIDENDS AND TAXES DIVIDENDS. The Fund generally declares daily and distributes monthly dividends representing all or substantially all of its net investment income. The Fund may distribute net short-term and long-term capital gains, if any, at least annually. - ------------------------------------------------------------------------------- THE FUND GENERALLY DECLARES DAILY AND DISTRIBUTES MONTHLY DIVIDENDS. - ------------------------------------------------------------------------------- Dividends are reinvested in additional shares of your class unless you elect the option to receive them in cash. If you elect the cash option and the U.S. Postal Service cannot deliver your checks, your election will be converted to the reinvestment option. Because of the higher expenses associated with Class B shares, any dividends on these shares will be lower than those on the Class A shares. See "Share Price." TAXATION. The Fund intends to meet certain federal tax requirements so that its distributions of the tax-exempt interest it earns may be treated as "exempt-interest dividends," which you are entitled to treat as tax-exempt interest. That portion of exempt-interest dividends, if any, attributable to interest on certain tax-exempt obligations that are "private activity bonds" may increase certain shareholders' alternative minimum tax. Any exempt-interest dividend may increase a corporate shareholder's alternative minimum tax. Shareholders receiving social security benefits and certain railroad retirement benefits may be subject to Federal income tax on a portion of such benefits as a result of receiving investment income, including tax-exempt income (such as exempt-interest dividends) and other dividends paid by the Fund. Shares of the Fund may not be an appropriate investment for persons who are "substantial users" of facilities financed by industrial development or private activity bonds, or persons related to "substantial users." Consult your tax adviser if you think this may apply to you. 11 143 Certain of the Fund's permitted investments may produce taxable income or taxable capital gains. Dividends from the Fund's net taxable income, if any, including any accrued 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 gains. These dividends are taxable, whether received in cash or reinvested in additional shares. Certain dividends may be paid by the Fund in January of a given year but may be treated as if you received them the previous December. The Fund has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, the Fund will not be subject to Federal income tax on any net investment income or net realized capital gains distributed to its shareholders within the time period prescribed by the Code. When you redeem (sell) or exchange shares, you may realize a taxable gain or loss. On the account application you must certify that the social security or other taxpayer identification number you provide is your correct number and that you are not subject to backup withholding of Federal income tax. If you do not provide this information or are otherwise subject to this withholding, the Fund may be required to withhold 31% of your taxable dividends and the proceeds of redemptions or exchanges. In addition to Federal taxes with respect to any distributions that are not exempt-interest dividends, you may be subject to state, local or foreign taxes with respect to your investment in and distributions from the Fund. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent the Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations and/or tax-exempt municipal obligations issued by or on behalf of the particular state, or a political subdivision thereof in which you are subject to tax, provided in some states that certain thresholds for holdings of such 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. - ------------------------------------------------------------------------------- 12 144 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'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 by 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 calculations for Class B shares reflect 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. 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 and yield 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." 13 145 HOW TO BUY SHARES - -------------------------------------------------------------------------------- The minimum initial investment in Class A and Class B shares is $1,000 ($250 for group investments and retirement plans). Complete the Account Application attached to this Prospectus. Indicate whether you are purchasing Class A or Class B shares. If you do not specify which class of shares you are purchasing, Investor Services will assume that you are investing in Class A shares.
- ------------------------------------------------------------------------------- OPENING AN ACCOUNT - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- BY CHECK 1. Make your check payable to John Hancock Investor Services Corporation, P.O. Box 9115, Boston, MA 02205-9115. 2. Deliver the completed application and check to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- BY WIRE 1. Obtain an account number by contacting your registered representative or Selling Broker, or by calling 1-800-225-5291. 2. Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock High Yield Tax-Free Fund Class A or Class B shares Your Account Number Name(s) under which account is registered 3. Deliver the completed application to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- MONTHLY 1. Complete the "Automatic Investing" and "Bank Information" AUTOMATIC sections on the Account Privileges Application designating a ACCUMULATION bank account from which funds may be drawn. PROGRAM (MAAP) 2. The amount you elect to invest will be automatically withdrawn from your bank or credit union account. - ------------------------------------------------------------------------------- BUYING ADDITIONAL CLASS A AND CLASS B SHARES - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account Privileges Application designating a bank account from which your funds may be drawn. Note that in order to invest by phone, 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. - ---------------------------------------------------------------------------------
14 146 - -------------------------------------------------------------------------------- BY CHECK 1. Either complete the detachable stub included on your account statement or include a note with your investment listing the name of the Fund, the class of shares you own, your account number and the name(s) in which the account is registered. 2. Make your check payable to John Hancock Investor Services Corporation. 3. Mail the account information and check to: John Hancock Investor Services Corporation P.O. Box 9115 Boston, MA 02205-9115 or deliver it to your registered representative or Selling Broker. - ------------------------------------------------------------------------------- BUYING ADDITIONAL CLASS A AND CLASS B SHARES (CONTINUED) - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- BY WIRE Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock High Yield Tax-Free 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. - ---------------------------------------------------------------------------------
You will receive a statement of your account after any transaction that affects your share balance or registration (statements related to reinvestment of dividends and automatic investment/withdrawal plans will be sent to you quarterly). A tax information statement will be mailed to you by January 31 of each year. - ------------------------------------------------------------------------------- YOU WILL RECEIVE ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL RECORDKEEPING. - ------------------------------------------------------------------------------- SHARE PRICE The net asset value per share ("NAV") is the value of one share. The NAV is calculated by dividing the net assets of each class by the number of outstanding shares of that class. The NAV of each class can differ. Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith according to procedures approved by the Board of Directors. Short-term debt investments maturing within 60 days are valued at amortized cost, which the Board of Directors has determined approximates market value. If quotations are not readily available, assets are valued by a method that the Board believes accurately reflects fair value. The NAV is calculated once daily as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on each day that the Exchange is open. - ------------------------------------------------------------------------------- THE OFFERING PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PLUS A SALES CHARGE, IF APPLICABLE, WHICH WILL VARY WITH THE PURCHASE ALTERNATIVE YOU CHOOSE. - ------------------------------------------------------------------------------- Shares of the Fund are sold at the offering price based on the NAV computed after your investment request is received in good order by John Hancock Funds. If you buy shares of the Fund through a Selling Broker, the Selling Broker must receive 15 147 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. 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:
COMBINED SALES CHARGE AS REALLOWANCE REALLOWANCE TO SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS AMOUNT INVESTED A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF (INCLUDING SALES OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*) CHARGE) ---------------- --------------- --------------- ------------------ --------------------- 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%(***) (*) 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. In addition to the reallowance allowed to all Selling Brokers, John Hancock Funds will pay the following: round trip airfare to a resort will be offered to each registered representative of a Selling Broker (if the Selling Broker has agreed to participate) who sells certain amounts of shares of John Hancock funds. John Hancock Funds will make these incentive payments out of its own resources. 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. Other than distribution and service fees, the Fund does not bear distribution expenses. (**) No sales charge is payable at the time of purchase of Class A shares of $1 million or more, but a CDSC may be imposed in the event of certain redemption transactions within one year of purchase. (***) John Hancock Funds may pay a commission and the first year's service fee (as described in (+) below) to Selling Brokers who initiate and are responsible for purchases of Class A shares 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 of $10 million and over. (+) At the time of sale, John Hancock Funds pays to Selling Brokers the first year's service fee in advance in an amount equal to 0.25% of the net assets invested in the Fund at the time of the sale, and thereafter, it pays the service fee periodically in arrears in an amount up to 0.25% of the Fund's average annual net assets. Selling Brokers receive the fee as compensation for providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional Class A shares of the Fund. 16 148 In addition, John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate of up to 0.05% of the daily net assets of accounts attributable to these brokers. Under certain circumstances described below, investors in Class A shares may be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales Charge." CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A SHARES. Purchases of $1 million or more of Class A shares will be made at net asset value with no initial sales charge, but if the shares are redeemed within 12 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:
AMOUNT INVESTED CDSC RATE --------------- --------- $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%
Existing full service clients of the Life Company who were group annuity contract holders as of September 1, 1994 may purchase Class A shares with no initial sales charge, but 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 redeemed Class A shares. 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 Charges" below. QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in Class A shares of the Fund or a combination of funds within the John Hancock family of funds (except money market funds), you may qualify for a reduced sales charge on your investments in Class A shares through a LETTER OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE to take advantage of the value of your previous investments in Class A shares of the John Hancock funds in meeting the breakpoints for a - ------------------------------------------------------------------------------- YOU MAY QUALIFY FOR A REDUCED SALES CHARGE ON YOUR INVESTMENT IN CLASS A SHARES. - ------------------------------------------------------------------------------- 17 149 reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales charge will be based on the total of: 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 $20,000 and, subsequently, invest $80,000 in Class A shares of the Fund, the sales charge on this subsequent investment would be 3.75% and not 4.50% (the rate that would otherwise be applicable to investments of less than $100,000. See "Initial Sales Charge Alternative -- Class A Shares"). If you are in one of the following categories, you may purchase Class A shares of the Fund without paying a sales charge: - - A Director or officer of the Fund; a Director or officer of the Adviser and its affiliates or Selling Brokers; employees or sales representatives of any of the foregoing; retired officers, employees or Directors of any of the foregoing; a member of the immediate family of any of the foregoing; or any fund, pension, profit sharing or other benefit plan for the individuals described above. - ------------------------------------------------------------------------------- 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 type of depository institution, its trust departments or common trust funds if it is purchasing $1 million or more for non-discretionary customers or accounts.* - - A broker, dealer or registered investment adviser that has entered into an agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products made available to their clients. - - A former participant in an employee benefit plan with John Hancock Funds, when he/she withdraws from his/her plan and transfers any or all of his/her plan distributions directly to the Fund. - ------------------ *For investments made under these provisions, John Hancock Funds may make a payment out of its own resources to the Selling Broker in an amount not to exceed 0.25% of the amount invested. Class A shares of the Fund may be purchased without an initial sales charge in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. 18 150 CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares are offered at net asset value per share without a sales charge so that your entire initial investment will go to work at the time of purchase. However, Class B shares redeemed within six years of purchase will be subject to a CDSC at the rates set forth below. This charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. Accordingly, you will not be assessed a CDSC on increases in account value above the initial purchase price, including shares derived from dividend reinvestment. In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from shares you have held beyond the six-year CDSC redemption period or those you acquired through reinvestment of dividends, and next from the shares you have held the longest during the six-year period. The CDSC is waived on redemptions in certain circumstances. See the discussion "Waiver of Contingent Deferred Sales 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: - - 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
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses part of them to defray its expenses related to providing the Fund with distribution services connected to the sale of Class B shares, such as compensating Selling Brokers for selling these shares. The combination of the CDSC and the distribution and service fees makes it possible for the Fund to sell Class B shares without deducting a sales charge at the time of the purchase. The amount of the CDSC, if any, will vary depending on the number of years from the time you purchase your Class B shares until the time you redeem them. Solely for the purposes of determining this holding period, any payments you make during the month will be aggregated and deemed to have been made on the last day of the month. 19 151
YEAR IN WHICH CLASS B SHARES CONTINGENT DEFERRED SALES REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC ------------------ ----------------------------- First 5.0% Second 4.0% Third 3.0% Fourth 3.0% Fifth 2.0% Sixth 1.0% Seventh and thereafter None
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. 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 due to death or disability. - - Redemptions made under the Reinvestment Privilege, as described in "Additional Services and Programs" of this Prospectus. - - Redemptions made pursuant to the Fund's right to liquidate your account if you have less than $500 invested in the Fund. - - Redemptions made in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. If you qualify for a CDSC waiver under one of these situations, you must notify Investor Services either directly or through your Selling Broker at the time you make your redemption. The waiver will be granted once Investor Services has confirmed that you are entitled to the waiver. CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of reinvested dividends on those shares will be converted into Class A shares automatically. This will occur no later than the month following eight years after the shares were purchased, and will result in lower annual distribution fees. If you exchanged Class B shares into the Fund from another John Hancock fund, the calculation will be based on the time you purchased the shares in the original fund. The Fund has been advised that the conversion of Class B shares to Class A shares should not be taxable for Federal income tax purposes and should not change a shareholder's tax basis or tax holding period for the converted shares. 20 152 HOW TO REDEEM SHARES You may redeem all or a portion of your shares on any business day. Your shares will be redeemed at the next NAV calculated after your redemption request is received in good order by Investor Services, less any applicable CDSC. The Fund may hold payment until it is reasonably satisfied that investments recently made by check or Invest-by-Phone have been collected (which may take up to 10 calendar days). - ------------------------------------------------------------------------------- TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE PROCEDURES. - ------------------------------------------------------------------------------- Once your shares are redeemed, the Fund generally sends you payment on the next business day. When you redeem your shares, you may realize a taxable gain or loss depending usually on the difference between what you paid for them and what you receive for them, subject to certain tax rules. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities laws. - -------------------------------------------------------------------------------- BY TELEPHONE All Fund shareholders are automatically eligible for the telephone redemption privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time), Monday through Friday, excluding days on which the Exchange is closed. Investor Services employs the following procedures to confirm that instructions received by telephone are genuine. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. You may redeem up to $100,000 by telephone, but the address on the account must not have changed for the last thirty days. A check will be mailed to the exact name(s) and address shown on the account. If reasonable procedures, such as those described above, are not followed, the Fund may be liable for any loss due to unauthorized or fraudulent telephone instructions. In all other cases, neither the Fund nor Investor Services will be liable for any loss or expense for acting upon telephone instructions made in accordance with the telephone transaction procedures mentioned above. Telephone redemption is not available for 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. - ---------------------------------------------------------------------------------
21 153 - -------------------------------------------------------------------------------- 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. - ---------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS --------------------------------- -------------------------------------------- Individual, Joint Tenants, Sole A letter of instruction signed (with titles Proprietorship, Custodial where applicable) by all persons authorized (Uniform Gifts or Transfer to to sign for the account, exactly as it is Minors Act), General Partners registered with the signature(s) guaran- teed. Corporation, Association A letter of instruction and a corporate resolution, signed by person(s) authorized to act on the account with the 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 $500 and to mail the proceeds to the shareholder, or the transfer agent may impose an annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value of the account is in excess of the Fund's minimum initial investment or if the value of the account falls below the required minimum as a result of market action. No CDSC will be imposed on involuntary redemptions of shares. Shareholders will be notified before these redemptions are to be made or this fee is imposed, and will have 60 days to purchase additional shares to bring their account balance up to the required minimum. Unless the number of shares acquired by further purchases and dividend reinvestments, if any, exceeds the number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this policy. - ---------------------------------------------------------------------------------
22 154 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 Adjustable U.S. Government Trust will be subject to the initial fund's CDSC). For purposes of computing the CDSC payable upon redemption of shares acquired in an exchange, the holding period of the original shares is added to the holding period of the shares acquired in an exchange. However, if you exchange Class B shares purchased prior to January 1, 1994 for Class B shares of any other John Hancock fund, you will be subject to the CDSC schedule in effect on your initial purchase date. You may exchange Class B shares of the Fund into shares of a John Hancock money market fund at net asset value. However, you will continue to be subject to a CDSC upon redemption. The rate of the CDSC will be the rate in effect for the original Fund at the time of exchange. The Fund reserves the right to require you to keep previously exchanged shares (and reinvested dividends) in the Fund for 90 days before you are permitted to execute a new exchange. The Fund may also terminate or alter the terms of the exchange privilege, upon 60 days' notice to shareholders. An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares in another for Federal income tax purposes. An exchange may result in a taxable gain or loss. When you make an exchange, your account registration in both the existing and new account must be identical. The exchange privilege is available only in states where the exchange can be made legally. 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 23 155 restrictions that do not apply to exchanges requested by shareholders directly, as described above. Because Fund performance and shareholders can be hurt by excessive trading, the Fund reserves the right to terminate the exchange privilege for any person or group that, in John Hancock Funds' judgment, is involved in a pattern of exchanges that coincide with a "market timing" strategy that may disrupt the Fund's ability to invest effectively according to its investment objective and policies, or might otherwise affect the Fund and its shareholders adversely. The Fund may also temporarily or permanently terminate the exchange privilege for any person who makes seven or more exchanges out of the Fund per calendar year. Accounts under common control or ownership will be aggregated for this purpose. Although the Fund will attempt to give you prior notice whenever it is reasonably able to do so, it may impose these restrictions at any time. BY TELEPHONE 1. When you complete the application for your initial purchase of Fund shares, you automatically authorize exchanges by telephone unless you check the box indicating that you do not wish to authorize telephone exchanges. 2. Call 1-800-225-5291. Have the account number of your current fund and the exact name in which it is registered available to give to the telephone representative. 3. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. IN WRITING 1. In a letter, request an exchange and list the following: -- the name and class of the Fund whose shares you currently own -- your account number -- the name(s) in which the account is registered -- the name of the fund in which you wish your exchange to be invested -- the number of shares, all shares or dollar amount you wish to exchange Sign your request exactly as the account is registered. 2. Mail the request and information to: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 24 156 REINVESTMENT PRIVILEGE 1. You will not be subject to a sales charge on Class A shares reinvested in shares of any John Hancock fund that is otherwise subject to a sales charge as long as you reinvest within 120 days from the redemption date. If you paid a CDSC upon a redemption, you may reinvest at net asset value in the same class of shares from which you redeemed within 120 days. Your account will be credited with the amount of the CDSC previously charged, and the reinvested shares will continue to be subject to a CDSC. For purposes of computing the CDSC payable upon a subsequent redemption, the holding period of the shares acquired through reinvestment will include the holding period of the redeemed shares. - ------------------------------------------------------------------------------- IF YOU REDEEM SHARES OF THE FUND, YOU MAY BE ABLE TO REINVEST ALL OR PART OF THE PROCEEDS IN THE 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 by calling your registered representative or by calling 1-800-225-5291. 2. To be eligible, you must have at least $5,000 in your account. 3. Payments from your account can be made monthly, quarterly, semi-annually or annually or on a selected monthly basis to yourself or any other designated payee. - ------------------------------------------------------------------------------- YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS. - ------------------------------------------------------------------------------- 4. There is no limit on the number of payees you may authorize, but all payments must be made at the same time or intervals. 5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently with purchases of additional Class A or Class B shares, because you may be subject to initial sales charges on your purchases of Class A shares or to a CDSC on your redemptions of Class B shares. In addition, your redemptions are taxable events. 6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver your checks or if deposits to a bank account are returned for any reason. MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) 1. You can authorize an investment to be automatically withdrawn each month from your bank for investment in Fund shares under the "Automatic Investing" and "Bank Information" sections of the Account Privileges Application. - ------------------------------------------------------------------------------- YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING. - ------------------------------------------------------------------------------- 25 157 2. You can also authorize automatic investment through payroll deduction by completing the "Direct Deposit Investing" section of the Account Privileges Application. 3. You can terminate your Monthly Automatic Accumulation Program plan at any time. 4. There is no charge to you for this program, and there is no cost to the Fund. 5. If you have payments being withdrawn from a bank account and we are notified that the account has been closed, your withdrawals will be discontinued. GROUP INVESTMENT PROGRAM 1. An individual account will be established for each participant, but the initial sales charge for Class A shares will be based on the aggregate dollar amount of all participants' investments. To determine how to qualify for this program, contact your registered representative or call 1-800-225-5291. - ------------------------------------------------------------------------------- ORGANIZED GROUPS OF AT LEAST FOUR PERSONS MAY ESTABLISH ACCOUNTS. - ------------------------------------------------------------------------------- 2. The initial aggregate investment of all participants in the group must be at least $250. 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 LOWER RATED SECURITIES. Debt obligations that are rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the ability of the issuer to make payments of interest and principal. The market price and liquidity of lower rated fixed income securities generally respond to short-term corporate and market developments to a greater extent than the price and liquidity of higher rated securities, because these developments are perceived to have a more direct relationship to the ability of an issuer of lower rated securities to meet its ongoing debt obligations. Reduced volume and liquidity in the high yield high risk bond market or the reduced availability of market quotations may make it more difficult to dispose of the bonds and to value accurately the Fund's assets. The reduced availability of reliable, objective data may increase the Fund's reliance on management's judgment in valuing high yield high risk bonds. In addition, the Fund's investments in high yield high risk securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. The Fund's investments, and consequently its net asset value, will be subject to the market fluctuations and risk inherent in all securities. UNRATED SECURITIES. Many issuers of fixed income securities choose not to have their obligations rated. Although unrated securities eligible for purchase by the 26 158 Fund must be determined to be comparable in quality to securities having specified ratings, the market for unrated securities may not be as broad as for rated securities since many investors rely on rating agencies for credit appraisal. In evaluating the creditworthiness of an issue, whether rated or unrated, the Adviser will take various factors into consideration, which may include the issuer's financial resources, its sensitivity to economic conditions and trends, the operating history of and the community support for the facility financed by the issue, the ability of the issuer's management and regulatory matters. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its total assets in illiquid investments, which include repurchase agreements maturing in more than seven days, restricted securities and securities that are not readily marketable. The Fund's investments in restricted securities eligible for resale to certain institutional investors pursuant to Rule 144A under the Securities Act of 1933 are subject to the foregoing limitation. 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 counterparty 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, liquid debt securities. However, these transactions 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. REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase agreements, which involve the sale of a security by the Fund to a bank or securities firm and its agreement to repurchase the instrument at a specified time and price plus an agreed amount of interest. The Fund will use the proceeds of reverse repurchase agreements to purchase other investments. Reverse repurchase agreements are considered to be borrowings by the Fund and as an investment practice may be considered speculative. The Fund will enter into a reverse repurchase agreement only when the Adviser determines that the interest income to be earned from the investment of the proceeds is greater than the interest expense of the transaction. To minimize various risks associated with reverse repurchase agreements, the Fund will establish and maintain with the Custodian a separate account consisting of cash or liquid, high grade debt securities in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. In addition, the Fund's investment restrictions provide that the Fund will not enter into reverse repurchase agreements exceeding, in the aggregate, 33 1/3% of the value of its total assets (including for this purpose other borrowings of the Fund). The Fund will enter into reverse repurchase agreements only with selected registered broker/ dealers or with federally insured banks or savings and loan associations which are 27 159 approved in advance as being creditworthy by the Board of Directors. Under procedures established by the Board of Directors, the Adviser will monitor the creditworthiness of the firms involved. The use of reverse repurchase agreements involves leverage. Leverage allows any investment gains made with the additional monies received (in excess of the costs of the reverse repurchase agreement) to increase the net asset value of the Fund's shares faster than would otherwise be the case. On the other hand, if the additional monies received are invested in ways that do not fully recover the costs of such transactions to the Fund, the net asset value of the Fund would fall faster than would otherwise be the case. WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities on a forward or "when-issued" basis and may purchase or sell securities on a forward commitment basis to hedge against anticipated changes in interest rates and prices. When the Fund engages in 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 gain, distributions from which would be taxable to shareholders, 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 "The Fund's Financial Highlights." OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts on debt securities and tax-exempt bond indices, interest rate and tax-exempt 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 investments 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's transactions in options and futures contracts may be limited by the requirements of the Code for qualification as a regulated investment company. See the Statement of Additional Information for further discussion of options and futures transactions, including tax effects and investment risks. 28 160 MUNICIPAL LEASE OBLIGATIONS. The Fund may purchase participation interests which give the Fund an undivided pro rata interest in a 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 illiquid securities. The Fund may also invest in COPs, 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 monitored pursuant to analysis by the Adviser and reviewed according to procedures adopted by the Board of Directors, which consider various factors in determining 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. CALLABLE BONDS. The Fund may purchase and hold callable Municipal Bonds which contain a provision in the indenture permitting the issuer to redeem the bonds prior to their maturity dates at a specified price which typically reflects a premium over the bonds' original issue price. These bonds generally have call- protection (a period of time during which the bonds may not be called) which usually lasts for 7 to 10 years, after which time such bonds may be called away. An issuer may generally be expected to call its bonds, or a portion of them during periods of relatively declining interest rates, when borrowings may be replaced at lower rates than those obtained in prior years. If the proceeds of a bond called under such circumstances are reinvested, the result may be a lower overall yield due to lower current interest rates. If the purchase price of such bonds included a premium related to the appreciated value of the bonds, some or all of that premium may not be recovered by bondholders, such as the Fund, depending on the price at which such bonds were redeemed. RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. Options and futures contracts are generally considered to be "derivative" instruments because they derive their value from the performance of an underlying asset, index or other economic benchmark. The variable rate and floating rate obligations in which the Fund may invest also are considered to be derivative 29 161 instruments. The risks associated with the Fund's transactions in options, futures and other derivative instruments may include some or all of the following: Market Risk. Options and futures transactions, as well as other derivative instruments, involve the risk that the applicable market will move against the Fund's derivative 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 increase or leverage the Fund's exposure to a particular market risk, which may increase the volatility of the Fund's net asset value. The Fund may partially offset the leverage inherent in certain derivative instruments by maintaining a segregated account consisting of cash and liquid, high grade debt securities, by holding offsetting portfolio securities or currency positions 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 instruments, the assets underlying the derivative instrument and the Fund's portfolio assets. Credit Risk. Over-the-counter instruments involve a risk that the issuer or counterparty will fail to perform its contractual obligations. Liquidity and Valuation Risk. Some derivative instruments are not readily marketable or may become illiquid under adverse market conditions. In addition, during periods of extreme market volatility, an exchange may suspend or limit trading in an exchange-traded derivative instrument, 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. 30 162 APPENDIX A EQUIVALENT YIELDS: TAX EXEMPT VS. TAXABLE YIELD 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 1995. It gives the approximate yield a taxable security must earn at various income brackets to produce after-tax yields. TAX-FREE YIELDS 1995 TAX TABLE
SINGLE RETURN JOINT RETURN MARGINAL TAX-EXEMPT YIELD - ---------------- ---------------- INCOME TAX ---------------------------------------------------------------------- (TAXABLE INCOME) RATE 4% 5% 6% 7% 8% 9% 10% - ------------------------------------- ---------- ---------------------------------------------------------------------- $ 0-23,350 $ 0-39,000 15.0% 4.71% 5.88% 7.06% 8.24% 9.41% 10.59% 11.76% $ 23,351-56,550 $ 39,001-94,250 28.0% 5.56% 6.94% 8.33% 9.72% 11.11% 12.50% 13.89% $ 56,551-117,950 $ 94,251-143,600 31.0% 5.80% 7.25% 8.70% 10.14% 11.59% 13.04% 14.49% $117,951-256,500 $143,601-256,500 36.0% 6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63% Over $256,500 Over $256,500 39.6% 6.62% 8.28% 9.93% 11.59% 13.25% 14.90% 16.56%
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-1 163 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. Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. 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-1 164 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, CCC, CC: Debt rated BB, B, CCC and CC 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 and CC the highest 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 During the fiscal year ended October 31, 1994, the percentages of the Fund's assets invested in securities rated in particular rating categories by Moody's (or, if not by Moody's, by S&P) were, on a weighted average basis, as follows*:
PERCENTAGE OF MOODY'S (OR S&P) RATINGS TOTAL INVESTMENTS - ----------------------------------------------------------------------------- ----------------- Aaa.......................................................................... 9.28% Aa........................................................................... 1.69% A............................................................................ 2.94% Baa.......................................................................... 9.92% (BBB+, BBB, BBB-).......................................................... 2.40% Ba........................................................................... 11.09% (BB+, BB, BB-)............................................................. 1.63% Below Ba..................................................................... 1.60% Not Rated**.................................................................. 59.45%** ------ Total........................................................................ 100.00% ====== - --------------- * Based on average of month end portfolio holdings during fiscal year ended. Asset composition does not represent actual holdings on 10/31/94 nor does it imply that the overall quality of portfolio holdings is fixed. ** Of the amount not rated by either Moody's or S&P, the following percentages of the Fund's assets represent quality standards attributed by the Adviser to such non-rated securities at the time of purchase: 1.04%, AAA; 1.82%, A; 21.50%, Baa; 34.03%, Ba; and 1.06%, below Ba.
B-2 165 (NOTES) 166 (NOTES) 167 JOHN HANCOCK JOHN HANCOCK HIGH YIELD TAX-FREE FUND HIGH YIELD TAX-FREE FUND INVESTMENT ADVISER John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 CLASS A AND CLASS B SHARES PROSPECTUS PRINCIPAL DISTRIBUTOR MAY 15, 1995 John Hancock Funds, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 A MUTUAL FUND SEEKING TO OBTAIN A HIGH LEVEL OF CURRENT INCOME THAT IS LARGELY EXEMPT FROM FEDERAL INCOME TAXES AND CUSTODIAN IS CONSISTENT WITH Investors Bank & Trust Company PRESERVATION OF CAPITAL. 24 Federal Street Boston, Massachusetts 02110 TRANSFER AGENT John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 HOW TO OBTAIN INFORMATION ABOUT THE FUND For Service Information For Telephone Exchange call 1-800-225-5291 For Investment-by-Phone 101 HUNTINGTON AVENUE For Telephone Redemption BOSTON, MASSACHUSETTS 02199-7603 For TDD call 1-800-554-6713 TELEPHONE 1-800-225-5291 T470P 5/95 (LOGO) Printed on Recycled Paper 168 JOHN HANCOCK EMERGING GROWTH FUND CLASS A AND CLASS B SHARES PROSPECTUS MAY 15, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- Expense Information................................................................... 2 The Fund's Financial Highlights....................................................... 3 Investment Objective and Policies..................................................... 5 Organization and Management of the Fund............................................... 7 Alternative Purchase Arrangements..................................................... 8 The Fund's Expenses................................................................... 9 Dividends and Taxes................................................................... 10 Performance........................................................................... 11 How to Buy Shares..................................................................... 12 Share Price........................................................................... 14 How to Redeem Shares.................................................................. 19 Additional Services and Programs...................................................... 21 Investments, Techniques and Risk Factors.............................................. 25
This Prospectus sets forth the information about John Hancock Emerging Growth Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Company"), that you should know before investing. Please read and retain it for future reference. Additional information about the Fund and the Company has been filed with the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement of Additional Information, dated May 15, 1995 and incorporated by reference into this Prospectus, free of charge by writing or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD). SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 169 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 fees and expenses for the Fund for the fiscal year ended October 31, 1994 adjusted to reflect current sales charges. Actual fees and expenses of the Class A and Class B shares in the future may be greater or less than those indicated.
CLASS A CLASS B SHARES SHARES ------- ------- SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge imposed on purchases (as a percentage of offering price)........................ 5.00% 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....................................................................................... 0.75% 0.75% 12b-1 fee**.......................................................................................... 0.25% 1.00% Other expenses***.................................................................................... 0.44% 0.44% Total Fund operating expenses........................................................................ 1.44% 2.19%
* No sales charge is payable at the time of purchase on investments of $1 million or more, but for these investments a contingent deferred sales charge may be imposed, as described below under the caption "Share Price," in the event of certain redemption transactions within one year of purchase. ** The amount of the Rule 12b-1 fee used to cover service expenses will be up to 0.25% of the Fund's average net assets, and the remaining portion will be used to cover distribution expenses. *** Other Expenses include transfer agent, legal, audit, custody and other expenses. + Redemption by wire fee (currently $4.00) not included.
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- 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............................................................... $ 64 $93 $ 125 $214 Class B Shares -- Assuming complete redemption at end of period......................... $ 72 $99 $ 137 $233 -- Assuming no redemption................................................ $ 22 $69 $ 117 $233
(This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown.) The Fund's payment of a distribution fee may result in a long-term shareholder indirectly paying more than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. The management and 12b-1 fees referred to above are more fully explained in this Prospectus under the caption "The Fund's Expenses" and in the Statement of Additional Information under the captions "Investment Advisory and Other Services" and "Distribution Contract." 2 170 THE FUND'S FINANCIAL HIGHLIGHTS The information in the following table of financial highlights has been audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified report is included in the Statement of Additional Information. Further information about the performance of the Fund is contained in the Fund's Annual Report to shareholders which may be obtained free of charge by writing or telephoning John Hancock Investor Services Corporation ("Investor Services") at the address or telephone number listed on the front page of this Prospectus. Selected data for Class A shares outstanding throughout each period is as follows:
CLASS A SHARES ---------------------------------------------------------- YEAR ENDED FROM OCTOBER 31, AUGUST 22, 1991 ------------------------------------ TO OCTOBER 31, 1994 1993 1992 1991(2) -------- ------- ------- --------------- PER SHARE INCOME AND CAPITAL CHANGES FOR A SHARE OUTSTANDING DURING EACH PERIOD:(1) Net asset value, beginning of period................................ $25.89 $20.60 $19.26 $18.12 INCOME FROM INVESTMENT OPERATIONS Net investment loss................................................. (0.18) (0.16) (0.20) (0.03) Net realized and unrealized gain on investments..................... 1.11 5.45 1.60 1.17 -------- ------- ------- ------- Total from Investment Operations.................................... 0.93 5.29 1.40 1.14 LESS DISTRIBUTIONS Distributions from realized gains................................... -- -- (0.06) -- -------- ------- ------- ------- Total Distributions................................................. -- -- (0.06) -- -------- ------- ------- ------- Net asset value, end of period...................................... $26.82 $25.89 $20.60 $19.26 ======== ======= ======= ====== TOTAL RETURN(3)..................................................... 3.59% 25.68% 7.32% 6.29% ======== ======= ======= ====== RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets............................. 1.44% 1.40% 1.67% 0.33% Ratio of net investment loss to average net assets.................. (0.71)% (0.70)% (1.03)% (0.15)% Portfolio turnover.................................................. 25% 29% 48% 66% Net Assets, end of period (in thousands)............................ $131,053 $81,263 $46,137 $38,859 - --------------- (1) Per share information has been calculated using the average number of shares outstanding. (2) Financial highlights, including total return, have not been annualized. Portfolio turnover is for the year ended October 31, 1991. (3) Total return does not include the effect of the initial sales charge for Class A Shares.
3 171 Selected data for Class B shares outstanding throughout each period is as follows:
CLASS B SHARES ------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED OCTOBER 31, OCT. ------------------------------------------------------------------------------- 31, 1994 1993 1992 1991 1990 1989 1988 1987(2) -------- -------- ------- ------- ------- ------ ------ ------- PER SHARE INCOME AND CAPITAL CHANGES FOR A SHARE OUTSTANDING DURING EACH PERIOD(1): Net asset value, beginning of period.......................... $25.33 $20.34 $19.22 $11.06 $12.76 $10.54 $ 7.89 $ 7.89 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss)...... (0.36) (0.36) (0.38) (0.30) (0.22) (0.08) 0.09 (0.0021) Net realized and unrealized gain (loss) on investments........... 1.07 5.35 1.56 8.46 (1.26) 2.83 2.56 0.0021 -------- -------- ------- ------- ------- ------ ------ ------- Total from Investment Operations...................... 0.71 4.99 1.18 8.16 (1.48) 2.75 2.65 0.0000 LESS DISTRIBUTIONS Dividends from net investment income.......................... -- -- -- -- -- (0.04) -- -- Distributions from realized gains........................... -- -- (0.06) -- (0.22) (0.49) -- -- -------- -------- ------- ------- ------- ------ ------ ------- Total Distributions............... -- -- (0.06) -- (0.22) (0.53) -- -- -------- -------- ------- ------- ------- ------ ------ ------- Net asset value, end of period.... $26.04 $25.33 $20.34 $19.22 $11.06 $12.76 $10.54 $7.89 ======== ======== ======= ======= ======= ====== ====== ======= TOTAL RETURN(3)................... 2.80% 24.53% 6.19% 73.78% (11.82)% 27.40% 33.59% 0.00% ======== ======== ======= ======= ======= ====== ====== ======= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets.......................... 2.19% 2.28% 2.64% 2.85% 3.11% 3.51% 5.64% 0.44% Ratio of expense reimbursement to average net assets.............. -- -- -- -- -- (0.03)% (2.59)% (0.41)% -------- -------- ------- ------- ------- ------ ------ ------- Ratio of net expenses to average net assets...................... 2.19% 2.28% 2.64% 2.85% 3.11% 3.48% 3.05% 0.03% -------- -------- ------- ------- ------- ------ ------ ------- Ratio of net investment income (loss) to average net assets.... (1.46)% (1.58)% (1.99)% (1.83)% (1.64)% (0.67)% 0.81% (0.03)% Portfolio turnover................ 25% 29% 48% 66% 82% 90% 252% 0% Net Assets, end of period (in thousands)...................... $283,435 $219,484 $86,923 $52,743 $11,668 $7,877 $3,232 $79 - --------------- (1) Per share information has been calculated using the average number of shares outstanding. (2) Financial highlights, including total return, are for the period October 26, 1987 (date of the Fund's initial offering of shares to the public) to October 31, 1987 and have not been annualized. (3) Total return does not include the effect of the contingent deferred sales charge for Class B Shares.
4 172 INVESTMENT OBJECTIVE AND POLICIES The Fund seeks long-term growth of capital through investing primarily (at least 80% of its assets in normal circumstances) in the common stocks of rapidly growing small-sized companies (those with a market capitalization of $500 million or less) to medium-sized companies (those with a market capitalization of up to $1 billion). Current income is not a factor of consequence in the selection of stocks for the Fund. In order to achieve its objective, the Fund invests in a diversified group of companies whose growth rates are expected to significantly exceed that of the average industrial company. It invests in these companies early in their corporate life cycle before they become widely recognized and well known, and while their reputations and track records are still emerging ("emerging growth companies"). Consequently, the Fund invests in the stocks of emerging growth companies whose capitalization, sales and earnings are smaller than those of the Fortune 500 companies. Further, the Fund's investments in emerging growth stocks may include those of more established companies which offer the possibility of rapidly accelerating earnings because of revitalized management, new products, or structural changes in the economy. - ------------------------------------------------------------------------------- THE FUND SEEKS LONG-TERM GROWTH OF CAPITAL THROUGH INVESTING PRIMARILY IN THE COMMON STOCKS OF RAPIDLY GROWING SMALL TO MEDIUM-SIZED COMPANIES. - ------------------------------------------------------------------------------- The nature of investing in emerging growth companies involves greater risk than is customarily associated with investments in more established companies. In particular, the value of securities of emerging growth companies tends to fluctuate more widely than other types of investments. Because emerging growth companies may be in the early stages of their development, they may be dependent on a relatively few products or services. They may also lack adequate capital reserves or may be dependent on one or two management individuals. Their stocks are often traded "over-the-counter" or on a regional exchange, and may not be traded in volumes typical of trading on a national exchange. Consequently, the investment risk is higher than that normally associated with larger, older, better-known companies. In order to help reduce this risk, the Fund allocates its investments among different industries. Most of the Fund's investments will be in equity securities of U.S. companies. However, since many emerging growth companies are located outside the United States, a significant portion of the Fund's investments may occasionally be invested in equity securities of non-U.S. companies. See "Investments, Techniques and Risk Factors" for a discussion of foreign securities and their risks. While the Fund will invest primarily in emerging growth companies, the balance of the Fund's assets may be invested in: (1) other common stocks; (2) preferred stocks; (3) convertible securities (up to 10% of the Fund's total assets may be invested in convertible securities rated as low as "B" by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") or, if unrated, determined by John Hancock Advisers, Inc. (the "Adviser") to be comparable in quality to those rated "B"); (4) warrants; and (5) debt obligations of the U.S. Government, its agencies and instrumentalities. 5 173 In order to provide liquidity for the purchase of new investments and to effect redemptions of its shares, the Fund will invest a portion of its assets in high quality, short-term debt securities with remaining maturities of one year or less, including U.S. Government securities, certificates of deposit, bankers' acceptances, commercial paper, corporate debt securities and related repurchase agreements. The Fund may lend its portfolio securities, enter into repurchase agreements and reverse repurchase agreements, and purchase restricted and illiquid securities. In addition, the Fund may write (sell) covered call and put options on equity securities, stock indices and stock index futures. The Fund may purchase call and put options on these securities, indices and futures. The Fund may also write straddles, which are combinations of put and call options on the same security. The Fund may buy and sell stock index futures contracts for hedging purposes. Options and futures contracts 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. During periods of unusual market conditions when the Adviser believes that investing for temporary defensive purposes is appropriate, part or all of the Fund's assets may be invested in cash or cash equivalents consisting of: (1) obligations of banks (including certificates of deposit, bankers' acceptances and repurchase agreements) with assets of $100,000,000 or more; (2) commercial paper rated within the two highest rating categories of a nationally recognized rating organization; (3) investment grade short-term notes; (4) obligations issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities; and (5) related repurchase agreements. 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 investment policies are nonfundamental, which means that they may be changed by the Board of Directors without shareholder approval. However, the Fund's investment objective may not be changed without 30 days' prior written notice first having been given to shareholders. If there is a change in the Fund's investment objective, you should consider whether the Fund remains an appropriate investment in light of your current financial position and needs. 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 funds. - ------------------------------------------------------------------------------- THE FUND FOLLOWS CERTAIN POLICIES WHICH MAY HELP TO REDUCE INVESTMENT RISK. - ------------------------------------------------------------------------------- RISK FACTORS. Because the value of the Fund's portfolio securities and therefore the Fund's net asset value per share will fluctuate with changes in general economic and market conditions, the net asset value per share at the time an 6 174 investor's shares are redeemed may be more or less than the value at the time of purchase. An investment in the Fund is intended for long-term investors who can accept the risks associated with investing primarily in emerging growth companies. For additional information about risks associated with an investment in the Fund, see "Investments, Techniques and Risk Factors." The primary consideration in choosing brokerage firms to carry out the Fund's transactions is execution at the most favorable prices, taking into account the broker's professional ability and quality of service. Consideration may also be given to the broker's sales of Fund shares. Pursuant to procedures determined by the Board of Directors, the Adviser may place securities transactions with brokers affiliated with the Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life Company"), which in turn indirectly owns the Adviser. - ------------------------------------------------------------------------------- BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION. - ------------------------------------------------------------------------------- ORGANIZATION AND MANAGEMENT OF THE FUND The Fund is a diversified portfolio of the Company, an open-end management investment company organized as a Maryland corporation in 1987. The Company reserves the right to create and issue a number of series of shares, or funds or classes thereof, which are separately managed and have different investment objectives. The Board of Directors has authorized the issuance of two classes of the Fund, designated 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 Company is not required to and does not intend to hold annual meetings of shareholders, although special meetings may be held for such purposes as electing or removing Directors, changing fundamental policies or approving a management contract. The Company, under certain circumstances, will assist in shareholder communications with other shareholders. - ------------------------------------------------------------------------------- THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTORS' POLICIES AND SUPERVISION. - ------------------------------------------------------------------------------- The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of the Life Company, a financial services company. The Adviser provides the Fund and other investment companies in the John Hancock group of funds with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of the John Hancock mutual funds through brokers that have agreements with John Hancock Funds ("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 $13 BILLION. - ------------------------------------------------------------------------------- Investment decisions are made by the Fund's portfolio manager, Edgar M. Larsen, Senior Vice President of the Adviser. Mr. Larsen has served as portfolio manager since the Fund's inception in 1987. In order to avoid any conflict with portfolio trades for the Fund, the Adviser and the Fund have adopted extensive restrictions on personal securities trading by 7 175 personnel of the Adviser and its affiliates. Some of these restrictions are: preclearance for all personal trades and a ban on the purchase of initial public offerings, as well as contributions to specified charities of profits on securities held for less than 91 days. These restrictions are a continuation of the basic principle that the interests of the Fund and its shareholders come first. ALTERNATIVE PURCHASE ARRANGEMENTS You can purchase shares of the Fund at a price equal to their net asset value per share plus a sales charge. At your election, this charge may be imposed either at the time of the purchase (see "Initial Sales Charge Alternative," Class A shares) or on a contingent deferred basis (the "Contingent Deferred Sales Charge Alternative," Class B shares). If you do not specify on your account application the class of shares you are purchasing, it will be assumed that you are investing in Class A shares. - ------------------------------------------------------------------------------- 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 of your purchase is $1 million or more. If you purchase $1 million or more of Class A shares, you will not be subject to an initial sales charge, but you will incur a sales charge if you redeem your shares within one year of purchase. Class A shares are subject to ongoing distribution and service fees at a combined annual rate of up to 0.25% of the Fund's average daily net assets attributable to the Class A shares. Certain purchases of Class A shares qualify for reduced initial sales charges. See "Share Price -- Qualifying for a Reduced Sales Charge." - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES CHARGE. - ------------------------------------------------------------------------------- CLASS B SHARES. You will not incur a sales charge when you purchase Class B shares, but the shares are subject to a sales charge if you redeem them within six years of purchase (the "contingent deferred sales charge" or the "CDSC"). Class B shares are subject to ongoing distribution and service fees at a combined annual rate of up to 1.00% of the Fund's average daily net assets attributable to the Class B shares. Investing in Class B shares permits all of your dollars to work from the time you make your investment, but the higher ongoing distribution fee will cause these shares to have higher expenses than those of Class A shares. To the extent that any dividends are paid by the Fund, these higher expenses will also result in lower dividends than those paid on Class A shares. - ------------------------------------------------------------------------------- INVESTMENTS IN CLASS B SHARES ARE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE. - ------------------------------------------------------------------------------- Class B shares are not available for full-service defined contribution plans administered by Investor Services or the Life Company that had more than 100 eligible employees at the inception of the Fund account. FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE The alternative purchase arrangement allows you to choose the most beneficial way to buy shares, given the amount of your purchase, the length of time you expect to hold your shares and other circumstances. You should consider whether, during the anticipated life of your Fund investment, the CDSC and accumulated fees on Class B shares would be less than the initial sales charge and accumulated fees on Class A shares purchased at the same time, and to what extent this differential would be - ------------------------------------------------------------------------------- YOU SHOULD CONSIDER WHICH CLASS OF SHARES WOULD BE MORE BENEFICIAL TO YOU. - ------------------------------------------------------------------------------- 8 176 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." Class A shares are subject to lower distribution fees and, accordingly, pay correspondingly higher dividends per share, to the extent any dividends are paid. However, because initial sales charges are deducted at the time of purchase, you would not have all of your funds invested initially and, therefore, would initially own fewer shares. If you do not qualify for reduced initial sales charges and expect to maintain your investment for an extended period of time, you might consider purchasing Class A shares. This is because the accumulated distribution and service charges on Class B shares may exceed the initial sales charge and accumulated distribution and service charges on Class A shares during the life of your investment. Alternatively, you might determine that it is more advantageous to purchase Class B shares to have all of your funds invested initially. However, you will be subject to higher distribution and service fees and, for a six-year period, a CDSC. In the case of Class A shares, the distribution expenses that John Hancock Funds incurs in connection with the sale of the shares will be paid from the proceeds of the initial sales charge and ongoing distribution and service fees. In the case of Class B shares, the expenses will be paid from the proceeds of the ongoing distribution and service fees, as well as from the CDSC incurred upon redemption within six years of purchase. The purpose and function of the Class B shares' CDSC and ongoing distribution and service fees are the same as those of the Class A shares' initial sales charge and ongoing distribution and service fees. Sales personnel distributing the Fund's shares may receive different compensation for selling each class of shares. Dividends, if any, on Class A and Class B shares will be calculated in the same manner, at the same time and on the same day. They also will be in the same amount, except for differences resulting from each class bearing only its own distribution and service fees, shareholder meeting expenses and any incremental transfer agency costs. See "Dividends and Taxes." THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a monthly fee to the Adviser at an annual rate of 0.75% of the Fund's average daily net assets. For the fiscal year ended October 31, 1994, the Fund paid an advisory fee of 0.75% of the Fund's average daily net assets to the Fund's former investment adviser. The advisory fee paid by the Fund is higher than that of most other investment companies. However, the Board of Directors has determined that such fee is reasonable in light of the highly specialized investment decisions and investment techniques employed by the Fund. 9 177 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% 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. In each case, up to 0.25% for Class A shares and Class B shares is for service expenses and the remaining amount is for distribution expenses. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; (iii) unreimbursed distribution expenses under the Fund's prior distribution plans; (iv) distribution expenses incurred by other investment companies which sell all or substantially all of their assets to, merge with or otherwise engage in a reorganization transaction with the Fund; and (v) with respect to Class B shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers for providing personal and account maintenance services to shareholders. [/R] - ------------------------------------------------------------------------------- THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED SHAREHOLDER SERVICING. - ------------------------------------------------------------------------------- In the event John Hancock Funds is not fully reimbursed for payments it makes or expenses it incurs under the Class A Plan, these expenses will not be carried beyond one year from the date they were incurred. Unreimbursed expenses under the Class B Plan will be carried forward together with interest on the balance of these unreimbursed expenses. For the fiscal year ended October 31, 1994, an aggregate of $10,122,481 of distribution expenses or 4.06% of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. Information on the Fund's total expenses is in the Financial Highlights section of this Prospectus. DIVIDENDS AND TAXES DIVIDENDS. The Fund generally declares and distributes dividends representing all or substantially all net investment income, if any, annually. The Fund will distribute net short-term or long-term capital gains, if any, at least annually. - ------------------------------------------------------------------------------- THE FUND GENERALLY DECLARES AND DISTRIBUTES DIVIDENDS ANNUALLY. - ------------------------------------------------------------------------------- Dividends are reinvested on the record dates in additional shares of your class unless you elect the option to receive them in cash. If you elect the cash option and the U.S. Postal Service cannot deliver your checks, your election will be converted to the reinvestment option. Because of the higher expenses associated with Class B shares, any dividends on these shares will be lower than those on the Class A shares. See "Share Price." TAXATION. Dividends from the Fund's net investment income, certain net foreign currency gains, and 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- 10 178 term capital gains. These dividends are taxable whether received in cash or reinvested in additional shares. Certain dividends paid by the Fund in January of a given year may be taxable to you as if you received them the prior December. Corporate shareholders may be entitled to take the corporate dividends received deduction for dividends received from the Fund that are attributable to dividends received by the Fund from U.S. domestic corporations, subject to certain restrictions under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of 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 that are distributed to its shareholders within the time period prescribed by the Code. When you redeem (sell) or exchange shares, you may realize a taxable gain or loss. On the account application, you must certify that the social security or other taxpayer identification number you provide is your correct number and that you are not subject to backup withholding of Federal income tax. If you do not provide this information or are otherwise subject to this withholding, the Fund may be required to withhold 31% of your dividends and proceeds of redemptions or exchanges. The Fund may be subject to foreign withholding taxes or other foreign taxes on income (possibly including capital gains) on certain of its foreign investments, if any, which will reduce the yield or return from those investments. The Fund expects that it will generally not qualify to pass such taxes through to its shareholders, who consequently will generally not include them in income or be entitled to associated foreign tax credits or deductions. In addition to Federal taxes, you may be subject to state, local or foreign taxes with respect to your investment in and distributions from the Fund. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent the Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders are subject to different tax treatment not described above. You should consult your tax adviser for specific advice. PERFORMANCE The Fund's total return shows the overall dollar or percentage change in value of a hypothetical investment in the Fund, assuming the reinvestment of all dividends. Cumulative total return shows the Fund's performance over a period of time. Average annual total return shows the cumulative return of the Fund's respective class of shares divided by 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. - ------------------------------------------------------------------------------- THE FUND MAY ADVERTISE ITS TOTAL RETURN. - ------------------------------------------------------------------------------- 11 179 Total return 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 calculations for the Class B shares reflect deduction of the applicable contingent deferred sales charge imposed on a redemption of shares held for the applicable period. All calculations assume that dividends are reinvested at net asset value on the reinvestment dates during the periods. Total return for 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 each class for the same period. The relative performance of the Class A and Class B shares will be affected by a variety of factors, including the higher operating expenses attributable to the Class B shares, whether the Fund's investment performance is better in the earlier or later portions of the period measured and the level of net assets of the classes during the period. The Fund will include the total return of both classes in any advertisement or promotional materials including Fund performance data. The value of the Fund's shares, when redeemed, may be more or less than their original cost. Total return is an historical calculation and is not an indication of future performance. See "Factors to Consider in Choosing an Alternative." HOW TO BUY SHARES - -------------------------------------------------------------------------------- The minimum initial investment in Class A and Class B shares is $1,000 ($250 for group investments and retirement plans). Complete the Account Application attached to this Prospectus. Indicate whether you are purchasing Class A or Class B shares. If you do not specify which class of shares you are purchasing, Investor Services will assume that you are investing in Class A shares.
- ------------------------------------------------------------------------------- OPENING AN ACCOUNT - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- BY CHECK 1. Make your check payable to John Hancock Investor Services Corporation, P.O. Box 9115, Boston, MA, 02205-9115. 2. Deliver the completed application and check to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- BY WIRE 1. Obtain an account number by contacting your registered representative or Selling Broker, or by calling 1-800-225-5291. 2. Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Emerging Growth Fund Class A or Class B shares Your Account Number Name(s) under which account is registered 3. Deliver the completed application to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- MONTHLY 1. Complete the "Automatic Investing" and "Bank Information" AUTOMATIC sections on the Account Privileges Application designating a ACCUMULATION bank account from which funds may be drawn. PROGRAM (MAAP) 2. The amount you elect to invest will be automatically withdrawn from your bank or credit union account. - --------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BUYING ADDITIONAL CLASS A AND CLASS B SHARES - -------------------------------------------------------------------------------
12 180 - -------------------------------------------------------------------------------- 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. - --------------------------------------------------------------------------------- BY CHECK 1. Either complete the detachable stub included on your account statement or include a note with your investment listing the name of the Fund, the class of shares you own, your account number and the name(s) in which the account is registered. 2. Make your check payable to John Hancock Investor Services Corporation. 3. Mail the account information and check to: John Hancock Investor Services Corporation P.O. Box 9115 Boston, MA 02205-9115 or deliver it to your registered representative or Selling Broker. - --------------------------------------------------------------------------------- BY WIRE Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Emerging Growth 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. - ---------------------------------------------------------------------------------
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. - ------------------------------------------------------------------------------- 13 181 SHARE PRICE The net asset value per share ("NAV") is the value of one share. The NAV is calculated by dividing the net assets of each class by the number of outstanding shares of that class. The NAV of each class can differ. Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith according to procedures approved by the Board of Directors. Short-term debt investments maturing within 60 days are valued at amortized cost, which the Board of Directors has determined approximates market value. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. If quotations are not readily available or the values have been materially affected by events occurring after the closing of a foreign market, assets are valued by a method that the Board believes accurately reflects fair value. The NAV is calculated once daily as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on each day that the Exchange is open. - ------------------------------------------------------------------------------- THE OFFERING PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PLUS A SALES CHARGE, IF APPLICABLE, WHICH WILL VARY WITH THE PURCHASE ALTERNATIVE YOU CHOOSE. - ------------------------------------------------------------------------------- Shares of the Fund are sold at the offering price based on the NAV computed after your investment request is received in good order by John Hancock Funds. If you buy shares of the Fund through a Selling Broker, the Selling Broker must receive your investment before the close of regular trading on the Exchange and transmit it to John Hancock Funds before its close of business to receive that day's offering price. 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:
COMBINED SALES CHARGE AS REALLOWANCE REALLOWANCE TO AMOUNT INVESTED SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS (INCLUDING SALES A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING PRICE(*) - ---------------- ---------------- --------------- ------------------ --------------------- Less than $50,000 5.00% 5.26% 4.25% 4.01% $50,000 to $99,999 4.50% 4.71% 3.75% 3.51% $100,000 to $249,999 3.50% 3.63% 2.85% 2.61% $250,000 to $499,999 2.50% 2.56% 2.10% 1.86% $500,000 to $999,999 2.00% 2.04% 1.60% 1.36% $1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***) (*) 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. In addition to the reallowance allowed to all Selling Brokers, John Hancock Funds will pay the following: round trip airfare to a resort will be offered to each registered representative of a Selling Broker (if the Selling Broker has agreed to participate) who sells certain amounts of shares of John Hancock funds. John Hancock Funds will make these incentive payments out of its own resources. 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. Other
14 182 than distribution and service fees, the Fund does not bear distribution expenses. (**) No sales charge is payable at the time of purchase of Class A shares of $1 million or more, but a CDSC may be imposed in the event of certain redemption transactions within one year of purchase. (***) John Hancock Funds may pay a commission and the first year's service fee (as described in (+) below) to Selling Brokers who initiate and are responsible for purchases of Class A shares 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 of $10 million and over. (+) At the time of sale, John Hancock Funds pays to Selling Brokers the first year's service fee in advance in an amount equal to 0.25% of the net assets invested in the Fund at the time of the sale, and thereafter, it pays the service fee periodically in arrears in an amount up to 0.25% of the Fund's average annual net assets. Selling Brokers receive the fee as compensation for providing personal and account maintenance services to shareholders. Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional Class A shares of the Fund. In addition, John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate of up to 0.05% of the daily net assets of accounts attributable to these brokers. Under certain circumstances described below, investors in Class A shares may be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales Charge." CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A SHARES. Purchases of $1 million or more of Class A shares will be made at net asset value with no initial sales charge, but if the shares are redeemed within 12 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:
AMOUNT INVESTED CDSC RATE --------------- --------- $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%
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 redeemed Class A shares. Accordingly, 15 183 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 Charges" below. QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $50,000 in Class A shares of the Fund or a combination of funds within the John Hancock family of funds (except money market funds), you may qualify for a reduced sales charge on your investments in Class A shares through a LETTER OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and the COMBINATION PRIVILEGE to take advantage of the value of your previous investments in Class A shares of the John Hancock funds in meeting the breakpoints for a reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales charge will be based on the total of: - ------------------------------------------------------------------------------- YOU MAY QUALIFY FOR A REDUCED SALES CHARGE ON YOUR INVESTMENT IN CLASS A SHARES. - ------------------------------------------------------------------------------- 1. Your current purchase of Class A shares of the Fund. 2. The net asset value (at the close of business on the previous day) of (a) all Class A shares of the Fund you hold, and (b) all Class A shares of any other John Hancock funds you hold; and 3. The net asset value of all shares held by another shareholder eligible to combine his or her holdings with you into a single "purchase." EXAMPLE: If you hold Class A shares of a John Hancock fund with a net asset value of $20,000 and, subsequently, invest $30,000 in Class A shares of the Fund, the sales charge on this subsequent investment would be 4.50% and not 5.00% (the rate that would otherwise be applicable to investments of less than $50,000. 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 Director or officer of the Fund; a Director or officer of the Adviser and its affiliates or Selling Brokers; employees or sales representatives of any of the foregoing; retired officers, employees or Directors of any of the foregoing; a member of the immediate family of any of the foregoing; or any fund, pension, profit sharing or other benefit plan for the individuals described above. - ------------------------------------------------------------------------------- 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.* 16 184 - - A bank, trust company, credit union, savings institution or other type of depository institution, its trust departments or common trust funds if it is purchasing $1 million or more for non-discretionary customers or accounts.* - - A broker, dealer or registered investment adviser that has entered into an agreement with John Hancock Funds providing specifically for the use of Fund shares in fee-based investment products made available to their clients. - - A former participant in an employee benefit plan with John Hancock Funds, when he/she withdraws from his/her plan and transfers any or all of his/her plan distributions directly to the Fund. - ------------------ *For investments made under these provisions, John Hancock Funds may make a payment out of its own resources to the Selling Broker in an amount not to exceed 0.25% of the amount invested. Class A shares of the Fund may be purchased without an initial sales charge in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares are offered at net asset value per share without a sales charge so that your entire initial investment will go to work at the time of purchase. However, Class B shares redeemed within six years of purchase will be subject to a CDSC at the rates set forth below. This charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the shares being redeemed. Accordingly, you will not be assessed a CDSC on increases in account value above the initial purchase price, including shares derived from dividend reinvestment. In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from shares you have held beyond the six-year CDSC redemption period or those you acquired through reinvestment of dividends, and next from the shares you have held the longest during the six-year period. The CDSC is waived on redemptions in certain circumstances. See the discussion "Waiver of Contingent Deferred Sales 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: - - 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
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses part of them to defray its expenses related to providing the Fund with 17 185 distribution services connected to the sale of Class B shares, such as compensating Selling Brokers for selling these shares. The combination of the CDSC and the distribution and service fees makes it possible for the Fund to sell Class B shares without deducting a sales charge at the time of the purchase. The amount of the CDSC, if any, will vary depending on the number of years from the time you purchase your Class B shares until the time you redeem them. Solely for the purposes of determining this holding period, any payments you make during the month will be aggregated and deemed to have been made on the last day of the month.
YEAR IN WHICH CLASS B SHARES CONTINGENT DEFERRED SALES REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF PURCHASE DOLLAR AMOUNT SUBJECT TO CDSC - ------------------- ----------------------------- First 5.0% Second 4.0% Third 3.0% Fourth 3.0% Fifth 2.0% Sixth 1.0% Seventh and thereafter None
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. 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: - ------------------------------------------------------------------------------- UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON CLASS B AND CERTAIN CLASS A SHARE REDEMPTIONS WILL BE WAIVED. - ------------------------------------------------------------------------------- - - 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. - - Redemptions made to effect distributions from an Individual Retirement Account either before or after age 59 1/2, as long as the distributions are based on the life expectancy or the joint-and-last survivor life expectancy of you and your beneficiary. These distributions must be free from penalty under the Code. - - Redemptions made to effect mandatory distributions under the Code after age 70 1/2 from a tax-deferred retirement plan. - - Redemptions made to effect distributions to participants or beneficiaries from certain employer-sponsored retirement plans including those qualified under Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the Code and deferred compensation plans under Section 457 of the Code. The 18 186 waiver also applies to certain returns of excess contributions made to these plans. In all cases, the distributions must be free from penalty under the Code. - - Redemptions due to death or disability. - - Redemptions made under the Reinvestment Privilege, as described in "Additional Services and Programs" of this Prospectus. - - Redemptions made pursuant to the Fund's right to liquidate your account if you have less than $500 invested in the Fund. - - Redemptions made in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. - - Redemptions from certain IRA and retirement plans that purchased shares prior to October 1, 1992. If you qualify for a CDSC waiver under one of these situations, you must notify Investor Services either directly or through your Selling Broker at the time you make your redemption. The waiver will be granted once Investor Services has confirmed that you are entitled to the waiver. CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of reinvested dividends on those shares will be converted into Class A shares automatically. This will occur no later than the month following eight years after the shares were purchased, and will result in lower annual distribution fees. If you exchanged Class B shares into the Fund from another John Hancock fund, the calculation will be based on the time you purchased the shares in the original fund. The Fund has been advised that the conversion of Class B shares to Class A shares should not be taxable for Federal income tax purposes and should not change a shareholder's tax basis or tax holding period for the converted shares. HOW TO REDEEM SHARES You may redeem all or a portion of your shares on any business day. Your shares will be redeemed at the next NAV calculated after your redemption request is received in good order by Investor Services, less any applicable CDSC. The Fund may hold payment until it is reasonably satisfied that investments recently made by check or Invest-by-Phone have been collected (which may take up to 10 calendar days). - ------------------------------------------------------------------------------- TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE PROCEDURES. - ------------------------------------------------------------------------------- Once your shares are redeemed, the Fund generally sends you payment on the next business day. When you redeem your shares, you may realize a taxable gain or loss depending usually on the difference between what you paid for them and what you receive for them, subject to certain tax rules. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities laws. 19 187 - -------------------------------------------------------------------------------- BY TELEPHONE All Fund shareholders are automatically eligible for the telephone redemption privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time), Monday through Friday, excluding days on which the Exchange is closed. Investor Services employs the following procedures to confirm that instructions received by telephone are genuine. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. You may redeem up to $100,000 by telephone, but the address on the account must not have changed for the last thirty days. A check will be mailed to the exact name(s) and address shown on the account. If reasonable procedures, such as those described above, are not followed, the Fund may be liable for any loss due to unauthorized or fraudulent telephone instructions. In all other cases, neither the Fund nor Investor Services will be liable for any loss or expense for acting upon telephone instructions made in accordance with the telephone transaction procedures mentioned above. Telephone redemption is not available for IRAs or other tax-qualified retirement plans or shares of the Fund that are in certificated form. During periods of extreme economic conditions or market changes, telephone requests may be difficult to implement due to a large volume of calls. During these times, you should consider placing redemption requests in writing or use EASI-Line. EASI-Line's telephone number is 1-800-338-8080. - --------------------------------------------------------------------------------- BY WIRE If you have a telephone redemption form on file with the Fund, redemption proceeds of $1,000 or more can be wired on the next business day to your designated bank account, and a fee (currently $4.00) will be deducted. You may also use electronic funds transfer to your assigned bank account, and the funds are usually collectible after two business days. Your bank may or may not charge a fee for this service. Redemptions of less than $1,000 will be sent by check or electronic funds transfer. This feature may be elected by completing the "Telephone Redemption" section on the Account Privileges Application included with this Prospectus. - --------------------------------------------------------------------------------- IN WRITING Send a stock power or "letter of instruction" specifying the name of the Fund, the dollar amount or the number of shares to be redeemed, your name, class of shares, your account number and the additional requirements listed below that apply to your particular account. - ---------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS --------------------------------- -------------------------------------------- Individual, Joint Tenants, Sole A letter of instruction signed (with titles Proprietorship, Custodial where applicable) by all persons authorized (Uniform Gifts or Transfer to to sign for the account, exactly as it is Minors Act), General Partners registered with the signature(s) 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. - ---------------------------------------------------------------------------------
20 188 - -------------------------------------------------------------------------------- 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 $500 (except accounts under retirement plans) and to mail the proceeds to the shareholder, or the transfer agent may impose an annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value of the account is in excess of the Fund's minimum initial investment or if the value of the account falls below the required minimum as a result of market action. No CDSC will be imposed on involuntary redemptions of shares. Shareholders will be notified before these redemptions are to be made or this fee is imposed, and will have 60 days to purchase additional shares to bring their account balance up to the required minimum. Unless the number of shares acquired by further purchases and dividend reinvestments, if any, exceeds the number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this policy. - ---------------------------------------------------------------------------------
ADDITIONAL SERVICES AND PROGRAMS EXCHANGE PRIVILEGE 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 Adjustable U.S. Government Trust 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, 21 189 1994 for Class B shares of any other John Hancock fund, you will be subject to the CDSC schedule in effect on your initial purchase date. You may exchange Class B shares of the Fund into shares of a John Hancock money market fund at net asset value. However, you will continue to be subject to a CDSC upon redemption. The Fund reserves the right to require you to keep previously exchanged shares (and reinvested dividends) in the Fund for 90 days before you are permitted to execute a new exchange. The Fund may also terminate or alter the terms of the exchange privilege, upon 60 days' notice to shareholders. An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares in another for Federal income tax purposes. An exchange may result in a taxable gain or loss. When you make an exchange, your account registration in both the existing and new account must be identical. The exchange privilege is available only in states where the exchange can be made legally. Under exchange agreements with John Hancock Funds, certain dealers, brokers and investment advisers may exchange their clients' Fund shares, subject to the terms of those agreements and John Hancock Funds' right to reject or suspend those exchanges at any time. Because of the restrictions and procedures under those agreements, the exchanges may be subject to timing limitations and other restrictions that do not apply to exchanges requested by shareholders directly, as described above. Because Fund performance and shareholders can be hurt by excessive trading, the Fund reserves the right to terminate the exchange privilege for any person or group that, in John Hancock Funds' judgment, is involved in a pattern of exchanges that coincide with a "market timing" strategy that may disrupt the Fund's ability to invest effectively according to its investment objective and policies, or might otherwise affect the Fund and its shareholders adversely. The Fund may also temporarily or permanently terminate the exchange privilege for any person who makes seven or more exchanges out of the Fund per calendar year. Accounts under common control or ownership will be aggregated for this purpose. Although the Fund will attempt to give you prior notice whenever it is reasonably able to do so, it may impose these restrictions at any time. 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. 22 190 3. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. IN WRITING 1. In a letter, request an exchange and list the following: -- the name and class of the Fund whose shares you currently own -- your account number -- the name(s) in which the account is registered -- the name of the fund in which you wish your exchange to be invested -- the number of shares, all shares or dollar amount you wish to exchange Sign your request exactly as the account is registered. 2. Mail the request and information to: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 REINVESTMENT PRIVILEGE 1. You will not be subject to a sales charge on Class A shares reinvested in shares of any John Hancock fund that is otherwise subject to a sales charge as long as you reinvest within 120 days from the redemption date. If you paid a CDSC upon a redemption, you may reinvest at net asset value in the same class of shares from which you redeemed within 120 days. Your account will be credited with the amount of the CDSC previously charged, and the reinvested shares will continue to be subject to a CDSC. For purposes of computing the CDSC payable upon a subsequent redemption, the holding period of the shares acquired through reinvestment will include the holding period of the redeemed shares. - ------------------------------------------------------------------------------- IF YOU REDEEM SHARES OF THE FUND, YOU MAY BE ABLE TO REINVEST ALL OR PART OF THE PROCEEDS IN THE 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 by calling your registered representative or by calling 1-800-225-5291. - ------------------------------------------------------------------------------- YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS. - ------------------------------------------------------------------------------- 23 191 2. To be eligible, you must have at least $5,000 in your account. 3. Payments from your account can be made monthly, quarterly, semi-annually or annually or on a selected monthly basis to yourself or any other designated payee. 4. There is no limit on the number of payees you may authorize, but all payments must be made at the same time or intervals. 5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently with purchases of additional Class A or Class B shares, because you may be subject to initial sales charges on your purchases of Class A shares or to a CDSC on your redemptions of Class B shares. In addition, your redemptions are taxable events. 6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver your checks or if deposits to a bank account are returned for any reason. MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) 1. You can authorize an investment to be automatically withdrawn each month from your bank for investment in Fund shares under the "Automatic Investing" and "Bank Information" sections of the Account Privileges Application. - ------------------------------------------------------------------------------- YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING. - ------------------------------------------------------------------------------- 2. You can also authorize automatic investment through payroll deduction by completing the "Direct Deposit Investing" section of the Account Privileges Application. 3. You can terminate your Monthly Automatic Accumulation Program plan at any time. 4. There is no charge to you for this program, and there is no cost to the Fund. 5. If you have payments being withdrawn from a bank account and we are notified that the account has been closed, your withdrawals will be discontinued. GROUP INVESTMENT PROGRAM 1. An individual account will be established for each participant, but the initial sales charge for Class A shares will be based on the aggregate dollar amount of all participants' investments. To determine how to qualify for this program, contact your registered representative or call 1-800-225-5291. - ------------------------------------------------------------------------------- ORGANIZED GROUPS OF AT LEAST FOUR PERSONS MAY ESTABLISH ACCOUNTS. - ------------------------------------------------------------------------------- 2. The initial aggregate investment of all participants in the group must be at least $250. 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. 24 192 RETIREMENT PLANS 1. You may use the Fund as a funding medium for various types of qualified retirement plans, including Individual Retirement Accounts, Keough Plans (H.R. 10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax Sheltered Annuity Retirement Plans (403(b) Plans) and 457 Plans. 2. The initial investment minimum or aggregate minimum for any of the above plans is $250. However, accounts being established as group IRA, SEP, SARSEP, TSA, 401(k) and 457 Plans will be accepted without an initial minimum investment. INVESTMENTS, TECHNIQUES AND RISK FACTORS SECURITIES OF FOREIGN ISSUERS. Investments in foreign securities may involve a greater degree of risk than those in domestic securities due to exchange controls, less publicly available information, more volatile or less liquid securities markets, and the possibility of expropriation, confiscatory taxation or political, economic or social instability. There may be difficulty in enforcing legal rights outside the United States. Some foreign companies are not generally subject to the same uniform accounting, auditing and financial reporting requirements as domestic companies; also foreign regulation may differ considerably from domestic regulation of stock exchanges, brokers and securities. Security trading practices abroad may offer less protection to investors such as the Fund. Additionally, because foreign securities may be quoted or denominated in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the Fund's net asset value, the value of dividends and interest earned, gains and losses realized on the sale of securities, and net investment income and gains, if any, that the Fund distributes to shareholders. Securities transactions undertaken in some foreign markets may not be settled promptly. Therefore, the Fund's investments on foreign exchanges may be less liquid and subject to the risk of fluctuating currency exchange rates pending settlement. The expense ratios of funds investing significant amounts of their assets in foreign securities can be expected to be higher than those of mutual funds investing solely in domestic securities since the expenses of these funds, such as the cost of maintaining custody of foreign securities and advisory fees, are higher. FOREIGN CURRENCY TRANSACTIONS. The Fund may purchase securities quoted or denominated in foreign currencies. The value of investments in these securities and the value of dividends and interest earned, if any, may be significantly affected by changes in currency exchange rates. Some foreign currency values may be volatile, and there is the possibility of governmental control on currency exchange or governmental intervention in currency markets, which could adversely affect the Fund. As a result, the Fund may enter into forward foreign currency exchange contracts to protect against changes in foreign currency exchange rates. The Fund will not speculate in foreign currencies or in forward foreign currency exchange contracts, but will enter into these transactions only in connection with its hedging strategies. A forward foreign currency exchange contract involves an obligation to 25 193 purchase or sell a specific currency at a future date at a price set at the time of the contract. Although certain strategies could minimize the risk of loss due to a decline in the value of the hedged foreign currency, they could also limit any potential gain which might result from an increase in the value of the currency. See the Statement of Additional Information for further discussion of the uses and risks of forward foreign currency exchange contracts. CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. Up to 10% of the Fund's total assets may be invested in convertible securities rated as low as "B" by S&P or Moody's or, if unrated, determined by the Adviser to be comparable in quality to those rated "B." Convertible securities rated less than "BBB" by S&P or "Baa" by Moody's, which are included in the category of securities commonly called "junk bonds," generally involve greater volatility of price and risk of loss of principal and income than securities in the higher rating categories and these securities are considered speculative by S&P and Moody's. The secondary market for "lower rated" convertible securities may be less liquid than for higher rated securities. The limited liquidity of the market may adversely affect the ability of the Board of Directors to arrive at a fair value for certain securities at certain times and could make it difficult for the Fund to sell the securities. See "Convertible Securities" in the Statement of Additional Information for a further discussion of convertible securities. 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 that are not readily marketable. Without regard to this limitation, the Fund may invest in restricted securities eligible for resale to certain institutional investors pursuant to Rule 144A under the Securities Act of 1933 as long as such securities meet liquidity guidelines established by the Board of Directors. LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing additional 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 counterparty 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, liquid debt securities. However, these transactions 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. REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase agreements which involve the sale of a security by the Fund to a bank or securities firm and its agreement to repurchase the instrument at a specified time and price plus an agreed amount of interest. The Fund will use the proceeds to purchase other investments. Reverse repurchase agreements are considered to be borrowings by the Fund and as an investment practice may be considered speculative. The Fund will enter into a reverse repurchase agreement only when the Adviser 26 194 determines that the interest income to be earned from the investment of the proceeds is greater than the interest expense of the transaction. To minimize various risks associated with reverse repurchase agreements, the Fund will establish and maintain with the Custodian a separate account consisting of cash or liquid, high grade debt securities in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. In addition, the Fund's investment restrictions provide that the Fund would not enter into reverse repurchase agreements exceeding, in the aggregate, 33 1/3% of the value of its total assets (including for this purpose other borrowings of the Fund). The Fund will enter into reverse repurchase agreements only with selected registered broker/dealers or with federally insured banks or savings and loan associations which are approved in advance as being creditworthy by the Board of Directors. Under procedures established by the Board of Directors, the Adviser will monitor the creditworthiness of the firms involved. The use of reverse repurchase agreements involves leverage. Leverage allows any investment gains made with the additional monies received (in excess of the costs of the reverse repurchase agreement) to increase the net asset value of the Fund's shares faster than would otherwise be the case. On the other hand, if the additional monies received are invested in ways that do not fully recover the costs of such transactions to the Fund, the net asset value of the Fund would fall faster than would otherwise be the case. 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 "The Fund's Financial Highlights." OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts on equity securities and stock indices, stock index futures contracts and options on such futures contracts. Options and futures contracts are bought and sold to enhance return or to manage the Fund's exposure to changing security prices. Some options and futures strategies, including selling futures, buying puts and writing calls, tend to hedge a Fund's investments 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. All of the Fund's futures contracts and options on futures contracts will be traded on a U.S. commodity exchange or board of trade. 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 27 195 Statement of Additional Information for further discussion of options and futures transactions, including tax effects and investment risks. RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. The risks associated with the Fund's transactions in options, futures and other derivative instruments may include some or all of the following: Market Risk. Options and futures transactions, as well as other derivative instruments, involve the risk that the applicable market will move against the Fund's derivative 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 increase or leverage the Fund's exposure to a particular market risk, which may increase the volatility of the Fund's net asset value. The Fund may partially offset the leverage inherent in derivative instruments by maintaining a segregated account consisting of cash and liquid, high grade debt securities, by holding offsetting portfolio securities or currency positions 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 instruments, the assets underlying the derivative instrument and the Fund's portfolio assets. Credit Risk. Over-the-counter instruments involve a risk that the issuer or counterparty will fail to perform its contractual obligations. Liquidity and Valuation Risk. Some derivative instruments are not readily marketable or may become illiquid under adverse market conditions. In addition, during periods of extreme market volatility, an exchange may suspend or limit trading in an exchange-traded derivative instrument, 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. 28 196 (NOTES) 197 JOHN HANCOCK SERIES, INC. 101 Huntington Avenue Boston, Massachusetts 02199-7603 consisting of six series, JOHN HANCOCK MONEY MARKET FUND B JOHN HANCOCK GLOBAL RESOURCES FUND JOHN HANCOCK GOVERNMENT INCOME FUND JOHN HANCOCK HIGH YIELD BOND FUND JOHN HANCOCK HIGH YIELD TAX-FREE FUND JOHN HANCOCK EMERGING GROWTH FUND (each, a "Fund" and collectively, the "Funds") CLASS A AND CLASS B SHARES STATEMENT OF ADDITIONAL INFORMATION MAY 15, 1995 This Statement of Additional Information ("SAI") provides information about John Hancock Series, Inc. (the "Corporation") and the Funds, in addition to the information that is contained in the Funds' Prospectuses dated May 15, 1995. This SAI is not a prospectus. It should be read in conjunction with the Funds' Prospectuses, copies of which can be obtained free of charge by writing or telephoning: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 1-800-225-5291 TABLE OF CONTENTS
Page Organization of the Corporation.......................... 3 Investment Objectives and Policies....................... 3 Certain Investment Practices............................. 5 Special Investment Techniques............................ 21 Investment Restrictions.................................. 25 Those Responsible for Management......................... 30 Investment Advisory and Other Services................... 37 Distribution Contract.................................... 42 Net Asset Value.......................................... 45 Initial Sales Charge on Class A Shares................... 47 Deferred Sales Charge on Class B Shares.................. 48 Special Redemptions...................................... 49 Additional Services and Programs......................... 49
198 Description of the Corporation's Shares.................. 50 Tax Status............................................... 51 Calculation of Performance............................... 56 Brokerage Allocation..................................... 61 Transfer Agent Services.................................. 63 Custody of Portfolios.................................... 64 Independent Auditors..................................... 64 Appendix A............................................... A-1 Financial Statements..................................... F-1
-2- 199 ORGANIZATION OF THE CORPORATION The Corporation is an open-end management investment company organized as a Maryland corporation on June 22, 1987. The Corporation currently has six series: John Hancock Emerging Growth Fund, John Hancock Global Resources Fund, John Hancock Government Income Fund, John Hancock High Yield Bond Fund, John Hancock High Yield Tax-Free Fund and John Hancock Money Market Fund B. Prior to December 22, 1994, the Funds were called Transamerica Emerging Growth Fund, Transamerica Global Resources Fund, Transamerica Government Income Fund, Transamerica High Yield Bond Fund, Transamerica High Yield Tax- Free Fund and Transamerica Money Market Fund B. Each Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company (the "Life Company"), chartered in 1862 with national headquarters at John Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock Funds") acts as principal distributor of the shares of the Funds. INVESTMENT OBJECTIVES AND POLICIES John Hancock Emerging Growth Fund ("Emerging Growth Fund") seeks long-term growth of capital through investing primarily (at least 80% of its assets in normal circumstances) in the common stocks of rapidly growing small-sized companies (those with a market capitalization of $500 million or less) to medium-sized companies (those with a market capitalization of up to $1 billion.) Current income is not a factor of consequence in the selection of stocks for the Fund. John Hancock Global Resources Fund's ("Global Resources Fund") investment objectives are to protect the purchasing power of shareholders' capital and to achieve growth of capital. The first of these objectives means that the Fund seeks to protect generally shareholders' invested capital against erosion of the value of the U.S. dollar through inflation. Current income will not be a primary consideration in selecting securities. However, it will be an important factor in making selections among securities believed otherwise comparable by the Investment Adviser. John Hancock Government Income Fund's ("Government Income Fund") investment objective is to earn a high level of current income consistent with preservation of capital by investing primarily in securities that are issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities ("U.S. Government Securities.") The Fund may seek to enhance its current return and may seek to hedge against changes in interest rates by engaging in transactions involving options, futures and options on futures. The Fund expects that under normal market conditions it will invest at least 80% of its total assets in U.S. Government Securities. John Hancock High Yield Bond Fund's ("High Yield Bond Fund") primary investment objective is to maximize current income without assuming undue risk by investing in a diversified portfolio consisting primarily of lower-rated, high yielding, fixed income securities, such as: domestic and foreign corporate bonds; debentures and notes; convertible securities; preferred stocks; and domestic and foreign government obligations. As a secondary objective, the Fund seeks capital appreciation, but only when it is consistent with the primary objective of maximizing current income. John Hancock High Yield Tax-Free Fund ("High Yield Tax-Free Fund") has as its primary investment objective to obtain a high level of current income that is largely exempt from federal income taxes and is consistent with the preservation of capital. The Fund pursues this objective -3- 200 by normally investing substantially all of its assets in medium and lower quality obligations, including bonds, notes and commercial paper, issued by or on behalf of states, territories and possessions of the United States, The District of Columbia and their political subdivisions, agencies or instrumentalities, the interest on which is exempt from federal income tax ("tax- exempt securities"). The Fund seeks as its secondary objective preservation of capital by purchasing and selling interest rate futures contracts ("financial futures") and tax-exempt bond index futures contracts ("index futures"), and by purchasing and writing put and call options on debt securities, financial futures, tax-exempt bond indices and index futures to hedge against changes in the general level of interest rates. John Hancock Money Market Fund B ("Money Market Fund") seeks to provide maximum current income consistent with the preservation of capital and maintenance of liquidity through investing in high quality money market instruments. Securities in which the Fund invests may not earn as high a level of current income as longer term or lower quality securities, which generally have less liquidity, greater market risk, and more fluctuation in market value. _________________________________ Each Fund is a "diversified" management investment company under the Investment Company Act of 1940 (the "1940 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 the Fund's total assets. In determining the issuer of a security, each state and each political subdivision agency, and instrumentality of each state and each multi-state agency of which such state is a member is a separate issuer. Where securities are backed only by assets and revenues of a particular instrumentality, facility or subdivision, such entity is considered the issuer. There can be no assurance that the Funds will achieve their respective investment objectives. Investment Philosophy of Global Resources Fund. The Adviser believes that, based upon past performance, the securities of specific companies that hold different types of substantial resource assets or engage in resource-related or energy-related activities may move relatively independently of one another during different stages of inflationary or deflationary cycles because of different degrees of demand for, or market values of, their respective resource holdings or resource-related or energy-related business during particular portions of such cycles. For example, during the period 1976 to 1980, the prices of oil company stocks increased relatively more than the prices of coal company stocks when compared to the performance of relevant stock market indices. The Adviser will seek to identify companies or asset-based securities which it believes are attractively priced relative to the intrinsic value of the underlying resource assets or resource-related or energy-related business or are especially well positioned to benefit during particular portions of inflationary or deflationary cycles. It is expected that when management of the Fund anticipates significant economic, political or financial instability, such as high inflationary or deflationary pressures or major dislocations in the foreign currency exchange markets, the Fund may, in seeking to protect the purchasing power of shareholders' capital, invest a majority of its assets in companies that explore for, extract, process or deal in gold or in asset-based securities indexed to the value of gold bullion. Such a switch in investment strategies could result in substantial liquidation of portfolio securities and significant transaction costs. The Fund's approach of active investment management enables it to switch its emphasis among -4- 201 various industry groups, depending upon the Adviser's outlook with respect to prevailing trends and developments. The Fund may seek to hedge its portfolio partially by writing covered call options or purchasing put options on its portfolio holdings. CERTAIN INVESTMENT PRACTICES Purchases of Warrants. Emerging Growth Fund's and Global Resources Fund's investment policies permit the purchase of rights and warrants, which represent rights to purchase the common stock of companies at designated prices. No such purchase will be made by a Fund, however, if the Fund's holdings of warrants (valued at lower of cost or market) would exceed 5% of the value of the Fund's total net assets as a result of the purchase. In addition, no Fund will purchase a warrant or right which is not listed on the New York or American Stock Exchanges if the purchase would result in the Fund's owning unlisted warrants in an amount exceeding 2% of its net assets. Eurodollar and Yankee Certificates of Deposit ("CDs") and Bankers' Acceptance ("BAs"). Money Market Fund B may invest in Eurodollar CDs and BAs and Yankee CDs and BAs. These instruments are traded in the secondary market and are subject to the same risks as investments in CDs and BAs of domestic banks, including interest rate fluctuations and creditworthiness of the issuing banks. Eurodollar CDs and BAs issued by foreign banks also are subject to certain risks not associated with similar investments in domestic obligations, such as the risk that the country where the branch is located might impose currency controls, interest limitations or a moratorium which could terminate or modify the issuing bank's liability against its outstanding Eurodollar obligation. Additionally, there currently are no reserve requirements for Eurodollar CDs and BAs and they are not insured by the FDIC or any other U.S. governmental agency. In the case of Eurodollar CDs and BAs issued by foreign branches of domestic banks, the issuing branch is subject to similar such risks. To the extent, however, that payment on such Eurodollar CDs and BAs is ultimately the obligation of the domestic parent, if the issuing branch fails to make payment, such Eurodollar CDs and BAs do not present risks significantly greater than those associated with CDs and BAs issued by domestic banks. In the case of Yankee CDs and BAs, while foreign banks are not subject to the same regulatory system as domestic banks, domestic branches of foreign banks are subject to certain federal and/or state regulation. Yankee CDs and BAs with maturities of less than 18 months are subject to the Federal Reserve System's reserve requirements; however, they may or may not be insured by the FDIC. The markets for Eurodollar and Yankee CDs and BAs may be less liquid than the market for similar obligations issued by domestic branches of U.S. banks. Foreign Securities and Emerging Countries. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in securities of foreign issuers. These Funds may also invest in debt and equity securities of corporate and governmental issuers of countries with emerging economies or securities markets. Government Income Fund may invest in foreign currency denominated securities of foreign governments considered stable by the Investment Adviser and may hedge such investments through various options and futures transactions involving foreign currencies. Investing in securities of non-U.S. issuers, and in particular emerging countries, may entail greater risks than investing in securities of issuers in the U.S. These risks include (i) less social, political and economic stability; (ii) the small current size of the markets for many such securities and the currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict a Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to -5- 202 national interests; (iv) foreign taxation; and (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property. Investing in securities of non-U.S. companies may entail additional risks due to the potential political and economic instability of certain countries and the risks of expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment and on repatriation of capital invested. In the event of such expropriation, nationalization or other confiscation by any country, a Fund could lose its entire investment in any such country. In addition, even though opportunities for investment may exist in foreign countries, and in particular emerging markets, any change in the leadership or policies of the governments of those countries or in the leadership or policies of any other government which exercises a significant influence over those countries, may halt the expansion of or reverse the liberalization of foreign investment policies now occurring and thereby eliminate any investment opportunities which may currently exist. Investors should note that upon the accession to power of authoritarian regimes, the governments of a number of Latin American countries previously expropriated large quantities of real and personal property similar to the property which may be represented by the securities purchased by the Funds. The claims of property owners against those governments were never finally settled. There can be no assurance that any property represented by foreign securities purchased by a Fund will not also be expropriated, nationalized, or otherwise confiscated. If such confiscation were to occur, a Fund could lose a substantial portion of its investments in such countries. A Fund's investments would similarly be adversely affected by exchange control regulation in any of those countries. Certain countries in which the Funds may invest may have vocal minorities that advocate radical religious or revolutionary philosophies or support ethnic independence. Any disturbance on the part of such individuals could carry the potential for wide-spread destruction or confiscation of property owned by individuals and entities foreign to such country and could cause the loss of a Fund's investment in those countries. Certain countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Funds. As illustrations, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment by foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Moreover, the national policies of certain countries may restrict investment opportunities in issuers or industries deemed sensitive to national interests. In addition, some countries require governmental approval for the repatriation of investment income, capital or the proceeds of securities sales by foreign investors. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investments. Foreign companies are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. companies. In particular, the assets, liabilities and profits appearing on the financial statements of such a company may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with U.S. generally accepted accounting principles. Most foreign securities held by the Funds will not be registered with the Securities and Exchange Commission (the "SEC") and such issuers thereof will not be subject to the SEC's reporting requirements. Thus, there will be less available information concerning -6- 203 foreign issuers of securities held by the Funds than is available concerning U.S. issuers. In instances where the financial statements of an issuer are not deemed to reflect accurately the financial situation of the issuer, the Adviser or Subadviser will take appropriate steps to evaluate the proposed investment, which may include on-site inspection of the issuer, interviews with its management and consultations with accountants, bankers and other specialists. There is substantially less publicly available information about foreign companies than there are reports and ratings published about U.S. companies and the U.S. government. In addition, where public information is available, it may be less reliable than such information regarding U.S. issuers. Because the Funds may invest, and Global Resources Fund will (under normal circumstances) invest a substantial portion of their total assets, in securities which are denominated or quoted in foreign currencies, the strength or weakness of the U.S. dollar against such currencies may account for part of the Funds' investment performance. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of a Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and any net investment income and capital gains to be distributed in U.S. dollars to shareholders of the Fund. The rate of exchange between the U.S. dollar and other currencies is determined by several factors including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the pace of business activity in certain other countries and the U.S., and other economic and financial conditions affecting the world economy. Although the Funds value their respective assets daily in terms of U.S. dollars, the Funds do not intend to convert their holdings of foreign currencies into U.S. dollars on a daily basis. However, the Funds may do so from time to time, and investors should be aware of the costs of currency conversion. Although currency dealers do not charge a fee for conversion, they do realize a profit based on the difference ("spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to sell that currency to the dealer. Securities of foreign issuers, and in particular many emerging country issuers, may be less liquid and their prices more volatile than securities of comparable U.S. issuers. In addition, foreign securities exchanges and brokers are generally subject to less governmental supervision and regulation than in the U.S., and foreign securities exchange transactions are usually subject to fixed commissions, which are generally higher than negotiated commissions on U.S. transactions. In addition, foreign securities exchange transactions may be subject to difficulties associated with the settlement of such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security due to settlement problems either could result in losses to a Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security could result in possible liability to the purchaser. The Funds' investment income or, in some cases, capital gains from foreign issuers may be subject to foreign withholding or other taxes, thereby reducing the Funds' net investment income and/or net realized capital gains. See "Tax Status." Depositary Receipts. As discussed in the Prospectuses, Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in the securities of foreign issuers in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or -7- 204 other securities convertible into securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted but rather in the currency of the market in which they are traded. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe by banks or depositories which evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. Options on Foreign Currencies. Global Resources Fund may purchase and write put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. As in the case of other types of options, however, the writing of an option on foreign currency will constitute only a partial hedge, such as the amount of the premium received and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuations in exchange rates although, in the event of rate movements adverse to the Fund's position, it may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies are traded in a manner substantially similar to options on securities. In particular, an option on foreign currency provides the holder with the right to purchase, in the case of a call option, or to sell, in the case of a put option, a stated quantity of a particular currency for a fixed price up to a stated expiration date. The writer of the option undertakes the obligation to deliver, in the case of a call option, or to purchase, in the case of a put option, the quantity of the currency called for in the option, upon exercise of the option by the holder. As in the case of other types of options, the holder of an option on foreign currency is required to pay a one-time, non-refundable premium, which represents the cost of purchasing the option. The holder can lose the entire amount of this premium, as well as related transaction costs, but not more than this amount. The writer of the option, in contrast, generally is required to make initial and variation margin payments similar to margin deposits required in the trading of futures contracts and the writing of other types of options. The writer is therefore subject to risk of loss beyond the amount originally invested and above the value of the option at the time it is entered into. Certain options on foreign currencies like forward contracts are traded over-the-counter through financial institutions acting as market-makers in such options and the underlying currencies. Such transactions therefore involve risks not generally associated with exchange- traded instruments. Options on foreign currencies may also be traded on national securities exchanges regulated by the SEC or commodities exchanges regulated by the Commodity Futures Trading Commission. Forward Foreign Currency Contracts. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may engage in forward foreign currency transactions. Generally, the foreign currency exchange transactions of the Funds may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market. A Fund may also deal in forward foreign currency exchange contracts involving currencies of the different countries in which it may invest as a hedge against possible variations in the foreign exchange rate between these currencies. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. The Funds' dealings in forward foreign currency exchange contracts will be limited to hedging either specified transactions or portfolio positions. Transaction hedging is the purchase -8- 205 or sale of forward foreign currency contracts with respect to specific receivables or payables of a Fund accruing in connection with the purchase and sale of its portfolio securities denominated in foreign currencies. Portfolio hedging is the use of forward foreign currency contracts to offset portfolio security positions denominated or quoted in such foreign currencies. A Fund will not attempt to hedge all of its foreign portfolio positions and will enter into such transactions only to the extent, if any, deemed appropriate by the Adviser. The Board of Directors has adopted a policy of monitoring the Funds' foreign currency contract income to assure that the Funds qualify as regulated investment companies under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund will not engage in speculative forward foreign currency exchange transactions. If a Fund purchases a forward contract, its custodian bank will segregate cash or high grade liquid debt securities in a separate account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. Those assets will be valued at market daily and if the value of the securities in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will be equal to the amount of the Fund's commitment with respect to such contracts. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency rises. Moreover, it may not be possible for a Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to a Fund of engaging in foreign currency exchange transactions varies with such factors as the currency involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currency are usually conducted on a principal basis, no fees or commissions are involved. Government Securities. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities, issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future. Mortgage-Backed Securities. Government Income Fund and High Yield Bond Fund may invest in mortgage pass-through certificates and multiple-class pass-through securities, such as real estate mortgage investment conduits ("REMIC") pass-through certificates, collateralized mortgage obligations ("CMOs") and stripped mortgage-backed securities ("SMBS"), and other types of "Mortgage-Backed Securities" that may be available in the future. Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through securities represent participation interests in pools of residential mortgage loans and are issued by U.S. Governmental or private lenders and guaranteed by the U.S. Government or one of its agencies or instrumentalities, including but not limited to the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the -9- 206 Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full faith and credit of the U.S. Government for timely payment of principal and interest on the certificates. Fannie Mae certificates are guaranteed by Fannie Mae, a federally chartered and privately owned corporation, for full and timely payment of principal and interest on the certificates. Freddie Mac certificates are guaranteed by Freddie Mac, a corporate instrumentality of the U.S. Government, for timely payment of interest and the ultimate collection of all principal of the related mortgage loans. Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations. CMOs and REMIC pass-through or participation certificates may be issued by, among others, U.S. Government agencies and instrumentalities as well as private lenders. CMOs and REMIC certificates are issued in multiple classes and the principal of and interest on the mortgage assets may be allocated among the several classes of CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC certificates, often referred to as a "tranche," is issued at a specific adjustable or fixed interest rate and must be fully retired no later than its final distribution date. Generally, interest is paid or accrues on all classes of CMOs or REMIC certificates on a monthly basis. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac certificates but also may be collateralized by other mortgage assets such as whole loans or private mortgage pass-through securities. Debt service on CMOs is provided from payments of principal and interest on collateral of mortgaged assets and any reinvestment income thereon. A REMIC is a CMO that qualifies for special tax treatment under the Code and invests in certain mortgages primarily secured by interests in real property and other permitted investments. Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class mortgage- backed securities. SMBS are usually structured with two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. A typical SMBS will have one class receiving some of the interest and most of the principal, while the other class will receive most of the interest and the remaining principal. In the most extreme case, one class will receive all of the interest (the "interest only" class) while the other class will receive all of the principal (the "principal only" class). The yields and market risk of interest only and principal only SMBS, respectively, may be more volatile than those of other fixed income securities. The staff of the SEC considers privately issued SMBS to be illiquid. Structured or Hybrid Notes. Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund may invest in "structured" or "hybrid" notes. The distinguishing feature of a structured or hybrid note is that the amount of interest and/or principal payable on the note is based on the performance of a benchmark asset or market other than fixed-income securities or interest rates. Examples of these benchmarks include stock prices, currency exchange rates and physical commodity prices. Investing in a structured note allows a Fund to gain exposure to the benchmark market while fixing the maximum loss that the Fund may experience in the event that market does not perform as expected. Depending on the terms of the note, a Fund may forego all or part of the interest and principal that would be payable on a comparable conventional note; a Fund's loss cannot exceed this foregone interest and/or principal. An investment in structured or hybrid notes involves risks similar to those associated with a direct investment in the benchmark asset. Risk Factors Associated with Mortgage-Backed Securities. Investing in Mortgage- Backed Securities involves certain risks, including the failure of a counter-party to meet its commitments, adverse interest rate changes and the effects of prepayments on mortgage cash flows. In addition, investing in the lowest tranche of CMOs and REMIC certificates involves -10- 207 risks similar to those associated with investing in equity securities. Further, the yield characteristics of Mortgage-Backed Securities differ from those of traditional fixed income securities. The major differences typically include more frequent interest and principal payments (usually monthly), the adjustability of interest rates, and the possibility that prepayments of principal may be made substantially earlier than their final distribution dates. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty. Both adjustable rate mortgage loans and fixed rate mortgage loans may be subject to a greater rate of principal prepayments in a declining interest rate environment and to a lesser rate of principal prepayments in an increasing interest rate environment. Under certain interest rate and prepayment rate scenarios, a Fund may fail to recoup fully its investment in Mortgage-Backed Securities notwithstanding any direct or indirect governmental, agency or other guarantee. When a Fund reinvests amounts representing payments and unscheduled prepayments of principal, it may receive a rate of interest that is lower than the rate on existing adjustable rate mortgage pass- through securities. Thus, Mortgage-Backed Securities, and adjustable rate mortgage pass-through securities in particular, may be less effective than other types of U.S. Government securities as a means of "locking in" interest rates. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many Mortgage-Backed Securities. This possibility is often referred to as extension risk. Extending the average life of a Mortgage-Backed Security increases the risk of depreciation due to future increases in market interest rates. Risk Associated With Specific Types of Derivative Debt Securities. Different types of derivative debt securities are subject to different combinations of prepayment, extension and/or interest rate risk. Conventional mortgage pass-through securities and sequential pay CMOs are subject to all of these risks, but are typically not leveraged. Thus, the magnitude of exposure may be less than for more leveraged Mortgage-Backed Securities. The risk of early prepayments is the primary risk associated with interest only debt securities ("IOs"), super floaters, other leveraged floating rate instruments and Mortgage-Backed Securities purchased at a premium to their par value. In some instances, early prepayments may result in a complete loss of investment in certain of these securities. The primary risks associated with certain other derivative debt securities are the potential extension of average life and/or depreciation due to rising interest rates. These securities include floating rate securities based on the Cost of Funds Index ("COFI floaters"), other "lagging rate" floating rate securities, floating rate securities that are subject to a maximum interest rate ("capped floaters"), Mortgage-Backed Securities purchased at a discount, leveraged inverse floating rate securities ("inverse floaters"), principal only debt securities ("POs"), certain residual or support tranches of CMOs and index amortizing notes. Index amortizing notes are not Mortgage-Backed Securities, but are subject to extension risk resulting from the issuer's failure to exercise its option to call or redeem the notes before their stated maturity date. Leveraged inverse IOs combine several elements of the Mortgage-Backed Securities described above and thus present an especially intense combination of prepayment, extension and interest rate risks. Planned amortization class ("PAC") and target amortization class ("TAC") CMO bonds involve less exposure to prepayment, extension and interest rate risk than other Mortgage-Backed Securities, provided that prepayment rates remain within expected prepayment ranges or "collars." To the extent that prepayment rates remain within these prepayment ranges, the residual or -11- 208 support tranches of PAC and TAC CMOs assume the extra prepayment, extension and interest rate risk associated with the underlying mortgage assets. Other types of floating rate derivative debt securities present more complex types of interest rate risks. For example, range floaters are subject to the risk that the coupon will be reduced to below market rates if a designated interest rate floats outside of a specified interest rate band or collar. Dual index or yield curve floaters are subject to depreciation in the event of an unfavorable change in the spread between two designated interest rates. X-reset floaters have a coupon that remains fixed for more than one accrual period. Thus, the type of risk involved in these securities depends on the terms of each individual X-reset floater. Asset-Backed Securities. As described in their Prospectuses, Government Income Fund and High Yield Bond Fund may invest a portion of their assets in "Asset-Backed Securities" which are rated in one of the two highest rating categories by a nationally recognized statistical rating organization (e.g., Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's")) or if not so rated, of equivalent investment quality in the opinion of the Investment Adviser. The credit quality of most Asset-Backed Securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities and the amount and quality of any credit support provided to the securities. The rate of principal payment on Asset- Backed Securities generally depends on the rate of principal payments received on the underlying assets which in turn may be affected by a variety of economic and other factors. As a result, the yield on any Asset-Backed Security is difficult to predict with precision and actual yield to maturity may be more or less than the anticipated yield to maturity. Asset-Backed Securities may be classified as "pass-through certificates" such as some of the government guaranteed mortgage-related securities described above, or "collateralized obligations". "Pass Through Certificates" are Asset-Backed Securities which represent undivided fractional ownership interest in the underlying pool of assets. Pass Through Certificates usually provide for payments of principal and interest received to be passed through to their holders, usually after deduction for certain costs and expenses incurred in administering the pool. Because Pass Through Certificates represent ownership interest in the underlying assets, the holders thereof bear directly the risk of any defaults by the obligors on the underlying assets not covered by any credit support. See "Types of Credit Support". Asset-Backed Securities issued in the form of debt instruments, also known as collateralized obligations are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. The assets collateralizing such Asset-Backed Securities are pledged to a trustee or custodian for the benefit of the holders thereof. Such issuers generally hold no assets other than those underlying the asset-backed securities and any credit support provided. As a result, although payments on such asset-backed securities are obligations of the issuers, in the event of defaults on the underlying assets not covered by any credit support (see "Types of Credit Support"), the issuing entities are unlikely to have sufficient assets to satisfy their obligations on the related Asset-Backed Securities. Methods of Allocating Cash Flows. While many Asset-Backed Securities are issued with only one class of security, many Asset Backed Securities are issued in more than one class, each with different payment terms. Multiple class Asset-Backed Securities are issued for two main reasons. First, multiple classes may be used as a method of providing credit support. This is accomplished typically through creation of one or more classes whose right to payments on the Asset Backed Security is made subordinate to the right to such payments of the remaining class or classes. See "Types of Credit Support". Second, multiple classes may permit the issuance of securities with payment terms, interest rates or other characteristics differing both from those of -12- 209 each other and from those of the underlying assets. Examples include so-called "multi-tranche CMOs" (CMOs (define above) with serial maturities such that all principal payments received on the mortgages underlying the securities are first paid to the class with the earliest stated maturity and then sequentially to the class with the next stated maturity), "Strips" (Asset-Backed Securities entitling the holder to disproportionate interests with respect to the allocation of interest and principal of the assets backing the security), and securities with class or classes having characteristics which mimic the characteristics of non-Asset Backed Securities, such as floating interest rates (i.e., interest rates which adjust as a specified benchmark changes) or scheduled amortization of principal. Asset-Backed Securities in which the payment streams on the underlying assets are allocated in a manner different than those described above may be issued in the future. The Fund may invest in such Asset-Backed Securities if such investment is otherwise consistent with its investment objective and policies and with the investment restrictions of the Fund. Types of Credit Support. Asset-Backed Securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two classes: liquidity protection and protection against ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that scheduled payments on the underlying pool are made in a timely fashion. Protection against ultimate default ensures ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained from third parties, through various means of structuring the transaction or through a combination of such approaches. Examples of Asset-Backed Securities with credit support arising out of the structure of the transaction include "senior-subordinated securities" (multiple class Asset-Backed Securities with certain classes subordinate to other classes as to the payment of principal thereon, with the result that defaults on the underlying assets are borne first by the holders of the subordinated class) and Asset-Backed Securities that have "reserve funds" (where cash or investments, sometimes funded from a portion of the initial payments on the underlying assets, are held in reserve against future losses) or that have been "over-collateralized" (where the scheduled payments on, or the principal amount of, the underlying assets substantially exceeds that required to make payment of the Asset-Backed Securities and pay any servicing or other fees). The degree of credit support provided on each issue is based generally on historical information respecting the level of credit risk associated with such payments. Delinquency or loss in excess of that anticipated could adversely affect the return on an investment in an Asset-Backed Security. Automobile Receivable Securities. Government Income Fund and High Yield Bond Fund may invest in Asset-Backed Securities backed by receivables from motor vehicle installment sales contracts or installment loans secured by motor vehicles ("Automobile Receivable Securities"). Installment sales contracts for motor vehicles or installment loans related thereto ("Automobile Contracts") typically have a much shorter duration than mortgages; consequently the weighted average life on an Automobile Receivable Security is typically substantially shorter than that of a Mortgage-Backed Security. In addition, because of the shorter average life of Automobile Receivable Securities and the prepayment characteristics of most Automobile Contracts, Automobile Receivable Securities generally are less susceptible to the prepayment risks inherent in Mortgage-Backed Securities. Most entities that issue Automobile Receivable Securities create an enforceable interest in their respective Automobile Contracts only by filing a financing statement and by having the servicing agent of the Automobile Contracts, which is usually the originator of the Automobile -13- 210 Contracts, take custody thereof. In such circumstances, if the servicing agent of the Automobile Contracts were to sell the same Automobile Contracts to another party, in violation of its obligation not to do so, there is a risk that such party could acquire an interest in the Automobile Contracts superior to that of the holders of Automobile Receivable Securities. Also although most Automobile Contracts grant a security interest in the motor vehicle being financed, in most states the security interest in a motor vehicle must be noted on the certificate of title to create an enforceable security interest against competing claims of other parties. Due to the large number of vehicles involved, however, the certificate of title to each vehicle financed, pursuant to the Automobile Contracts underlying the Automobile Receivable Security, usually is not amended to reflect the assignment of the seller's security interest for the benefit of the holders of the Automobile Receivable Securities. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on the securities. In addition, various state and federal securities laws give the motor vehicle owner the right to assert against the holder of the owner's Automobile Contract certain defenses such owner would have against the seller of the motor vehicle. The assertion of such defenses could reduce payments on the Automobile Receivable Securities. Credit Card Receivable Securities. Government Income Fund and High Yield Bond Fund may invest in Asset-Backed Securities backed by receivables from revolving credit card agreements ("Credit Card Receivable Securities"). Credit balances on revolving credit card agreements ("Accounts") are generally paid down more rapidly than are Automobile Contracts. Most of the Credit Card Receivable Securities issued publicly to date have been Pass Through Certificates. In order to lengthen the maturity of Credit Card Receivable Securities, most such securities provide for a fixed period during which only interest payments on the underlying Accounts are passed through to the security holder and principal payments received on such Accounts are used to fund the transfer to the pool of assets supporting the related Credit Card Receivable Securities of additional credit card charges made on an Account. The initial fixed period usually may be shortened upon the occurrence of specified events which signal a potential deterioration in the quality of the assets backing the security, such as the imposition of a cap on interest rates. The ability of the issuer to extend the life of an issue of of Credit Card Receivable Securities thus depends upon the continued generation of additional principal amounts in the underlying accounts during the initial period and the non-occurrence of specified events. The Tax Reform Act of 1986 has eliminated a taxpayer's ability to deduct consumer interest in his or her federal income tax calculations, which along with competitive and general economic factors could adversely affect the rate at which new receivables are created in an Account and conveyed to an issuer, shortening the expected average life of the related Credit Card Receivable Security and reducing its yield. An acceleration in cardholders' payment rates or any other event which shortens the period during which additional credit card charges on an Account may be transferred to the pool of assets supporting the related Credit Card Receivable Security could have a similar effect on the weighted average life and yield. Credit card holders are entitled to the protection of a number of state and federal consumer credit laws, many of which give such holder the right to set off certain amounts against balances owed on the credit card, thereby reducing amounts paid on Accounts. In addition, unlike most other Asset-Backed Securities, Accounts are unsecured obligations of the cardholder. Lease-Backed Securities. Government Income Fund and High Yield Bond Fund may also invest in securities backed by receivables from leases of such items as automobiles, computers, aircraft and other capital goods, as well as real property ("Lease-Backed Securities"). In the commercial context, a lessee often agrees to continue payments on the lease, regardless of any claims it may have with respect to the leased property or any obligations of the lessor to it. Often the lessor will transfer or pledge to the issuer, to use as additional collateral for the Lease-Backed -14- 211 Securities, an interest in the property underlying the leases as well as its interest in any insurance covering such property. Other Asset-Backed Securities. The Adviser anticipates that Asset-Backed Securities backed by assets other than those described above will be issued in the future. Government Income Fund and High Yield Bond Fund may invest in such securities in the future if such investment is otherwise consistent with its investment objective and policies. Asset-Based Securities. Global Resources Fund may invest in debt securities, preferred stocks or convertible securities, the principal amount, redemption terms or conversion terms of which are related to the market price of some resource asset such as gold bullion. For the purposes of the Fund's investment policies, these securities are referred to as "Asset-Based Securities". If the Asset-Based Security is backed by a bank letter of credit or other similar facility, the Adviser may take such backing into account in determining the credit quality of the Asset-Based Security. Although an Asset-Based Security and the related natural resource asset generally are expected to move in the same direction, there may not be perfect correlation in the two price movements. Asset-Based Securities may not be secured by a security interest in or claim on the underlying natural resource assets. The Fund's holdings of such securities may not generate appreciable current income and the return from such securities primarily will be from any profit on the sale, maturity or conversion thereof at a time when the price of the related asset is higher than it was when the Fund purchased such securities. The Asset-Based Securities in which the Fund may invest may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. As an example, assume gold is selling at a market price of $300 per ounce and an issuer sells a $1,000 face amount gold related note with a seven year maturity, payable at maturity at the greater of either $1,000 in cash or the then market price of three ounces of gold. If, at maturity, the market price of gold is $400 per ounce, the amount payable on the note would be $1,200. Certain Asset-Based Securities may be payable at maturity in cash at the stated principal amount or, at the option of the holder, directly in a stated amount of the asset to which it is related. In such instance, because the Fund presently does not intend to invest directly in natural resource assets other than gold bullion, the Fund would sell the Asset-Based Security in the secondary market, to the extent one exists, prior to maturity if the value of the stated amount of the asset exceeds the stated principal amount and thereby realize the appreciation in the underlying asset. The Fund will not acquire Asset-Based Securities for which no established secondary trading market exists if at the time of acquisition more than 10% of its total assets are invested in securities which are not readily marketable. The Fund may invest in Asset-Based Securities without limit when it has the right to sell such securities to the issuer or a stand-by bank or broker and receive the principal amount or redemption price thereof less transaction costs on no more than seven days notice or when the Fund has the right to convert such securities into a readily marketable security in which it could otherwise invest upon not more than seven days notice. Special Considerations Related to Investment in Gold. Under certain circumstances, Global Resources Fund may invest a majority of its assets in gold, gold related securities or securities of gold-related companies. Based on historic experience, during periods of economic or financial instability the securities of such companies may be subject to extreme price fluctuations, reflecting the high volatility of gold prices during such periods. Gold may be affected by unpredictable international monetary and political policies, social conditions within a particular country, trade imbalances or trade or currency restrictions between countries. In addition, the instability of gold prices may result in volatile earnings of gold-related companies which, in turn, -15- 212 may affect adversely the financial condition of such companies. Gold mining companies also are subject to the risks generally associated with mining operations. The major producers of gold include the Republic of South Africa, Russia, Canada, the United States, Brazil and Australia. Sales of gold by Russia are largely unpredictable and often relate to political and economic considerations rather than to market forces. Economic, social and political developments within South Africa may affect significantly South African gold production and the markets for South African gold which may in turn significantly affect the price of gold. The Fund is currently authorized to invest up to 10% of its assets in gold bullion and coins, although it does not currently intend to invest in coins. The Fund may seek to increase this limit to 25% through negotiation with a certain state which imposes the 10% limit as a condition for qualifying the shares of the Fund for sale in that state. Investments in gold may help to hedge against inflation and major fluctuations in the Fund's shares because at certain times the price of gold has fluctuated less widely than the value of the securities which are permitted investments. When the Fund purchases bullion, the Investment Adviser currently intends that it will be only in a form that is readily marketable and that it will be delivered to and stored with a qualified U.S. bank. An investment in bullion earns no investment income and involves higher custody and transaction costs than investments in securities. The Fund will also incur the cost of insurance in connection with holding gold. The market for gold bullion is presently unregulated which could affect the ability of the Fund to acquire or dispose of gold bullion. In order to qualify as a regulated investment company for federal income taxes, the Fund may receive no more than 10% of its yearly gross income from gains caused by selling gold bullion or coins and from certain ohter sources that do not produce "qualifying" income. The Fund may be required, therefore, either to hold its gold bullion or sell it at a loss, or to sell its portfolio securities at a gain, when it would not otherwise do so for investment reasons. The Fund may also purchase precious metal warehouse receipts that may be convertible into cash or gold bullion as an alternative to a direct investment in gold. Whereas gold bullion is traded in the form of contracts to buy or sell bullion which are in the nature of futures or commodities contracts, warehouse receipts represent ownership of a specified quantity of identified gold bars held in storage. Although ownership of gold in this manner entails storage and insurance expense, there is an active over-the-counter market in such receipts so that they are a liquid investment. For purposes of the Fund's investment limitations, such warehouse receipts would be considered to be equivalent to direct investments in the precious metals. Lending of Portfolio Securities. In order to generate additional income, each Fund may, from time to time, lend up to 33% of its portfolio securities to brokers, dealers and financial institutions such as banks and trust companies. Such loans will be secured by collateral consisting of cash or U.S. Government securities which will be maintained in an amount equal to at least 100% of the current market value of the loaned securities. During the period of the loan, the Fund will receive the income on both the loaned securities and the collateral and thereby increase its return. Cash collateral will be invested in short-term high quality debt securities, which will increase the current income of the Fund. The loans will be terminable by the Fund at any time and by the borrower on one day's notice. The Fund will have the right to regain record ownership of loaned securities to exercise beneficial rights such as rights to interest or other distributions or voting rights on important issues. The Fund may pay reasonable fees to persons unaffiliated with the Fund for services in arranging such loans. Lending of portfolio securities involves a risk of failure by the borrower to return the loaned securities, in which event the Fund may incur a loss. Repurchase Agreements. Each Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund would acquire a security for a relatively short period (generally not more than seven days) subject to the obligation of the seller to -16- 213 repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with securities dealers. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities and could experience losses, including the possible decline in the value of the underlying securities during the period which the Fund seeks to enforce its rights thereto, possible subnormal levels of income and lack of access to income during this period, and the expense of enforcing its rights. The Fund will not invest in a repurchase agreement maturing in more than seven days, if such investment, together with other illiquid securities held by the Fund (including restricted securities) would exceed 10% of the Fund's total assets. Reverse Repurchase Agreements. Each Fund may also enter into reverse repurchase agreements which involve the sale of government securities held in its portfolio to a bank or securities firm with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund. The Fund will use proceeds obtained from the sale of securities pursuant to reverse repurchase agreements to purchase other investments. The use of borrowed funds to make investment is a practice known as "leverage," which is considered speculative. Use of reverse repurchase agreements is an investment technique that is intended to increase income. Thus, the Fund will enter into a reverse purchase agreement only when the Investment Adviser determines that the interest income to be earned from the investment of the proceeds is greater than the interest expense of the transaction. However, there is a risk that interest expense will nevertheless exceed the income earned. Reverse repurchase agreements involve the risk that the market value of securities purchased by the Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. The Fund would also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, the Fund would establish and maintain with the Fund's custodian a separate account consisting of highly liquid, marketable securities in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. In addition, the Fund would not enter into reverse repurchase agreements exceeding in the aggregate more than 33 1/3% of the market value of its total net assets. The Fund will enter into reverse repurchase agreements only with selected registered broker/dealers or with federally insured banks or savings and loan associations which are approved in advance as being creditworthy by the Board of Directors. Under procedures established by the Board of Directors, the Adviser will monitor the creditworthiness of the firms involved. Forward Commitment and When-Issued Securities. Each Fund (other than Money Market Fund) may purchase securities on a when-issued or forward commitment basis. "When- issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. A Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, a Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. -17- 214 When a Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Funds losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when-issued and forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. On the date a Fund enters into an agreement to purchase securities on a when-issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid, high grade debt securities equal in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, a Fund may enter into offsetting contracts for the forward sale of other securities that it owns. Short Sales. Global Resources Fund may engage in short sales in order to profit from an anticipated decline in the value of a security. The Fund may also engage in short sales to attempt to limit its exposure to a possible market decline in the value of its portfolio securities through short sales of securities which the Adviser believes possess volatility characteristics similar to those being hedged. To effect such a transaction, the Fund must borrow the security sold short to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. Until the security is replaced, the Fund is required to pay to the lender any accrued interest and may be required to pay a premium. The Fund will realize a gain if the security declines in price between the date of the short sale and the date on which the Fund replaces the borrowed security. On the other hand, the Fund will incur a loss as a result of the short sale if the price of the security increases between those dates. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium or interest or dividends the Fund may be required to pay in connection with a short sale. The successful use of short selling as a hedging device may be adversely affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged. Under applicable guidelines of the staff of the SEC, if the Fund engages in short sales, it must put in a segregated account (not with the broker) an amount of cash or U.S. Government securities equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) any cash or U.S. Government securities required to be deposited as collateral with the broker in connection with the short sale (not including the proceeds from the short sale). In addition, until the Fund replaces the borrowed security, it must daily maintain the segregated account at such a level that (1) the amount deposited in it plus the amount deposited with the broker as collateral will equal the current market value of the securities sold short, and (2) the amount deposited in it plus the amount deposited with the broker as collateral will not be less than the market value of the securities at the time they were sold short. Short selling may produce higher than normal portfolio turnover which may result in increased transaction costs to the Fund and may result in gains from the sale of securities deemed to have been held for less than three months, which gains must be less than 30% of the Fund's gross income in order for the Fund to qualify as a regulated investment company under the Code. Lower Rated High Yield Debt Obligations. Emerging Growth Fund, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund may invest in high yielding, fixed income securities rated below investment grade (e.g., rated Baa or lower by Moody's or BBB or lower by S&P. -18- 215 Ratings are based largely on the historical financial condition of the issuer. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition, which may be better or worse than the rating would indicate. See Appendix A to this SAI which describes the characteristics of corporate bonds in the various rating categories. The Fund may invest in comparable quality unrated securities which, in the opinion of the Adviser, offer comparable yields and risks to those securities which are rated. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the ability of the issuer to make payments of interest and principal. The high yield fixed income market is relatively new and its growth occurred during a period of economic expansion. The market has not yet been fully tested by an economic recession. The market price and liquidity of lower rated fixed income securities generally respond to short term corporate and market developments to a greater extent than do the price and liquidity of higher rated securities because such developments are perceived to have a more direct relationship to the ability of an issuer of such lower rated securities to meet its ongoing debt obligations. Reduced volume and liquidity in the high yield bond market or the reduced availability of market quotations will make it more difficult to dispose of the bonds and to value accurately a Fund's assets. The reduced availability of reliable, objective data may increase a Fund's reliance on management's judgment in valuing high yield bonds. In addition, a Fund's investments in high yield securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. A Fund's investments, and consequently its net asset value, will be subject to the market fluctuations and risks inherent in all securities. Credit and Interest Rate Risks. In addition to the information contained in the Prospectuses, investors should note that while ratings by a rating institution provide a generally useful guide to credit risks, they do not, nor do they purport to, offer any criteria for evaluating interest rate risk. Changes in the general level of interest rates cause fluctuations in the prices of fixed-income securities already outstanding and will therefore result in fluctuation in net asset value of the shares of Funds to the extent such the Funds invest in these securities. The extent of the fluctuation is determined by a complex interaction of a number of factors. The Investment Adviser will evaluate those factors it considers relevant and will make portfolio changes when it deems it appropriate in seeking to reduce the risk of depreciation in the value of a Fund's portfolio. However, in seeking to achieve a Fund's primary objectives, there will be times, such as during periods of rising interest rates, when depreciation and realization of comparable losses on securities in the portfolio will be unavoidable. Moreover, medium and lower-rated securities and unrated securities of comparable quality tend to be subject to wider fluctuations in yield and market values than higher rated securities. Such fluctuations after a security is acquired do not affect the cash income received from that security but are reflected in the net asset value of the Fund's portfolio. Other risks of lower quality securities include: (i) subordination to the prior claims of banks and other senior lenders and (ii) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates whereby the Funds may reinvest premature redemption proceeds in lower yielding portfolio securities. -19- 216 In determining which securities to purchase or hold in a Fund's portfolio (including, in the case of High Yield Bond Fund, investments in either unrated or rated securities which are in default) and in seeking to reduce credit and interest rate risk consistent with a Fund's investment objective and policies, the Adviser will rely on information from various sources, including: the rating of the security; research, analysis and appraisals of brokers and dealers; the views of the Fund's Directors and others regarding economic developments and interest rate trends; and the Adviser's own analysis of factors it deems relevant as it pertains to achieving a Fund's investment objective(s). Convertible Securities. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in convertible securities. Convertible securities are securities that may be converted at either a stated price or stated rate into underlying shares of common stock of the same issuer. Convertible securities have general characteristics similar to both fixed income and equity securities. Although to a lesser extent than with straight debt securities, the market value of convertible securities tends to decline as interest rated increase, and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stocks and therefore will also react to variations in the general market for equity securities. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and consequently may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. However, the issuers of convertible securities may default on their obligations. Mortgage "Dollar Roll" Transactions. Government Income Fund and High Yield Bond Fund may enter into mortgage "dollar roll" transactions with selected banks and broker-dealers pursuant to which a Fund sells Mortgage-Backed Securities for delivery in the future (generally within 30 days) and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. These Funds will only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction. Covered rolls are not treated as a borrowing or other senior securities. Dollar rolls in which the Funds may invest will be limited to covered rolls. For financial reporting and tax purposes, the Funds propose to treat mortgage dollar rolls as two separate transactions; one involving the purchase of a security and a separate transaction involving a sale. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a financing. Mortgage dollar rolls involve certain risks including the following: if the broker-dealer to whom a Fund sells the security becomes insolvent, the Fund's right to purchase or repurchase the Mortgage-Backed Securities subject to the mortgage dollar roll may be restricted and the instrument which the Fund is required to repurchase may be worth less than an instrument which the Fund originally held. Successful use of mortgage dollar rolls will depend upon the Adviser's ability to predict correctly interest rates and mortgage prepayments. For these reasons, there is no assurance that mortgage dollar rolls can be successfully employed. -20- 217 SPECIAL INVESTMENT TECHNIQUES Financial Futures Contracts. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may buy and sell futures contracts (and related options) on stocks, stock indices, debt securities, currencies, interest rate indices, and other instruments. Each Fund may hedge its portfolio by selling or purchasing financial futures contracts as an offset against the effects of changes in interest rates or in security or foreign currency values. Although other techniques could be used to reduce exposure to interest rate fluctuations, a Fund may be able to hedge its exposure more effectively and perhaps at a lower cost by using financial futures contracts. The Funds may enter into financial futures contracts for hedging and other non- speculative purposes to the extent permitted by regulations of the Commodity Futures Trading Commission ("CFTC"). Financial futures contracts have been designed by boards of trade which have been designated "contract markets" by the CFTC. Futures contracts are traded on these markets in a manner that is similar to the way a stock is traded on a stock exchange. The boards of trade, through their clearing corporations, guarantee that the contracts will be performed. Currently, financial futures contracts are based on interest rate instruments such as long-term U.S. Treasury bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA") modified pass-through mortgage-backed securities, three-month U.S. Treasury bills, 90-day commercial paper, bank certificates of deposit and Eurodollar certificates of deposit. It is expected that if other financial futures contracts are developed and traded the Funds may engage in transactions in such contracts. Although some financial futures contracts by their terms call for actual delivery or acceptance of financial instruments, in most cases the contracts are closed out prior to delivery by offsetting purchases or sales of matching financial futures contracts (same exchange, underlying security and delivery month). Other financial futures contracts, such as futures contracts on securities indices, by their terms call for cash settlements. If the offsetting purchase price is less than a Fund's original sale price, the Fund realizes a gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than a Fund's original purchase price, the Fund realizes a gain, or if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. Each Fund will pay a commission in connection with each purchase or sale of financial futures contracts, including a closing transaction. For a discussion of the Federal income tax considerations of trading in financial futures contracts, see the information under the caption "Tax Status" below. At the time a Fund enters into a financial futures contract, it is required to deposit with its custodian a specified amount of cash or U.S. Government securities, known as "initial margin," ranging upward from 1.1% of the value of the financial futures contract being traded. The margin required for a financial futures contract is set by the board of trade or exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the financial futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Funds expect to earn interest income on their initial margin deposits. Each day, the futures contract is valued at the official settlement price of the board of trade or exchange on which it is traded. Subsequent payments, known as "variation margin," to and from the broker are made on a daily basis as the market price of the financial futures contract fluctuates. This process is known as "mark to market." Variation margin does not represent a borrowing or lending by the Funds but is instead settlement between the Funds and the broker of the amount one would owe the other if the financial futures contract expired. In computing net asset value, the Funds will mark to market their respective open financial futures positions. -21- 218 Successful hedging depends on a strong correlation between the market for the underlying securities and the futures contract market for those securities. There are several factors that will probably prevent this correlation from being a perfect one, and even a correct forecast of general interest rate trends may not result in a successful hedging transaction. There are significant differences between the securities and futures markets which could create an imperfect correlation between the markets and which could affect the success of a given hedge. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for financial futures and debt securities, including technical influences in futures trading and differences between the financial instruments being hedged and the instruments underlying the standard financial futures contracts available for trading in such respects as interest rate levels, maturities and creditworthiness of issuers. The degree of imperfection may be increased where the underlying debt securities are lower-rated and, thus, subject to greater fluctuation in price than higher-rated securities. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. The Funds will bear the risk that the price of the securities being hedged will not move in complete correlation with the price of the futures contracts used as a hedging instrument. Although the Adviser believes that the use of financial futures contracts will benefit the Funds, an incorrect prediction could result in a loss on both the hedged securities in the respective Fund's portfolio and the hedging vehicle so that the Fund's return might have been better had hedging not been attempted. However, in the absence of the ability to hedge, the Adviser might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. The low margin deposits required for futures transactions permit an extremely high degree of leverage. A relatively small movement in a futures contract may result in losses or gains in excess of the amount invested. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount the price of a futures contract may vary either up or down from the previous day's settlement price, at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and, therefore, does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Finally, although the Funds engage in financial futures transactions only on boards of trade or exchanges where there appears to be an adequate secondary market, there is no assurance that a liquid market will exist for a particular futures contract at any given time. The liquidity of the market depends on participants closing out contracts rather than making or taking delivery. In the event participants decide to make or take delivery, liquidity in the market could be reduced. In addition, the Funds could be prevented from executing a buy or sell order at a specified price or closing out a position due to limits on open positions or daily price fluctuation limits imposed by the exchanges or boards of trade. If a Fund cannot close out a position, it will be required to continue to meet margin requirements until the position is closed. Options on Financial Futures Contracts. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may buy and sell options on financial futures contracts on stocks, stock indices, debt securities, currencies, interest rate indices, and other instruments. An option on a futures contract gives the purchaser the right, in return for the premium paid, to -22- 219 assume a position in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise, the writer of the option delivers the futures contract to the holder at the exercise price. The Funds would be required to deposit with their custodian initial and variation margin with respect to put and call options on futures contracts written by them. Options on futures contracts involve risks similar to the risks relating to transactions in financial futures contracts. Also, an option purchased by a Fund may expire worthless, in which case a Fund would lose the premium it paid for the option. Other Considerations. The Funds will engage in futures and options transactions for bona fide hedging or other non-speculative purposes to the extent permitted by CFTC regulations. A Fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the Fund or which it expects to purchase. Except as stated below, the Funds' futures transactions will be entered into for traditional hedging purposes -- i.e., futures contracts will be sold to protect against a decline in the price of securities that the Funds own, or futures contracts will be purchased to protect the Funds against an increase in the price of securities, or the currency in which they are denominated, the Fund intends to purchase. As evidence of this hedging intent, the Funds expect that on 75% or more of the occasions on which they take a long futures or option position (involving the purchase of futures contracts), the Funds will have purchased, or will be in the process of purchasing equivalent amounts of related securities or assets denominated in the related currency in the cash market at the time when the futures contract or option position is closed out. However, in particular cases, when it is economically advantageous for a Fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities or other assets. As an alternative to literal compliance with the bona fide hedging definition, a CFTC regulation permits the Funds to elect to comply with a different test, under which the aggregate initial margin and premiums required to establish nonhedging positions in futures contracts and options on futures will not exceed 5% of the net asset value of the respective Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase. The Funds will engage in transactions in futures contracts only to the extent such transactions are consistent with the requirements of the Code for maintaining their qualifications as regulated investment companies for Federal income tax purposes. When the Funds purchase financial futures contracts, or write put options or purchase call options thereon, cash or liquid, high grade debt securities will be deposited in a segregated account with the Funds' custodian in an amount that, together with the amount of initial and variation margin held in the account of its broker, equals the market value of the futures contracts. Options Transactions. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may write listed and over-the-counter covered call options and covered put options on securities in order to earn additional income from the premiums received. In addition, the Funds may purchase listed and over-the-counter call and put options. The extent to which covered options will be used by the Funds will depend upon market conditions and the availability of alternative strategies. A Fund will write listed and over-the-counter call options only if they are "covered," which means that the Fund owns or has the immediate right to acquire the securities underlying the options without additional cash consideration upon conversion or exchange of other securities held in its portfolio. A call option written by a Fund may also be "covered" if the Fund holds on a share-for-share basis a covering call on the same securities where (i) the exercise price of the covering call held is equal to or less than the exercise price of the call written if the difference is -23- 220 maintained by the Fund in cash, U.S. Treasury bills or high grade liquid debt obligations in a segregated account with the Fund's custodian, and (ii) the covering call expires at the same time as the call written. If a covered call option is not exercised, a Fund would keep both the option premium and the underlying security. If the covered call option written by a Fund is exercised and the exercise price, less the transaction costs, exceeds the cost of the underlying security, the Fund would realize a gain in addition to the amount of the option premium it received. If the exercise price, less transaction costs, is less than the cost of the underlying security, a Fund's loss would be reduced by the amount of the option premium. As the writer of a covered put option, each Fund will write a put option only with respect to securities it intends to acquire for its portfolio and will maintain in a segregated account with its custodian bank cash, U.S. Government securities or high-grade liquid debt securities with a value equal to the price at which the underlying security may be sold to the Fund in the event the put option is exercised by the purchaser. The Funds may also write a "covered" put option by purchasing on a share-for-share basis a put on the same security as the put written by the Fund if the exercise price of the covering put held is equal to or greater than the exercise price of the put written and the covering put expires at the same time or later than the put written. When writing listed and over-the-counter covered put options on securities, the Funds would earn income from the premiums received. If a covered put option is not exercised, the Funds would keep the option premium and the assets maintained to cover the option. If the option is exercised and the exercise price, including transaction costs, exceeds the market price of the underlying security, a Fund would realize a loss, but the amount of the loss would be reduced by the amount of the option premium. If the writer of an exchange-traded option wishes to terminate its obligation prior to its exercise, it may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that a Fund's position will be offset by the Options Clearing Corporation. The Funds may not effect a closing purchase transaction after they have been notified of the exercise of an option. There is no guarantee that a closing purchase transaction can be effected. Although the Funds will generally write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange or board of trade will exist for any particular option or at any particular time, and for some options no secondary market on an exchange may exist. In the case of a written call option, effecting a closing transaction will permit a Fund to write another call option on the underlying security with either a different exercise price, expiration date or both. In the case of a written put option, it will permit a Fund to write another put option to the extent that the exercise price thereof is secured by deposited cash or short-term securities. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any securities subject to the option to be used for other investments. If a Fund desires to sell a particular security from its portfolio on which it has written a call option, it will effect a closing transaction prior to or concurrent with the sale of the security. A Fund will realize a gain from a closing transaction if the cost of the closing transaction is less than the premium received from writing the option. The Funds will realize a loss from a closing transaction if the cost of the closing transaction is more than the premium received for writing the option. However, because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by the Fund. -24- 221 Over-the-Counter Options. Funds that may engage in options transactions may engage in options transactions on exchanges and in the over-the-counter markets. In general, exchange- traded options are third-party contracts (i.e., performance of the parties' obligations is guaranteed by an exchange or clearing corporation) with standardized strike prices and expiration dates. Over-the-counter ("OTC") transactions are two-party contracts with price and terms negotiated by the buyer and seller. A Fund will acquire only those OTC options for which management believes the Fund can receive on each business day at least two separate bids or offers (one of which will be from an entity other than a party to the option) or those OTC options valued by an independent pricing service. The Funds will write and purchase OTC options only with member banks of the Federal Reserve System and primary dealers in U.S. Government securities or their affiliates which have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. The SEC has taken the position that OTC options are illiquid securities subject to each Fund's restriction that illiquid securities are limited to not more than 10% of the Fund's net assets. The SEC, however, has a partial exemption from the above restrictions on transactions in OTC options. The SEC allows a Fund to exclude from the 10% limitation on illiquid securities a portion of the value of the OTC options written by the Fund, provided that certain conditions are met. First, the other party to the OTC options has to be a primary U.S. Government securities dealer designated as such by the Federal Reserve Bank. Second, the Fund must have an absolute contractual right to repurchase the OTC options at a formula price. If the above conditions are met, a Fund may treat as illiquid only that portion of the OTC option's value (and the value of its underlying securities) which is equal to the formula price for repurchasing the OTC option, less the OTC option's intrinsic value. INVESTMENT RESTRICTIONS Each Fund has adopted the following policies which cannot be changed as to any Fund without the approval of the holders of a majority of that Fund's shares (which, as used in this Statement of Additional Information, means the lesser of (i) more than 50% of its outstanding shares, or (ii) 67% or more of its outstanding shares present at a meeting if holders of more than 50% of its outstanding shares are represented in person or by proxy. If a percentage restriction or rating restriction on investment or utilization of assets is adhered to at the time an investment is made or assets are so utilized, a later change in percentage resulting from changes in the value of a Fund's portfolio securities or a later change in the rating of a portfolio security will not be considered a violation of policy. For the purpose of these restrictions, High Yield Bond Fund, Government Income Fund and Money Market Fund are referred to as the "Fixed Income Funds" and Emerging Growth Fund and Global Resources Fund are referred to as the "Equity Funds." The restrictions applicable to High Yield Tax-Free Fund are set out subsequently. Each Fixed Income Fund and each Equity Fund may not: (1) Borrow money in an amount in excess of 33-1/3% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes (except that it may enter into a reverse repurchase agreement within the limits described in the Prospectus), or pledge, mortgage or hypothecate an amount of its assets (taken at market value) in excess of 15% of its total assets, in each case taken at the lower of cost or market value. For the purpose of this restriction, collateral arrangements with respect to options, futures contracts, options on futures contracts and collateral arrangements with respect to initial and variation margins are not considered a pledge of assets. -25- 222 (2) Underwrite securities issued by other persons except insofar as such Fund may technically be deemed an underwriter under the Securities Act of 1933 in selling a portfolio security. (3) Purchase or retain real estate (including limited partnership interests but excluding securities of companies, such as real estate investment trusts, which deal in real estate or interests therein and securities secured by real estate), or mineral leases, commodities or commodity contracts except, in the case of Resources Fund, precious metals (except contracts for the future delivery of fixed income securities, stock index and currency futures and options on such futures) in the ordinary course of its business. Each Fund reserves the freedom of action to hold and to sell real estate or mineral leases, commodities or commodity contracts acquired as a result of the ownership of securities. (4) Invest in direct participation interests in oil, gas or other mineral exploration or development programs. (5) Make loans to other persons except by the purchase of obligations in which such Fund is authorized to invest and by entering into repurchase agreements; provided that a Fund may lend its portfolio securities not in excess of 30% of its total assets (taken at market value). Not more than 10% of a Fund's total assets (taken at market value) will be subject to repurchase agreements maturing in more than seven days. For these purposes the purchase of all or a portion of an issue of debt securities shall not be considered the making of a loan. In addition, the Equity Funds may purchase a portion of an issue of debt securities of types commonly distributed privately to financial institutions. (6) Purchase the securities of any issuer if such purchase, at the time thereof, would cause more than 5% of its total assets (taken at market value) to be invested in the securities of such issuer, other than securities issued or guaranteed by the United States or, in the case of the Fixed Income Funds, any state or political subdivision thereof, or any political subdivision of any such state, or any agency or instrumentality of the United States, any state or political subdivision thereof, or any political subdivision of any such state. (7) Invest in companies for the purpose of exercising control or management. (8) Purchase or retain in its portfolio any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Director of such Fund, or is a member, partner, officer or Director of the Adviser, if after the purchase of the securities of such issuer by such Fund one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, all taken at market value, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both, all taken at market value. (9) Purchase any securities or evidences of interest therein on margin, except that each Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities and each Fund (other than the Money Market Fund B) may make deposits on margin in connection with Futures Contracts and related options. (10) Sell any security which such Fund does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain securities without payment of further consideration equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon equivalent conditions. -26- 223 (11) Purchase securities issued by any other investment company or investment trust except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, or except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided, however, that a Fund will not purchase such securities if such purchase at the time thereof would cause more than 10% of its total assets (taken at market value) to be invested in the securities of such issuers; and, provided, further, that a Fund will not purchase securities issued by an open-end investment company. (12) Knowingly invest in securities which are subject to legal or contractual restrictions on resale or for which there is no readily available market (e.g., trading in the security is suspended or market makers do not exist or will not entertain bids or offers), except for repurchase agreements, if, as a result thereof more than 10% of such Fund's total assets (taken at market value) would be so invested. (The Staff of the Securities and Exchange Commission has taken the position that a money market fund may no invest more than 10% of its net assets in illiquid securities. The Money Market Fund B has undertaken with the Staff to require, that as a matter of operating policy, it will not invest in illiquid securities in an amount exceeding 10% of its net assets.) (13) Issue any senior security (as that term is defined in the Act) if such issuance is specifically prohibited by the Act or the rules and regulations promulgated thereunder. For the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts and Options on Futures Contracts and collateral arrangements with respect to initial and variation margins are not deemed to be the issuance of a senior security. In addition, except for Money Market Fund B and High Yield Bond Fund whose policies on investment in the securities of issuers engaged in any one industry are set forth in the prospectuses of those Funds, a Fixed Income Fund may not invest more than 25% of its total assets (taken at market value) in the securities of issuers engaged in any one industry. Obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities are not subject to this limitation. Determinations of industries for purposes of the foregoing limitation are made in accordance with specific industry codes set forth in the Standard Industrial Classification Manual and without considering groups of industries (e.g., all utilities or all finance companies) to be an industry. Also, a Fixed Income Fund may not purchase securities of any issuer (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities) if such purchase, at the time thereof, would cause a Fund to hold more than 10% of any class of securities of such issuer. For this purpose, all indebtedness of an issuer (for the Money Market Fund B, all indebtedness of an issuer maturing in less than one year) shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class. In addition, an Equity Fund may not: (1) Concentrate its investments in any particular industry, but if it is deemed appropriate for the attainment of its investment objective, such Fund may invest up to 25% of its assets (taken at market value at the time of each investment) in securities of issuers in any one industry. (2) Purchase voting securities of any issuer if such purchase, at the time thereof, would cause more than 10% of the outstanding voting securities of such issuer to be held by such Fund; or purchase securities of any issuer if such purchase at the time thereof would cause more than 10% of any class of securities of such issuer to be held by such Fund. For this purpose all indebtedness of an issuer shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class. -27- 224 High Yield Tax-Free Fund may not: (1) Borrow money except from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests that might otherwise require the untimely disposition of securities, in an amount up to 15% of the value of the Fund's total assets (including the amount borrowed) valued at market less liabilities (not including the amount borrowed) at the time the borrowing was made. While borrowings exceed 5% of the value of the Fund's total assets, the Fund will not purchase any additional securities. Interest paid on borrowings will reduce the Fund's net investment income. The borrowing restriction set forth above does not prohibit the use of reverse repurchase agreements, in an amount (including any borrowings) not to exceed 33-1/3% of net assets. (2) Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an amount up to 10% of the value of its total assets but only to secure borrowings for temporary or emergency purposes as may be necessary in connection with maintaining collateral in connection with writing put or call options or making initial margin deposits in connection with the purchase or sale of financial futures or index futures contracts and related options. (3) Purchase securities (except obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities) if the purchase would cause the Fund at the time to have more than 5% of the value of its total assets invested in the securities of any one issuer or to own more than 10% of the outstanding debt securities of any one issuer; provided, however, that up to 25% of the value of the Fund's asset may be invested without regard to these restrictions. (4) Purchase or retain the securities of any issuer, if to the knowledge of the Fund, any officer or director of the Fund or its Investment Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and all such officers and directors own in the aggregate more than 5% of the outstanding securities of such issuer. (5) Write, purchase or sell puts, calls or combinations thereof, except put and call options on debt securities, futures contracts based on debt securities, indices of debt securities and futures contracts based on indices of debt securities, sell securities on margin or make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at current value) is held as collateral for such sales at any one time. (6) Underwrite the securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in disposing of a portfolio security. (7) Purchase the securities of any issuer if as a result more than 10% of the value of the Fund's total assets would be invested in securities that are subject to legal or contractual restrictions on resale ("restricted securities") and in securities for which there are no readily available market quotations; or enter into a repurchase agreement maturing in more than seven days, if as a result such repurchase agreement together with restricted securities and securities for which there are no readily available market quotations would constitute more than 10% of the Fund's total assets. (8) Purchase or sell real estate, real estate investment trust securities, commodities or commodity contracts, except commodities and commodities contracts which are necessary to enable the Fund to engage in permitted futures and options transactions necessary to implement -28- 225 hedging strategies, or oil and gas interests, but this shall not prevent the Fund from investing in Municipal Obligations secured by real estate or interests in real estate. (9) Make loans to others, except insofar as the Fund may enter in repurchase agreements as set forth in the Prospectus. The purchase of an issue of publicly distributed bonds or other securities, whether or not the purchase was made upon the original issuance of securities, is not to be considered the making of a loan. (10) Invest more than 25% of its assets in the securities of the "issuers" in any single industry; provided that there shall be no limitation on the purchase of Municipal Obligations and obligations issued or guaranteed by the United States Government, its agencies or instrumentalities. For purposes of this limitation and that set forth in investment restriction (3) above, when the assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government creating the issuing entity and a security is backed only by the assets and revenues of the entity, the entity would be deemed to be the sole issuer of the security. Similarly, in the case of an industrial development or pollution control bond, if that bond is backed only by the assets and revenues of the nongovernmental user, then such non governmental user would be deemed to be the sole issuer. If, however, in either case, the creating government or some other entity guarantees a security, such a guarantee would be considered a separate security and would be treated as an issue of such government or other entity. (11) Invest in securities of other investment companies, except as they may be acquired as part of a merger, consolidation or acquisition of assets, and except for the purchase, to the extent permitted by Section 12 of the Act, of shares of registered unit investment trusts whose assets consist substantially of Municipal Obligations. (12) Invest more than 5% of the value of its total assets in the securities of issuers having a record, including predecessors, of fewer than three years of continuous operation, except obligations issued or guaranteed by the United States Government, its agencies or instrumentalities, unless the securities are rated by a nationally recognized rating service. (13) Invest for the purpose of exercising control or management of another company. (14) Issue any senior security (as that term is defined in the Act) if such issuance is specifically prohibited by the Act or the rules and regulations promulgated thereunder. For the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts and Options on Futures Contracts and collateral arrangements with respect to initial and variation margins are not deemed to be the issuance of a senior security. OTHER OPERATING POLICIES Each of the Equity Funds (whose investment restrictions permit holdings in warrants not to exceed 10% of its assets) may, due to an undertaking with a state in the Fund's shares are currently qualified for sale, purchase warrants not to exceed 5% of such Fund's net assets. Included within that amount, but not exceeding 2% of a Fund's net assets, may be warrants for which there is no public market. Any such warrants which are attached to securities at the time such securities are acquired by a Fund will be deemed to be without value for the purpose of this restriction. Each Fund (other than High Yield Tax-Free Fund) will not invest more than 5% of its total assets in companies which, including their respective predecessors, have a record of less than three years' continuous operation. -29- 226 In order to comply with certain state regulatory policies, no Fund will, as a matter of operating policy, pledge, mortgage or hypothecate its portfolio securities if the percentage of securities so pledged, mortgaged or hypothecated would exceed 15%. In order to comply with certain state regulatory policies, the cost of investments in options, financial futures, stock index futures and currency futures, other than those acquired for hedging purposes, may not exceed 10% of a Fund's total net assets. (See "Special Investment Techniques - Futures and Options on Futures and Regulatory Matters" for other limitations applicable to these types of investments.) These operating policies are not fundamental and may be changed without shareholder approval. In order to comply with certain state regulatory practices, certain policies, if changed, would require advance written notice to shareholders. The Corporation's Board of Directors has approved the following nonfundamental investment policy pursuant to an order of the SEC: Notwithstanding any investment restriction to the contrary, each Fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds provided that, as a result, (i) no more than 10% of the Fund's assets would be invested in securities of all other investment companies, (ii) such purchase would not result in more than 3% of the total outstanding voting securities of any one such investment company being held by the Fund and (iii) no more than 5% of the Fund's assets would be invested in any one such investment company. THOSE RESPONSIBLE FOR MANAGEMENT The business of the Corporation is managed by its Directors who elect officers who are responsible for the day-to-day operations of the Corporation and the Funds and who execute policies formulated by the Directors. Several of the officers and Directors of the Corporation are also officers and directors of the Adviser or officers and directors of John Hancock Funds. Set forth below is the principal occupation or employment of the Directors and principal officers of the Corporation during the past five years:
POSITION HELD WITH PRINCIPAL OCCUPATION(S) NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS ---------------- ------------------ ----------------------- Edward J. Boudreau, Jr.* Director, Chairman and Chief Executive 101 Huntington Avenue Chairman and Officer, the Adviser and The Boston, MA 02199 Chief Executive Berkeley Financial Group Officer(1)(2) ("The Berkeley Group"); Chairman, NM Capital Management, Inc. ("NM Capital"); John Hancock Advisers International Limited ("Advisers International"); John Hancock Funds, Inc.; John Hancock Investor Services Corporation ("Investor Services"); and Sovereign Asset Management Corporation ("SAMCorp");
-30- 227 (hereinafter the Adviser, the Berkeley Group, NM Capital, Advisers International, John Hancock Funds, Inc., Investor Services and SAMCorp are collectively referred to as the "Affiliated Companies"); Chairman, First Signature Bank & Trust; Director, John Hancock Freedom Securities Corporation, John Hancock Capital Corporation, New England/Canada Business Council; Member, Investment Company Institute Board of Governors; Trustee, Museum of Science; President, the Adviser (until July 1992); Trustee or Director of other investment companies managed by the Adviser; and Chairman, John Hancock Distributors, Inc. (until April, 1994). James F. Carlin Director Chairman and CEO, Carlin 233 West Central Street Consolidated, Inc. (insurance); Natick, MA 01760 Director, Arbella Mutual Insurance Company (insurance), Consolidated Group Trust (group health plan), Carlin Insurance Agency, Inc. and West Insurance Agency, Inc.; Receiver, the City of Chelsea (until August 1992); and Trustee or Director of other investment companies managed by the Adviser. William H. Cunningham Director Chancellor, University of 601 Colorado Street Texas System and former O'Henry Hall President of the University of Austin, TX 78701 Texas, Austin, Texas; Regents Chair in Higher Education Leadership; James L. Bayless Chair for Free Enterprise; Professor of Marketing and Dean College of Business Administration/Graduate School of Business (1983-1985); Centennial Chair in Business Education
-31- 228 Leadership, 1983-1985; Director, LaQuinta Motor Inns, Inc. (hotel management company); Director, Jefferson-Pilot Corporation (diversified life insurance company); Director, Freeport-McMoran Inc. (oil and gas company); Director, Barton Creek Properties, Inc. (1988-1990) (real estate development) and LBJ Foundation Board (education foundation); and Advisory Director, Texas Commerce Bank - Austin. Charles L. Ladner Director(3) Director, Energy North, Inc. UGI Corporation (public utility holding 460 North Gulph Road company); Senior Vice King of Prussia, PA 19406 President, Finance UGI Corp. (public utility holding company) (until 1992); and Trustee or Director of other investment companies managed by the Adviser. Leo E. Linbeck, Jr. Director Chairman, President, Chief 3810 W. Alabama Executive Officer and Houston, TX 77027 Director, Linbeck Corporation (a holding company engaged in various phases of the construction industry and warehousing interests); Director and Chairman, Federal Reserve Bank of Dallas; Chairman of the Board and Chief Executive Officer, Linbeck Construction Corporation; Director, Panhandle Eastern Corporation (a diversified energy company); Director, Daniel Industries, Inc. (manufacturer of gas measuring products and energy related equipment); Director, GeoQuest International, Inc. (a geophysical consulting firm); and Director, Greater Houston Partnership.
-32- 229 Patricia P. McCarter Director(3) Director and Secretary, the Swedesford Road McCarter Corp. (machine RD #3, Box 121 manufacturer); and Trustee or Malvern, PA 19355 Director of other investment companies managed by the Adviser. Steven R. Pruchansky Director(1)(3) Director and Treasurer, Mast 360 Horse Creek Drive, #208 Holdings, Inc.; Director, Naples, FL 33942 First Signature Bank & Trust Company (until August 1991); General Partner, Mast Realty Trust; President, Maxwell Building Corp. (until 1991); and Trustee or Director of other investment companies managed by the Adviser. Norman H. Smith Director(3) Lieutenant General, USMC, Rt. 1, Box 249 E Deputy Chief of Staff for Linden, VA 22642 Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991); and Trustee or Director of other investment companies managed by the Adviser. John P. Toolan Director(3) Director, The Smith Barney 13 Chadwell Place Muni Bond Funds, The Smith Morristown, NJ 07960 Barney Tax-Free Money Fund, Inc., Vantage Money Market Funds (mutual funds), The Inefficient-Market Fund, Inc. (closed-end investment company) and Smith Barney Trust Company of Florida; Chairman, Smith Barney Trust Company (retired December, 1991); Director, Smith Barney, Inc., Mutual Management Company and Smith, Barney Advisers, Inc. (investment advisers) (retired 1991); and Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991); and
-33- 230 Trustee or Director of other investment companies managed by the Adviser. Robert G. Freedman* Vice Chairman President and Chief 101 Huntington Avenue and Chief Investment Officer, the Boston, MA 02199 Investment Adviser. Officer(2) Anne C. Hodsdon* President(2) Executive Vice President, the 101 Huntington Avenue Adviser. Boston, MA 02199 James B. Little* Senior Vice Senior Vice President, the 101 Huntington Avenue President and Adviser. Boston, MA 02199 Chief Financial Officer Thomas H. Drohan* Senior Vice Senior Vice President and 101 Huntington Avenue President and Secretary, the Adviser. Boston, MA 02199 Secretary Michael P. DiCarlo* Senior Vice Senior Vice President, the 101 Huntington Avenue President(2) Adviser. Boston, MA 02199 Edgar Larsen* Senior Vice Senior Vice President, the 101 Huntington Avenue President Adviser. Boston, MA 02199 B.J. Willingham* Senior Vice Senior Vice President, the 101 Huntington Avenue President Adviser. Formerly, Director Boston, MA 02199 and Chief Investment Officer of Transamerica Fund Management Company. James J. Stokowski* Vice President Vice President, the Adviser. 101 Huntington Avenue and Treasurer Boston, MA 02199 Susan S. Newton* Vice President Vice President and Assistant 101 Huntington Avenue and Compliance Secretary, the Adviser. Boston, MA 02199 Officer John A. Morin* Vice President Vice President, the Adviser. 101 Huntington Avenue Boston, MA 02199 * An "interested person" of the Corporation, as such term is defined in the 1940 Act.
-34- 231 All of the officers listed are officers or employees of the Adviser or affiliated companies. Some of the Directors and officers may also be officers and/or Directors and/or Trustees of one or more of the other funds for which the Adviser serves as investment adviser. As of April 28, 1995, there were 13,205,309 shares of the Corporation outstanding and officers and Directors as a group beneficially owned less than 1% of the outstanding shares of the Corporation and of each of the Funds. On such date, the following shareholders were the only record holders and beneficial owners of 5% or more of the shares of the respective Funds: NUMBER OF SHARES HELD (EXPRESSED AS PERCENTAGE OF FUND'S OUTSTANDING SHARES) Emerging Growth Fund: 3,778,946 Shares Merrill Lynch Pierce Fenner & Smith 24.59% 4800 Deerlake Drive East Jacksonville, Florida 32246 Global Resources Fund: 165,205 Shares Merrill Lynch Pierce Fenner & Smith 6.75% 4800 Deerlake Drive East Jacksonville, Florida 32246 Government Income Fund: 3,264,901 Shares Merrill Lynch Pierce Fenner & Smith 12.58% 4800 Deerlake Drive East Jacksonville, Florida 32246 1,339,170 Shares Continental Trust Co. 5.16% 231 S. LaSalle Street Chicago, IL 60697 High Yield Bond Fund: 2,159,330 Shares Merrill Lynch Pierce Fenner & Smith 8.34% 4800 Deerlake Drive East Jacksonville, Florida 32246
At such date, no other person(s), owned of record or was known by the Corporation to beneficially own as much as 5% of the outstanding shares of the Corporation or of any of the Funds. As of December 22, 1994, the Directors have established an Advisory Board which acts to facilitate a smooth transition of management over a two-year period (between Transamerica Fund Management Company ("TFMC"), the prior investment adviser, and the Adviser). The members of the Advisory Board are distinct from the Board of Directors, do not serve the Funds in any other capacity and are persons who have no power to determine what securities are purchased or sold and behalf of the Funds. Each member of the Advisory Board may be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199. Members of the Advisory Board and their respective principal occupations during the past five years are as follows: -35- 232 R. Trent Campbell, President, FMS, Inc. (financial and management services); former Chairman of the Board, Mosher Steel Company. Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas; co-founder, Houston Parents' League; former board member of various civic and cultural organizations in Houston, including the Houston Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently active in various civic and cultural activities in the Washington, D.C. area, including membership on the Area Board for The March of Dimes and is a National Trustee for the Botanic Gardens of Washington, D. C. Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive Officer, TFMC; Director, West Central Advisory Board, Texas Commerce Bank; Trustee, Memorial Hospital System; Chairman of the Board of Regents of Baylor University; Member, Board of Governors, National Association of Securities Dealers, Inc.; Formerly, Chairman, Investment Company Institute; formerly, President, Houston Chapter of Financial Executive Institute. Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director, Houston Industries and Houston Lighting and Power Company; Director, TransAmerican Companies (natural gas producer and transportation); Member, Board of Managers, Harris County Hospital District; Advisory Director, Commercial State Bank, El Campo; Advisory Director, First National Bank of Bryan; Advisory Director, Sterling Bancshares; Former Director and Vice Chairman, Texas Commerce Bancshares; and Vice Chairman, Texas Commerce Bank. Compensation of the Board of Directors and Advisory Board. The following tables provide information regarding the compensation paid by the Fund and the 22 other investment companies in the John Hancock Fund Complex to the Independent Directors and the Advisory Board members for their services. Mr. Boudreau, a non-Independent Director, and each of the officers of the Funds are interested persons of the Adviser, are compensated by the Adviser and received no compensation from the Funds for their services.
Pension or Total Compensation Retirement from all Funds in Aggregate Benefits Accrued John Hancock Compensation as Part of the Fund Complex to Directors from the Funds Funds' Expenses Directors** --------- -------------- ---------------- ------------------ James F. Carlin $ 0 $0 $ 60,450 William H. Cunningham $ 18,750* $0 $ 0 Charles L. Ladner $ 0 $0 $ 60,450 Leo E. Linbeck, Jr. $ 26,500* $0 $ 0 Patricia P. McCarter $ 0 $0 $ 60,200 Steven R. Pruchansky $ 0 $0 $ 62,450 Norman H. Smith $ 0 $0 $ 62,450 John P. Toolan $ 0 $0 $ 60,450 Total $ 45,250 $0 $366,450 * Messrs. Linbeck and Cunningham, the only current Directors who were Directors for the fiscal year ended October 31, 1994, were each paid directors' fees (including expenses) by the Funds pursuant to different compensation arrangements then in effect, in the amount of:
-36- 233 $4,344 from Government Income Fund; $4,244 from High Yield Bond Fund; $4,233 from High Yield Tax-Free Fund; $4,439 in Emerging Growth Fund; $1,529 from Global Resources Fund; and $2,758 for Money Market Fund B. ** The total compensation paid by the John Hancock Fund Complex to the Independent Directors is as of the calendar year ended December 31, 1994. (The Funds were not part of the John Hancock Fund Complex until December 22, 1994 and Messrs. Cunningham and Linbeck were not trustees or directors of any funds in the John Hancock Fund Complex prior to December 22, 1994.)
Pension or Total Compensation Retirement from all Funds in Aggregate Benefits Accrued John Hancock Compensation as Part of the Fund Complex to Advisory Board*** from the Funds Funds' Expenses Directors*** -------------- -------------- ---------------- ------------------ R. Trent Campbell $ 19,059 $0 $ 54,000 Mrs. Lloyd Bentsen $ 19,059 $0 $ 54,000 Thomas R. Powers $ 19,059 $0 $ 54,000 Thomas B. McDade $ 19,059 $0 $ 54,000 TOTAL $ 76,236 $0 $ 216,000 *** Estimated for the Funds' current fiscal year ending October 31, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES As described in the Funds' Prospecutses, the Funds receive their investment advice from the Adviser. Investors should refer to the Prospectuses for a description of certain information concerning the Funds' investment management contracts. Each of the Directors and principal officers affiliated with the Corporation who is also an affiliated person of the Adviser is named above, together with the capacity in which such person is affiliated with the Corporation and the Adviser. The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603, was organized in 1968 and more than $13 billion in total assets under management in its capacity as investment adviser to the Funds and the other mutual funds and publicly traded investment companies in the John Hancock group of funds having a combined total of over 1,060,000 shareholders. The Adviser is a wholly-owned subsidiary of The Berkeley Financial Group, which is in turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is in turn a wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life Company"), one of the most recognized an respected financial institutions in the nation. With total assets under management of over $80 billion, the Life Company is one of the ten largest life insurance companies in the United States, and carries Standard & Poor's and A.M. Best's highest ratings. Founded in 1862, the Life Company has been serving clients for over 130 years. As described in the Prospectuses, the Corporation, on behalf of each Fund, has entered into investment management contracts with the Adviser. Under each investment management contract, the Adviser provides the Funds with (i) a continuous investment program, consistent with each Fund's stated investment objective and policies, (ii) supervision of all aspects of each Fund's operations except those that are delegated to a custodian, transfer agent or other agent and -37- 234 (iii) such executive, administrative and clerical personnel, officers and equipment as are necessary for the conduct of their business. The Adviser is responsible for the day-to-day management of each Fund's portfolio assets. No person other than the Adviser and its directors and employees regularly furnish advice to the Funds with respect to the desirability of a Fund investing in, purchasing or selling securities. The Adviser may from time to time receive statistical or other similar factual information, and information regarding general economic factors and trends, from the Life Company and its affiliates. Under the terms of the investment management contracts with the Corporation, on behalf of each Fund, the Adviser provides the Corporation with office space, equipment and supplies and other facilities required for the business of the Funds. The Adviser pays the compensation of all officers and employees of the Corporation, and pays the expenses of clerical services relating to the administration of the Funds. All expenses which are not specifically paid by the Adviser and which are incurred in the operation of the Funds including, but not limited to, (i) the fees of the Directors of the Corporation who are not "interested persons," as such term is defined in the 1940 Act (the "Independent Directors"), (ii) the fees of the members of the Corporation's Advisory Board (described above) and (iii) the continuous public offering of the shares of each Fund are borne by the Funds. Subject to the conditions set forth in a private letter ruling that the Funds have received from the Internal Revenue Service relating to their multi-class structure, class expenses properly allocable to any Class A or Class B shares will be borne exclusively by such class of shares. As provided by the investment management contracts, each Fund pays the Investment Adviser an investment management fee, which is accrued daily and paid monthly in arrears at the following rates of the Funds' average daily net assets:
JOHN HANCOCK EMERGING GROWTH FUND FEE JOHN HANCOCK GLOBAL RESOURCES FUND (ANNUAL RATE) ------------- Average Daily Net Assets 0.75% JOHN HANCOCK GOVERNMENT INCOME FUND FEE AVERAGE DAILY NET ASSETS (ANNUAL RATE) ------------------------ ------------- The first $200 million 0.65% The next $300 million 0.625% Over $500 million 0.60% JOHN HANCOCK HIGH YIELD TAX-FREE FUND JOHN HANCOCK HIGH YIELD BOND FUND FEE AVERAGE DAILY NET ASSETS (ANNUAL RATE) ------------------------ ------------- The first $75 million 0.625% The next $75 million 0.5625% Over $150 million 0.50% JOHN HANCOCK MONEY MARKET FUND B
-38- 235
FEE AVERAGE DAILY NET ASSETS (ANNUAL RATE) ------------------------ ------------- The first $500 million 0.50% The next $250 million 0.425% The next $250 million 0.375% The next $500 million 0.35% The next $500 million 0.325% The next $500 million 0.30% Over $2.5 billion 0.275%
The Adviser may voluntarily and temporarily reduce its advisory fee or make other arrangements to limit a Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to re-impose the advisory fee and recover any other payments to the extent that, at the end of any fiscal year, a Fund's annual expenses fall below this limit. In the event normal operating expenses of a Fund, exclusive of certain expenses prescribed by state law, are in excess of any state limit where such Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any additional arrangements necessary to eliminate any remaining excess expenses. The most restrictive limit applicable to the Funds is 2.5% of the first $30,000,000 of a Fund's average daily net asset value, 2% of the next $70,000,000 of such assets and 1.5% of the remaining average daily net asset value. Pursuant to the investment management contracts, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the matters to which their respective contracts relate, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from its reckless disregard of the obligations and duties under the applicable contract. The initial term of the investment management contracts expires on December 22, 1996, and will continue in effect from year to year thereafter if approved annually by a vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on such approval, and by either a majority of the Directors or the holders of a majority of the affected Fund's outstanding voting securities. Each management contract may be terminated without penalty on 60 days' notice at the option of either party or by vote of a majority of the outstanding voting securities of the Fund. Each management contract terminates automatically in the event of its assignment. Securities held by a Fund may also be held by other funds or investment advisory clients for which the Adviser or its affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more are selling the same security. If opportunities for purchase or sale of securities by the Adviser for the Funds or for other funds or clients for which the Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser or its affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Under the investment management contracts, the Funds may use the name "John Hancock" or any name derived from or similar to it only for as long as the investment management contract or any extension, renewal or amendment thereof remains in effect. If a Fund's investment -39- 236 management contract is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. For the fiscal years ended October 31, 1994, 1993 and 1992, advisory fees payable by the Funds to TFMC, each Fund's former investment adviser, were as follows: (1) Emerging Growth Fund - (a) $2,706,438 (b) $1,668,514 and (c) $809,284 (2) Global Resources Fund - (a) $220,869 (b) $95,411 and (c) $57,774 (3) Government Income Fund - (a) $1,728,997 (b) $1,698,937 and (c) $1,197,515 (4) High Yield Bond Fund - (a) $976,834 (b) $777,673 and (c) $550,109 (5) High Yield Tax-Free Fund - (a) $886,380 (b) $541,737 and (c) $370,020 (6) Money Market Fund B - (a) $214,088 (b) $142,298 and (c) $133,127 During the six-month period ended October 31, 1993 and the fiscal year ended October 31, 1994, TFMC paid subadvisory fees to Transamerica Investment Services, Inc., its former subadviser, of $34,536 and $71,992, respectively. High Yield Tax-Free Fund made no payments of subadvisory fees during these periods. Administrative Services Agreement. The Corporation, on behalf of each Fund, was a party to an administrative services agreement with TFMC (the "Services Agreement"), pursuant to which TFMC performed bookkeeping and accounting services and functions, including preparing and maintaining various accounting books, records and other documents and keeping such general ledgers and portfolio accounts as are reasonably necessary for the operation of the Funds. Other administrative services included communications in response to shareholder inquiries and certain printing expenses of various financial reports. In addition, such staff and office space, facilities and equipment was provided as necessary to provide administrative services to the Funds. The Services Agreement was amended in connection with the appointment of the Adviser as adviser to the Fund to permit services under the Agreement to be provided to the Funds by the Adviser and its affiliates. The Services Agreement was terminated during the current fiscal year. The following amounts for each of the following Funds for their respective periods reflect (a) the total of administrative services fees paid and of such amount, (b) the amount of which was paid to TFMC and (c) the amount paid for certain data processing and pricing information services: EMERGING GROWTH FUND (1) for the fiscal year ended October 31, 1994 - (a) $222,044; (b) $192,019; and (c) $30,025. (2) for the fiscal year ended October 31, 1993 - (a) $157,911; (b) $134,656; and (c) $23,255. -40- 237 (3) for the fiscal year ended October 31, 1992 - (a) $100,346; (b) $81,923; and (c) $18,423. GLOBAL RESOURCES FUND (1) for the fiscal year ended October 31, 1994 - (a) $54,259; (b) $43,512; and (c) $10,747. (2) for the fiscal year ended October 31, 1993 - (a) $44,306; (b) 34,515; and (c) $9,791. (3) for the fiscal year ended October 31, 1992 - (a) $48,816; (b) $38,916; and (c) $9,900. GOVERNMENT INCOME FUND (1) for the fiscal year ended October 31, 1994 - (a) $132,786; (b) $107,246; and (c) $25,540. (2) for the fiscal year ended October 31, 1993 - (a) $116,354; (b) $90,782; and (c) $25,572. (3) for the fiscal year ended October 31, 1992 - (a) $86,781; (b) $62,627; and (c) $24,154. HIGH YIELD BOND FUND (1) for the fiscal year ended October 31, 1994 - (a) $100,822; (b) $80,593; and (c) $20,229. (2) for the fiscal year ended October 31, 1993 - (a) $82,030; (b) $64,844; and (c) $17,186. (3) for the fiscal year ended October 31, 1992 - (a) $69,403; (b) $52,920; and (c) $16,483. HIGH YIELD TAX-FREE FUND (1) for the fiscal year ended October 31, 1994 - (a) $88,709; (b) $60,488; and (c) $28,221. (2) for the fiscal year ended October 31, 1993 - (a) $69,485; (b) 46,591; and (c) $22,894. (3) for the fiscal year ended October 31, 1992 - (a) $63,272; (b) $40,793; and (c) $22,479. MONEY MARKET FUND B (1) for the fiscal year ended October 31, 1994 - (a) $46,621; (b) $36,221; and (c) $10,400. -41- 238 (2) for the fiscal year ended October 31, 1993 - (a) $42,511; (b) $32,451; and (c) $10,060. (3) for the fiscal year ended October 31, 1992 - (a) $51,109; (b) $40,808; and (c) $10,301. DISTRIBUTION CONTRACT Distribution Agreement. As discussed in the Prospectus, each Fund's shares are sold on a continuous basis at the public offering price. John Hancock Funds, a wholly-owned subsidiary of the Adviser, has the exclusive right, pursuant to the Distribution Agreement dated December 22, 1994 (the "Distribution Agreement"), to purchase shares from the Funds at net asset value for resale to the public or to broker-dealers at the public offering price. Upon notice to all broker-dealers with whom it has sales agreements ("Selling Brokers"), John Hancock Funds may allow such Selling Brokers up to the full applicable sales charge during periods specified in such notice. During these periods, such Selling Brokers may be deemed to be underwriters as that term is defined in the Securities Act of 1933. The Distribution Agreement was initially adopted by the affirmative vote of the Corporation's Board of Directors including the vote a majority of Directors who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for such purpose. The Distribution Agreement shall continue in effect with respect to each Fund until December 22, 1996 and from year to year if approved by either the vote of the Fund's shareholders or the Board of Directors including the vote of a majority of the Directors who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for such purpose. The Distribution Agreement may be terminated at any time as to one or more of the Funds, without penalty, by either party upon sixty (60) days' written notice or by a vote of a majority of the outstanding voting securities of the affected Fund and terminates automatically in the case of an assignment by John Hancock Funds. For the fiscal year ended October 31, 1994, the following amounts for each of Emerging Growth and High Yield Bond Fund reflect (a) the total underwriting commissions for sales of the Fund's Class A shares of administrative and (b) the portion of such amount retained by the Fund's former distributor, Transamerica Fund Distributors, Inc. In each case, the remainder of such underwriting commissions was reallowed to dealers. EMERGING GROWTH FUND (a) $1,042,959 and (b) $65,421. HIGH YIELD BOND FUND (a) $324,876 and (b) $23,651. The other Funds did not have Class A shares outstanding for the year ended October 31, 1994, and Emerging Growth Fund and High Yield Bond Fund did not have Class A shares outstanding for the years prior to the year ended October 31, 1994. Distribution Plan. The Board of Directors approved new distribution plans pursuant to Rule 12b-1 under the 1940 Act for shares of Money Market Fund ("Money Market B Plan") and Class A Shares ("Class A Plans") and Class B Shares ("Class B Plan") of each other Fund. Such -42- 239 Plans were approved by a majority of the outstanding shares of each respective class of each Fund on December 16, 1994 and became effective on December 22, 1994. Under each Class A Plan, the distribution or service fee will not exceed an annual rate of 0.25% of the average daily net asset value of the Class A Shares of a Fund (determined in accordance with the Fund's Prospectus as from time to time in effect). 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 Money Market B Plan and each Class B Plan, the distribution or services fee to be paid by the applicable Fund will not exceed an annual rate of 1.00% of the average daily net assets of its shares (in the case of Money Market Fund B) or the Class B shares of the Fund (in each case, determined in accordance with such Fund's prospectus as from time to time in effect); provided that the portion of such fee used to cover Service Expenses (described below) shall not exceed an annual rate of 0.25% of the average daily net asset value of the shares of the Fund (in the case of Money Market Fund B) or the Class B Shares of the Fund. In accordance with generally accepted accounting principles, the Fund does not treat unreimbursed distribution expenses attributable to Class B shares as a liability of the Fund and does not reduce the current net assets of Class B by such amount although the amount may be payable under the Class B Plan in the future. Under the Plans, expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. The fee may be spent by John Hancock Funds on Distribution Expenses or Service Expenses. "Distribution Expenses" include any activities or expenses primarily intended to result in the sale of shares of the relevant class of the Fund, including, but not limited to: (i) initial and ongoing sales compensation payable out of such fee as such compensation is received by John Hancock Funds or by Selling Brokers, (ii) direct out-of-pocket expenses incurred in connection with the distribution of shares, including expenses related to printing of prospectuses and reports; (iii) preparation, printing and distribution of sales literature and advertising material; (iv) an allocation of overhead and other branch office expenses of John Hancock Funds related to the distribution of Fund Shares (v) distribution expenses that were incurred by the Fund's former distributor and not recovered through payments under the Class A or Class B former plans (or, in the case of Money Market Fund, the Money Market B Plan) or through receipt of contingent deferred sales charges ("CDSCs"); and (vi) in the event that any other investment company (the "Acquired Fund") sells all or substantially all of its assets, merges with or otherwise engages in a combination with the Fund, distribution expenses originally incurred in connection with the distribution of the Acquired Fund's shares. Service Expenses under the Plans include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of John Hancock Funds) and others who furnish personal and shareholder account maintenance services to shareholders of the relevant class of the Fund. For the fiscal year ended October 31, 1994, total payments made by Emerging Growth Fund under the Fund's former Class A Rule 12b-1 plan to the former distributor amounted to $277,671 and of such amount (1) $9,627, (2) $126,857, (3) $8,204, (4) $16,712 and (5) $116,271 respresented payments for (1) advertising, (2) payments to dealers and for dealer meetings, (3) cost of prospectuses and shareholder reports, (4) various sales literature and (5) service fees, respectively. For the fiscal year ended October 31, 1994, total payments made by High Yield Bond Fund under the Fund's former Class A Rule 12b-1 plan to the former distributor amounted to $20,179 and of such amount (1) $68, (2) $5,975, (3) $383, (4) $1,431 and (5) $12,322 respresented payments for (1) advertising, (2) payments to dealers and for dealer meetings, (3) cost of prospectuses and shareholder reports, (4) various sales literature and (5) service fees, respectively. -43- 240 The following amounts for each of the Funds for the fiscal year ending October 31, 1994 represent each Fund's total payments to the former distributor made pursuant to its Class B Plan (in the case of Money Market Fund, pursuant to the Money Market B Plan) and of such amounts, portions representing: (1) total of service fees shown as (a) service fees paid to brokers and dealers; and (b) service fees paid to the former distributor (2) total of distribution fees shown as: (a) dealer commission payments; (b) underwriting fee; and (c) carrying charge (separate distribution fee). Emerging Growth Fund (Class B Shares) - $2,497,907 total; (1) $639,690; a) $401,762, and b) $237,928 and (2) $1,858,217; a) $916,075, b) $229,019 and c) $713,123. Global Resources Fund (Class B Shares) - $281,482 total; (1) $70,523; a) $40,920, and b) $29,603 and (2) $210,959; a) $124,689 b) $31,172 and c) $55,098. Government Income Fund (Class B Shares) - $2,685,298, total; (1) $671,915; a) $538,084, and b) $133,831 and (2) $2,013,382; a) $944,718, b) 236,179 and c) $832,485 High Yield Bond Fund (Class B Shares) - $1,583,989 total; (1) $390,708; a) $288,075, and b) $102,633 and (2) $1,193,281; a) $591,135, b) $147,784 and c) $454,362 High Yield Tax-Free Fund (Class B Shares) - $1,408,352 total; (1) $360,232; a) $192,666, and b) $167,566 and (2) $1,048,120; a) $511,586, b) $127,896 and c) $408,638. Money Market Fund B - $428,177 total; (1) $107,432; a) $92,386, and b) $15,046 and (2) $320,745; a) $182,732, b) $45,683 and c) $92,330. The following amounts for each of the Funds for the fiscal years ended October 31, 1994, 1993 and 1992 represent amounts of CDSCs from redemptions of the Fund's shares as received by the former distributor: (a) Emerging Growth Fund (Class B Shares) - $382,553, $288,843 and -44- 241 $130,276; (b) Global Resources Fund (Class B Shares) - $68,696, $27,393 and $31,801; (c) Government Income Fund (Class B Shares) - $766,358, $518,924 and $398,691; (d) High Yield Bond Fund (Class B Shares) - $387,591, $408,082 and $316,349; (e) High Yield Tax-Free Fund (Class B Shares) - $253,265, $99,725 and $142,804; and (f) Money Market Fund B - $343,829, $211,332 and $271,728. Each of the Plans provides that it will continue in effect only so long as its continuance is approved at least annually by a majority of both the Directors and the Independent Directors. Each of the Plans provides that it may be terminated without penalty (a) by vote of a majority of the Independent Directors, (b) by a majority of the respective Class' outstanding voting securities (or, in the case of the Money Market B Plan, a majority of the Fund's outstanding voting securities) upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event of assignment. Each of the Plans further provides that it may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to the Plan. Each of the Plans provides that no material amendment to the Plan will, in any event, be effective unless it is approved by a majority vote of the Directors and the Independent Directors of the Corporation. The holders of Class A Shares and Class B Shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Board of Directors has determined that, in their judgment, there is a reasonable likelihood that each Plan will benefit the holders of the applicable class of shares of the affected Fund. Information regarding the services rendered under the Plans and the Distribution Agreement and the amounts paid therefore by the respective Class of the Funds are provided to, and reviewed by, the Board of Directors on a quarterly basis. In its quarterly review, the Board of Directors considers the continued appropriateness of the Plans and the Distribution Agreement and the level of compensation provided therein. NET ASSET VALUE For purposes of calculating the net asset value ("NAV") of the shares of the Funds, the following procedures are utilized wherever applicable. Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. Equity securities traded on a principal exchange or NASDAQ National Market Issues are generally valued at last sale price on the day of valuation. Securities in the aforementioned category for which no sales are reported and other securities traded over-the-counter are generally valued at the mean between the current closing bid and asked prices. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if in the opinion of the 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 Directors. Any assets or liabilities expressed in terms of foreign currencies are translated into U.S. dollars by the custodian bank based on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on the date of any determination of the Fund's NAV. -45- 242 The Funds will not price their securities on the following national holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. On any day an international market is closed and the New York Stock Exchange is open, any foreign securities will be valued at the prior day's close with the current day's exchange rate. Trading of foreign securities may take place on Saturdays and U.S. business holidays on which a Fund's NAV is not calculated. Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's redeemable securities may be significantly affected on days when a shareholder has no access to the Fund. AMORTIZED COST METHOD OF PORTFOLIO VALUATION Money Market Fund utilizes the amortized cost valuation method of valuing portfolio instruments in the absence of extraordinary or unusual circumstances. Under the amortized cost method, assets are valued by constantly amortizing over the remaining life of an instrument the difference between the principal amount due at maturity and the cost of the instrument to the Fund. The Directors will from time to time review the extent of any deviation of the net asset value, as determined on the basis of the amortized cost method, from net asset value as it would be determined on the basis of available market quotations. If any deviation occurs which may result in unfairness either to new investors or existing shareholders, the Directors will take such actions as they deem appropriate to eliminate or reduce such unfairness to the extent reasonably practicable. These actions may include selling portfolio instruments prior to maturity to realize gains or losses or to shorten the Fund's average portfolio maturity, withholding dividends, splitting, combining or otherwise recapitalizing outstanding shares or utilizing available market quotations to determine net asset value per share. Since a dividend is declared to shareholders each time net asset value is determined, the net asset value per share of the Fund will normally remain constant at $1.00 per share. There is no assurance that the Fund can maintain the $1.00 per share value. Monthly, any increase in the value of a shareholder's investment from dividends is reflected as an increase in the number of shares in the shareholder's account or is distributed as cash if a shareholder has so elected. It is expected that the Fund's net income will be positive each time it is determined. However, if because of a sudden rise in interest rates or for any other reason the net income of the Fund determined at any time is a negative amount, the Fund will offset the negative amount against income and accrued during the month for each shareholder account. If at the time of payment of a distribution such negative amount exceeds a shareholder's portion of accrued income, the Fund may reduce the number of its outstanding shares by treating the shareholder as having contributed to the capital of the Fund that number of full or fractional shares which represent the amount of excess. By investing in the Fund, shareholders are deemed to have agreed to make such a contribution. This procedure permits the Fund to maintain its net asset value at $1.00 per share. If in the view of the Directors it is inadvisable to continue the practice of maintaining net asset value at $1.00 per share, the Directors reserve the right to alter the procedures for determining net asset value. The Fund will notify shareholders of any such alteration. The Fund is permitted to redeem shares in kind. Nevertheless, the Fund has filed with the Securities and Exchange Commission a notification of election committing itself to pay in cash on redemption by a shareholder of record, limited during any 90-day period to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of such period. -46- 243 The Fund will not price its securities on the following national holidays: New Year's Day; President's Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day and Christmas Day. INITIAL SALES CHARGE ON CLASS A SHARES Class A shares of the Funds 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 Directors reserves the right to change or waive a Fund's minimum investment requirements and to reject any order to purchase shares (including purchase by exchange) when in the judgment of the Adviser such rejection is in the Fund's best interest. The sales charges applicable to purchases of Class A shares of the Funds are described in each Fund's Prospectus. Methods of obtaining reduced sales charges referred to generally in the Prospectuses are described in detail below. In calculating the sales charge applicable to current purchases of Class A shares, the investor is entitled to cumulate current purchases with the greater of the current value (at offering price) of the Class A shares of the Fund, or if Investor Services is notified by the investor's dealer or the investor at the time of the purchase, the cost of the Class A shares owned. Combined Purchases. In calculating the sales charge applicable to purchases of Class A shares made at one time, the purchases will be combined if made by (a) an individual, his or her spouse and their children under the age of 21 purchasing securities for his or her own account, (b) a trustee or other fiduciary purchasing for a single trust, estate or fiduciary account and (c) certain groups of four or more individuals making use of salary deductions or similar group methods of payment whose funds are combined for the purchase of mutual fund shares. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Investor Services or a Selling Broker's representative. Without Sales Charge. As described in the Prospectuses, Class A shares of the Funds may be sold without a sales charge to certain persons described in the Prospectuses. Accumulation Privilege. Investors (including investors combining purchases) who are already Class A shareholders may also obtain the benefit of the reduced sales charge by taking into account not only the amount then being invested but also the purchase price or value of the Class A shares already held by such person. Combination Privilege. Reduced sales charges (according to the schedule set forth in the 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 a Fund and shares of all other John Hancock funds which carry a sales charge. Letter of Intention. The reduced sales loads are also applicable to investments made over a specified period pursuant to a Letter of Intention (LOI), which should be read carefully prior to its execution by an investor. Each Fund (other than Money Market Fund) offers two options regarding the specified period for making investments under the LOI. All investors have the option of making their investments over a period of thirteen (13) months. Investors who are using the Fund as a funding medium for a qualified retirement plan, however, may opt to make the necessary investments called for by the LOI over a forty-eight (48) month period. These qualified -47- 244 retirement plans include IRA's, SEP, SARSEP, TSA, 401(k) plans, TSA plans and 457 plans. Such an investment (including accumulations and combinations) must aggregate $100,000 or more invested during the specified period from the date of the LOI or from a date within ninety (90) days prior thereto, upon written request to Investor Services ($50,000 in the case of Emerging Growth Fund and Global Resources Fund). The sales charge applicable to all amounts invested under the LOI is computed as if the aggregate amount intended to be invested had been invested immediately. If such aggregate amount is not actually invested, the difference in the sales charge actually paid and the sales charge payable had the LOI not been in effect is due from the investor. However, for the purchases actually made with the specified period (either 13 or 48 months), the sales charge applicable will not be higher than that which would have been applied (including accumulations and combinations) had the LOI been for the amount actually invested. The LOI authorizes Investor Services to hold in escrow sufficient Class A shares (approximately 5% of the aggregate) to make up any difference in sales charges on the amount intended to be invested and the amount actually invested, until such investment is completed within the specified period, at which time the escrow shares will be released. If the total investment specified in the LOI is not completed, the Class A shares held in escrow may be redeemed and the proceeds used as required to pay such sales charges as may be due. By signing the LOI, the investor authorizes Investor Services to act as his attorney-in-fact to redeem any escrowed shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by a Fund to sell, any additional shares and may be terminated at any time. DEFERRED SALES CHARGE ON CLASS B SHARES Investments in Class B shares and shares of Money Market Fund are purchased at net asset value per share without the imposition of a sales charge so that the Fund will receive the full amount of the purchase payment. Contingent Deferred Sales Charge. Class B shares which are redeemed within six years of purchase will be subject to a CDSC at the rates set forth in the Funds' respective Prospectuses as a percentage of the dollar amount subject to the CDSC. The charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the Class B shares being redeemed. Accordingly, no CDSC will be imposed on increases in account value above the initial purchase prices, including Class B shares derived from reinvestment of dividends or capital gains distributions. The amount of the CDSC, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. Solely for purposes of determining the number of years from the time of any payment for the purchases of shares, all payments during a month will be aggregated and deemed to have been made on the last day of the month. Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B shares, such as the payment of compensation to select Selling Brokers for selling Class B shares. The combination of the CDSC and the distribution and service fees facilitates the ability of the Fund to sell the Class B shares without a sales charge being deducted at the time of the purchase. See the Prospectuses for additional information regarding the CDSC. -48- 245 SPECIAL REDEMPTIONS Although the Funds would not normally do so, each Fund has the right to pay the redemption price of shares of the Fund in whole or in part in portfolio securities as prescribed by the Directors. When the shareholder sells portfolio securities received in this fashion, he would incur a brokerage charge. Any such security would be valued for the purpose of making such payment at the same value as used in determining the Fund's net asset value. Each Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund during any 90-day period for any one account. ADDITIONAL SERVICES AND PROGRAMS Exchange Privilege. As described more fully in the Prospectuses, the Funds permit exchanges of shares of any class for shares of the same class in any other John Hancock fund offering that class. Also, as described more fully in Money Market Fund's Prospectus, Money Market Fund requires investors to elect a Systematic Exchange Plan under certain circumstances. Systematic Withdrawal Plan. As described briefly in the Prospectuses, the Funds permit the establishment of a Systematic Withdrawal Plan. Payments under this plan represent proceeds arising from the redemption of Fund shares. Since the redemption price of Fund shares may be more or less than the shareholder's cost, depending upon the market value of the securities owned by the Fund at the time of redemption, the distribution of cash pursuant to this plan may result in realization of gain or loss for purposes of Federal, state and local income taxes. The maintenance of a Systematic Withdrawal Plan concurrently with purchases of additional Class A or Class B shares of a Fund could be disadvantageous to a shareholder because of the initial sales charge payable on such purchases of Class A shares and the CDSC imposed on redemptions of Class B shares and because redemptions are taxable events. Therefore, a shareholder should not purchase Fund shares at the same time as a Systematic Withdrawal Plan is in effect. Each Fund reserves the right to modify or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice to such shareholder, or to discontinue the availability of such plan in the future. The shareholder may terminate the plan at any time by giving proper notice to Investor Services. Monthly Automatic Accumulation Program ("MAAP"). This program is explained fully in each Fund's Prospectus and the Account Privileges Application. The program, as it relates to automatic investment checks, is subject to the following conditions: The investments will be drawn on or about the day of the month indicated. The privilege of making investments through the Monthly Automatic Accumulation Program may be revoked by Investor Services without prior notice if any investment is not honored by the shareholder's bank. The bank shall be under no obligation to notify the shareholder as to the non-payment of any check. The program may be discontinued by the shareholder either by calling Investor Services or upon written notice to Investor Services which is received at least five (5) business days prior to the due date of any investment. 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 -49- 246 Class A shares may be reinvested at net asset value without paying a sales charge in Class A Shares of the Fund or in Class A shares of another John Hancock mutual fund. If a CDSC was paid upon a redemption, a shareholder may reinvest the proceeds from that redemption at net asset value in additional shares of the class from which the redemption was made. The shareholder's account will be credited with the amount of any CDSC charged upon the prior redemption and the new shares will continue to be subject to the CDSC. The holding period of the shares acquired through reinvestment will, for purposes of computing the CDSC payable upon a subsequent redemption, include the holding period of the redeemed shares. The Fund may modify or terminate the reinvestment privilege at any time. A redemption or exchange of Fund shares is a taxable transaction for Federal income tax purposes. Even if the reinvestment privilege is exercised, and any gain or loss realized by a shareholder on the redemption or other disposition of Fund shares will be treated for tax purposes as described under the caption "Tax Status." DESCRIPTION OF THE CORPORATION'S SHARES Each Fund operates as one series of the Corporation. All shares of stock of the Corporation ($.01 par value per share) have equal voting rights among shares of the same series (except that each class of shares within a series has sole voting rights with respect to matters solely affecting that class). On May 25, 1994, the Corporation's Articles of Incorporation were amended to increase the authorized common stock of the Corporation from 250,000,000 to 375,000,000 of Class A common Stock and from 250,000,000 to 625,000,000 shares of Class B common stock. No shares of any series or class have pre-emptive or conversion rights. Each series of shares represents interests in a separate portfolio of investments. Each is entitled to all income and gains (or losses) and bears all of the expenses associated with the operations of that portfolio except that each class of a series bears its own transfer agency fees. Common expenses of the Corporation are allocated among the series, based upon the respective net assets or ratably or a combination of both whichever is more appropriate, of each series. The Board of Directors is authorized to create additional series of shares and classes within any series at any time without approval by shareholders. Six series of shares representing interests in the Corporation are presently authorized. Each share of each series or class of the Corporation represents an equal proportionate interest with each other share in that series or class, none having priority or preference over other shares of the same series or class. The interest of investors in the various series or classes of the Corporation is separate and distinct. All consideration received for the sales of shares of a particular series or class of the Corporation, all assets in which such consideration is invested and all income, earnings and profits derived from such investments will be allocated to and belong to that series or class. As such, each share is entitled to dividends and distributions out of the net income belonging to that series or class as declared by the Board of Directors. The assets of each series are segregated on the Corporation's books and are charged with the liabilities of that series and with a share of the Corporation's general liabilities. The Board of Directors determines those assets and liabilities deemed to be general assets or liabilities of the Corporation, and these items are allocated among each series in proportion to the relative total net assets of each series. In the unlikely event that the liabilities allocable to a series exceed the assets of that series, the amount to be deemed available for distribution to each affected series shall be determined by the Board of Directors in order to effect an equitable allocation among each series of the Corporation. -50- 247 The Corporation has received an order from the Securities and Exchange Commission permitting the issuance and sale of two classes of stock. The Corporation reclassified its shares, as Class B Shares on June 5, 1991 and authorized in respect of Emerging Growth Fund, on June 5, 1991 and in respect of High Yield Bond Fund and High Yield Tax-Free Fund on April 15, 1993, and in respect of Global Resources Fund and Government Income Fund on February 15, 1994, the issuance of shares of Class A common stock which represent an interest in the same assets of the respective Funds and are identical in all respects except that the Class B Shares bear certain expenses related to the distribution of such shares and have exclusive voting rights with respect to matters relating to such distribution expenditures. The Directors of the Corporation may classify and reclassify the shares of all Funds into additional classes of common stock at a future date. Voting Rights. Each shareholder of the Corporation is entitled to a full vote for each full share held (and fractional votes for fractional shares). Shareholders of each series or class vote separately from other shareholders of the Corporation with respect to all matters which affect solely the interests of that series or class. After Directors have been elected by shareholders, they will continue to serve indefinitely and they may appoint their own successors, provided that always at least a majority of the Directors have been elected by the Corporation's shareholders. The voting rights of stockholders are not cumulative, so that the holders of more than 50 percent of the shares voting can, if they choose, elect all Directors being selected, while the holders of the remaining shares would be unable to elect any Directors. It is the intention of the Corporation not to hold annual meetings of shareholders. The Directors may call annual or special meetings of shareholders of the Corporation or any class of series for action by shareholder vote as may be required by the Investment Company Act of 1940. Pursuant to an undertaking to the Securities and Exchange Commission, the Corporation will call a meeting of shareholders for any purpose, including voting to remove one or more Director, on the written request of the holders of at least 10% of outstanding shares of the Corporation. The Funds will assist shareholders with any communications including shareholder proposals. Director and Officer Liability. Under the Corporation's Articles of Incorporation and the Maryland General Corporation Law, the directors, officers, employees and agents of the Corporation are entitled to indemnification under certain circumstances against liabilities, claims and expenses arising from any threatened, pending or completed action, suit or proceeding to which they are made parties by reason of the fact that they are or were such directors, officers, employees or agents of the Corporation except as such liability may arise from their own bad faith, willful misfeasance, gross negligence or reckless disregard of duties. The Corporation is not required to issue stock certificates. The Corporation shall continue without limitation of time subject to the provisions in the Articles of Incorporation concerning termination by action of the shareholders. TAX STATUS Each Fund is treated as a separate entity for accounting and tax purposes. Each Fund has qualified and elected to be treated as a "regulated investment company" under Subchapter M of the 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, each Fund will not be subject to Federal income tax on taxable income (including net realized capital gains) which is distributed to shareholders at least annually in accordance with the timing requirements of the Code. -51- 248 Each Fund will be subject to a 4% non-deductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. Each Fund intends under normal circumstances to avoid liability for such tax by satisfying such distribution requirements. Distributions from a Fund's current or accumulated earnings and profits ("E&P"), as computed for Federal income tax purposes, will be taxable as described in such Fund's Prospectus whether taken in shares or in cash. Distributions, if any, in excess of E&P will constitute a return of capital, which will first reduce an investor's tax basis in Fund shares and thereafter (after such basis is reduced to zero) will generally give rise to capital gains. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the amount of cash they would have received had they elected to receive the distributions in cash, divided by the number of shares received. Distributions of tax-exempt interest ("exempt-interest dividends") timely designated as such by High Yield Tax-Free Fund will be treated as tax-exempt interest under the Code, provided that such Fund qualifies as a regulated investment company and at least 50% of the value of its assets at the end of each quarter of its taxable year is invested in tax-exempt obligations. Shareholders are required to report their receipt of tax-exempt interest, including such distributions, on their Federal income tax returns. The portion of High Yield Tax-Free Fund's distributions designated as exempt-interest dividends may differ from the actual percentage that its tax-exempt income comprised of its total income during the period of any particular shareholder's investment. High Yield Tax-Free Fund will report to shareholders the amount designated as exempt-interest dividends for each year. Interest income from certain types of tax-exempt bonds that are private activity bonds in which High Yield Tax-Free Fund may invest is treated as an item of tax preference for purposes of the Federal alternative minimum tax. To the extent that High Yield Tax-Free Fund invests in these types of tax-exempt bonds, shareholders will be required to treat as an item of tax preference for Federal alternative minimum purposes that part of such Fund's exempt-interest dividends which is derived from interest on these tax-exempt bonds. Exempt-interest dividends derived from interest income from all tax-exempt bonds may be included in corporate "adjusted current earnings" for purposes of computing the alternative minimum tax liability, if any, of corporate shareholders of High Yield Tax-Free Fund. If Global Resources Fund or Emerging Growth Fund acquires stock in certain non-U.S. corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, rents, royalties or capital gain) or hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), that Fund could be subject to Federal income tax and additional interest charges on "excess distributions" received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. Certain elections may, if available, ameliorate these adverse tax consequences, but any such election would require the applicable Fund to recognize taxable income or gain without the concurrent receipt of cash. Any Fund that is permitted to acquire stock in foreign corporations may limit and/ or manage its holdings in passive foreign investment companies to minimize its tax liability or maximize its return from these investments. Foreign exchange gains and losses realized by Emerging Growth Fund, Global Resources Fund, Government Income Fund or High Yield Bond Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency futures and options, foreign currency forward contracts, foreign currencies, or payables or receivables -52- 249 denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Any such transactions that are not directly related to a Fund's investment in stock or securities, possibly including speculative currency positions or currency derivatives not used for hedging purposes, may increase the amount of gain it is deemed to recognize from the sale of certain investments held for less than three months, which gain is limited under the Code to less than 30% of its annual gross income, and could under future Treasury regulations produce income not among the types of "qualifying income" from which the Fund must derive at least 90% of its annual gross income. Income from investments in commodities, such as gold and certain related derivative instruments, is also not treated as qualifying income under this test. If the net foreign exchange loss for a year treated as ordinary loss under Section 988 were to exceed a Fund's investment company taxable income computed without regard to such loss but after considering the post-October loss regulations (i.e., all of the Fund's net income other than any excess of net long-term capital gain over net short-term capital loss) the resulting overall ordinary loss for such year would not be deductible by the Fund or its shareholders in future years. Global Resources Fund, Emerging Growth Fund, Government Income Fund and High Yield Bond Fund may be subject to withholding and other taxes imposed by foreign countries with respect to their investments in foreign securities. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions with respect to such taxes, subject to certain provisions and limitations contained in the Code. Specifically, if more than 50% of the value of a Fund's total assets at the close of any taxable year consists of stock or securities of foreign corporations, the Fund may file an election with the Internal Revenue Service pursuant to which shareholders of the Fund will be required to (i) include in ordinary gross income (in addition to taxable dividends actually received) their pro rata shares of foreign income taxes paid by the Fund even though not actually received by them, and (ii) treat such respective pro rata portions as foreign income taxes paid by them. Global Resources Fund or Emerging Growth Fund may, but the other Funds probably will no, satisfy this 50% requirement. If a Fund makes this election, shareholders may then deduct such pro rata portions of foreign income taxes in computing their taxable incomes, or, alternatively, use them as foreign tax credits, subject to applicable limitations, against their U.S. Federal income taxes. Shareholders who do not itemize deductions for Federal income tax purposes will not, however, be able to deduct their pro rata portion of foreign income taxes paid by the Fund, although such shareholders will be required to include their share of such taxes in gross income. Shareholders who claim a foreign tax credit for such foreign taxes may be required to treat a portion of dividends received from the Fund as a separate category of income for purposes of computing the limitations on the foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from this election. Each year that a Fund files the election described above, its shareholders will be notified of the amount of (i) each shareholder's pro rata share of foreign income taxes paid by the Fund and (ii) the portion of Fund dividends which represents income from each foreign country. A Fund that cannot or does not make this election may deduct such taxes in computing its taxable income. The amount of a Fund's net realized capital gains, if any, in any given year will vary depending upon the Adviser's current investment strategy and whether the Adviser believes it to be in the best interest of such Fund to dispose of portfolio securities or enter into options or futures transactions that will generate capital gains. At the time of an investor's purchase of Fund shares, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio or, in the case of Global Resources Fund and Emerging Growth Fund, to undistributed taxable income of the Fund. Consequently, subsequent distributions from such appreciation or income may be taxable to such investor even if the net asset value of the investor's -53- 250 shares is, as a result of the distributions, reduced below the investor's cost for such shares, and the distributions in reality represent a return of a portion of the purchase price. Upon a redemption of shares of a Fund (including by exercise of the exchange privilege) a shareholder may realize a taxable gain or loss depending upon his basis in his shares, except that a redemption of shares of Money Market Fund B may not result in a gain or loss if the Fund always successfully maintains a constant net asset value per share, although a loss may still arise if a CDSC is paid. Any gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares. A sales charge paid in purchasing Class A shares of a Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. Such disregarded load will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the same Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to an election to reinvest dividends in additional shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized upon the redemption of shares with a tax holding period of six months or less will be disallowed (in the case of High Yield Tax-Free Fund)to the extent of all exempt-interest dividends paid with respect to such shares and, if not thus disallowed, will (in the case of any Fund) be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares. Although its present intention is to distribute all net capital gains, if any, each Fund reserves the right to retain and reinvest all or any portion of the excess, as computed for Federal income tax purposes, of net long-term capital gain over net short-term capital loss in any year. The Funds will not in any event distribute net long-term capital gain realized in any year to the extent that a capital loss is carried forward from prior years against such gain. To the extent such excess was retained and not exhausted by the carryforward of prior years' capital losses, it would be subject to Federal income tax in the hands of the Fund. Each shareholder would be treated for Federal income tax purposes as if the Fund had distributed to him on the last day of its taxable year his pro rata share of such excess, and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain income in his return for his taxable year in which the last day of such Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or to a refund of, his pro rata share of the taxes paid by such Fund, and (c) be entitled to increase the adjusted tax basis for his shares in such Fund by the difference between his pro rata share of such excess and his pro rata share of such taxes. For Federal income tax purposes, each Fund is generally permitted to carry forward a net capital loss in any year to offset its own net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the applicable Fund and, as noted above, would not be distributed as such to shareholders. As of October 31, 1994, Emerging Growth Fund had capital loss carryforwards of $17,163,122, of which $1,477,890 will expire in 1996, $177,369 will expire in 1998, $2,304,137 will expire in 2000, $4,446,419 will expire in 2001 and $8,817,307 will expire in 2002. As of October 31, 1994, Global Resources Fund had capital loss carryforwards of $106,861, of which $16,520 will expire in 2000 and $90,341 will expire in 2002. As of the same date, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund had capital loss carryforwards of $15,347,195, $9,184,252 and $2,785,979, respectively, all of which will expire in 2002. -54- 251 Interest on indebtedness incurred by a shareholder to purchase or carry shares of High Yield Tax-Free Fund will not be deductible for Federal income tax purposes to the extent it is deemed related to exempt-interest dividends paid by such Fund. Pursuant to published guidelines, the Internal Revenue Service may deem indebtedness to have been incurred for the purpose of purchasing or carrying shares of this Fund even though the borrowed funds may not be directly traceable to the purchase of shares. For purposes of the dividends-received deduction available to corporations, dividends received by a Fund, if any, from U.S. domestic corporations in respect of the stock of such corporations held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) and distributed and designated by the Fund may be treated as qualifying dividends. Only Emerging Growth Fund or Global Resources Fund may sometimes have any significant portion of its distributions treated as qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the applicable Fund in order to qualify for the deduction and, if they borrow to acquire such shares, may be denied a portion of the dividends-received deduction. The entire qualifying divdend, including the otherwise deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, for the purpose of computing its gain or loss on redemption or other disposition of the shares. Each Fund that invests in certain PIKs, zero coupon securities or certain increasing rate securities (an, in general, any other securities wih original issue discount or with market discount if the Fund elects to include market discount in income currently) must accrue income on such investments prior to the receipt of the corresponding cash payments. However, each Fund must distribute, at least annually, all or substantially all of its net income, including such accrued income, to shareholders to qualify as a regulated investment company under the Code and avoid Federal income and excise taxes. Therefore, a Fund may have to dispose of its portfolio securities ude disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy distribution requirements. Investments in debt obligations that are at risk of or in default presents special tax issues for any Fund that may hold such obligations, such as High Yield Bond Fund and High Yield Tax- Free Fund. Tax rules are not entirely clear about issues such as when the Funds may cease to accrue interest, original issue discount, or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income, and whether exchanges of debt obligations in a workout context are taxable. These and other issues will be addressed by any Fund that may hold such obligations in order to reduce the risk of distributing insufficient income to preserve its status as a regulated investment company and seek to avoid becoming subject to Federal income or excise tax. Limitations imposed by the Code on regulated investment companies like the Funds may restrict a Fund's ability to enter into futures, options and currency forward transactions. Certain options, futures and forward foreign currency transactions undertaken by a Fund may cause such Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term (or, in the case of certain currency forwards, options and futures, as ordinary income or loss) and timing of some capital gains and losses realized by the Fund. Also, certain of a Fund's losses on -55- 252 its transactions involving options, futures and forward foreign currency contracts and/or offsetting portfolio positions may be deferred rather than being taken into account currently in calculating the Fund's taxable income or gains. These transactions may therefore affect the amount, timing and character of a Fund's distributions to shareholders. Certain of the applicable tax rules may be modified if the Fund is eligible and chooses to make one or more of certain tax elections that may be available. The Funds will take into account the special tax rules (including consideration of available elections) applicable to options, futures or forward contracts in order to minimize any potential adverse tax consequences. Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain classes of investors, such as tax-exempt entities, insurance companies, and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of Fund shares may also be subject to state and local taxes. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, a Fund in their particular circumstances. Non-U.S. investors not engaged in a U.S. trade or business with which their investment in a Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to nonresident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from a Fund and, unless an effective IRS Form W-8 or authorized substitute is on file, to 31% backup withholding on certain other payments from the Fund. Non- U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Funds. Provided that each Fund qualifies as a regulated investment company under the Code, it will not be required to pay any Massachusetts income, corporate excise or franchise taxes. CALCULATION OF PERFORMANCE For the 30-day period ended December 31, 1994, the yields of (a) High Yield Bond Fund's Class A and Class B shares were 11.55% and 11.35%, respectively, (b) High Yield Tax-Free Fund's Class A and Class B shares were 6.71% and 6.28%, respectively and (c) Government Income Fund's Class A and Class B shares were 6.14% and 5.64%, respectively. The performance of High Yield Bond Fund's Class A and Class B shares quoted (1) partially reflects an increase due to significant declines in prices of certain bonds held in the Fund's portfolio due to current adverse market conditions and (2) may not reflect the actual income stream investors can expect if portfolio issuers experience financial difficulties. For a thorough explanation, investors may obtain further information from their broker. Each Fund's 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: -56- 253 Yield = 2 [ (a-b + 1 )6 -1] cd Where: a= dividends and interest earned during the period. b= net expenses accrued during the period. c= the average daily number of fund shares outstanding during the period that would be entitled to receive dividends. d= the maximum offering price per share on the last day of the period (NAV where applicable). High Yield Tax-Free Fund may advertise a tax-equivalent yield, which is computed by dividing that portion of the yield of that Fund which is tax-exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the yield of the Fund that is not tax- exempt. The tax-equivalent yields for the High Yield Tax-Free Fund's Class A and Class B Shares at the 36% federal income tax rate for the 30-day period ended December 31, 1994 were 10.48% and 9.81%, respectively. Each Fund's total return is computed by finding the average annual compounded rate of return over the 1-year, 5-year, and 10-year periods that would equate the initial amount invested to the ending redeemable value according to the following formula: P(1+T)n = ERV P= a hypothetical initial payment of $1,000. T= average annual total return n= number of years ERV= ending redeemable value of a hypothetical $1,000 investment made at the beginning of the 1-year and life-of-fund periods. In the case of Class A shares or Class B shares, this calculation assumes the maximum sales charge is included in the initial investment or the CDSC is applied at the end of the period. This calculation also assumes that all dividends and distributions are reinvested at net asset value on the reinvestment dates during the period. The "distribution rate" is determined by annualizing the result of dividing the declared dividends of a Fund during the period stated by the maximum offering price or net asset value at the end of the period. The total return in the case of Class B shares of Emerging Growth Fund, Global Resources Fund, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund and shares of each other Fund is calculated by determining the net asset value of all shares held at the end of the period for each share held from the beginning of the period (assuming reinvestment of all dividends and distributions at net asset value during the period and the deduction of any applicable contingent deferred sales charge as if the shares were redeemed at the end of the period), subtracting the maximum offering price (net asset value per share) per share at the beginning of such period and then dividing the result by the maximum offering price (net asset value per share) per share at the beginning of the same period. Total return for Class A shares of -57- 254 each of Emerging Growth Fund, Global Resources Fund, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund is calculated in the same manner except the maximum offering price reflects the deduction of the maximum initial sales charge and the redemption value is at net asset value. In addition to average annual total returns, a Fund may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. Total returns may be quoted with or without taking the Fund's maximum sales charge on Class A shares or the CDSC on Class B shares into account. A Fund's "distribution rate" is determined by annualizing the result of dividing the declared dividends of the Fund during the stated period by the maximum offering price or net asset value at the end of the period. Excluding a Fund's sales charge on Class A shares and the CDSC on Class B shares from a total return calculation produces a higher total return figure. From time to time, in reports and promotional literature, a Fund's yield and total return will be compared to indices of mutual funds and bank deposit vehicles such as Lipper Analytical Services, Inc.'s "Lipper--Fixed Income Fund Performance Analysis," a monthly publication which tracks net assets, total return, and yield on approximately 1,700 fixed income mutual funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used for comparison purposes, as well as the Russell and Wilshire Indices. Performance rankings and ratings reported periodically in national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will also be utilized. A Fund's promotional and sales literature may make reference to the Fund's "beta." Beta reflects the market-related risk of the Fund by showing how responsive the Fund is to the market. The performance of a Fund is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of a Fund for any period in the future. The performance of a Fund is a function of many factors including its earnings, expenses and number of outstanding shares. Fluctuating market conditions; purchases, sales and maturities of portfolio securities; sales and redemptions of shares of beneficial interest; and changes in operating expenses are all examples of items that can increase or decrease a Fund's performance. Additional Performance Information. The Funds may use comparative performance information from certain industry research materials and/or published in various periodicals. The characteristics of the investments in such comparisons may be different from those investments of a Fund's portfolio. In addition, the formula used to calculate the performance statistics of such investments may not be identical to the formula used by a Fund to calculate its performance figures. From time to time, advertisements or information for the Funds may include a discussion of certain attributes or benefits to be derived by an investment in a Fund. Such advertisements or information may include symbols, headlines or other material which highlight or summarize the information discussed in more detail in the communication. The following publications, indexes, averages and investments which may be used in advertisements or information concerning the Funds for dissemination to investors or shareholders, include, but are not limited, to: -58- 255 a) Dow Jones Composite Average or its component averages - an unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20 transportation company stocks. Comparisons of performance assume reinvestment of dividends. b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40 utilities stocks, and 20 transportation stocks. Comparisons of performance assume reinvestment of dividends. c) The New York Stock Exchange composite or component indices - unmanaged indices of all industrial, utilities, transportation, and finance stocks listed on the New York Stock Exchange. d) Wilshire 5000 Equity Index - represents the return on the market value of all common equity securities of which daily pricing is available. Comparisons of performance assume reinvestment of dividends. e) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Analysis, and Lipper Mutual Fund indices - measure total return and average current yield for the mutual fund industry. Ranks individual mutual fund performance over specified time periods assuming reinvestment of all distributions, exclusive of any applicable sales charges. f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. - analyzes price, current yield, risk, total return, and average rate of return (average annual compounded growth rate) over specified time periods for the mutual fund industry. g) Mutual Fund Source Book and other similar rating publications by Morningstar, Inc. - independent performance monitor of equity and fixed income mutual funds. Morningstar ratings (ranging from one star for lowest and five stars for highest) are based on analysis of a fund's ratio, i.e., price yield, risk (volatility) and total return, including all loads and fees, compared with similar funds for three-, five- and ten-year periods. h) Financial publications: Barrons, Business Week, Personal Finance, Financial World, Forbes, Fortune, "The Wall Street Journal", "New York Times", Weisenberger Investment Companies Service, Institutional Investor, and Money - rate fund performance over specified time periods and provide other relative performance or industry information. i) Consumer Price Index (or Cost of Living Index), published by the U. S. Bureau of Labor Statistics - a statistical measure of change, over time, in the price of goods and services in major expenditure groups. j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates - historical measure of yield, price, and total return for common and small company stock, long-term government bonds, Treasure bills, and inflation. k) Savings and Loan Historical Interest Rates - as published in the U. S. Savings & Loan League Fact Book. l) Salomon Brothers Broad Bond Index or its component indices - The Broad Index measures yield, price and total return for Treasury, Agency, Corporate, and Mortgage bonds. -59- 256 m) Salomon Brothers Composite High Yield Index or its component indices - The High Yield Index measures yield, price and total return for Long-Term High-Yield Index, Intermediate-Term High-Yield index and Long-Term Utility High-Yield Index. n) Shearson Lehman Brothers Aggregate Bond index or its component indices (including Municipal Bond Index) - The Aggregate Bond Index measures yield, price and total return for Treasury, Agency, Corporate, Mortgage, and Yankee bonds. o) Standard & Poor's Bond Indices - measure yield and price of Corporate, Municipal, and government bonds. p) Other taxable investments, including certificates of deposit (CDs), money market deposit accounts (MMDAs), checking accounts, savings accounts, money market mutual funds, and repurchase agreements. q) Historical data supplied by the research departments of Shearson Lehman Hutton, First Boston Corporation, Morgan Stanley, Salomon Brothers, Merrill Lynch, and Donaldson Lufkin and Jenrette. r) Donoghues's Money Fund Report - industry averages for 7-day annualized and compounded yields of taxable, tax-free and government money funds. s) Russell 2000 (small capitalization stock index), Bond Buyer 25 Revenue Bond Index and other indices as may from time to time become available. t) The Value Line Mutual Fund Survey, published by Value Line, assigns rankings of 1 (best) to 5 (worst) in terms of risk adjusted performance covering more than 2,000 equity and fixed income mutual funds. From time to time, in reports and promotional literature, a Fund's performance will be compared to other mutual funds and investment vehicles such as F.C. Towers. In addition, advertisements and sales materials may from time to time, contain hypothetical performance examples for purposes of illustrating reinvestment (or "compounding") of dividends at fixed rates of return or tax advantages to be derived from deferring payment of federal (and state) income taxes (at maximum rates) as compared to taxable investments assuming fixed rates of return. Illustrations may also include (1) hypothetical investments in various retirement plans, such as IRAs, made by investors of various ages or (2) comparisons to retirement plans funded by annuity or bank products. In assessing such comparisons, an investor should consider the following factors: a) It is generally either not possible or not practicable to invest in an average or index of certain investments. b) Certificates of deposit issued by banks and other depository institutions represent an alternative income producing product. Certificates of deposit may offer fixed or variable interest rates and principal is guaranteed and may be insured. Withdrawal of deposits prior to maturity will normally be subject to a penalty. Rates offered by banks and other depository institutions are subject to change at any time specified by the issuing institution. -60- 257 Each Fund may from time to time advertise its comparative performance as measured or refer to results published by various periodicals including, but not limited to, Lipper Analytical Services, Inc. Barron's, "The Wall Street Journal", "New York Times", Weisenberger Investment Companies Service, Donoghue's Money Fund Report, Stanger's Investment Advisor, Financial Planning, Money, Fortune, Personal Finance, Muni Week, Institutional Investor, Business Week, Financial World and Forbes. In addition, the Funds may from time to time advertise their performance relative to certain indexes and benchmark investments, including: (a) the Shearson Lehman Municipal Bond Index, (b) Bond Buyer 25 Review Bond Index, (c) the Consumer Price Index, and (d) taxable investments such as certificates of deposit, money market deposit accounts, checking accounts, savings accounts, and money market mutual funds. The composition of the investments in such indexes and the characteristics of such benchmark investments are not identical to, and in some cases are very different from, those of a Fund's portfolio. These indexes and averages are generally unmanaged and the items included in the calculations of such indexes and averages may not be identical to the formulas used by a Fund to calculate its performance figures. BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser and officers of the Corporation pursuant to recommendations made by its investment committee, which consists of officers and directors of the Adviser and affiliates and officers and Directors who are interested persons of the Funds. Orders for purchases and sales of securities are placed in a manner which, in the opinion of the Adviser, will offer the best price and market for the execution of each such transaction. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market makers reflect a "spread." Investments in debt securities are generally traded on a net basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on such transactions. Each Fund's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. This policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with the foregoing primary policy, the Rules of Fair Practice of the NASD and other policies that the Directors may determine, the Adviser may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute a Fund's portfolio transactions. Purchase of securities for Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund are normally principal transactions made directly from the issuer or from an underwriter or market maker for which no brokerage commissions are usually paid. Purchases from underwriters will include a commission or concession paid by the issuer to the underwriter, and purchases and sales from dealers serving as market makers will usually include a mark up or mark down. Purchases and sales of options and futures will be effected through brokers who charge a commission for their services and are reflected in amounts for Government Income Fund and High Yield Bond Fund below. To the extent consistent with the foregoing, each Fund will be governed in the selection of brokers and dealers, and the negotiation of brokerage commission rates and dealer spreads, by the reliability and quality of the services, including primarily the availability and value of research information and to a lesser extent statistical assistance furnished to the Adviser of the Fund, and their value and expected contribution to the performance of the Fund. It is not possible to place a -61- 258 dollar value on information and services to be received from brokers and dealers, since it is only supplementary to the research efforts of the Adviser. The receipt of research information is not expected to reduce significantly the expenses of the Adviser. The research information and statistical assistance furnished by brokers and dealers may benefit the Life Company or other advisory clients of the Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser may result in research information and statistical assistance beneficial to the Funds. The Funds will make no commitments to allocate portfolio transactions upon any prescribed basis. While the Corporation's officers will be primarily responsible for the allocation of each Fund's brokerage business, their policies and practices in this regard must be consistent with the foregoing and will at all times be subject to review by the Directors. Brokerage commissions of those Funds which pay such commissions for their respective reporting periods, as follows, amounted to: Emerging Growth Fund - (a) $318,023 for the fiscal year ended October 31, 1994; (b) $330,454 for the fiscal year ended October 31, 1993; and (c) $182,533 for the fiscal year ended October 31, 1992. Global Resources Fund - (a) $148,469 for the fiscal year ended October 31, 1994; (b) $54,463 for the fiscal year ended October 31, 1993; and (c) $29,204 for the fiscal year ended October 31, 1992. Government Income Fund - (a) $96,931 for the fiscal year ended October 31, 1994; (b) $254,859 for the fiscal year ended October 31, 1993; and (c) $140,463 for the fiscal year ended October 31, 1992. High Yield Bond Fund - (a) $2,320 for the fiscal year ended October 31, 1994; (b) $13,050 for the fiscal year ended October 31, 1993; and (c) $0 for the fiscal year ended October 31, 1992. As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Directors that the price is reasonable in light of the services provided and to policies that the Directors may adopt from time to time. During the fiscal year ended October 31, 1994, the Funds did not pay commissions as compensation to any brokers for research services such as industry, economic and company reviews and evaluations of securities. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of John Hancock Freedom Securities Corporation and its subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker Anthony") John Hancock Distributors, Inc. ("John Hancock Distributors") and Sutro & Company, Inc. ("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through Tucker Anthony, Sutro or John Hancock Distributors. During the year ended October 31, 1994, the Fund did not execute any portfolio transactions with then affiliated brokers. Any of the Affiliated Brokers may act as broker for a Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Directors pursuant to the 1940 Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Directors believe to be contemporaneously charged by other -62- 259 brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers, except for accounts for which the Affiliated Broker acts as a clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to a Fund as determined by a majority of the Directors who are not "interested persons" (as defined in the 1940 Act) of the Funds, the Investment Adviser or the Affiliated Brokers. Because the Adviser, which is affiliated with the Affiliated Brokers, has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills, such research and related skills will not be used by the Affiliated Brokers as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. The Funds will not effect principal transactions with Affiliated Brokers. The Funds may, however, purchase securities from other members of underwriting syndicates of which Tucker Anthony and Sutro are members, but only in accordance with the policy set forth above and procedures adopted and reviewed periodically by the Directors. Brokerage or other transactions costs of a Fund are generally commensurate with the rate of portfolio activity. The portfolio turnover rates for each of the following Funds for (a) the fiscal year ended October 31, 1994 and (b) the fiscal year ending October 31, 1993 were: Emerging Growth Fund - (a) 25% and (b) 29%. Global Resources Fund - (a) 96% and (b) 83%. Government Income Fund - (a) 92% and (b) 138%. High Yield Bond Fund - (a) 153%* and (b) 204%*. High Yield Tax-Free Fund - (a) 62% and (b) 100%. * Higher turnover rates were due to volatile market conditions. TRANSFER AGENT SERVICES John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA 02205-9116, a wholly owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent for the Funds. Emerging Growth Fund and Global Resources Fund pay Investor Services monthly a transfer agent fee equal to $16 per account for the Class A Shares and $18.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. Government Income Fund and High Yield Bond Fund pay Investor Services monthly a transfer agent fee equal to $20 per account for the Class A shares and $22.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. High Yield Tax-Free Fund pays Investor Services monthly a transfer agent fee of $19 per account for the Class A shares and $21.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. Money Market Fund pays Investor Services monthly a tranfser agent fee of $25 per account on an annual basis, plus out-of-pocket expenses. -63- 260 CUSTODY OF PORTFOLIO Portfolio securities of the Funds are held pursuant to a custodian agreemetn between the Corporation and Investors Bank & Trust Company ("IBT") 24 Federal Street, Boston, Massachusetts. Under the custodian agreement, IBT performs custody, portfolio and fund accounting services. INDEPENDENT AUDITORS The independent auditors of the Funds are Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116. The independent auditors audit and render an opinion on the Funds' annual financial statements and prepare the Funds' annual income tax returns. The financial statements of the Funds included in the Prospectuses and this Statement of Additional Information have been audited by Ernst & Young LLP for the periods indicated in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. -64- 261 APPENDIX A CORPORATE AND TAX-EXEMPT BOND RATINGS MOODY'S INVESTORS SERVICE, INC. ("MOODY'S) Aaa, Aa, A and Baa - Tax-exempt bonds rated Aaa are judged to be of the "best quality." The rating of Aa is assigned to bonds that are of "high quality by all standards," but long-term risks appear somewhat larger than Aaa rated bonds. The Aaa and Aa rated bonds are generally known as "high grade bonds." The foregoing ratings for tax-exempt bonds are rated conditionally. Bonds for which the security depends upon the completion of some act or upon the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals that begin when facilities are completed, or (d) payments to which some other limiting condition attaches. Such conditional ratings denote the probable credit stature upon completion of construction or elimination of the basis of the condition. Bonds rated A are considered as upper medium grade obligations. Principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa are considered a medium grade obligations; i.e., they are neither highly protected or poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well. STANDARD & POOR'S RATINGS GROUP ("S&P") AAA, AA, A and BBB - Bonds rated AAA bear the highest rating assigned to debt obligations, which indicates an extremely strong capacity to pay principal and interest. Bonds rated AA are considered "high grade," are only slightly less marked than those of AAA ratings and have the second strongest capacity for payment of debt service. Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat susceptible to the adverse effects of changes in circumstances and economic conditions. The foregoing ratings are sometimes followed by a "p" indicating that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the bonds being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. Although a provisional rating addresses credit quality subsequent to completion of the project, it makes no comment on the likelihood of, or the risk of default upon failure of, such completion. Bonds rated BBB are regarded as having an adequate capacity to repay principal and pay interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in the A category. FITCH INVESTORS SERVICE ("FITCH") AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of the highest quality. The obligor has an extraordinary ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. Bonds rated AA are considered to be investment grade and of high quality. The obligor's ability to pay interest and repay principal, while very strong, is somewhat less than for AAA rated securities or more subject to possible A-1 262 change over the term of the issue. Bonds rated A are considered to be investment grade and of good quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to weaken this ability than bonds with higher ratings. TAX-EXEMPT NOTE RATINGS Moody's - MIG-1 and MIG-2. Notes rated MIG-1 are judged to be of the best quality, enjoying strong protection from established cash flow or funds for their services or from established and broad-based access to the market for refinancing or both. Notes rated MIG-2 are judged to be of high quality with ample margins of protection, though not as large as MIG-1. S&P - SP-1 and SP-2. SP-1 denotes a very strong or strong capacity to pay principal and interest. Issues determined to possess overwhelming safety characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a satisfactory capacity to pay principal and interest. Fitch - FIN-1 and FIN-2. Notes assigned FIN-1 are regarded as having the strongest degree of assurance for timely payment. A plus symbol may be used to indicate relative standing. Notes assigned FIN-2 reflect a degree of assurance for timely payment only slightly less in degree than the highest category. CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS Moody's - Commercial Paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Prime-1, indicates highest quality repayment capacity of rated issue and Prime-2 indicates higher quality. S&P - Commercial Paper ratings are a current assessment of the likelihood of timely payment of debts having an original maturity of no more than 365 days. Issues rated A have the greatest capacity for a timely payment and the designation 1, 2 and 3 indicates the relative degree of safety. Issues rated "A-1+" are those with an "overwhelming degree of credit protection." Fitch - Commercial Paper ratings reflect current appraisal of the degree of assurance of timely payment. F-1 issues are regarded as having the strongest degree of assurance for timely payment. (+) is used to designate the relative position of an issuer within the rating category. F-2 issues reflect an assurance of timely payment only slightly less in degree than the strongest issues. The symbol (LOC) may follow either category and indicates that a letter of credit issued by a commercial bank is attached to the commercial paper note. Other Considerations - The ratings of S&P, Moody's, and Fitch represent their respective opinions of the quality of the municipal securities they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the same maturity, coupon and ratings may have different yields and municipal securities of the same maturity and coupon with different ratings may have the same yield. A-2 263 MONEY MARKET FUND B STATEMENT OF NET ASSETS
October 31, 1994 FACE ISSUER AMOUNT VALUE - ------------------------------------------------------------------- COMMERCIAL PAPER - 69.04% - --------------------------- BUSINESS CREDIT INSTITUTIONS - 8.56% Chevron Oil Finance Co. 5.050% due 11/08/94 .............. $3,000,000 $ 2,997,054 Coca-Cola Financial Corp. 4.850% due 11/14/94 .............. 2,000,000 1,996,497 ----------- 4,993,551 CONSUMER CYCLICALS - 8.55% Toys "R" Us, Inc. 4.880% due 11/29/94 .............. 2,500,000 2,490,511 Wal-Mart Stores, Inc. 4.750% due 11/02/94 .............. 2,500,000 2,499,670 ----------- 4,990,181 CONSUMER GOODS & SERVICES - 11.72% Cargill Inc. 4.950% to 4.960% due 11/07/94 ........................ 3,000,000 2,997,523 Coca Cola Co. 4.770% to 5.050% due 11/04/94 to 11/18/94 ............ 993,000 991,703 Hershey Foods Corp. 4.800% due 11/01/94 .............. 2,000,000 2,000,000 Procter & Gamble Co. 5.000% due 11/01/94 .............. 850,000 850,000 ----------- 6,839,226 FINANCIAL SERVICES - 5.13% General Electric Capital Corp. 4.880% to 4.970% due 11/04/94 to 12/05/94 ............ 3,000,000 2,994,563 HEALTH CARE - 10.08% Abbott Laboratories 4.800% to 4.950% due 11/22/94 to 12/06/94 ............ 2,500,000 2,489,981 Schering Corp. 4.750% to 4.800% due 11/02/94 to 12/15/94............. 2,400,000 2,397,389 Warner-Lambert Co. 4.870% due 11/28/94............... 1,000,000 996,348 ----------- 5,883,718 INDUSTRIAL - 3.43% Donnelley (R.R.) & Sons Co. 4.980% due 11/03/94 .............. 1,000,000 999,723 E.I. duPont deNemours & Co. 4.920% due 11/03/94 .............. 1,000,000 999,727 ----------- 1,999,450 TECHNOLOGY-RELATED - 15.18% American Telephone & Telegraph Co. 4.800% to 5.280% due 11/18/94 to 01/03/95.............. 1,995,000 1,982,734 Bellsouth Telecommunications Inc. 4.850% to 4.950% due 11/16/94 to 11/23/94 ............. 2,395,000 2,388,258 Motorola, Inc. 4.880% due 11/14/94 ............... 2,500,000 2,495,594 Raytheon Co. 4.850% due 11/21/94 ............... 2,000,000 1,994,611 ----------- 8,861,197 UTILITIES - 6.39% Laclede Gas Co. 4.920% due 11/09/94 ............... 2,000,000 1,997,813 Madison Gas & Electric Co. 4.850% to 4.950% due 11/15/94 to 11/21/94 ............. 1,739,000 1,734,793 ----------- 3,732,606 ----------- TOTAL COMMERCIAL PAPER (Cost $40,294,492) .................. 40,294,492
3 264 STATEMENT OF NET ASSETS
Continued FACE ISSUER AMOUNT VALUE - ------------------------------------------------------------------- U.S. GOVERNMENT AGENCY - ---------------------- OBLIGATIONS - 31.21% - ---------------------- FEDERAL FARM CREDIT BANK - 4.16% 3.500% to 5.410% due 11/15/94 to 04/13/95 ............. 2,445,000 2,428,712 FEDERAL HOME LOAN BANK - 5.94% 4.900% to 5.630% due 11/04/94 to 03/30/95 ............. 3,495,000 3,463,629 FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.15% 3.960% to 5.570% due 11/03/94 to 05/22/95 ............. 3,615,000 3,590,533 FEDERAL NATIONAL MORTGAGE ASSOCIATION - 14.96% 4.650% to 5.220% due 11/10/94 to 03/20/95 ............. 8,780,000 8,733,278 ----------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $18,216,152) .................. 18,216,152 ----------- TOTAL INVESTMENTS - 100.25% (Cost $58,510,644) .................. 58,510,644 CASH AND OTHER ASSETS, LESS LIABILITIES - (0.25)% ........ (145,055) ----------- NET ASSETS, at value, equivalent to $1.00 per share for 58,365,589 shares ($.01 par value) of capital stock outstanding - 100.00% ............ $58,365,589 ===========
See Notes to Financial Statements. 4 265 STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS STATEMENT OF OPERATIONS Year Ended October 31, 1994 INVESTMENT INCOME Interest ......................... $1,725,382 EXPENSES Distribution expenses ............ $428,177 Management fees .................. 214,088 Transfer agent fees .............. 93,330 Administrative service fees ...... 46,621 Registration fees ................ 35,616 Shareholder reports .............. 19,295 Directors' fees and expenses ..... 16,553 Custodian fees ................... 15,692 Audit and legal fees ............. 9,221 Miscellaneous .................... 4,582 883,175 -------- ---------- NET INVESTMENT INCOME ............ $ 842,207 ==========
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, --------------------------- 1994 1993 ----------- ----------- OPERATIONS Net investment income ...... $ 842,207 $ 242,168 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income ...... (842,207) (242,168) CAPITAL SHARE TRANSACTIONS Increase in capital shares outstanding .............. 26,819,423 65,794 ----------- ----------- Increase in net assets ..... 26,819,423 65,794 NET ASSETS Beginning of year .......... 31,546,166 31,480,372 ----------- ----------- End of year ................ $58,365,589 $31,546,166 =========== ===========
5 See Notes to Financial Statements. 266 FINANCIAL HIGHLIGHTS
YEAR ENDED OCTOBER 31, --------------------------------------------------- 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- Per share income and capital changes for a share outstanding during each year: Net asset value, beginning of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income ....................................... 0.018 0.009 0.017 0.045 0.061 LESS DISTRIBUTIONS Dividends from net investment income ........................ (0.018) (0.009) (0.017) (0.045) (0.061) ------- ------- ------- ------- ------- Net asset value, end of year ................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total Return(1) ............................................. 1.87% 0.85% 1.73% 4.61% 6.30% ======= ======= ======= ======= ======= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets ..................... 2.06% 2.44% 2.47% 2.23% 2.31% Ratio of expense reimbursement to average net assets ........ - - - (0.12)% (0.15)% ------- ------- ------- ------- ------- Ratio of net expenses to average net assets ................. 2.06% 2.44% 2.47% 2.11% 2.16% ======= ======= ======= ======= ======= Ratio of net investment income to average net assets ........ 1.97% 0.85% 1.69% 4.45% 6.11% Net Assets, end of year (in thousands) ...................... $58,366 $31,546 $31,480 $20,763 $21,099 (1) Total return does not include the effect of the contingent deferred sales charge.
See Notes to Financial Statements. 6 267 NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series, Inc., is a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Issuer operates as a series fund, currently issuing six series of shares. On May 20, 1994, the shareholders of the Issuer approved changes to the name of the Issuer and to the names of each of the series of the Issuer. These changes became effective on June 15, 1994. Transamerica Money Market Fund B (the "Fund"), formerly Transamerica Special Money Market Fund, is one of the series of the Issuer. The Fund made its initial offering of shares to the public on October 26, 1987. The following is a summary of significant accounting policies consistently followed by the Fund. (1) The Fund values its investment securities at amortized cost (original cost plus amortized discount or accrued interest). (2) With respect to U.S. government and U.S. government agency securities in which the Fund may invest, only U.S. Treasury and Government National Mortgage Association (GNMA) issues are backed by the full faith and credit of the U.S. government. All other government issues are backed by the issuing agencies and their general ability to borrow from the U.S. government. (3) Security transactions are accounted for on the trade date. Interest income is accrued daily. The identified cost of securities at October 31, 1994 is the same for both financial reporting and federal income tax purposes. (4) Distributions of the Fund are computed daily and reinvested in Fund shares or paid to shareholders monthly. Income distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions payable to shareholders at October 31, 1994 were $9,668. (5) No provision for federal income taxes has been made since it is the Fund's intention to distribute all of its taxable income and profits to its shareholders and to comply with the requirements applicable to regulated investment companies and the minimum distribution requirements of the Internal Revenue Code. (6) The Fund reports custodian fees net of credits and charges resulting from cash positions in the custodial accounts greater than or less than the amounts required to settle portfolio transactions. For the year ended October 31, 1994, these amounts were $1,375 and $1,558, respectively. NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Fund's management fee is payable monthly to Transamerica Fund Management Company (the "Investment Adviser") and is calculated based on the following schedule:
AVERAGE DAILY NET ASSETS (in millions) ANNUAL RATE ------------- ----------- First $500 0.500% Next $250 0.425% Next $250 0.375% Next $500 0.350% Next $500 0.325% Next $500 0.300% Over $2,500 0.275%
At October 31, 1994, the management fee payable to the Investment Adviser was $25,029. The Investment Adviser provides administrative services to the Fund pursuant to an administrative service agreement. During the year ended October 31, 1994, the Fund paid or accrued $36,221 to the Investment Adviser for these services, of which $3,326 was payable at October 31, 1994. The Fund paid no compensation directly to any officer. Certain officers and a director of the Issuer are affiliated with the Investment Adviser. During the year ended October 31, 1994, the Fund paid legal fees of $799 to Baker & Botts. A partner with Baker & Botts is an officer of the Issuer. NOTE C - PLAN OF DISTRIBUTION Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is authorized to finance activities related to the distribution of its shares. The distribution plan, together with the contingent deferred sales charge, complies with the regulations covering maximum sales charges assessed by mutual funds distributed through securities dealers that are NASD members. The plan permits payments to Transamerica Fund Distributors, Inc. (the "Distributor"), an affiliate of the Investment Adviser and principal underwriter of the Fund, of up to 0.25% annually of average daily net assets for certain distribution costs such as service fees paid to dealers, production and distribution of prospectuses to prospective investors, services provided to new and existing shareholders and other distribution related activities. During the year ended 7 268 NOTES TO FINANCIAL STATEMENTS Continued NOTE C (Continued) October 31, 1994, payments made to the Distributor of $107,432 or 0.25% were related to the above activities. The plan also permits reimbursement to the Distributor up to 0.75% annually of average daily net assets for costs related to compensation paid to securities dealers, in place of an initial sales charge to investors. These costs are based upon a commission payment charge of 5% of the value of shares sold (excluding shares acquired through reinvestment), reduced by the amount of contingent deferred sales charges (CDSC) that have been received by the Distributor on redemptions of shares. These costs also include a charge of interest (carrying charge) at an annual rate of 1% over the prevailing prime rate to the extent cumulative commission payment charges, plus any previous carrying charges, less CDSC received by the Distributor, have not been paid in full by the Fund. For the year ended October 31, 1994, the Fund reimbursed the Distributor $320,745 or 0.75% for such costs. For the year ended October 31, 1994, the Distributor received $343,829 in CDSC. At October 31, 1994, the balance of unrecovered costs was $1,233,281. At October 31, 1994, the Fund had $53,504 payable to the Distributor pursuant to the above distribution plan. ----------------------------------- NOTE D - CAPITAL AND RELATED TRANSACTIONS A summary of the capital stock transactions follows:
YEAR ENDED OCTOBER 31, ------------------------------------------------------------ 1994 1993 ---------------------------- ---------------------------- SHARES DOLLARS SHARES DOLLARS ------------ ------------- ------------ ------------- Shares sold ......................................... 237,416,247 $ 237,416,247 162,110,025 $ 162,110,025 Shares issued in reinvestment of distributions ...... 683,416 683,416 208,860 208,860 Shares redeemed ..................................... (211,280,240) (211,280,240) (162,253,091) (162,253,091) ------------ ------------- ------------ ------------- Net increase in capital shares outstanding .......... 26,819,423 $ 26,819,423 65,794 $ 65,794 ============ ============= ============ =============
At October 31, 1994, net assets were comprised of $58,365,589 in capital paid-in, representing 58,365,589 shares of Common Stock outstanding (150,000,000 shares authorized). 8 269 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors John Hancock Money Market Fund B, a series of John Hancock Series, Inc. We have audited the accompanying statement of net assets of John Hancock Money Market Fund B, formerly Transamerica Money Market Fund B, a series of John Hancock Series, Inc., formerly Transamerica Series, Inc., as of October 31, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock Money Market Fund B, a series of John Hancock Series, Inc., at October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Houston, Texas December 2, 1994 9 270 GLOBAL RESOURCES FUND STATEMENT OF NET ASSETS
October 31, 1994 COMPANY SHARES VALUE - -------------------------------------------------------------------------- COMMON STOCKS - 101.18% - -------------------------- CONSUMER CYCLICALS - 1.55% Tolmex S.A. de C.V. ............................. 4,500 $ 654,750 CONSUMER GOODS & SERVICES - 3.14% Grupo Industrial Durango S.A. de C.V.* ...................................... 45,000 821,250 Reliance Industries Ltd.* ....................... 20,000 508,750 ----------- 1,330,000 ENERGY - EXPLORATION AND PRODUCTION - 24.51% Abraxas Petroleum Corp.* ........................ 20,000 215,000 Barrett Resources Corp.* ........................ 65,000 1,291,875 Bellwether Exploration Co.* ..................... 158,300 890,438 Brown (Tom), Inc.* .............................. 80,000 1,025,000 Cairn Energy USA, Inc.* ......................... 127,500 988,125 Louisiana Land & Exploration Co. ................ 15,000 680,625 Newfield Exploration Co.*........................ 35,000 844,375 Noble Affiliates Inc. ........................... 25,000 750,000 Nuevo Energy Co.* ............................... 45,000 1,006,875 PTT Exploration & Production Public Co., Ltd.*.............................. 70,000 792,400 PetroCorp, Inc.*................................. 110,000 1,210,000 YPF Sociedad Anonima............................. 28,000 675,500 ----------- 10,370,213 ENERGY - PROCESSING AND MARKETING - 5.87% Methanex Corp.* ................................. 30,000 450,000 Repsol S.A. ..................................... 15,000 487,500 Shanghai Petrochemical Ltd. ..................... 16,500 556,875 Total S.A. ...................................... 30,000 990,000 ----------- 2,484,375 ENERGY - SERVICES AND EQUIPMENT - 16.47% American Ecology Corp. .......................... 72,500 616,250 Camco International Inc. ........................ 25,000 515,625 Coflexip ADS .................................... 28,583 657,409 Energy Service Co., Inc.* ....................... 70,000 1,015,000 Global Industries Ltd.* ......................... 40,000 980,000 Hornbeck Offshore Services, Inc.*................................ 55,000 825,000 Petroleum Geo-Services A/S*...................... 40,000 1,012,500 Pool Energy Services Co.*........................ 50,000 437,500 Weatherford International, Inc.* ................ 80,000 910,000 ----------- 6,969,284 FINANCIAL SERVICES - 2.51% Brassie Golf Corp.*.............................. 287,900 1,062,351 INDUSTRIAL - CAPITAL GOODS - 5.24% Apasco S.A. de C.V. ............................. 14,000 651,840 Ionics Inc.* .................................... 17,000 913,750 Osmonics, Inc.* ................................. 45,000 652,500 ----------- 2,218,090 INDUSTRIAL - INTERMEDIATE MATERIALS - 24.44% American Barrick Resources Corp. ............................... 28,000 668,500 Broken Hill Proprietary Co. Ltd. ................ 14,000 857,500 Elf Aquitaine ADS ............................... 20,000 732,500 First National Resources Trust................... 620,000 598,300 Grupo Simec S.A. de C.V.*........................ 20,000 495,000 Hindalco Industries Ltd.*........................ 20,000 670,000 Industrias Campos Hermanos S.A.*................................. 155,000 370,450 Inland Steel Industries Inc.*.................... 21,000 750,750 Kymmene Oy....................................... 20,000 547,800 NKK Corp.*....................................... 225,000 695,250 Newmont Gold Co. ................................ 15,000 596,250 O'Okiep Copper Ltd.* ............................ 43,000 499,875 PT Indah Kiat Pulp & Paper Corp. ................ 490,000 553,700 Placer Dome Inc. ................................ 30,000 648,750 Pohang Iron and Steel Co., Ltd.*................. 25,000 821,875 USX-U.S. Steel Group............................. 12,000 450,000 Venezolana de Prerreducidos Caroni* ....................................... 61,000 381,250 ----------- 10,337,750
8 271 STATEMENT OF NET ASSETS
Continued COMPANY SHARES VALUE - ------------------------------------------------------------------------- INDUSTRIAL - MISCELLANEOUS - 15.27% Empresas ICA Sociedad Controladora S.A. de C.V. ..................... 23,000 681,375 Freeport-McMoRan Copper & Gold Inc. ..................................... 15,000 341,250 Giant Cement Holding, Inc.*...................... 37,500 525,000 Holderbank Financiere Glarus AG*..................................... 712 549,087 MacMillan Bloedel Ltd. .......................... 50,000 693,750 RTZ Corp. PLC.................................... 12,000 684,000 U.S. Filter Corp.*............................... 40,000 810,000 United Waste System Inc.* ....................... 35,000 848,750 Waste Management International PLC* ............................ 50,000 806,250 York Research Corp.* ............................ 160,000 520,000 ----------- 6,459,462 UTILITIES - 2.18% OEMV AG*......................................... 5,625 513,225 Transportadora de Gas del Sur S.A. .................................. 35,000 409,062 ----------- 922,287 ----------- TOTAL COMMON STOCKS (Cost $38,657,870)............................... 42,808,562 ----------- TOTAL INVESTMENTS - 101.18% (Cost $38,657,870)............................... 42,808,562 ----------- CASH AND OTHER ASSETS, LESS LIABILITIES - (1.18)% .................... (499,688) ----------- NET ASSETS, at value, equivalent to $15.62 per share for 343,877 Class A Shares ($.01 par value) of capital stock outstanding and $15.58 per share for 2,371,466 Class B Shares ($.01 par value) of capital stock outstanding - 100.00% ...................... $42,308,874 =========== * Non-income producing.
See Notes to Financial Statements. 9 272 STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS STATEMENT OF OPERATIONS Year Ended October 31, 1994 INVESTMENT INCOME Dividends (net of foreign withholding taxes of $13,399).................. $ 265,590 Interest ........................................ 32,224 --------- 297,814 EXPENSES Distribution expenses (see Note D)................................... $284,735 Management fees.................................. 220,869 Transfer agent fees.............................. 79,536 Administrative service fees...................... 54,259 Registration fees................................ 35,562 Shareholder reports.............................. 25,669 Custodian fees................................... 13,665 Audit and legal fees............................. 12,466 Directors' fees and expenses..................... 9,178 Miscellaneous.................................... 3,259 739,198 -------- --------- NET INVESTMENT LOSS............................ (441,384) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investments with currency fluctuations..................... (90,344) Net change in unrealized appreciation of investments with currency fluctuations.......................... 553,900 --------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............................ 463,556 --------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ 22,172 =========
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, ----------------------------- 1994 1993 ----------- ------------ OPERATIONS Net investment loss.................. $ (441,384) $ (210,089) Net realized gain (loss) on investments with currency fluctuations.............. (90,344) 276,194 Net change in unrealized appreciation of investments with currency fluctuations.............. 553,900 2,814,349 ----------- ----------- Increase in net assets resulting from operations.......... 22,172 2,880,454 CAPITAL SHARE TRANSACTIONS Increase in capital shares outstanding........................ 22,788,288 9,190,126 ----------- ----------- Increase in net assets............... 22,810,460 12,070,580 NET ASSETS Beginning of year.................... 19,498,414 7,427,834 ----------- ----------- End of year.......................... $42,308,874 $19,498,414 =========== ===========
See Notes to Financial Statements. 10 273 FINANCIAL HIGHLIGHTS
CLASS A SHARES CLASS B SHARES --------------- ----------------------------------------------------- PERIOD FROM JUNE 15, 1994 TO YEAR ENDED OCTOBER 31, OCTOBER 31, ----------------------------------------------------- 1994(2) 1994 1993 1992 1991 1990 --------------- ------- ------- ------ ------- ------- Per share income and capital changes for a share outstanding during each period(1): Net asset value, beginning of period ................... $14.89 $ 15.69 $ 12.41 $12.20 $ 11.57 $11.99 INCOME FROM INVESTMENT OPERATIONS Net investment loss .................................... (0.08) (0.23) (0.24) (0.24) (0.17) (0.10) Net realized and unrealized gain on investments ........ 0.81 0.12 3.52 0.58 1.24 0.16 ------ ------- ------- ------ ------- ------- Total from Investment Operations ..................... 0.73 (0.11) 3.28 0.34 1.07 0.06 LESS DISTRIBUTIONS Dividends from net investment income ................... - - - - - (0.01) Distributions from realized gains....................... - - - (0.13) (0.44) (0.47) ------ ------- ------- ------ ------- ------- Total Distributions .................................... - - - (0.13) (0.44) (0.48) ------ ------- ------- ------ ------- ------- Net asset value, end of period ......................... $15.62 $ 15.58 $ 15.69 $12.41 $ 12.20 $11.57 ====== ======= ======= ====== ======= ====== TOTAL RETURN(3)......................................... 4.90% (0.70)% 26.43% 2.93% 9.81% 0.09% ====== ======= ======= ====== ======= ====== RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets ................ 0.73% 2.54% 2.92% 3.75% 3.64% 3.55% Ratio of expense reimbursement to average net assets.... - - - - - (0.05)% ------ ------- ------- ------ ------- ------- Ratio of net expenses to average net assets ............ 0.73% 2.54% 2.92% 3.75% 3.64% 3.50% ====== ======= ======= ====== ======= ====== Ratio of net investment loss to average net assets ..... (0.42)% (1.52)% (1.65)% (2.01)% (1.47)% (0.82)% Portfolio turnover ..................................... 96% 96% 83% 59% 93% 59% Net Assets, end of period (in thousands) ............... $5,372 $36,937 $19,498 $7,428 $10,766 $7,746 (1) Per share information has been calculated using the average number of shares outstanding. (2) Financial highlights, including total return, have not been annualized. Portfolio turnover is for the year ended October 31, 1994. (3) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares.
See Notes to Financial Statements. 11 274 NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series, Inc., is a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Issuer operates as a series fund, currently issuing six series of shares. On May 20, 1994, the shareholders of the Issuer approved changes to the name of the Issuer and to the names of each of the series of the Issuer. These changes became effective on June 15, 1994. Transamerica Global Resources Fund (the "Fund"), formerly Transamerica Natural Resources Fund, is one of the series of the Issuer. The Fund made its initial offering of shares to the public on October 26, 1987. On June 15, 1994, the Fund commenced issuing a second class of shares. The new Class A Shares are subject to an initial sales charge of up to 5.75% and a 12b-1 distribution plan and the Class B Shares are subject to a contingent deferred sales charge and a separate 12b-1 distribution plan. The following is a summary of significant accounting policies consistently followed by the Fund. (1) Securities traded on stock exchanges or in the over-the-counter market are valued at the last sale price on the primary exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the mean between the most recent closing bid and asked prices. All securities initially expressed in terms of foreign currencies are translated into U.S. dollar equivalents based on quoted exchange rates as of the close of the NYSE. Securities for which market quotations are not readily available are valued at a fair value as determined in good faith by the Issuer's Board of Directors. Short-term investments are valued at amortized cost (original cost plus amortized discount or accrued interest). (2) Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date for both financial reporting and federal income tax purposes. Interest income is accrued daily. Realized gains and losses from security transactions are determined on the basis of identified cost for both financial reporting and federal income tax purposes. The Fund does not report separately the gain or loss resulting from changes in foreign exchange rates on investments from changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gains or losses from investments. (3) Dividends and other distributions are recorded by the Fund on the ex-dividend date and may be reinvested at net asset value. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. (4) No provision for federal income taxes has been made since it is the Fund's intention to distribute all of its taxable income and profits to its shareholders and to comply with the requirements applicable to regulated investment companies and the minimum distribution requirements of the Internal Revenue Code. At October 31, 1994, the Fund had a realized capital loss carryforward of approximately $107,000, which will expire as follows: $17,000 - 2000 and $90,000 - 2002. (5) The Fund reports custodian fees net of credits and charges resulting from cash positions in the custodial accounts greater than or less than the amounts required to settle portfolio transactions. For the year ended October 31, 1994, these amounts were $2,693 and $4,695, respectively. (6) On a daily basis, income, unrealized and realized gains and losses, and expenses which are not class specific are allocated to each class based on their respective relative net assets. Class specific expenses, such as distribution expenses, are applied to the class to which they are attributed. NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Fund's management fee is payable monthly to Transamerica Fund Management Company (the "Investment Adviser") and is calculated monthly on the average daily net assets of the Fund at an annual rate of 0.75%. At October 31, 1994, the management fee payable to the Investment Adviser was $26,382. The Investment Adviser provides administrative services to the Fund pursuant to an administrative service agreement. During the year ended October 31, 1994, the Fund paid or accrued $43,512 to the Investment Adviser for these services, of which $4,242 was payable at October 31, 1994. 12 275 NOTES TO FINANCIAL STATEMENTS Continued NOTE B (Continued) Transamerica Fund Distributors, Inc. (the "Distributor"), an affiliate of the Investment Adviser, as principal underwriter, retained $8,618 as its portion of the commissions charged on sales of Class A Shares of the Fund. At October 31, 1994, receivables from the Distributor for Fund share transactions were $131,155. The Fund paid no compensation directly to any officer. Certain officers and a director of the Issuer are affiliated with the Investment Adviser. During the year ended October 31, 1994, the Fund paid legal fees of $947 to Baker & Botts. A partner with Baker & Botts is an officer of the Issuer. NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES During the year ended October 31, 1994, purchases and sales of securities, other than short-term obligations, aggregated $52,321,428 and $28,114,988, respectively. At October 31, 1994, receivables from and payables to brokers for securities sold and purchased were $656,768 and $1,017,601, respectively. At October 31, 1994, the identified cost of total investments owned is the same for both financial reporting and federal income tax purposes. At October 31, 1994, the gross unrealized appreciation and gross unrealized depreciation of investments for federal income tax purposes were $5,014,345 and $863,653, respectively. NOTE D - PLAN OF DISTRIBUTION Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is authorized under separate distribution plans to finance activities related to the distribution of its Class A and Class B Shares (the "Class A Plan" and the "Class B Plan," respectively). The distribution plans, together with the initial sales charge on Class A Shares and the contingent deferred sales charge on Class B Shares, comply with the regulations covering maximum sales charges assessed by mutual funds distributed through securities dealers that are NASD members. The Class A Plan and the Class B Plan permit each class to make payments to the Distributor up to 0.25% annually of average daily net assets for certain distribution costs such as service fees paid to dealers, production and distribution of prospectuses to prospective investors, services provided to new and existing shareholders and other distribution related activities. During the period June 15, 1994 to October 31, 1994, Class A made payments to the Distributor of $3,253 or 0.10% related to the above activities. During the year ended October 31, 1994, Class B made payments of $70,523 or 0.25% related to these activities. The Class B Plan also permits Class B to reimburse to the Distributor up to 0.75% annually of average daily net assets for costs related to compensation paid to securities dealers, in place of an initial sales charge to investors, on the sale of Class B Shares. These costs are based upon a commission payment charge of 5% of the value of shares sold (excluding shares acquired through reinvestment) reduced by the amount of contingent deferred sales charges (CDSC) that have been received by the Distributor on redemptions of Class B Shares. These costs also include a charge of interest (carrying charge) at an annual rate of 1% over the prevailing prime rate to the extent cumulative commission payment charges, plus any previous carrying charges, less CDSC received by the Distributor, have not been paid in full by the Fund. For the year ended October 31, 1994, the Fund reimbursed the Distributor $210,959 or 0.75% for such costs. For the year ended October 31, 1994, the Distributor received $68,696 in CDSC. At October 31, 1994, the balance of unrecovered costs was $965,044. At October 31, 1994, Class A had $895 and Class B had $42,487 payable to the Distributor pursuant to the above distribution plans. 13 276 NOTES TO FINANCIAL STATEMENTS Continued NOTE E - CAPITAL AND RELATED TRANSACTIONS A summary of the capital stock transactions follows:
YEAR ENDED OCTOBER 31, ---------------------------------------------------- 1994(1) 1993 (1) ------------------------ ------------------------ SHARES DOLLARS SHARES DOLLARS --------- ------------ --------- ----------- Shares sold - Class A............................ 419,756 $ 6,352,382 - - Shares sold - Class B............................ 1,781,599 27,695,930 1,157,900 $16,586,284 Shares redeemed - Class A........................ (75,879) (1,159,547) - - Shares redeemed - Class B........................ (652,737) (10,100,477) (513,700) (7,396,158) --------- ------------ --------- ----------- Net increase in capital shares outstanding......... 1,472,739 $ 22,788,288 644,200 $ 9,190,126 ========= ============ ========= =========== (1) Class A share transactions are for the period June 15, 1994 to October 31, 1994. The components of net assets at October 31, 1994, are as follows: Capital paid-in (75,000,000 shares authorized).............................................. $38,265,043 Accumulated net realized loss on investments................................................ (106,861) Net unrealized appreciation of investments.................................................. 4,150,692 ----------- NET ASSETS.................................................................................. $42,308,874 ===========
14 277 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors John Hancock Global Resources Fund, a series of John Hancock Series, Inc. We have audited the accompanying statement of net assets of John Hancock Global Resources Fund (formerly Transamerica Resources Fund), a series of John Hancock Series, Inc. (formerly Transamerica Series, Inc.), as of October 31, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibilty is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994, by correspon- dence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock Global Resources Fund, a series of John Hancock Series, Inc., at October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Houston, Texas December 2, 1994 15 278 Transamerica Government Income Fund (effective December 22, 1994, John Hancock Government Income Fund) STATEMENT OF NET ASSETS October 31, 1994
FACE ISSUER AMOUNT VALUE - --------------------------------------------------------------- U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY OBLIGATIONS -- 84.66% FEDERAL HOME LOAN MORTGAGE CORPORATION -- 23.88% Pass Through Securities 7.750% due 11/01/08.......... $ 35,948 $ 34,832 8.000% due 04/01/07.......... 70,904 69,363 CMO -- Planned Amortization Class 4.500% due 05/15/14.......... 2,000,000 1,639,687 5.000% due 04/15/21.......... 6,000,000 4,779,375 5.750% due 05/15/21.......... 17,005,946 14,715,458 6.000% due 06/15/08.......... 8,000,000 6,601,250 6.500% with various maturities to 03/25/23 (A).. 31,888,400 27,783,969 7.000% due 06/15/21.......... 2,300,000 2,004,594 ----------- 57,628,528 FEDERAL JUDICIARY OFFICE BUILDING -- 0.06% Zero Coupon due 02/15/01...... 250,000 152,025 FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 25.69% 6.000% with various maturities to 11/01/23...... 16,127,062 13,728,162 6.500% due 05/01/08.......... 13,217,197 12,263,048 7.000% due 04/01/08.......... 3,889,611 3,696,298 8.500% with various maturities to 09/01/24...... 5,085,856 5,027,051 9.750% due 02/10/99.......... 125,000 125,681 9.950% due 05/10/99.......... 250,000 252,738 CMO -- Interest Only 6.500% due 10/01/23.......... 14,475,477 5,319,738 CMO -- Planned Amortization Class 6.000% due 04/25/24.......... 6,388,638 4,815,436 6.500% with various maturities to 08/25/20...... 11,660,000 10,073,969 6.750% due 06/25/21.......... 4,000,000 3,358,750 7.000% due 05/25/20(A)....... 3,700,000 3,132,859 7.500% due 05/25/20.......... 200,000 178,988 ----------- 61,972,718 FINANCING CORPORATION -- 2.58% 9.400% due 02/08/18.......... 4,000,000 4,410,000 9.650% due 11/02/18.......... 1,600,000 1,806,000 ----------- 6,216,000 TENNESSEE VALLEY AUTHORITY -- 4.59% 7.250% due 07/15/43.......... 8,000,000 6,644,000 7.850% due 06/15/44.......... 5,000,000 4,432,050 ----------- 11,076,050 U.S. TREASURY SECURITIES -- 27.86% Bonds 12.625% due 05/15/95(B)....... 40,400,000 41,944,492 15.750% due 11/15/01.......... 16,865,000 24,250,352 Notes 11.250% due 05/15/95(B)....... 1,000,000 1,028,810 ----------- 67,223,654 TOTAL U.S. GOVERNMENT AND U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost $217,385,536)........... 204,268,975 FOREIGN BONDS -- 10.10% U.S. DOLLAR DENOMINATED FOREIGN GOVERNMENT BONDS -- 10.10% Argentina (Republic of) Notes Series L 6.500% due 03/31/05(C)........ 2,000,000 1,445,000 Brazil (Republic of) Notes IDU Series A-L 6.063% due 01/01/01(C)........ 2,940,000 2,407,125
5 279 Transamerica Government Income Fund (Effective December 22, 1994, John Hancock Government Income Fund) STATEMENT OF NET ASSETS Continued
FACE ISSUER AMOUNT VALUE - -------------------------------------------------------------------------------- British Columbia Hydro & Power Authority 15.000% due 04/15/11............................. 3,900,000 4,514,250 15.500% due 11/15/11............................. 1,700,000 2,061,250 Hydro-Quebec Corp. 8.250% with various maturities to 01/15/27...... 2,000,000 1,833,750 8.875% due 03/01/26............................. 2,000,000 1,962,500 9.375% due 04/15/30............................. 2,000,000 2,052,500 11.750% due 02/01/12............................. 270,000 336,825 Province of Ontario, Canada 15.125% due 05/01/11............................. 1,345,000 1,568,606 17.000% due 11/05/11............................. 5,000,000 6,193,750 ------------ TOTAL FOREIGN BONDS (Cost $27,857,579)............................... 24,375,556 MULTI-FAMILY MORTGAGE BACKED BONDS -- 3.78% DLJ Mortgage Acceptance Corp. 7.200% due 07/14/03............................. 4,856,909 4,521,479 7.400% due 06/18/03............................. 4,909,808 4,589,137 ------------ TOTAL MULTI-FAMILY MORTGAGE BACKED BONDS (Cost $9,998,016)................................ 9,110,616 ------------ TOTAL LONG-TERM OBLIGATIONS -- 98.54% (Cost $255,241,131).............................. 237,755,147 CASH AND OTHER ASSETS, LESS LIABILITIES -- 1.46%............................ 3,529,283 ------------ NET ASSETS, at value, equivalent to $8.75 per share for 25,478 Class A Shares ($.01 par value) of capital stock outstanding and $8.75 per share for 27,547,677 Class B Shares ($.01 par value) of capital stock outstanding -- 100.00%......................................... $241,284,430 ============
(A) Federal Home Loan Mortgage Corporation and Federal National Mortgage Association securities with a value of $7,718,559 owned by the Fund were designated as margin deposits for futures contracts at October 31, 1994. (B) Long-term obligations that will mature in less than one year. (C) Floating rate security. See Notes to Financial Statements. 6 280 Transamerica Government Income Fund (effective December 22, 1994, John Hancock Government Income Fund) STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS STATEMENT OF OPERATIONS Year Ended October 31, 1994 INVESTMENT INCOME Interest ........................... $ 23,940,679 EXPENSES Distribution expenses (See Note D) ..................... $ 2,685,334 Management fees .................... 1,728,997 Transfer agent fees ................ 337,677 Administrative service fees ........ 132,786 Custodian fees ..................... 64,967 Registration fees .................. 64,878 Shareholder reports ................ 59,668 Audit and legal fees ............... 47,962 Directors' fees and expenses ......................... 26,069 Interest expense ................... 14,332 Miscellaneous ...................... 38,909 5,201,579 ------------ ------------ NET INVESTMENT INCOME ......................... 18,739,100 REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES Net realized gain (loss) on: Investments ....................... (10,308,076) Futures contracts ................. (2,190,367) Forward currency contracts ....................... 426,179 (12,072,264) ------------ Net change in unrealized appreciation (depreciation) of: Investments ....................... (25,329,099) Futures contracts ................. 404,876 Forward currency contracts ....................... 19,551 (24,904,672) ------------ ------------ NET REALIZED AND UNREALIZED LOSS ON SECURITIES ........................ (36,976,936) ------------ DECREASE IN NET ASSETS RESULTING FROM OPERATIONS......................... $(18,237,836) ============
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, --------------------------- 1994 1993 ------------ ----------- OPERATIONS Net investment income ............... $ 18,739,100 $18,614,695 Net realized gain (loss) on securities ........................ (12,072,264) 774,222 Net change in unrealized appreciation (depreciation) of securities ........................ (24,904,672) 5,274,938 ------------ ------------ Increase (decrease) in net assets resulting from operations ................... (18,237,836) 24,663,855 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income -- Class A ........................... (1,228) - Class B ........................... (18,621,004) (18,900,217) Net realized gain on securities -- Class B ............. (730,403) - ------------ ------------ Total distributions to shareholders ...................... (19,352,635) (18,900,217) CAPITAL SHARE TRANSACTIONS Increase (decrease) in capital shares outstanding ....................... (14,538,382) 62,109,749 ------------ ------------ Increase (decrease) in net assets ........................ (52,128,853) 67,873,387 NET ASSETS Beginning of year ................... 293,413,283 225,539,896 ------------ ------------ End of year ......................... $241,284,430 $293,413,283 ============ ============
See Notes to Financial Statements. 7 281 FINANCIAL HIGHLIGHTS
CLASS A SHARES CLASS B SHARES -------------- ------------------------------------------------------- PERIOD FROM SEPTEMBER 30, 1994 TO YEAR ENDED OCTOBER 31, OCTOBER 31, ------------------------------------------------------- 1994(1) 1994 1993 1992 1991 1990 -------------- -------- -------- -------- -------- ------- Per share income and capital changes for a share outstanding during each period: Net asset value, beginning of period..................... $ 8.85 $ 10.05 $ 9.83 $ 9.79 $ 9.37 $ 9.98 INCOME FROM INVESTMENT OPERATIONS Net investment income................................... 0.06 0.65 0.70 0.80 0.89 0.88 Net realized and unrealized gain (loss) on securities... (0.10) (1.28) 0.24 0.03 0.40 (0.54) ------- -------- -------- -------- -------- ------- Total from Investment Operations.................... (0.04) (0.63) 0.94 0.83 1.29 0.34 LESS DISTRIBUTIONS Dividends from net investment income.................... (0.06) (0.65) (0.72) (0.79) (0.87) (0.95) Distributions from realized gains........................ - (0.02) - - - - ------- -------- -------- -------- -------- ------- Total Distributions................................. (0.06) (0.67) (0.72) (0.79) (0.87) (0.95) ------- -------- -------- -------- -------- ------- Net asset value, end of period.......................... $ 8.75 $ 8.75 $ 10.05 $ 9.83 $ 9.79 $ 9.37 ======= ======== ======== ======== ======== ======= TOTAL RETURN (2)....................................... (0.45)% (6.42)% 9.86% 8.81% 14.38% 3.71% ======= ======== ======== ======== ======== ======= RATIOS AND SUPPLEMENTAL DATA Ratio of operating expenses to average net assets....... 0.12% 1.93% 2.00% 2.00% 2.00% 2.04% Ratio of interest expense to average net assets......... - 0.01% 0.01% 0.15% - - ------- -------- -------- -------- -------- ------- Ratio of total expenses to average net assets........... 0.12% 1.94% 2.01% 2.15% 2.00% 2.04% Ratio of expense reimbursement to average net assets.... - - - - - (0.04)% ------- -------- -------- -------- -------- ------- Ratio of net expenses to average net assets............. 0.12% 1.94% 2.01% 2.15% 2.00% 2.00% ======= ======== ======== ======== ======== ======= Ratio of net investment income to average net assets.... 0.71% 6.98% 7.06% 8.03% 9.09% 9.22% Portfolio turnover...................................... 92% 92% 138% 112% 162% 83% Net Assets, end of period (in thousands)................ $ 223 $241,061 $293,413 $225,540 $129,014 $64,707 Debt outstanding at end of period (in thousands)(3)..... $ 0 $ 0 $ 0 $ 0 - - Average daily amount of debt outstanding during the period (in thousands)(3).......................... $ 349 $ 349 $ 503 $ 6,484 - - Average monthly number of shares outstanding during the period (in thousands)............................. 28,696 28,696 26,378 18,572 - - Average daily amount of debt outstanding per share during the period(3).................................. $ 0.01 $ 0.01 $ 0.02 $ 0.35 - - (1) Financial highlights, including total return, have not been annualized. Portfolio turnover and information regarding debt outstanding are for the year ended October 31, 1994 and are not class specific. (2) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares. (3) Debt outstanding consists of reverse repurchase agreements entered into during the period.
See Notes to Financial Statements. 8 282 Transamerica Government Income Fund (effective December 22, 1994, John Hancock Government Income Fund) NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series, Inc., is a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Issuer operates as a series fund, currently issuing six series of shares. On May 20, 1994, the shareholders of the Issuer approved changes to the name of the Issuer and to the names of each of the series of the Issuer. These changes became effective on June 15, 1994. Transamerica Government Income Fund (the "Fund"), formerly Transamerica Special Government Income Fund, is one of the series of the Issuer. The Fund made its initial offering of shares to the public on February 23, 1988. On September 30, 1994, the Fund commenced issuing a second class of shares. The new Class A Shares are subject to an initial sales charge of up to 4.75% and a 12b-1 distribution plan and the Class B Shares are subject to a contingent deferred sales charge and a separate 12b-1 distribution plan. The following is a summary of significant accounting policies consistently followed by the Fund. (1) The Fund values its debt securities at quotations provided by pricing services and market makers. Interest rate futures contracts and options on interest rate futures are valued based on their daily settlement price. Securities which are not traded on U.S. markets, forward currency contracts and other assets and liabilities stated in foreign currency are translated into U.S. dollar equivalents based on quoted exchange rates. Securities for which market quotations are not readily available are valued at a fair value as determined in good faith by the Issuer's Board of Directors. Short-term investments are valued at amortized cost (original cost plus amortized discount or accrued interest). (2) The premium paid by the Fund for the purchase of a call or put option is recorded as an investment and subsequently "marked to market" to reflect the current market value of the option purchased. If an option which the Fund has purchased expires on the stipulated expiration date, the Fund realizes a loss in the amount of the cost of the option. If the Fund enters into a closing transaction, it realizes a gain (loss) if the proceeds from the sale are greater (less) than the cost of the option purchased. If the Fund exercises a put option, it realizes a gain or a loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. If the Fund exercises a call option, the cost of the security purchased upon exercise is increased by the premium originally paid. (3) The Fund may enter into futures contracts for delayed delivery of securities on a future date at a specified price. Initial margin deposits made upon entering into futures contracts are maintained by the Fund's custodian in segregated asset accounts. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are received or made, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. (4) The Fund may enter into reverse repurchase agreements which involve the sale of securities held by the Fund to a bank or securities firm with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund and the Fund will use the proceeds obtained from the sale of securities to purchase other investments. (5) Security transactions are accounted for on the trade date. Interest income is accrued daily. Debt discounts are amortized using the straight-line method. Realized gains and losses from security transactions are determined on the basis of identified cost for both financial reporting and federal income tax purposes. (6) Income dividends are declared daily by the Fund and paid or reinvested at net asset value monthly. Other distributions are recorded on the ex-dividend date and may be reinvested at net asset value. Income distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions payable to shareholders at October 31, 1994 were $711,439. (7) No provision for federal income taxes has been made since it is the Fund's intention to distribute all of its taxable income and profits to its shareholders and to comply with the requirements applicable to regulated investment companies and the minimum distribution requirements of the Internal Revenue Code. The Fund's tax year end is December 31. (8) On a daily basis, income, unrealized and realized gains and losses, and expenses which are not class specific are allocated to each class based on their respective relative net assets. Class specific expenses, such as distribution expenses, are applied to the class to which they are attributed. 9 283 Transamerica Government Income Fund (effective December 22, 1994, John Hancock Government Income Fund) NOTES TO FINANCIAL STATEMENTS Continued NOTE A (Continued) (9) With respect to U.S. government and U.S. government agency securities in which the Fund may invest, only U.S. Treasury and Government National Mortgage Association (GNMA) issues are backed by the full faith and credit of the U.S. government. All other government issues are backed by the issuing agencies and their general ability to borrow from the U.S. government. Options and futures contracts on U.S. government securities are not issues of, nor guaranteed by the U.S. government or its agencies. (10) The Fund reports custodian fees net of credits and charges resulting from cash positions in the custodial accounts greater than or less than the amounts required to settle portfolio transactions. For the year ended October 31, 1994, these amounts were $14,301 and $13,948, respectively. NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Fund's management fee is payable monthly to Transamerica Fund Management Company (the "Investment Adviser") and is calculated based on the following schedule:
AVERAGE DAILY NET ASSETS ANNUAL RATE ------------- ----------- First $200 million 0.650% Next $300 million 0.625% Over $500 million 0.600%
At October 31, 1994, the management fee payable to the Investment Adviser was $133,624. The Investment Adviser provides administrative services to the Fund pursuant to an administrative service agreement. During the year ended October 31, 1994, the Fund paid or accrued $107,246 for these services, of which $9,471 was payable at October 31, 1994. Transamerica Fund Distributors Inc. (the "Distributor"), an affiliate of the Investment Adviser, is the principal underwriter of the Fund. At October 31, 1994, receivables from and payables to the Distributor for Fund share transactions were $61,205 and $671,881, respectively. The Fund paid no compensation directly to any officer. Certain officers and a director of the Issuer are affiliated with the Investment Adviser. During the year ended October 31, 1994, the Fund paid legal fees of $9,618 to Baker & Botts. A partner with Baker & Botts is an officer of the Issuer. NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES During the year ended October 31, 1994, purchases and sales of securities, other than short-term obligations, aggregated $244,231,077 and $259,987,372, respectively. At October 31, 1994, payables to brokers for securities purchased were $2,500,605. At October 31, 1994, the identified cost of investments owned is the same for both financial reporting and federal income tax purposes. At October 31, 1994, the gross unrealized appreciation and gross unrealized depreciation of investments and futures contracts for federal income tax purposes were $920,652 and $17,993,511, respectively. Futures contracts which were open at October 31, 1994, were as follows:
DELIVERY NUMBER OF UNREALIZED MONTH/YEAR/COMMITMENT CONTRACTS(1) APPRECIATION - -------------------------- ------------ ------------ U.S. Treasury Ten Year Note Futures Dec/94/short 135 $366,094 U.S. Treasury Bond Futures Dec/94/short 70 47,031 --- -------- 205 $413,125 === ========
(1) Each contract represents $100,000 in par value. NOTE D - PLAN OF DISTRIBUTION Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is authorized under separate distribution plans to finance activities related to the distribution of its Class A and Class B Shares (the "Class A Plan" and the "Class B Plan," respectively). The distribution plans, together with the initial sales charge on Class A Shares and the contingent deferred sales charge on Class B Shares, comply with the regulations covering maximum sales charges assessed by mutual funds distributed through securities dealers that are NASD members. The Class A Plan and the Class B Plan permit each class to make payments to the Distributor up to 0.25% annually of average daily net assets for certain distribution costs such as service fees paid to dealers, production and distribution of prospectuses to prospective investors, services provided to new and existing shareholders and other distribution related activities. During the period September 30, 1994 to 10 284 Transamerica Government Income Fund (effective December 22, 1994, John Hancock Government Income Fund) NOTES TO FINANCIAL STATEMENTS Continued NOTE D (Continued) October 31, 1994, Class A made payments to the Distributor of $37 or 0.02% related to the above activities. During the year ended October 31, 1994, Class B made payments of $671,915 or 0.25% related to these activities. The Class B Plan also permits Class B to reimburse the Distributor up to 0.75% annually of average daily net assets for costs related to compensation paid to securities dealers, in place of an initial sales charge to investors, on the sale of Class B Shares. These costs are based upon a commission payment charge of 5% of the value of Class B Shares sold (excluding shares acquired through reinvestment), reduced by the amount of contingent deferred sales charges (CDSC) that have been received by the Distributor on redemptions of Class B Shares. These costs also include a charge of interest (carrying charge) at an annual rate of 1% over the prevailing prime rate to the extent cumulative commission payment charges, plus any previous carrying charges, less CDSC received by the Distributor, have not been paid in full by the Fund. For the year ended October 31, 1994, Class B reimbursed the Distributor $2,013,382 or 0.75% for such costs. For the year ended October 31, 1994, the Distributor received $766,358 in CDSC. At October 31, 1994, the balance of unrecovered costs was $10,485,386. At October 31, 1994, Class A had $37 and Class B had $265,299 payable to the Distributor pursuant to the above distribution plans. _____________________________ NOTE E - CAPITAL AND RELATED TRANSACTIONS A summary of the capital stock transactions follows:
Year Ended October 31, ------------------------------------------------------------ 1994(1) 1993 --------------------------- --------------------------- Shares Dollars Shares Dollars ---------- ------------ ---------- ------------ Shares sold--Class A..................................... 25,409 $ 223,359 - - Shares sold--Class B..................................... 4,611,686 43,702,215 10,924,803 $108,497,899 Shares issued in reinvestment of distributions--Class A.. 69 606 - - Shares issued in reinvestment of distributions--Class B.. 1,061,434 9,872,309 993,283 9,861,880 Shares redeemed--Class A................................. - - - - Shares redeemed--Class B................................. (7,326,339) (68,336,871) (5,650,502) (56,250,030) ---------- ------------ ---------- ------------ Net increase (decrease) in capital shares outstanding.... (1,627,741) $(14,538,382) 6,267,584 $ 62,109,749 ========== ============ ========== ============
(1) Class A share transactions are for the period September 30, 1994 to October 31, 1994. The components of net assets at October 31, 1994, are as follows: Capital paid-in (350,000,000 shares authorized).......................................................... $271,079,720 Accumulated net realized loss on investments, futures contracts and forward currency contracts........... (12,722,431) Net unrealized depreciation of investments and futures contracts......................................... (17,072,859) ------------ NET ASSETS............................................................................................... $241,284,430 ============
11 285 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors John Hancock Government Income Fund, a series of Transamerica Series, Inc. We have audited the accompanying statement of net assets of John Hancock Government Income Fund (formerly Transamerica Government Income Fund), a series of John Hancock Series, Inc. (formerly Transamerica Special Series, Inc.), as of October 31, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock Government Income Fund, a series of John Hancock Series, Inc., at October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. Ernst & Young LLP Houston, Texas December 2, 1994 12 286 Transamerica High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) STATEMENT OF NET ASSETS October 31, 1994
FACE ISSUER AMOUNT VALUE - ---------------------------------------------------------------- NON-CONVERTIBLE CORPORATE DEBT - 77.80% CHEMICALS - 0.89% N.L. Industries Inc. 11.750% due 10/15/03................ $1,500,000 $ 1,530,000 COMMUNICATIONS & CABLE - 7.27% Cablevision Industries Corp. 9.250% due 04/01/08................ 3,000,000 2,670,000 10.750% due 01/30/02................ 2,000,000 1,997,500 Cablevision Systems Corp. 9.875% due 02/15/13................ 2,000,000 1,865,000 Century Communications Corp. Zero coupon due 03/15/03............ 4,000,000 1,655,000 11.875% due 10/15/03................ 700,000 738,500 Continental Cablevision Inc. 9.500% due 08/01/13................ 4,000,000 3,610,000 ----------- 12,536,000 CONSUMER CYCLICALS - 2.20% Continental Homes Holding Corp. 12.000% due 08/01/99................ 2,000,000 2,030,000 Miles Homes Services Inc.(A) 12.000% due 04/01/01................ 2,000,000 1,768,000 ----------- 3,798,000 CONSUMER GOODS & SERVICES - 5.38% All American Bottling Corp. 13.000% due 08/15/01................ 1,840,000 1,846,900 Apparel Ventures, Inc.(B) 12.250% due 12/31/00................ 1,500,000 1,425,000 Arcadian Partners L.P. 10.750% due 05/01/05................ 1,500,000 1,468,125 Chattem Inc.(C) 12.750% due 06/15/04................ 1,500,000 1,447,500 Fresh Del Monte Produce N.V. 10.000% due 05/01/03................ 2,000,000 1,680,000 J.B. Williams Holdings Inc. 12.500% due 03/01/04................ 1,000,000 960,000 Paul Harris Stores, Inc. 11.375% due 01/31/00................ 452,300 450,039 ----------- 9,277,564 ENERGY - 15.09% Dual Drilling Co. 9.875% due 01/15/04................ 3,750,000 3,525,000 Falcon Drilling Co., Inc. 9.750% due 01/15/01................ 2,500,000 2,440,625 Global Marine Inc. 12.750% due 12/15/99................ 2,100,000 2,281,125 HS Resources, Inc. 9.875% due 12/01/03................ 2,581,000 2,426,140 Maxus Energy Corp. 11.080% due 05/15/01................ 2,000,000 2,000,000 11.500% due 11/15/15................ 2,000,000 1,997,500 Nuevo Energy Co. 12.500% due 06/15/02................ 4,000,000 4,245,000 OPI International Inc. 12.875% due 07/15/02................ 4,700,000 5,334,500 Wilrig AS 11.250% due 03/15/04................ 2,000,000 1,765,000 ----------- 26,014,890 FINANCIAL SERVICES - 2.81% American Financial Corp. 12.250% due 09/15/03................ 2,250,000 2,317,500 Indah Kiat International Finance Co. 12.500% due 06/15/06................ 2,500,000 2,521,875 ----------- 4,839,375 GAMING & LODGING - 6.57% Boomtown Inc. 11.500% due 11/01/03................ 2,600,000 2,210,000 Casino Magic Finance Corp. 11.500% due 10/15/01................ 4,000,000 2,760,000 HWCC-Tunica, Inc. 13.500% due 09/30/98................ 2,000,000 1,600,000
4 287 Transamerica High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) STATEMENT OF NET ASSETS Continued
FACE ISSUER AMOUNT VALUE - ---------------------------------------------------------------- Sahara Finance Corp. 12.125% due 08/31/96 . . . . . . . . 3,471,204 3,297,644 Trump Plaza Funding Inc. 10.875% due 06/15/01 . . . . . . . . 2,000,000 1,455,000 ---------- 11,322,644 HEALTH CARE - 6.19% Abbey Healthcare Group, Inc. 9.500% due 11/01/02 . . . . . . . . 2,200,000 2,013,000 Amerisource Distribution Corp.(D) 11.250% due 07/15/05 . . . . . . . . 2,112,500 2,051,766 General Medical Corp.(D) 12.125% due 08/15/05 . . . . . . . . 2,742,000 2,718,854 Healthtrust, Inc. - The Hospital Co. 8.750% due 03/15/05 . . . . . . . . . 4,000,000 3,895,000 ---------- 10,678,620 INDUSTRIALS - 6.54% Grupo Industrial Durango S.A. de C.V. 12.000% due 07/15/01 . . . . . . . . 2,500,000 2,543,750 Rainy River Forest Products, Inc. 10.750% due 10/15/01 . . . . . . . . 500,000 499,375 Rexene Corp. 9.000% due 11/15/99 . . . . . . . . 1,780,000 1,775,550 10.000% due 11/15/02(D) . . . . . . . 6,500,000 6,467,500 ---------- 11,286,175 MEDIA & LEISURE - 0.58% Garden State Newspaper, Inc. 12.000% due 07/01/04 . . . . . . . . 1,000,000 992,500 METALS & MINING - 6.88% Geneva Steel Co. 9.500% due 01/15/04 . . . . . . . . 1,000,000 890,000 Renco Metals Inc. 12.000% due 07/15/00 . . . . . . . . 2,000,000 1,875,000 Sheffield Steel Corp. 12.000% due 11/01/01 . . . . . . . . 5,125,000 4,996,875 Weirton Steel Corp. 10.875% due 10/15/99 . . . . . . . . 2,500,000 2,543,750 11.500% due 03/01/98 . . . . . . . . 1,500,000 1,554,375 ---------- 11,860,000 PAPER & PACKAGING - 3.47% Container Corp. of America 11.250% due 05/01/04 . . . . . . . . 2,000,000 2,075,000 15.500% due 12/01/04(E) . . . . . . . 1,500,000 1,951,729 Crown Packaging Holdings Ltd. 10.750% due 11/01/00 . . . . . . . . 1,000,000 1,015,000 Stone Container Corp. 10.750% due 04/01/02 . . . . . . . . 1,000,000 945,000 ---------- 5,986,729 RETAIL-FOOD & DRUG - 9.21% American Restaurant Group Inc. 12.000% due 09/15/98 . . . . . . . . 1,750,000 1,671,250 Farm Fresh Holdings Corp.(D) 14.250% due 10/01/02 . . . . . . . . 6,161,702 4,240,021 Farm Fresh Inc. 12.250% due 10/01/00 . . . . . . . . 1,000,000 865,000 Flagstar Corp. 10.750% due 09/15/01 . . . . . . . . 2,000,000 1,890,000 Food 4 Less Supermarkets Inc. 10.450% due 04/15/00 . . . . . . . . 2,000,000 1,970,000 13.750% due 06/15/01 . . . . . . . . 2,400,000 2,622,000 Victory Markets Inc. 12.500% due 03/15/00 . . . . . . . . 500,000 372,500 White Rose Foods Inc. Zero coupon due 11/01/98 . . . . . . 4,000,000 2,255,000 ---------- 15,885,771 TECHNOLOGY-RELATED - 0.82% Genicom Corp. 12.500% due 02/15/97 . . . . . . . . 1,500,000 1,410,000 TRANSPORTATION - 0.68% CHC Helicopter Corp. 11.500% due 07/15/02 . . . . . . . . 1,250,000 1,181,250
5 288 Transamerica High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) STATEMENT OF NET ASSETS Continued
FACE ISSUER AMOUNT VALUE - ----------------------------------------------------------------- TRANSPORTATION EQUIPMENT - 3.22% International Controls Corp. 12.750% due 08/01/01 ................. 2,435,000 2,435,000 14.500% due 01/01/06 ................. 3,132,000 3,116,340 ----------- 5,551,340 ----------- TOTAL NON-CONVERTIBLE CORPORATE DEBT (Cost $138,195,215) .................. 134,150,858 DEFERRED INTEREST RATE SETTING BONDS - 6.98% COMMUNICATIONS & CABLE - 0.52% Nextel Communications, Inc. Zero coupon to 02/15/99, 9.750% due 08/15/04 ................ 2,000,000 900,000 ENERGY - 1.98% Mesa Capital Corp. Zero coupon to 06/30/95, 12.750% due 06/30/98 ................ 4,000,000 3,420,000 INDUSTRIAL - 1.35% Indspec Chemical Corp. Zero coupon to 12/01/98, 11.500% due 12/01/03 ................. 4,000,000 2,330,000 MEDIA & LEISURE - 0.90% Affiliated Newspaper Investments Inc.(F) Zero coupon to 07/01/99, 13.250% due 07/01/06 ................. 3,000,000 1,552,500 PAPER & PACKAGING - 1.25% Crown Packaging Holdings Ltd. Zero coupon to 11/01/00, 12.250% due 11/01/03 ................. 4,250,000 2,156,875 UTILITIES - 0.98% Celcaribe S.A.(G) Zero coupon to 03/15/98, 13.500% due 03/15/04 ................. 2,000,000 1,679,988 ----------- TOTAL DEFERRED INTEREST RATE SETTING BONDS (Cost $12,932,727) ................... 12,039,363 U.S. DOLLAR DENOMINATED FOREIGN BONDS - 3.20% FOREIGN GOVERNMENT BONDS - 2.04% Brazil (Republic of) Notes IDU Series A-L(H) 6.063% due 01/01/01 ................. 1,960,000 1,604,750 Repackaged Argentina Domestic Securities Trust I 14.750% due 09/01/02 ................. 2,000,000 1,920,000 ----------- 3,524,750 FOREIGN CORPORATE BONDS - 1.16% NTN Capital Co., Ltd. Series A(I)(J) 12.360% due 04/05/95 ................. 2,000,000 2,000,000 ----------- TOTAL U.S. DOLLAR DENOMINATED FOREIGN BONDS (Cost $5,628,710) .................... 5,524,750 ----------- TOTAL LONG-TERM OBLIGATIONS - 87.98% (Cost $156,756,652) .................. 151,714,971 COMMON STOCKS - 1.22% SHARES ------- RETAIL-FOOD & DRUG - 0.02% Farm Fresh Holdings Corp.* ........... 1,000 40,000 TRANSPORTATION - 1.20% America West Airlines, Inc. Class B* ........................... 170,793 2,070,865 ----------- TOTAL COMMON STOCKS (Cost $2,398,100) .................... 2,110,865
6 289 Transamerica High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) STATEMENT OF NET ASSETS Continued
ISSUER/COMPANY SHARE VALUE - ---------------------------------------------------------------- FOREIGN DENOMINATED PREFERRED STOCK - 5.48% FINANCIAL SERVICES - 5.48% Algoma Finance Corp.(K) (Cost $9,191,465).................... 590,643 9,441,034 STOCK WARRANTS - 0.18% WARRANTS -------- CONSUMER GOODS & SERVICES - 0.01% Browne Bottling Co.*(L) ............ 237 12,324 GAMING & LODGING - 0.01% Boomtown Inc.*(M) .................. 1,500 7,500 Casino Magic Finance Corp.*(N)...... 9,000 9,000 --------- 16,500 METALS & MINING - 0.04% Sheffield Steel Corp.*(O) .......... 22,500 67,500 PAPER & PACKAGING - 0.09% Crown Packaging Holdings Ltd.*(P)... 2,750 151,250 TRANSPORTATION - 0.03% CHC Helicopter Corp.*(Q)............ 16,000 64,000 --------- TOTAL STOCK WARRANTS (Cost $37,500) ...................... 311,574 SHORT-TERM OBLIGATIONS - 2.72% COMMERCIAL PAPER - 2.72% CONSUMER GOODS & SERVICES - 2.72% Archer-Daniels-Midland Co. 4.850% due 11/01/94 (Cost $4,685,000) ................... 4,685,000 4,685,000 ----------- TOTAL INVESTMENTS - 97.58% (Cost $173,068,717) ................. 168,263,444 CASH AND OTHER ASSETS, LESS LIABILITIES - 2.42% ............ 4,171,172 ----------- NET ASSETS, at value, equivalent to $7.33 per share for 1,594,818 Class A Shares ($.01 par value) of capital stock outstanding and $7.33 per share for 21,913,963 Class B Shares ($.01 par value) of capital stock outstanding - 100.00% ............ 172,434,616 =========== (A) Each $1,000 face amount of Miles Homes Services Inc. equals one unit, which consists of a bond and 12 warrants. (B) Each $1,000 face amount of Apparel Ventures, Inc. equals one unit, which consists of a bond and one warrant. (C) Each $1,000 face amount of Chattem Inc. equals one unit, which consists of a bond and one warrant. (D) Payment-in-kind security. Coupon may be paid in cash or additional securities at discretion of the Issuer. (E) Deferred interest security. (F) Each $1,000 face amount of Affiliated Newspaper Investments Inc. equals one unit, which consists of a bond and one Affiliated Newspaper Investments Inc. common stock. (G) Each $10,000 face amount of Celcaribe S.A. equals one unit, which consists of a bond and 1,626 shares of common stock. (H) Floating rate security. (I) Brazilian Indexed Dollar Securities. (J) Long-term obligations that will mature in less than one year. (K) Market value is in U.S. dollars. (L) Each warrant entitles the holder to purchase one common share at an exercise price of $.01 and will expire on August 15, 2003. (M) Each warrant entitles the holder to purchase one common share at an exercise price of $21.1875 and will expire on November 1, 1998. (N) Each warrant entitles the holder to purchase one common share at an exercise price of $25 and will expire on October 14, 1996. (O) Each warrant entitles the holder to purchase one common share at an exercise price of $.01 and will expire on November 1, 2001. (P) Each warrant entitles the holder to purchase 0.257366 Class A common share at an exercise price prepaid by the company and will expire on October 15, 2003. (Q) Each warrant entitles the holder to purchase one Class A Subordinate Voting share at an exercise price of $9.375 and will expire on December 15, 2000. * Non-income producing.
See Notes to Financial Statements. 7 290 Transamerica High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS STATEMENT OF OPERATIONS Year Ended October 31, 1994 INVESTMENT INCOME Interest .......................... $ 18,601,708 Dividends (net of foreign withholding taxes of $51,162) ... 289,921 ------------ 18,891,629 EXPENSES Distribution expenses (see Note D) .................... $1,604,168 Management fees ................... 976,834 Transfer agent fees ............... 224,568 Administrative service fees ....... 100,822 Registration fees ................. 54,607 Custodian fees .................... 44,634 Shareholder reports ............... 43,869 Audit and legal fees .............. 38,241 Directors' fees and expenses ...... 25,464 Miscellaneous ..................... 23,899 3,137,106 ---------- ------------ NET INVESTMENT INCOME 15,754,523 REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss on investments .. (8,882,766) Net change in unrealized depreciation of investments ..... (9,524,936) ------------ NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (18,407,702) ------------ DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (2,653,179) ============
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, --------------------------- 1994 1993 ------------ ------------ OPERATIONS Net investment income ............. $ 15,754,523 $ 13,088,016 Net realized gain (loss) on investments ..................... (8,882,766) 4,681,658 Net change in unrealized appreciation (depreciation) of investments .................. (9,524,936) 7,261,729 ------------ ------------ Increase (decrease) in net assets resulting from operations ...................... (2,653,179) 25,031,403 DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income - Class A ......................... (821,430) (44,789) Class B ......................... (15,331,034) (12,211,141) Net realized gains - Class A ......................... (18,900) - Class B ......................... (870,444) - ------------ ------------ Total distributions to shareholders .................... (17,041,808) (12,255,930) CAPITAL SHARE TRANSACTIONS Increase in capital shares outstanding ..................... 35,571,332 45,222,622 ------------ ------------ Increase in net assets ............ 15,876,345 57,998,095 NET ASSETS Beginning of year ................. 156,558,271 98,560,176 ------------ ------------ End of year ....................... $172,434,616 $156,558,271 ============ ============ Undistributed Net Investment Income .......................... $ 86,246 $ 393,074 ============ ============
See Notes to Financial Statements. 8 291 FINANCIAL HIGHLIGHTS
CLASS A SHARES CLASS B SHARES ---------------------------- ----------------------------------------------------- YEAR PERIOD FROM ENDED JUNE 30, 1993 YEAR ENDED OCTOBER 31, OCTOBER 31, TO OCTOBER 31, ----------------------------------------------------- 1994(1) 1993(2) 1994(1) 1993 1992 1991 1990 ----------- -------------- -------- -------- ------- ------- ------- Per share income and capital changes for a shares outstanding during each period: Net asset value, beginning of period........ $ 8.23 $ 8.10 $ 8.23 $ 7.43 $ 7.44 $ 6.45 $ 8.14 INCOME FROM INVESTMENT OPERATIONS Net investment income....................... 0.80 0.33 0.74 0.80 0.87 0.98 1.09 Net realized and unrealized gain (loss) on investments............................ (0.83) 0.09 (0.83) 0.75 (0.04) 1.06 (1.68) ------- ------ -------- -------- ------- ------- ------- Total from Investment Operations.......... (0.03) 0.42 (0.09) 1.55 0.83 2.04 (0.59) LESS DISTRIBUTIONS Dividends from net investment income........ (0.82) (0.29) (0.76) (0.75) (0.84) (0.98) (1.09) Distributions from realized gains........... (0.05) - (0.05) - - - - Returns of capital.......................... - - - - - (0.07) (0.01) ------- ------ -------- -------- ------- ------- ------- Total Distributions....................... (0.87) (0.29) (0.81) (0.75) (0.84) (1.05) (1.10) ------- ------ -------- -------- ------- ------- ------- Net asset value, end of period.............. $ 7.33 $ 8.23 $ 7.33 $ 8.23 $ 7.43 $ 7.44 $ 6.45 ======= ====== ======== ======== ======= ======= ======= TOTAL RETURN(3)............................. (0.59)% 4.96% (1.33)% 21.76% 11.56% 34.21% (8.04)% ======= ====== ======== ======== ======= ======= ======= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets..... 1.16% 0.31% 1.91% 2.08% 2.25% 2.24% 2.25% Ratio of expense reimbursement to average net assets........................ - - - - - - (0.03)% ------- ------ -------- -------- ------- ------- ------- Ratio of net expenses to average net assets................................ 1.16% 0.31% 1.91% 2.08% 2.25% 2.24% 2.22% ======= ====== ======== ======== ======= ======= ======= Ratio of net investment income to average net assets........................ 10.14% 4.38% 9.39% 10.07% 11.09% 13.73% 14.59% Portfolio turnover.......................... 153% 204% 153% 204% 206 93% 96% Net Assets, end of period (in thousands).... $11,696 $2,344 $160,739 $154,214 $98,560 $72,023 $37,097 (1) Per share information has been calculated using the average number of shares outstanding. (2) Financial highlights, including total return, have not been annualized. Portfolio turnover is for the year ended October 31, 1993. (3) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares.
See Notes to Financial Statements. 9 292 High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series, Inc., is a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Issuer operates as a series fund, currently issuing six series of shares. On May 20, 1994, the shareholders of the Issuer approved changes in the names of the Issuer and each series of the Issuer. These changes became effective on June 15, 1994. Transamerica High Yield Bond Fund (the "Fund"), formerly Transamerica Special High Yield Bond Fund, is one of the series of the Issuer. The Fund made its initial offering of shares to the public on October 26, 1987 and presently offers two classes of shares. Class A Shares are subject to an initial sales charge of up to 4.75% and a 12b-1 distribution plan and Class B Shares are subject to a contingent deferred sales charge and a separate 12b-1 distribution plan. The following is a summary of significant accounting policies consistently followed by the Fund. (1) The Fund values its debt securities at quotations provided by pricing services and market makers. Securities traded on stock exchanges or in the over-the-counter market are valued at the last sale price on the primary exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the mean between the most recent bid and asked prices. Options on interest rate futures are valued based on their daily settlement price. Securities which are not traded on U.S. markets, forward currency contracts, and other assets and liabilities stated in foreign currency are translated into U.S. dollar equivalents based on quoted exchange rates. Securities for which market quotations are not readily available are valued at a fair value as determined in good faith by the Issuer's Board of Directors. Short-term investments are valued at amortized cost (original cost plus amortized discount or accrued interest). (2) The premium paid by the Fund for the purchase of a call or put option is recorded as an investment and subsequently "marked to market" to reflect the current market value of the option purchased. If an option which the Fund has purchased expires on the stipulated expiration date, the Fund realizes a loss in the amount of the cost of the option. If the Fund enters into a closing transaction, it realizes a gain (loss) if the proceeds from the sale are greater (less) than the cost of the option purchased. If the Fund exercises a put option, it realizes a gain or a loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. If the Fund exercises a call option, the cost of the security purchased upon exercise is increased by the premium originally paid. (3) Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Debt discounts are amortized using the straight-line method. Realized gains and losses from security transactions are determined on the basis of identified cost for both financial reporting and federal income tax purposes. (4) Income dividends are declared daily by the Fund and paid or reinvested at net asset value monthly. Other distributions are recorded on the ex-dividend date and may be reinvested at net asset value. Distributions payable to shareholders at October 31, 1994 were $944,207. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to the difference in the treatment of foreign currency gains and losses for tax and financial reporting purposes. (5) As described in the prospectus, the Fund may invest in debt securities that, at the time of purchase, are assigned to the lower rating categories of recognized rating agencies or are unrated by such agencies and therefore, may involve greater credit and/or interest rate risk. (6) No provision for federal income taxes has been made since it is the Fund's intention to distribute all of its taxable income and profits to its shareholders and to comply with the requirements applicable to regulated investment companies and the minimum distribution requirements of the Internal Revenue Code. The Fund's tax year end is December 31. (7) The Fund reports custodian fees net of credits and charges resulting from cash positions in the custodial accounts greater than or less than the amounts required to settle portfolio transactions. For the year ended October 31, 1994, these amounts were $12,355 and $12,820, respectively. (8) On a daily basis, income, unrealized and realized gains and losses, and expenses which are not class specific are allocated to each class based on their respective relative net assets. Class specific expenses, such as distribution expenses, are applied to the class to which they are attributed. 10 293 Transamerica High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) NOTES TO FINANCIAL STATEMENTS Continued NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Fund's management fee is payable monthly to Transamerica Fund Management Company (the "Investment Adviser") and is calculated based on the following schedule: AVERAGE DAILY NET ASSETS ANNUAL RATE ------------- ----------- First $75 million 0.6250% Next $75 million 0.5625% Over $150 million 0.5000% At October 31, 1994, the management fee payable to the Investment Adviser was $85,355. The Investment Adviser provides administrative services to the Fund pursuant to an administrative service agreement. During the year ended October 31, 1994, the Fund paid or accrued $80,593 to the Investment Adviser for these services, of which $7,600 was payable at October 31, 1994. During the year ended October 31, 1994, Transamerica Fund Distributors, Inc. (the "Distributor"), an affiliate of the Investment Adviser, as the principal underwriter, retained $23,651 as its portion of the commissions charged on sales of Class A Shares of the Fund. At October 31, 1994, receivables from and payables to the Distributor for Fund share transactions were $203,184 and $219,596, respectively. The Fund paid no compensation directly to any officer. Certain officers and a director of the Issuer are affiliated with the Investment Adviser. During the year ended October 31, 1994, the Fund paid legal fees of $5,778 to Baker & Botts. A partner with Baker & Botts is an officer of the Issuer. NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES During the year ended October 31, 1994, purchases and sales of securities, other than short-term obligations, aggregated $274,586,475 and $244,745,264, respectively. At October 31, 1994, receivables from and payables to brokers for securities sold and purchased were $510,155 and $926,778, respectively. At October 31, 1994, the identified cost of total investments owned is the same for both financial reporting and federal income tax purposes. At October 31, 1994, the gross unrealized appreciation and gross unrealized depreciation of investments for federal income tax purposes were $1,415,870 and $6,221,143, respectively. NOTE D - PLAN OF DISTRIBUTION Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is authorized under separate distribution plans to finance activities related to the distribution of its Class A and Class B Shares (the "Class A Plan" and the "Class B Plan," respectively). The distribution plans, together with the initial sales charge on Class A Shares and the contingent deferred sales charge on Class B Shares, comply with the regulations covering maximum sales charges assessed by mutual funds distributed through securities dealers that are NASD members. The Class A Plan and the Class B Plan permit each class to make payments to the Distributor up to 0.25% annually of average daily net assets for certain distribution costs such as service fees paid to dealers, production and distribution of prospectuses to prospective investors, services provided to new and existing shareholders and other distribution related activities. During the year ended October 31, 1994, Class A and Class B made payments to the Distributor of $20,179 or 0.25% and $390,708 or 0.25%, respectively, related to these activities. The Class B Plan also permits Class B to reimburse the Distributor up to 0.75% annually of average daily net assets for costs related to compensation paid to securities dealers, in place of an initial sales charge to investors, on the sale of Class B Shares. These costs are based upon a commission payment charge of 5% of the value of Class B Shares sold (excluding shares acquired through reinvestment) reduced by the amount of contingent deferred sales charges (CDSC) that have been received by the Distributor on redemptions of Class B Shares. These costs also include a charge of interest (carrying charge) at an annual rate of 1% over the prevailing prime rate to the extent cumulative commission payment charges, plus any previous carrying charges, less CDSC received by the Distributor, have not been paid in full by the Fund. For the year ended October 31, 1994, Class B reimbursed the Distributor $1,193,281 or 0.75% for such costs. For this period, the Distributor received $387,591 in CDSC. At October 31, 1994 , the balance of unrecovered costs was $6,398,026. At October 31, 1994, Class A had $4,032 and Class B had $180,453 payable to the Distributor pursuant to the above distribution plans. 11 294 Transamerica High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) NOTES TO FINANCIAL STATEMENTS Continued NOTE E - CAPITAL AND RELATED TRANSACTIONS A summary of the capital stock transactions follows:
YEAR ENDED OCTOBER 31, --------------------------------------------------------- 1994 1995(1) -------------------------- ------------------------- SHARES DOLLARS SHARES DOLLARS ---------- ----------- ---------- ------------ Shares sold - Class A 3,865,973 $ 30,826,064 404,922 $ 3,286,368 Shares sold - Class B 10,695,100 84,645,545 12,438,739 98,183,615 Shares issued in reinvestment of distributions - Class A 56,266 435,342 4,681 38,120 Shares issued in reinvestment of distributions - Class B 949,832 7,453,158 716,474 5,674,122 Shares redeemed - Class A (2,612,061) (20,718,136) (124,963) (1,009,795) Shares redeemed - Class B (8,472,714) (67,070,641) (7,681,049) (60,949,808) ---------- ----------- ---------- ------------ Net increase in capital shares outstanding 4,482,396 $ 35,571,332 5,758,804 $ 45,222,622 ========== ============ ========== ============ (1) Class A share transactions are for the period June 30, 1993 to October 31, 1993.
The components of net assets at October 31, 1994, are as follows: Capital paid-in (125,000,000 shares authorized).................................... $186,398,447 Undistributed net investment income................................................ 86,246 Accumulated net realized loss on investments....................................... (9,244,804) Net unrealized depreciation of investments......................................... (4,805,273) ------------ NET ASSETS......................................................................... $172,434,616 ============
12 295 John Hancock High Yield Bond Fund (effective December 22, 1994, John Hancock High Yield Bond Fund) REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors John Hancock High Yield Bond Fund, a series of John Hancock Series, Inc. We have audited the accompanying statement of net assets of John Hancock High Yield Bond Fund (formerly Transamerica High Yield Bond Fund), a series of John Hancock Series, Inc. (formerly Transamerica Series, Inc.), as of October 31, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock High Yield Bond Fund, a series of John Hancock Series, Inc., at October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. Ernst & Young LLP Houston, Texas December 2, 1994, except as to Note F as to which the date is January 25, 1995. 13 296 HIGH YIELD TAX FREE FUND STATEMENT OF NET ASSETS
October 31, 1994 FACE ISSUER AMOUNT VALUE - -------------------------------------------------------------- LONG-TERM MUNICIPAL - ------------------- OBLIGATIONS - 96.50% - ---------------------- CALIFORNIA - 18.75% Adelanto Improvement Agency Revenue Refunding Bonds 5.500% due 12/01/23 .......... $1,250,000 $ 1,037,500 Fontana Special Tax Community Facilities District Bonds 8.500% due 04/01/21 .......... 8,000,000 7,250,000 Fresno Joint Powers Financing Authority Revenue Refunding Bonds 7.350% due 09/02/12 .......... 5,640,000 5,259,300 Metropolitan Water District Waterworks Revenue Bonds 5.000% due 07/01/20 .......... 2,000,000 1,550,000 Pleasanton Joint Powers Financing Authority Revenue Bonds 6.750% due 09/02/17 .......... 3,430,000 3,194,188 San Joaquin Hills Transportation Corridor Agency Toll Road Revenue Bonds 5.000% due 01/01/33 .......... 1,000,000 678,750 6.750% due 01/01/32 .......... 6,600,000 5,956,500 South Orange County Public Financing Authority Special Tax Revenue Bonds 8.130% due 08/15/17 .......... 7,500,000 6,281,250 ----------- 31,207,488 COLORADO - 2.74% Denver City & County Airport Revenue Bonds 7.250% due 11/15/25 .......... 5,000,000 4,568,750 DISTRICT OF COLUMBIA - 0.60% District of Columbia Certificates of Participation 7.300% due 01/01/13 .......... 1,000,000 996,250 FLORIDA - 6.78% Florida Housing Finance Agency Revenue Bonds 8.400% due 10/01/12 .......... 3,300,000 3,279,375 Hillsborough County Aviation Authority Revenue Bonds 8.600% due 01/15/22 .......... 3,900,000 3,495,375 Homestead Industrial Development Revenue Bonds 7.950% due 11/01/18 .......... 2,000,000 1,825,000 Jacksonville Electric Authority Revenue Bonds 5.250% due 10/01/28 .......... 1,000,000 783,750 South Indian River Water Control District Revenue Bonds 7.500% due 11/01/18 .......... 2,000,000 1,905,000 ----------- 11,288,500 GEORGIA - 3.45% Rockdale County Development Authority Solid Waste Disposal Revenue Bonds 7.400% due 01/01/16 .......... 5,000,000 4,787,500 7.500% due 01/01/26 .......... 1,000,000 953,750 ----------- 5,741,250 ILLINOIS - 10.94% Bedford Park Tax Increment Revenue Bonds 9.750% due 03/01/12 .......... 1,000,000 1,016,250
4 297 STATEMENT OF NET ASSETS
Continued FACE ISSUER AMOUNT VALUE - ---------------------------------------------------------- Chicago O'Hare International Airport Special Facility Revenue Bonds 8.850% due 05/01/18 .......... 1,975,000 2,120,656 Du Page County General Obligation Bonds 5.600% due 01/01/21 .......... 5,000,000 4,306,250 Illinois Development Finance Authority Solid Waste Disposal Facility Revenue Bonds 7.875% due 04/01/11 .......... 5,035,000 4,896,538 Illinois Health Facilities Authority Revenue Bonds 9.000% due 10/01/22 .......... 1,500,000 1,453,125 9.500% due 10/01/22 .......... 2,500,000 2,550,000 Round Lake Beach Tax Increment Revenue Refunding Bonds 7.500% due 12/01/13 .......... 2,000,000 1,865,000 ---------- 18,207,819 INDIANA - 0.48% Bluffton Economic Development Revenue Refunding Bonds 7.850% due 08/01/15 .......... 750,000 793,125 IOWA - 0.12% Iowa Finance Authority Health Care Facility Revenue Bonds 9.950% due 07/01/19 .......... 200,000 200,000 KANSAS - 1.15% Prairie Village Revenue Bonds 8.750% due 08/15/23 .......... 2,000,000 1,910,000 KENTUCKY - 3.60% Kenton County Airport Revenue Bonds 7.250% due 02/01/22 .......... 3,800,000 3,491,250 7.800% due 12/01/15 .......... 2,500,000 2,496,875 ---------- 5,988,125 MARYLAND - 2.05% Baltimore County Pollution Control Revenue Refunding Bonds 7.500% due 06/01/15 .......... 1,450,000 1,437,313 7.550% due 06/01/17 .......... 2,000,000 1,982,500 ---------- 3,419,813 MASSACHUSETTS - 3.24% Massachusetts State Industrial Finance Agency Resource Recovery Revenue Bonds 9.000% due 07/01/15 .......... 2,800,000 3,052,000 Massachusetts State Port Authority Special Project Revenue Bonds 10.000% due 03/01/26.......... 2,200,000 2,343,000 ---------- 5,395,000 MICHIGAN - 5.34% Michigan State Highway Truck Line General Obligation Bonds 5.500% due 10/01/21 .......... 4,500,000 3,667,500 Michigan State Hospital Finance Authority Revenue Bonds 7.500% due 11/01/10 .......... 1,455,000 1,373,156 Monroe County Pollution Control Revenue Bonds 10.500% due 12/01/16 ......... 250,000 270,000 Waterford Township Economic Development Corporation Revenue Bonds 8.375% due 07/01/23 .......... 3,500,000 3,583,125 ---------- 8,893,781
5 298 STATEMENT OF NET ASSETS
Continued FACE ISSUER AMOUNT VALUE - ---------------------------------------------------------- MISSOURI - 0.59% Lee's Summit Industrial Development Authority Health Facilities Revenue Bonds 7.125% due 08/15/12 .......... 1,000,000 976,250 NEW YORK - 2.23% Triborough Bridge and Tunnel Authority Revenue Bonds 6.125% due 01/01/21 .......... 4,000,000 3,710,000 OHIO - 3.67% Bedford Hospital Improvement Revenue Bonds 8.500% due 05/15/09 .......... 1,520,000 1,573,200 Cleveland Parking Facilities Revenue Bonds 8.000% due 09/15/12 .......... 1,000,000 1,012,500 Lorain County Project Revenue Bonds 8.625% due 02/01/22 .......... 3,300,000 3,522,750 ---------- 6,108,450 OKLAHOMA - 1.14% Tulsa Municipal Airport Trust Revenue Bonds 7.350% due 12/01/11 .......... 2,000,000 1,902,500 OREGON - 2.48% Western Generation Agency Cogeneration Project Revenue Bonds 7.125% due 01/01/21 .......... 4,300,000 4,122,625 PENNSYLVANIA - 12.34% Cambria County Industrial Development Authority Pollution Control Revenue Refunding Bonds 7.500% due 09/01/15 .......... 1,000,000 986,250 Chester County Industrial Development Authority Revenue Bonds 10.125% due 05/01/19 ......... 200,000 202,500 Montgomery County Higher Education & Health Authority Revenue Bonds 7.500% due 11/01/13 .......... 3,030,000 2,870,925 7.500% due 11/01/14 .......... 1,055,000 998,294 Pennsylvania Convention Center Authority Revenue Bonds 6.000% due 09/01/19 .......... 2,700,000 2,514,375 Pennsylvania Economic Development Financing Authority Resource Recovery Revenue Bonds 6.875% due 01/01/11 .......... 5,800,000 5,256,250 Philadelphia Hospital & Higher Education Facilities Revenue Bonds 8.625% due 07/01/21 .......... 2,300,000 2,251,125 9.000% due 07/01/10 .......... 2,295,000 2,369,587 Philadelphia Industrial Development Revenue Bonds 10.250% due 02/01/18 ......... 290,000 297,250 Philadelphia Municipal Authority Revenue Refunding Bonds 6.300% due 07/15/17 .......... 2,000,000 1,755,000 Scranton-Lackawanna Health & Welfare Authority Revenue Bonds 8.500% due 07/01/20 .......... 1,000,000 1,042,500 ---------- 20,544,056
6 299 STATEMENT OF NET ASSETS
Continued FACE ISSUER AMOUNT VALUE - ---------------------------------------------------------- RHODE ISLAND - 1.32% Providence Redevelopment Agency Certificates of Participation 8.000% due 09/01/24 .......... 2,250,000 2,202,187 SOUTH CAROLINA - 1.13% McCormick County Hospital Facilities Revenue Bonds 10.500% due 03/01/18 ......... 100,000 101,250 Piedmont Municipal Power Agency Revenue Refunding Bonds 5.375% due 01/01/25 .......... 2,155,000 1,775,181 ----------- 1,876,431 TEXAS - 2.25% Houston Housing Finance Corporation Revenue Bonds 9.750% due 09/15/03 .......... 435,000 448,050 Sam Rayburn Municipal Power Agency Power Supply System Revenue Bonds 6.750% due 10/01/14 .......... 3,525,000 3,304,688 ----------- 3,752,738 UTAH - 3.20% Carbon County Solid Waste Disposal Revenue Bonds 7.500% due 07/01/07 .......... 1,500,000 1,417,500 9.000% due 07/01/12 .......... 2,000,000 1,947,500 9.250% due 07/01/18 .......... 1,900,000 1,959,375 ----------- 5,324,375 VIRGINIA - 1.84% Hopewell Industrial Development Authority Resource Recovery Revenue Bonds 8.250% due 05/01/10 .......... 1,000,000 1,021,250 8.250% due 06/01/16 .......... 2,000,000 2,042,500 ----------- 3,063,750 WEST VIRGINIA - 2.18% Marion County Community Solid Waste Disposal Facility Revenue Bonds 7.750% due 12/01/11 .......... 4,000,000 3,625,000 WISCONSIN - 2.89% Wisconsin Public Power Supply System Revenue Refunding Bonds 5.250% due 07/01/21 .......... 6,000,000 4,815,000 ----------- TOTAL LONG-TERM MUNICIPAL OBLIGATIONS (Cost $169,963,949) .......... 160,633,263 SHORT-TERM - ---------- OBLIGATIONS - 3.67% - --------------------- VARIABLE RATE REVENUE - --------------------- BONDS - 3.67% - --------------- ALABAMA - 0.54% Mobile Industrial Development Board Solid Waste Disposal Revenue Bonds 3.400% due 11/02/94 (A) ...... 900,000 902,135 MICHIGAN - 0.12% Michigan State Strategic Fund Pollution Control Revenue Bonds 3.500% due 11/01/94 (A) ...... 200,000 200,496 MISSISSIPPI - 1.99% Jackson County Pollution Control Revenue Refunding Bonds 3.400% due 11/01/94 (A) ...... 200,000 200,448 Jackson County Port Facility Revenue Bonds 3.400% due 11/01/94 (A) ...... 3,100,000 3,106,943 ----------- 3,307,391
7 300 STATEMENT OF NET ASSETS
Continued FACE ISSUER AMOUNT VALUE - ----------------------------------------------------------- TEXAS - 0.48% Southwest Higher Education Authority Revenue Refunding Bonds 3.500% due 11/01/94 (A) .......... 800,000 801,844 WYOMING - 0.54% Lincoln County Pollution Control Revenue Bonds 3.600% due 11/01/94 (A) Series A ........................ 400,000 400,973 Series C ........................ 500,000 501,216 ------------ 902,189 ------------ TOTAL SHORT-TERM OBLIGATIONS (Cost $6,114,055) .................. 6,114,055 ------------ TOTAL INVESTMENTS - 100.17% (Cost $176,078,004) ................ 166,747,318 CASH AND OTHER ASSETS, LESS LIABILITIES - (0.17)% ...... (277,616) ------------ NET ASSETS, at value, equivalent to $8.82 per share for 1,745,448 Class A Shares ($.01 par value) of capital stock outstanding and $8.82 per share for 17,127,143 Class B Shares ($.01 par value) of capital stock outstanding - 100.00% ........... $166,469,702 ============ (A) Interest rate reset date.
See Notes to Financial Statements. 8 301 STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS STATEMENT OF OPERATIONS Year Ended October 31, 1994 INVESTMENT INCOME Interest ..................... $ 10,754,138 EXPENSES Distribution expenses (see Note D)............... $1,423,523 Management fees............... 886,380 Transfer agent fees........... 110,384 Administrative service fees... 88,709 Registration fees............. 59,160 Custodian fees................ 41,081 Audit and legal fees.......... 31,837 Shareholder reports........... 28,865 Directors' fees and expenses.. 25,400 Miscellaneous................. 18,251 2,713,590 ---------- ------------ NET INVESTMENT INCOME...... 8,040,548 REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss on investments................ (1,459,716) Net change in unrealized depreciation of investments................ (14,473,003) ------------ NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS........ (15,932,719) ------------ DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................. (7,892,171) ============
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, ----------------------------- 1994 1993 ------------ ------------ OPERATIONS Net investment income ......... 8,040,548 4,602,260 Net realized gain (loss) on investments ................. (1,459,716) 2,331,358 Net change in unrealized appreciation (depreciation) of investments ................. (14,473,003) 3,971,820 ------------ ------------ Increase (decrease) in net assets resulting from operations .................. (7,892,171) 10,905,438 DISTRIBUTIONS TO SHAREHOLDERS From net investment income - Class A ..................... (369,015) - Class B ..................... (7,671,533) (4,876,985) In excess of net investment income - Class A ..................... (67,471) - Class B ..................... (1,136,918) - From net realized gain on investments - Class B ....... (1,980,359) (929,982) ------------ ------------ Total distributions to shareholders ................ (11,225,296) (5,806,967) CAPITAL SHARE TRANSACTIONS Increase in capital shares outstanding ................ 72,145,259 42,410,147 ------------ ------------ Increase in net assets ........ 53,027,792 47,508,618 NET ASSETS Beginning of year ............. 113,441,910 65,933,292 ------------ ------------ End of year ................... $166,469,702 $113,441,910 ============ ============
See Notes to Financial Statements. 9 302 FINANCIAL HIGHLIGHTS
CLASS A SHARES CLASS B SHARES --------------- --------------------------------------------------------- PERIOD FROM DECEMBER 31, 1993 YEAR ENDED OCTOBER 31, TO OCTOBER 31, --------------------------------------------------------- 1994(1) 1994 1993 1992 1991 1990 --------------- -------- -------- ------- ------- ------- Per share income and capital changes for a share outstanding during each period: Net asset value, beginning of period ............. $ 9.85 $ 9.98 $ 9.39 $ 9.31 $ 9.07 $ 9.29 INCOME FROM INVESTMENT OPERATIONS Net investment income ............................ 0.48 0.48 0.53 0.55 0.54 0.55 Net realized and unrealized gain (loss) on investments ................................ (0.94) (0.90) 0.72 0.17 0.34 (0.14) ------- -------- -------- ------- ------- ------- Total from Investment Operations .............. (0.46) (0.42) 1.25 0.72 0.88 0.41 LESS DISTRIBUTIONS Dividends from net investment income ............. (0.48) (0.48) (0.56) (0.55) (0.54) (0.55) Dividends in excess of net investment income ..... (0.09) (0.07) - - - - Distributions from realized gains ................ - (0.19) (0.10) (0.09) - - Returns of capital ............................... - - - - (0.10) (0.08) ------- -------- -------- ------- ------- ------- Total Distributions ........................... (0.57) (0.74) (0.66) (0.64) (0.64) (0.63) ------- -------- -------- ------- ------- ------- Net asset value, end of period ................... $ 8.82 $ 8.82 $ 9.98 $ 9.39 $ 9.31 $ 9.07 ======= ======== ======== ======= ======= ======= TOTAL RETURN(2) .................................. (4.82)% (4.44)% 13.69% 7.89% 10.07% 4.60% ======= ======== ======== ======= ======= ======= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets .......... 0.96% 1.85% 2.06% 2.17% 2.36% 2.20% Ratio of net investment income to average net assets ........................... 5.08% 5.36% 5.23% 5.78% 5.61% 5.96% Portfolio turnover ............................... 62% 62% 100% 40% 83% 41% Net Assets, end of period (in thousands) ......... $15,401 $151,069 $113,442 $65,933 $51,467 $35,820 (1) Financial highlights, including total return, have not been annualized. Per share information has been calculated using the average number of shares outstanding. Portfolio turnover is for the year ended October 31, 1994. (2) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares.
See Notes to Financial Statements. 10 303 NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series, Inc., is a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Issuer operates as a series fund, currently issuing six series of shares. On May 20, 1994, the shareholders of the Issuer approved changes to the name of the Issuer and to the names of each of the series of the Issuer. These changes became effective on June 15, 1994. Transamerica High Yield Tax-Free Fund (the "Fund"), formerly Transamerica Special High Yield Tax Free Fund, is one of the series of the Issuer. The Fund made its initial offering of shares to the public on August 25, 1986 and subsequently was reorganized as a series of the Issuer and made its initial offering of shares to the public as a Series fund on May 1, 1987. On December 31, 1993, the Fund commenced issuing a second class of shares. The new Class A Shares are subject to an initial sales charge of up to 4.75% and a 12b-1 distribution plan and Class B Shares are subject to a contingent deferred sales charge and a separate 12b-1 distribution plan. The following is a summary of significant accounting policies consistently followed by the Fund. (1) The Fund values its investments by using quotations provided by market makers, estimates of market value, or values received from an independent pricing service. Securities for which market quotations are not readily available are valued at a fair value as determined in good faith by the Issuer's Board of Directors. Short-term investments are valued at amortized cost (original cost plus amortized discount or accrued interest). (2) Security transactions are accounted for on the trade date. Interest income is accrued daily. For financial reporting purposes, debt premiums are amortized using the yield-to-maturity method. Realized gains and losses from security transactions are determined on the basis of identified cost for both financial reporting and federal income tax purposes. (3) Income dividends are declared daily by the Fund and paid or reinvested at net asset value monthly. Other distributions are recorded on the ex-dividend date and may be reinvested at net asset value. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions payable to shareholders at October 31, 1994 were $627,636. (4) As described in the prospectus, the Fund may invest in debt securities that, at the time of purchase are assigned to the medium and lower rating categories of recognized rating agencies or are unrated by such agencies and therefore, may involve greater credit and/or interest rate risks. (5) No provision for federal income taxes has been made since it is the Fund's intention to distribute all of its taxable income and profits to its shareholders and to comply with the requirements applicable to regulated investment companies and the minimum distribution requirements of the Internal Revenue Code. The Fund's tax year end is December 31. (6) The Fund reports custodian fees net of credits and charges resulting from cash positions in the custodial accounts greater than or less than the amounts required to settle portfolio transactions. For the year ended October 31, 1994, these amounts were $5,364 and $6,203, respectively. (7) On a daily basis, income, unrealized and realized gains and losses, and expenses which are not class specific are allocated to each class based on their respective relative net assets. Class specific expenses, such as distribution expenses, are applied to the class to which they are attributed. NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Fund's management fee is payable monthly to Transamerica Fund Management Company (the "Investment Adviser") and is calculated based on the following schedule:
AVERAGE DAILY NET ASSETS ANNUAL RATE ------------------ ----------- First $75 million 0.6250% Next $75 million 0.5625% Over $150 million 0.5000%
At October 31, 1994, the management fee payable to the Investment Adviser was $84,476. The Investment Adviser provides administrative services to the Fund pursuant to an administrative service agreement. During the year ended October 31, 1994, the Fund paid or accrued $60,488 for these services, of which $5,709 was payable at October 31, 1994. During the year ended October 31, 1994, Transamerica Fund Distributors, Inc. (the "Distributor"), an affiliate of the Investment Adviser, as principal underwriter of the Fund, retained $24,453 as its portion of the commissions charged on sales of Class A Shares of the Fund. At October 31, 1994, receivables from and payables to the Distributor for Fund share transactions were $564,579 and $135,220, respectively. 11 304 NOTES TO FINANCIAL STATEMENTS Continued NOTE B (Continued) The Fund paid no compensation directly to any officer. Certain officers and a director of the Issuer are affiliated with the Investment Adviser. During the year ended October 31, 1994, the Fund paid legal fees of $5,114 to Baker & Botts. A partner with Baker & Botts is an officer of the Issuer. NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES During the year ended October 31, 1994, purchases and sales of securities, other than short-term obligations, aggregated $159,571,299 and $88,978,661, respectively. At October 31, 1994, payables to brokers for securities purchased were $2,587,700. At October 31, 1994, the identified cost of total investments owned is the same for both financial reporting and federal income tax purposes. At October 31, 1994, the gross unrealized appreciation and gross unrealized depreciation of investments for federal income tax purposes were $1,064,773 and $10,395,459, respectively. NOTE D - PLAN OF DISTRIBUTION Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is authorized under separate distribution plans to finance activities related to the distribution of its Class A and Class B Shares (the "Class A Plan" and the "Class B Plan," respectively). The distribution plans, together with the initial sales charge on Class A Shares and the contingent deferred sales charge on Class B Shares, comply with the regulations covering maximum sales charges assessed by mutual funds distributed through securities dealers that are NASD members. The Class A Plan and the Class B Plan permit each class to make payments to the Distributor up to 0.25% annually of average daily net assets for certain distribution costs such as service fees paid to dealers, production and distribution of prospectuses to prospective investors, services provided to new and existing shareholders and other distribution related activities. During the period December 31, 1993 to October 31, 1994, Class A made payments to the Distributor of $15,171 or 0.21% related to the above activities. During the year ended October 31, 1994, Class B made payments of $360,232 or 0.25% related to these activities. The Class B Plan also permits Class B to reimburse the Distributor up to 0.75% annually of average daily net assets for costs related to compensation paid to securities dealers, in place of an initial sales charge to investors, on the sale of Class B Shares. These costs are based upon a commission payment charge of 5% of the value of Class B Shares sold (excluding shares acquired through reinvestment) reduced by the amount of contingent deferred sales charges (CDSC) that have been received by the Distributor on redemptions of Class B Shares. These costs also include a charge of interest (carrying charge) at an annual rate of 1% over the prevailing prime rate to the extent cumulative commission payment charges, plus any previous carrying charges, less CDSC received by the Distributor, have not been paid in full by the Fund. For the year ended October 31, 1994, Class B reimbursed the Distributor $1,048,120 or 0.73% for such costs. For the year ended October 31, 1994, the Distributor received $253,265 in CDSC. At October 31, 1994, the balance of unrecovered costs was $6,227,263. At October 31, 1994, Class A had $4,515 and Class B had $205,393 payable to the Distributor pursuant to the above distribution plans. 12 305 NOTES TO FINANCIAL STATEMENTS Continued NOTE E - CAPITAL AND RELATED TRANSACTIONS A summary of the capital stock transactions follows:
YEAR ENDED OCTOBER 31, --------------------------------------------------- 1994(1) 1993 ------------------------ ----------------------- SHARES DOLLARS SHARES DOLLARS ---------- ------------ --------- ----------- Shares sold - Class A ............................................... 1,811,428 $ 16,937,949 - - Shares sold - Class B ............................................... 7,988,008 76,547,531 5,001,644 $48,865,219 Shares issued in reinvestment of distributions - Class A ............ 14,913 136,310 - - Shares issued in reinvestment of distributions - Class B ............ 446,841 4,233,508 280,254 2,731,671 Shares redeemed - Class A ........................................... (80,893) (741,733) - - Shares redeemed - Class B ........................................... (2,671,603) (24,968,306) (937,111) (9,186,743) ---------- ------------ --------- ----------- Net increase in capital shares outstanding ............................ 7,508,694 $ 72,145,259 4,344,787 $42,410,147 ========== ============ ========= =========== (1) Class A share transactions are for the period December 31, 1993 to October 31, 1994. The components of net assets at October 31, 1994, are as follows: Capital paid-in (125,000,000 shares authorized).............................................................. $177,720,082 Accumulated net realized loss on investments................................................................. (1,919,694) Net unrealized depreciation of investments................................................................... (9,330,686) ------------ NET ASSETS................................................................................................... $166,469,702 ============
13 306 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors John Hancock High Yield Tax-Free Fund, a series of John Hancock Series, Inc. We have audited the accompanying statement of net assets of John Hancock High Yield Tax-Free Fund (formerly Transamerica High Yield Tax Free Fund), a series of John Hancock Series, Inc. (formerly Transamerica Series, Inc.), as of October 31, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock High Yield Tax-Free Fund, a series of John Hancock Series, Inc., at October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Houston, Texas December 2, 1994, 14 307 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS October 31, 1994
COMPANY SHARES VALUE - ---------------------------------------------------------------- COMMON STOCKS - 98.34% COMPUTERS & OFFICE EQUIPMENT - 15.69% Adaptec Inc.* ...................... 110,000 $2,557,500 Adobe Systems Inc. ................. 75,000 2,700,000 Amtech Corp. ....................... 4,375 43,750 Ascend Communications Inc.* ........ 39,700 1,290,250 Auspex Systems Inc.* ............... 5,000 36,875 Autodesk, Inc. ..................... 29,000 1,000,500 BMC Software Inc.* ................. 2,000 90,500 Banyan Systems Inc.* ............... 60,000 1,035,000 Blyth Industries Inc.* ............. 15,000 345,000 Brock Control Systems Inc.* ........ 2,500 24,375 Broderbund Software Inc.* .......... 10,000 640,000 C-Cube Microsystems, Inc.* ......... 15,000 322,500 Cadence Design Systems, Inc.* ...... 75,029 1,500,580 Cheyenne Software Inc.* ............ 2,000 22,250 Compuware Corp.* ................... 26,600 1,040,725 Concord EFS Inc.* .................. 4,500 110,250 Continuum Inc.* .................... 65,000 1,746,875 Cornerstone Imaging Inc.* .......... 7,000 106,750 Corporate Express Inc.* ............ 5,000 112,500 Dataware Technologies Inc.* ........ 3,000 39,000 Dell Computer Corp.* ............... 55,000 2,447,500 Electronic Arts Inc.* .............. 15,000 337,500 FileNet Corp.* ..................... 7,000 178,500 Franklin Electronic Publishers Inc.* ............................ 9,500 176,938 Franklin Quest Co.* ................ 36,000 1,273,500 GaSonics International Corp.* ...... 18,000 364,500 Gateway 2000 Inc.* ................. 110,000 2,578,125 Global Village Communications, Inc.* ............................ 2,000 18,000 Hogan Systems, Inc. ................ 230,000 1,437,500 IMRS Inc.* ......................... 48,500 1,927,875 Informix Corp.* .................... 130,000 3,575,000 InfoSoft International, Inc.* ...... 5,000 173,750 International Imaging Materials Inc.* .................. 22,500 562,500 Kronos Inc.* ....................... 21,500 489,125 Learning Co.* ...................... 15,000 356,250 LEGENT Corp.* ...................... 50,000 1,425,000 Madge N.V.* ........................ 160,000 1,740,000 MapInfo Corp.* ..................... 6,000 129,000 Mercury Interactive Corp.* ......... 95,000 1,401,250 Minnesota Educational Computing Corp.* ................. 5,000 77,500 NetManage Inc.* .................... 6,000 172,500 Network General Corp.* ............. 100,000 2,162,500 Norand Corp.* ...................... 2,500 98,125 OPTi Inc.* ......................... 120,000 1,740,000 PeopleSoft Inc.* ................... 30,000 1,860,000 Platinum Technology Inc.* .......... 85,000 1,880,625 Printronix, Inc.* .................. 40,000 840,000 Progress Software Corp.* ........... 21,000 653,625 Project Software & Development Inc.* ................ 25,000 400,000 Quantum Corp.* ..................... 50,000 768,750 QuickResponse Services Inc.* ....... 6,000 97,500 Quickturn Design System Inc.* ...... 1,500 16,500 Read-Rite Corp.* ................... 51,000 886,125 SPSS Inc.* ......................... 70,000 953,750 Seagate Technology Inc.* ........... 40,000 1,015,000 Software Spectrum, Inc.* ........... 5,000 63,125 Sterling Software, Inc.* ........... 105,000 3,281,250 Structural Dynamics Research Corp.* .................. 2,000 9,750 SyBase Inc.* ....................... 56,000 2,933,000 Symantec Corp.* .................... 14,000 248,500 Tech Data Corp.* ................... 8,000 158,000 3COM Corp.* ........................ 150,000 6,037,500 Viewlogic Systems Inc.* ............ 32,500 715,000 Wall Data Inc.* .................... 8,000 290,000 Wonderware Corp.* .................. 20,000 498,750
8 308 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS Continued
COMPANY SHARES VALUE - ---------------------------------------------------------------- Zebra Technologies Corp. Class A* . . . 2,200 88,550 Zilog, Inc.* . . . . . . . . . . . . . 60,000 1,725,000 ---------- 65,027,918 CONSUMER CYCLICALS - 14.23% AnnTaylor Stores Corp.* . . . . . . . . 67,000 2,780,500 Arbor Drugs, Inc. . . . . . . . . . . . 6,000 127,500 Ashworth Inc.* . . . . . . . . . . . . 25,000 262,500 Bed Bath & Beyond Inc.* . . . . . . . . 60,000 1,770,000 Best Buy Co., Inc.* . . . . . . . . . . 95,000 3,586,250 Big B Inc. . . . . . . . . . . . . . . 10,000 123,750 Brookstone Inc.* . . . . . . . . . . . 144,500 2,167,500 CUC International, Inc.* . . . . . . . 20,000 642,500 Campo Electronics, Appliances & Computers Inc.* . . . . . . . . . . 155,000 1,879,375 Cash America International Inc. . . . . 35,000 288,750 Catherine's Stores Corp.* . . . . . . . 37,500 318,750 Cato Corp. Class A . . . . . . . . . . 100,000 937,500 Chic by H.I.S. Inc.* . . . . . . . . . 29,000 311,750 Claire's Stores Inc. . . . . . . . . . 4,000 46,500 Clayton Homes Inc.* . . . . . . . . . . 90,037 1,631,920 Coleman Company Inc.* . . . . . . . . . 5,000 173,125 Consolidated Stores Corp.* . . . . . . 24,000 435,000 Copart Inc.* . . . . . . . . . . . . . 50,000 931,250 Cygne Designs Inc.* . . . . . . . . . . 38,000 489,250 Cyrk Inc.* . . . . . . . . . . . . . . 45,000 1,755,000 Decker's Outdoor Corp.* . . . . . . . . 10,000 152,500 Department 56 Inc.* . . . . . . . . . . 20,000 732,500 Detroit Diesel Corp.* . . . . . . . . . 20,000 495,000 Discount Auto Parts, Inc.* . . . . . . 40,000 610,000 Duracraft Corp.* . . . . . . . . . . . 9,000 335,250 Edelbrock Corp.* . . . . . . . . . . . 10,000 127,500 Ellett Brothers Inc. . . . . . . . . . 81,000 1,255,500 Ethan Allen Interiors Inc.* . . . . . . 41,000 1,004,500 Federated Dept. Stores, Inc.* . . . . . 90,000 1,867,500 Fingerhut Cos., Inc. . . . . . . . . . 16,000 260,000 First Alert Inc.* . . . . . . . . . . . 70,000 1,487,500 Fossil Inc.* . . . . . . . . . . . . . 15,000 412,500 Friedmans, Inc. Class A* . . . . . . . 10,000 162,500 FunCo Inc.* . . . . . . . . . . . . . . 20,000 355,000 General Nutrition Cos., Inc.* . . . . . 2,000 51,000 Gymboree Corp.* . . . . . . . . . . . . 22,000 715,000 Haggar Corp. . . . . . . . . . . . . . 8,000 192,000 Home Theater Products International Inc.* . . . . . . . . . 165,000 979,688 Just For Feet Inc.* . . . . . . . . . . 2,500 73,750 Koala Corp.* . . . . . . . . . . . . . 35,000 271,250 Little Switzerland Inc.* . . . . . . . 115,000 618,125 Manufactured Home Communities Inc. . . 40,000 745,000 Men's Wearhouse Inc.* . . . . . . . . . 12,750 312,375 Michael's Stores Inc.* . . . . . . . . 74,000 3,001,625 NCI Building Systems Inc.* . . . . . . 15,000 281,250 Nautica Enterprises Inc.* . . . . . . . 35,000 1,015,000 Nine West Group Inc.* . . . . . . . . . 75,000 2,109,375 Oakwood Homes Corp. . . . . . . . . . . 80,000 1,900,000 Oasis Residential Inc. . . . . . . . . 20,000 467,500 Office Depot, Inc.* . . . . . . . . . . 35,009 866,473 Pep Boys-Manny, Moe & Jack . . . . . . 10,000 357,500 Perrigo Co.* . . . . . . . . . . . . . 20,000 270,000 PETsMART Inc.* . . . . . . . . . . . . 8,000 295,000 Pier 1 Imports Inc. . . . . . . . . . . 115,000 891,250 ROC Communities Inc. . . . . . . . . . 25,000 500,000 Redman Industries Inc.* . . . . . . . . 165,000 2,825,625 St. John Knits Inc. . . . . . . . . . . 5,000 152,500 Schuler Homes Inc.* . . . . . . . . . . 5,000 80,000 Sears Roebuck D'Mexico S.A. ADS* . . . 25,000 586,250 Spiegel, Inc. Class A . . . . . . . . . 25,000 371,875 Sportmart Inc.* . . . . . . . . . . . . 2,500 38,125 Sportmart Inc. Class A* . . . . . . . . 2,500 33,750 Sports & Recreation Inc.* . . . . . . . 60,000 1,695,000 Stein Mart Inc.* . . . . . . . . . . . 54,250 962,937 Sunglass Hut International Inc.* . . . 51,000 2,126,063 Talbots, Inc. . . . . . . . . . . . . . 50,000 1,737,500
9 309 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS Continued
COMPANY SHARES VALUE - ---------------------------------------------------------------- Tandy Brands Accessories Inc.* . . . . 6,750 92,813 Tanger Factory Outlet Centers Inc. . . 18,000 405,000 Tiffany & Co. . . . . . . . . . . . . . 28,500 1,111,500 Urban Outfitters, Inc.* . . . . . . . . 18,000 544,500 Zale Corp.* . . . . . . . . . . . . . . 30,000 378,750 ---------- 58,971,769 CONSUMER GOODS & SERVICES - 8.49% APS Holding Corp. Class A* . . . . . . 10,000 295,000 America Online Inc.* . . . . . . . . . 2,700 191,025 American Business Information Inc.* . . 5,000 86,875 Apple South Inc. . . . . . . . . . . . 77,062 1,252,257 Applebee's International, Inc. . . . . 25,000 459,375 Au Bon Pain Inc. Class A* . . . . . . . 15,000 292,500 Brinker International, Inc.* . . . . . 42,579 984,639 Catalina Marketing Corp.* . . . . . . . 27,000 1,373,625 Chart House Enterprises* . . . . . . . 50,000 468,750 DF&R Restaurants Inc.* . . . . . . . . 25,000 703,125 Dr. Pepper/Seven-Up Cos., Inc.* . . . . 40,000 1,015,000 Dreyer's Grand Ice Cream Inc. . . . . . 11,000 280,500 Eckerd (Jack) Corp.* . . . . . . . . . 60,000 1,860,000 El Chico Restaurants Inc.* . . . . . . 120,000 1,545,000 Equity Inns, Inc. . . . . . . . . . . . 30,000 315,000 Fresh Choice Inc.* . . . . . . . . . . 10,000 185,000 Good Times Restaurants Inc.* . . . . . 120,000 185,628 Hi-Lo Automotive, Inc.* . . . . . . . . 25,600 288,000 HomeTown Buffet, Inc.* . . . . . . . . 46,500 534,750 Host Marriott Corp. . . . . . . . . . . 10,000 106,250 IHOP Corp.* . . . . . . . . . . . . . . 130,000 3,607,500 INBRAND Corp.* . . . . . . . . . . . . 10,500 149,625 Interim Services Inc.* . . . . . . . . 15,000 371,250 J & J Snack Foods Corp.* . . . . . . . 15,000 174,375 Landry's Seafood Restaurants Inc.* . . 40,000 1,200,000 Lands' End Inc. . . . . . . . . . . . . 32,000 592,000 Lone Star Steakhouse & Saloon Inc.* . . 13,500 345,937 Marcus Corp. . . . . . . . . . . . . . 25,000 656,250 Marriott International Inc. 10,000 292,500 Maybelline Inc. . . . . . . . . . . . . 50,006 906,359 National Convenience Stores, Inc.* . . 10,000 77,500 Outback Steakhouse Inc.* . . . . . . . 105,000 3,241,875 Panamerican Beverages Inc. Class A . . 25,000 862,500 Papa Johns International Inc. . . . . . 2,500 80,000 Playtex Products Inc.* . . . . . . . . 100,000 912,500 Protection One Inc.* . . . . . . . . . 100,000 612,500 Quality Dining, Inc.* . . . . . . . . . 31,000 418,500 Service Corporation International . . . 50,000 1,331,250 Snapple Beverage Corp.* . . . . . . . . 1,000 14,000 Sonic Corp.* . . . . . . . . . . . . . 43,000 817,000 Spaghetti Warehouse, Inc.* . . . . . . 10,000 61,250 Staples, Inc.* . . . . . . . . . . . . 36,000 828,000 Starbucks Corp.* . . . . . . . . . . . 1,600 43,400 Stewart Enterprises, Inc. Class A . . . 32,250 778,031 Strouds Inc.* . . . . . . . . . . . . . 10,000 126,250 Sylvan Learning Systems, Inc.* . . . . 5,600 100,800 TRC Companies* . . . . . . . . . . . . 30,000 300,000 U.S. Delivery Systems Inc.* . . . . . . 14,000 218,750 Wall Street Deli Inc.* . . . . . . . . 7,500 90,000 Wendy's International, Inc. . . . . . . 130,000 1,917,500 Whole Foods Market Inc.* . . . . . . . 80,000 1,240,000 Williams-Sonoma Inc.* . . . . . . . . . 12,000 414,000 ---------- 35,203,701 ENERGY - 6.74% Anadarko Petroleum Corp. . . . . . . . 12,500 610,938 Apache Corp. . . . . . . . . . . . . . 74,000 2,081,250 B.J. Services Co.* . . . . . . . . . . 14,500 295,437 Baker Hughes Inc. . . . . . . . . . . . 25,000 512,500 Barrett Resources Corp.* . . . . . . . 12,500 248,438 Basin Exploration Inc.* . . . . . . . . 35,000 437,500
10 310 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS Continued
COMPANY SHARES VALUE - --------------------------------------------------------------- Brown (Tom) Inc.*................... 115,000 1,473,437 Cabot Oil & Gas Corp. Class A .......................... 85,000 1,572,500 Cairn Energy USA Inc.*.............. 50,000 387,500 Cross Timbers Oil Co. .............. 23,300 372,800 Energy Services Co., Inc.*.......... 22,500 326,250 Enron Oil & Gas Co. ................ 65,000 1,438,125 Geoworks*........................... 60,000 525,000 Hornbeck Offshore Services Inc.*.................... 70,000 1,050,000 Hugoton Energy Corp.*............... 25,000 275,000 Landmark Graphics Corp.*............ 22,500 461,250 Mitchell Energy & Development Corp. Class B .......................... 30,000 540,000 Newfield Exploration Co.*........... 73,000 1,761,125 Noble Affiliates, Inc. ............. 80,000 2,400,000 Nuevo Energy Co.*................... 91,300 2,042,838 Oceaneering International Inc.*............... 18,000 231,750 Offshore Logistics Inc.*............ 11,500 150,938 Offshore Pipelines Inc.*............ 62,500 1,273,438 Parker & Parsley Petroleum Co. .................... 55,000 1,375,000 PetroCorp Inc.*..................... 20,000 220,000 Pogo Producing Co. ................. 75,000 1,678,125 San Juan Basin Royalty Trust ....... 65,800 501,725 Smith International, Inc.*.......... 50,000 837,500 Snyder Oil Corp. ................... 19,000 327,750 Stone Energy Corp.*................. 20,000 357,500 Tidewater, Inc. .................... 20,000 457,500 Tuboscope Vetco International Corp.*.............. 25,000 159,375 Weatherford International Inc.*............... 135,000 1,535,625 ---------- 27,918,114 FINANCIAL SERVICES - 11.37% ACE Limited ........................ 50,000 1,137,500 ADVANTA Corp. Class A .............. 7,500 213,750 ADVANTA Corp. Class B .............. 6,750 177,187 Alex Brown, Inc. ................... 6,500 179,563 Alliance Capital Management, L.P. ................ 110,000 2,310,000 American RE Corp.*.................. 39,000 1,145,625 Avalon Properties, Inc. ............ 20,000 390,000 Bay Apartment Community, Inc. .................. 20,000 390,000 Beacon Properties Corp. ............ 10,000 188,750 Bear Stearns Cos., Inc. ............ 4,663 75,774 Berkley (W.R.) Corp. ............... 10,000 362,500 Blanch (E.W.) Holdings Inc. ........ 10,000 203,750 CCP Insurance Inc. ................. 10,000 155,000 CFI ProServices Inc.*............... 25,000 345,312 CMAC Investment Corp. .............. 24,400 671,000 Camden Property Trust SBI .......... 30,000 637,500 Capital Guaranty Corp. ............. 30,000 453,750 Capital RE Corp. ................... 30,000 660,000 Chateau Properties, Inc. ........... 15,300 306,000 Concord Holding Corp.*.............. 15,000 127,500 Cresent Real Estate Equities Inc. .................... 20,300 548,100 Eaton Vance Corp. .................. 13,000 411,125 Enhance Financial Services Group, Inc. ...................... 30,000 543,750 Equifax, Inc. ...................... 41,500 1,208,688 Equity Residential Properties Trust SBI ........................ 20,000 597,500 Europe Fund Inc. ................... 60,000 720,000 Evan Withycombe Residential Inc. ................. 5,000 98,750 Exel Limited ....................... 10,500 413,438 Factory Stores of America Inc. ..................... 30,000 622,500 First Colony Corp. ................ 10,000 200,000 First Financial Management Corp. ................. 11,000 616,000 First Industrial Realty Trust Inc.*....................... 10,000 195,000 Franklin Resources, Inc. ........... 32,000 1,308,000
11 311 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS Continued
COMPANY SHARES VALUE - ----------------------------------------------------------------- Gables Residential Trust SBI ...... 25,000 537,500 Gallagher (Arthur J.) & Co. ....... 10,000 327,500 Guaranty National Corp. ........... 35,000 586,250 HCC Insurance Holdings Inc.* ...... 22,000 437,250 Hibernia Corp. Class A ............ 15,000 120,000 Highwoods Properties Inc.* ........ 5,000 103,125 Hilb, Rogal & Hamilton Co. ........ 53,000 629,375 Horace Mann Educators Corp. ....... 50,000 1,081,250 Horizon Outlet Centers, Inc. ...... 17,500 411,250 Insignia Financial Group Inc. Class A* ........................ 25,000 493,750 Insurance Auto Auctions Inc.* ..... 29,500 951,375 KBK Capital Corp.* ................ 133,000 897,750 Latin America Equity Fund Inc. .... 18,000 418,500 Liberty Property Trust SBI* ....... 10,000 190,000 Life Partners Group Inc. .......... 65,000 1,413,750 Life RE Co. ....................... 12,500 228,125 MBIA, Inc. ........................ 23,000 1,244,875 MBNA Corp. ........................ 15,000 401,250 Mercer International Inc. SBI* .... 50,000 731,250 Mexico Fund Inc. .................. 45,016 1,412,377 Mid-America Apartment Communities, Inc. ............... 25,400 631,825 Mid Ocean Ltd.* ................... 10,000 240,000 NAC Re Corp. ...................... 30,050 777,544 National Golf Properties Inc. ..... 15,000 300,000 National RE Corp. ................. 48,000 1,176,000 Oppenheimer Capital, L.P. ......... 50,000 1,106,250 PXRE Corp. ........................ 15,000 369,375 PartnerRe Holdings Ltd. ........... 60,000 1,215,000 Paul Revere Corp. (The) ........... 30,000 442,500 Philadelphia Consolidated Holding Corp.* ................. 75,000 1,012,500 Policy Management Systems Corp.* .................. 2,300 108,100 Post Properties Inc. .............. 11,100 326,062 Price, T. Rowe & Associates, Inc. ................ 56,000 1,918,000 Property Trust America SBI ........ 20,000 322,500 Prophet 21 Inc.* .................. 40,000 240,000 RFS Hotel Investors Inc. .......... 10,000 155,000 Raymond James Financial, Inc. ..... 84,750 1,271,250 Regency Realty Corp. .............. 70,300 1,116,013 SEI Corp. ......................... 18,000 378,000 Security Capital Industrial Trust SBI ....................... 15,000 228,750 Storage USA Inc. .................. 10,400 261,300 SunAmerica Inc. ................... 7,000 272,125 Texas Regional Bancshares Inc. Class A ......................... 5,000 61,250 Transatlantic Holdings Inc. ....... 17,000 864,875 Transnational Re Corp. Class A* ........................ 1,000 19,750 UNUM Corp. ........................ 27,500 1,261,562 Vornado Realty Trust .............. 25,000 787,500 Winston Hotels Inc. ............... 5,300 51,675 ----------- 47,144,520 HEALTH CARE - 11.45% ALZA Corp.* ....................... 14,600 259,150 Abbey Healthcare Group Inc.* ...... 60,000 1,335,000 Apogee Inc.* ...................... 5,000 83,750 Applied Bioscience International Inc.* ............. 40,000 220,000 Arbor Health Care Co.* ............ 3,000 63,000 Benson Eyecare Corp.* ............. 20,000 142,500 Beverly Enterprises Inc.* ......... 25,000 378,125 Bioject Medical Technologies Inc.* .............. 20,000 61,250 Bollinger Industries, Inc.* ....... 90,000 1,260,000 Cardinal Health Inc. .............. 3,750 175,312 Caremark International Inc. ....... 70,000 1,522,500 Centocor, Inc.* ................... 29,000 512,938 Cerner Corp.* ..................... 20,000 815,000
12 312 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS Continued
COMPANY SHARES VALUE - --------------------------------------------------------------- Chiron Corp.* ....................... 5,000 336,875 Chronimed Inc.* ..................... 69,000 862,500 Cor Therapeutics Inc.*............... 10,000 130,000 Cordis Corp.* ....................... 28,000 1,613,500 CorVel Corp.* ....................... 20,000 435,000 Diagnostek Inc.*..................... 80,000 1,260,000 Elan Corp. PLC-ADR* ................. 5,250 193,594 Express Scripts Inc. Class A* .......................... 25,000 843,750 Forest Laboratories Inc.*............ 10,000 460,000 Genzyme Corp.* ...................... 1,000 32,750 GranCare Inc.* ...................... 20,000 310,000 Gulf South Medical Supply, Inc.* ..................... 10,000 315,000 Haemonetics Corp.* .................. 15,000 300,000 Health Care & Retirement Corp.*.................. 57,100 1,534,563 Health Management Assoc., Inc. Class A* .......................... 16,875 438,750 Health Management Systems Inc.* ..................... 20,000 567,500 Heart Technology Inc.*............... 1,000 23,875 Horizon Healthcare Corp.* ........... 85,000 2,348,125 IVAX Corp. .......................... 22,000 420,750 Integrated Health Services Inc.* .................... 2,000 81,500 Isolyser Co., Inc.* ................. 700 13,475 KLA Instruments Corp.* .............. 15,000 791,250 Living Centers of America Inc.* ..................... 41,500 1,250,187 Manor Care, Inc. .................... 37,500 1,031,250 Mariner Health Group Inc.* .......... 43,500 984,188 Maxicare Health Plans Inc.* ......... 125,000 1,953,125 MAXXIM Medical Inc.* ................ 30,000 390,000 Medtronic, Inc....................... 26,000 1,355,250 Multicare Cos., Inc.* ............... 50,000 1,031,250 Mylan Labs Inc....................... 85,000 2,380,000 North American Vaccine Inc.* ..................... 25,000 275,000 NovaCare Inc.* ...................... 65,200 652,000 Orphan Medical Inc.* ................ 6,900 30,187 Oxford Health Plans Inc.* ........... 5,000 410,000 PacifiCare Health System, Inc.* .................... 5,000 372,500 Patterson Dental Inc.* .............. 28,500 541,500 PhyCor Inc.* ........................ 3,500 119,875 Physicians Health Services Inc. Class A* .......................... 7,500 193,125 Pyxis Corp.* ........................ 60,000 1,155,000 Quantum Health Resources Inc.*.................... 7,000 257,250 REN Corp.-USA* ...................... 10,000 125,000 Renal Treatment Centers Inc.*...................... 15,000 288,750 Rite-Aid Corp. 50,000 1,200,000 Rotech Medical Corp.* ............... 36,000 936,000 Rural/Metro Corp.* .................. 15,000 315,000 Scherer (R.P.) Corp.*................ 22,000 981,750 SciMed Life Systems Inc.*............ 3,500 167,125 Sierra Health Services Inc.*......... 35,000 1,137,500 Steris Corp.* ....................... 14,000 390,250 Stryker Corp. ....................... 6,100 208,925 Summit Care Corp.* .................. 40,000 635,000 Surgical Care Affiliates, Inc........ 31,000 608,375 Syncor International Corp.*.......... 1,500 12,562 Target Therapeutics Inc.* ........... 8,500 269,875 Tecnol Medical Products, Inc.* ................... 62,500 1,000,000 TheraTx Inc.* ....................... 50,000 931,250 Vencor Inc.* ........................ 8,437 252,070 Ventritex Inc.* ..................... 33,300 865,800 Vivra Inc.* ......................... 65,000 1,836,250 Watson Pharmaceuticals Inc.*......... 30,000 789,375 ---------- 47,473,826 INDUSTRIAL - 5.99% Acordia Inc.......................... 15,000 423,750 Alantec Corp.* ...................... 7,500 135,000 Applied Materials Inc.*.............. 55,000 2,860,000
13 313 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS Continued
COMPANY SHARES VALUE - --------------------------------------------------------------- Biomedical Waste System, Inc.*......... 175,000 273,438 BioWhittaker, Inc. .................... 73,000 520,125 Birmingham Steel Corp.................. 15,000 388,125 Coastcast Corp.*....................... 5,000 93,125 Cognex Corp.* ......................... 42,000 1,029,000 Collins & Aikman Corp.*................ 50,000 443,750 Deflecta-Shield Corp.* ................ 5,000 47,500 Digital Biometrics, Inc.*.............. 11,000 82,500 GNI Group, Inc.*....................... 125,000 609,375 GTECH Holdings Corp.*.................. 10,000 197,500 Hayes Wheels International Inc......... 80,000 1,880,000 Huaneng Power International Inc. ADS* 75,000 1,387,500 IMCO Recycling Inc.* .................. 48,500 703,250 Intergold Ltd.*........................ 100,000 277,000 Johnstown America Industries Inc.*..... 15,000 296,250 Landair Services, Inc.*................ 1,300 27,625 Mallinckrodt Group, Inc................ 6,000 182,250 Measurex Corp.......................... 10,500 227,062 Olympic Steel Inc.*.................... 75,000 1,106,250 Pall Corp.............................. 6,666 120,821 Parametric Technology Corp.*........... 70,000 2,520,000 Revco D.S. Inc.*....................... 127,454 2,851,783 Stant Corp............................. 66,000 750,750 Stewart & Stevenson Services Inc....... 35,000 1,347,500 Tetra Tech, Inc.*...................... 12,500 237,500 Triconex Corp.*........................ 88,800 1,332,000 Wausau Paper Mills Co.................. 21,777 500,871 Webco Industries Inc.*................. 10,000 77,500 Wheelabrator Technologies, Inc......... 100,000 1,387,500 Willamette Industries Inc.............. 11,000 511,500 ---------- 24,828,100 MEDIA & LEISURE - 4.79% Acclaim Entertainment, Inc.*........... 60,000 1,042,500 Aldila Inc.*........................... 2,000 26,000 American Classic Voyager Co............ 10,000 175,000 American Recreation Co. Holdings, Inc.* 25,000 193,750 Bally Gaming International Inc.*....... 20,000 227,500 Barnes & Noble Inc.*................... 11,000 312,125 Callaway Golf Co....................... 26,000 994,500 Circus Circus Enterprises Inc.*........ 5,050 112,362 Clear Channel Communications Inc.*..... 30,075 1,515,028 Cobra Golf Inc.*....................... 32,000 1,192,000 DSC Communications, Corp.*............. 7,500 230,625 Doubletree Corp.*...................... 2,500 51,875 E-Z Communications Inc. Class A*....... 10,000 130,000 Gaylord Entertainment Co. Class A...... 26,000 510,250 Grupo Radio Centro S.A. ADS............ 25,000 421,875 Hollywood Entertainment Corp.*......... 7,500 240,000 Integrity Music Inc. Class A* ......... 110,000 1,127,500 LodgeNet Entertainment Corp.* ......... 5,000 36,250 Marvel Entertainment Group Inc.*....... 9,198 167,864 Mecklermedia Corp.*.................... 60,000 315,000 NFO Research Inc.*..................... 30,000 517,500 Players International Inc.*............ 100,000 2,250,000 Primadonna Resorts Inc.*............... 41,000 1,301,750 Radica Games Ltd.*..................... 20,000 113,750
14 314 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS Continued
COMPANY SHARES VALUE - -------------------------------------------------------------------------- Reader's Digest Association Inc. Class A...... 20,000 877,500 Royal Caribbean Cruises Ltd. ................. 40,000 1,190,000 SFX Broadcasting Inc. Class A*................ 40,000 680,000 Scholastic Corp.*............................. 32,500 1,482,812 Sodak Gaming Inc.*............................ 41,500 575,813 StarSight Telecast Inc.*...................... 3,000 33,750 Station Casinos Inc.*......................... 65,000 845,000 United International Holdings Inc. Class A*... 6,400 100,800 West Marine, Inc.*............................ 40,000 880,000 ---------- 19,870,679 TECHNOLOGY-RELATED - 11.92% Aspen Technology Inc.*........................ 5,000 85,000 Asyst Technologies Inc.*...................... 15,000 251,250 Atmel Corp.*.................................. 60,000 2,212,500 BancTec, Inc.*................................ 55,000 1,100,000 Bay Networks Inc.*............................ 50,000 1,265,625 Cirrus Logic Inc.*............................ 40,000 1,150,000 Credence Systems Corp.*....................... 120,000 3,060,000 EPIC Design Technology Inc.*.................. 500 11,062 Electroglas Inc.*............................. 111,000 4,412,250 Exar Corp.*................................... 96,000 2,016,000 Frame Technology Corp.*....................... 2,500 36,250 Indigo N.V.*.................................. 65,000 1,088,750 Integrated Circuit Systems Inc.*.............. 42,500 425,000 LAM Research Corp.*........................... 100,000 4,500,000 Level One Communications Inc.*................ 4,500 81,000 Loronix Information Systems Inc.*............. 255,000 1,593,750 Mattson Technology Inc.*...................... 2,000 42,000 Maxim Integrated Products Inc.*............... 27,000 1,809,000 Megatest Corp.*............................... 120,000 1,800,000 Micron Technology Inc. ....................... 85,000 3,368,125 Micropolis*................................... 96,500 772,000 Novellus Systems, Inc.*....................... 70,000 3,815,000 PRI Automation Inc.*.......................... 10,000 152,500 Radius, Inc.*................................. 2,500 24,375 Sensormatic Electronics Corp. ................ 2,250 84,656 7th Level Inc.*............................... 40,000 410,000 Sierra On-Line Inc.*.......................... 25,000 600,000 Softdesk Inc.*................................ 35,000 695,625 S3 Inc.*...................................... 15,000 212,812 Tektronix, Inc. .............................. 2,000 76,000 Tencor Instruments*........................... 120,000 5,280,000 Teradyne Inc.*................................ 115,000 3,780,625 Ultratech Stepper Inc.*....................... 15,000 588,750 Varian Associates, Inc. ...................... 18,000 666,000 Western Digital Corp.*........................ 25,000 425,000 Xilinx Inc.*.................................. 25,900 1,505,438 ---------- 49,396,343 TELECOMMUNICATIONS - 5.75% ACC Corp. .................................... 12,000 201,000 ALC Communications Corp.*..................... 10,000 378,750 Adflex Solutions Inc.*........................ 10,000 200,000 ANTEC Corp.*.................................. 1,000 28,500 Applied Digital Access Inc.*.................. 5,000 123,750 BroadBand Technologies Inc.*.................. 15,000 388,125 Cabletron Systems, Inc.*...................... 17,500 879,375 Centigram Communications Corp.*............... 2,000 38,000 Chipcom Corp.*................................ 3,000 180,750 CIDCO Inc.*................................... 15,200 465,500 Communications Center, Inc.*.................. 15,000 225,000 DigiDesign Inc.*.............................. 1,000 28,500 General Instrument Corp.*..................... 16,000 536,000 Gilat Satellite Networks Ltd.*................ 2,500 35,625
15 315 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS Continued
COMPANY SHARES VALUE - ------------------------------------------------------------------ Harte-Hanks Communications Inc.*............... 50,000 956,250 Heftel Broadcasting Corp. Class A*..................... 125,000 1,796,875 IDB Communications Group Inc.*........................ 135,075 1,249,444 International Cabletel Inc.*......... 20,000 620,000 LDDS Communications, Inc.*........... 63,582 1,494,177 MFS Communications Co., Inc.*......................... 11,200 414,400 Metrocall Inc.*...................... 41,000 686,750 Mobile Telecommunications Technologies Corp.*................ 30,000 596,250 Octel Communications Corp.*.......... 20,000 432,500 Paging Network Inc.*................. 3,750 126,562 ParcPlace Systems, Inc.*............. 6,000 120,000 Pittencrieff Communications Inc.*............... 5,000 45,938 ProNet Inc.*......................... 40,000 640,000 QUALCOMM Inc.*....................... 5,000 147,500 Scientific-Atlanta Inc. ............. 8,000 173,000 Sonic Solutions*..................... 10,000 138,750 Stanford Telecommunications Inc.*........... 11,000 211,750 Tellabs, Inc.*....................... 94,500 4,606,875 Telular Corp.*....................... 5,000 48,750 Transaction Network Services, Inc.*.................... 15,000 196,875 U.S. Robotics Inc.*.................. 115,000 4,628,750 VeriFone Inc.*....................... 25,000 562,500 Zoom Telephonics, Inc.*.............. 30,000 210,000 ----------- 23,812,771 TRANSPORTATION - 1.92% Alaska Air Group, Inc.*.............. 25,000 437,500 Atlantic Southeast Airlines Inc. ..................... 65,000 1,137,500 Comair Holdings, Inc. ............... 57,300 1,246,275 Continental Airlines, Inc. Class B* .......................... 20,000 330,000 Frontier Airlines, Inc.*............. 50,000 187,500 Greenbrier Cos., Inc.*............... 20,000 385,000 Heartland Express, Inc.*............. 2,500 73,750 Mesa Airlines Inc.*.................. 135,000 1,096,875 Northwest Airlines Corp.*............ 65,000 1,365,000 Rollins Truck Leasing Corp. ......... 22,500 264,375 SkyWest Inc. ........................ 30,000 615,000 Southwest Airlines Co. .............. 35,000 826,875 ----------- 7,965,650 ----------- TOTAL COMMON STOCKS (Cost $296,236,828) ................. 407,613,391 STOCK WARRANTS - 0.01% WARRANTS ---------- CONSUMER GOODS & SERVICES - 0.01% Good Times Restaurants Inc.*(A) .............. (Cost $50,148)....................... 60,000 22,500 SHORT-TERM FACE OBLIGATIONS - 2.29% AMOUNT ---------- COMMERCIAL PAPER - 0.97% FINANCIAL SERVICES - 0.34% General Electric Capital Corp. 4.750% due 11/03/94 ................. $1,400,000 1,399,631 TELECOMMUNICATIONS - 0.63% Motorola Inc. 4.770% to 4.800% due 11/02/94 to 11/08/94 ............ 2,630,000 2,628,370 ---------- TOTAL COMMERCIAL PAPER (Cost $4,028,001) ................... 4,028,001
16 316 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF NET ASSETS See Notes to Financial Statements. Continued
FACE ISSUER AMOUNT VALUE - ------------------------------------------------------------------ REPURCHASE AGREEMENT - 1.32% Lehman Brothers 4.830% due 11/01/94 (dated 10/31/94). Collateralized by $5,567,160 value, Federal Home Loan Mortgage Corporation ARM 4.823% due 06/01/24. (Cost and repurchase proceeds $5,458,732).............. 5,458,000 5,458,732 ------------ TOTAL SHORT-TERM OBLIGATIONS (Cost $9,486,733)................... 9,486,733 ------------ TOTAL INVESTMENTS - 100.64% (Cost $305,773,709)................. 417,122,624 ------------ CASH AND OTHER ASSETS, LESS LIABILITIES - (0.64)%........ (2,634,977) ------------ NET ASSETS, at value, equivalent to $26.82 per share for 4,886,971 Class A Shares ($.01 par value) of capital stock outstanding and $26.04 per share for 10,883,600 Class B Shares ($.01 par value) of capital stock outstanding - 100.00%............. $414,487,647 ============
(A) Each warrant entitles the holder to purchase one common share at an exercise price of $3.50 and will expire 06/15/95. * Non-income producing. See Notes to Financial Statements. 17 317 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS STATEMENT OF OPERATIONS Year Ended October 31, 1994 INVESTMENT INCOME Dividends........................... $ 2,182,020 Interest............................ 451,229 ----------- 2,633,249 EXPENSES Distribution expenses (see Note D)...................... $2,775,578 Management fees..................... 2,706,438 Transfer agent fees................. 822,733 Administrative service fees......... 222,044 Shareholder reports................. 153,995 Registration fees................... 147,818 Custodian fees...................... 122,773 Audit and legal fees................ 51,246 Directors' fees and expenses........ 26,635 Miscellaneous....................... 43,714 7,072,974 ---------- ----------- NET INVESTMENT LOSS (4,439,725) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investments.... (8,817,307) Net change in unrealized appreciation of investments....... 27,047,214 ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............... 18,229,907 ----------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $13,790,182 ===========
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31, --------------------------- 1994 1993 ------------ ------------ OPERATIONS Net investment loss................. $ (4,439,725) $ (2,920,334) Net realized loss on investments.... (8,817,307) (4,446,420) Net change in unrealized appreciation of investments....... 27,047,214 55,194,255 ------------ ------------ Increase in net assets resulting from operations................... 13,790,182 47,827,501 CAPITAL SHARE TRANSACTIONS Increase in capital shares outstanding....................... 99,950,356 119,859,803 ------------ ------------ Increase in net assets.............. 113,740,538 167,687,304 NET ASSETS Beginning of year................... 300,747,109 133,059,805 ------------ ------------ End of year......................... $414,487,647 $300,747,109 ============ ============
See Notes to Financial Statements. 18 318 FINANCIAL HIGHLIGHTS
CLASS A SHARES CLASS B SHARES ------------------------------ ----------------------------------------------------- FROM AUGUST 22, YEAR ENDED OCTOBER 31, 1991 TO YEAR ENDED OCTOBER 31, ------------------------------ OCTOBER 31, ---------------------------------------------------- 1994 1993 1992 1991(2) 1994 1993 1992 1991 1990 -------- ------- ------- ----------- -------- -------- ------- ------- ------- Per share income and capital changes for a share outstanding during each period.(1) Net asset value, beginning of period................... $ 25.89 $ 20.60 $ 19.26 $ 18.12 $ 25.33 $ 20.34 $ 19.22 $ 11.06 $ 12.76 INCOME FROM INVESTMENT OPERATIONS Net investment loss .......... (0.18) (0.16) (0.20) (0.03) (0.36) (0.36) (0.38) (0.30) (0.22) Net realized and unrealized gain (loss) on investments.. 1.11 5.45 1.60 1.17 1.07 5.35 1.56 8.46 (1.26) -------- ------- ------- ------- -------- -------- ------- ------- ------- Total from Investment Operations ............... 0.93 5.29 1.40 1.14 0.71 4.99 1.18 8.16 (1.48) LESS DISTRIBUTIONS Distribution from realized gains ............. - - (0.06) - - - (0.06) - (0.22) -------- ------- ------- ------- -------- -------- ------- ------- ------- Net asset value, end of period .............. $ 26.82 $ 25.89 $ 20.60 $ 19.26 $ 26.04 $ 25.33 $ 20.34 $ 19.22 $ 11.06 ======== ======= ======= ======= ======== ======== ======= ======= ======= TOTAL RETURN(3)............... 3.59% 25.68% 7.32% 6.29% 2.80% 24.53% 6.19% 73.78% (11.82)% ======== ======= ======= ======= ======== ======== ======= ======= ======= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets ................. 1.44% 1.40% 1.67% 0.33% 2.19% 2.28% 2.64% 2.85% 3.11% Ratio of net investment loss to average net assets ...... (0.71)% (0.70)% (1.03)% (0.15)% (1.46)% (1.58)% (1.99)% (1.83)% (1.64)% Portfolio turnover ........... 25% 29% 48% 66% 25% 29% 48% 66% 82% Net Assets, end of period (in thousands).............. $131,053 $81,263 $46,137 $38,859 $283,435 $219,484 $86,923 $52,743 $11,668
(1) Per share information has been calculated using the average number of shares outstanding. (2) Financial highlights, including total return, have not been annualized. Portfolio turnover is for the year ended October 31, 1991. (3) Total return does not include the effect of the initial sales charge for Class A Shares nor the contingent deferred sales charge for Class B Shares. See Notes to Financial Statements. 19 319 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series, Inc., is a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Issuer operates as a series fund, currently issuing six series of shares. On May 20, 1994, the shareholders of the Issuer approved changes to the name of the Issuer and to the names of each of the series of the Issuer. These changes became effective on June 15, 1994. Transamerica Emerging Growth Fund (the "Fun"'), formerly Transamerica Special Emerging Growth Fund, is one of the series of the Issuer. The Fund made its initial offering of shares to the public on October 26, 1987 and presently offers two classes of shares. Class A Shares are subject to an initial sales charge and a 12b-1 distribution plan. Class B Shares are subject to a contingent deferred sales charge and a separate 12b-l distribution plan. The following is a summary of significant accounting policies consistently followed by the Fund. (1) Securities traded on stock exchanges or in the over-the-counter market are valued at the last sale price on the primary exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the mean between the most recent closing bid and asked prices. All securities initially expressed in terms of foreign currencies are translated into U.S. dollar equivalents based on quoted exchange rates as of the close of the NYSE. Securities for which market quotations are not readily available are valued at a fair value as determined in good faith by the Issuer's Board of Directors. Short-term investments are valued at amortized cost (original cost plus amortized discount or accrued interest). (2) Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Interest income on investments is accrued daily. Realized gains and losses from security transactions are determined on the basis of identified cost for both financial reporting and federal income tax purposes. The Fund does not report separately the gain or loss resulting from changes in foreign exchange rates on investments from changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gains or losses from investments. (3) Dividends and other distributions are recorded by the Fund on the ex-dividend date and may be reinvested at net asset value. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. (4) No provision for federal income taxes has been made since it is the Fund's intention to distribute all of its taxable income and profits to its shareholders and to comply with the requirements applicable to regulated investment companies and the minimum distribution requirements of the Internal Revenue Code. At October 31, 1994, the Fund had a realized capital loss carryforward of approximately $17,163,000 which will expire as follows: $1,478,000 - 1995, $117,000 - 1997, $2,304,000 - 2000, $4,447,000 - 2001 and $8,817,000 - 2002. The amount of capital loss carryforward utilized in any one year may be limited. (5) The Fund reports custodian fees net of credits and charges resulting from cash positions in the custodial accounts greater than or less than the amounts required to settle portfolio transactions. For the year ended October 31, 1994, these amounts were $5,575 and $34,039, respectively. (6) On a daily basis, income, unrealized and realized gains and losses, and expenses which are not class specific are allocated to each class based on their respective relative net assets. Class specific expenses, such as distribution expenses, are applied to the class to which they are attributed. NOTE B - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES The Fund's management fee is paid monthly to Transamerica Fund Management Company (the "Investment Adviser"). The management fee is calculated monthly on the average daily net assets of the Fund at an annual rate of 0.75%. At October 31, 1994, the management fee payable to the Investment Adviser was $254,623. The Investment Adviser provides administrative services to the Fund pursuant to an administrative service agreement. During the year ended October 31, 1994, the Fund paid or accrued $192,019 to the Investment Adviser for these services, of which $14,798 was payable at October 31, 1994. 20 320 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) NOTES TO FINANCIAL STATEMENTS Continued NOTE B (Continued) During the year ended October 31, 1994, Transamerica Fund Distributors, Inc. (the "Distributor"), an affiliate of the Investment Adviser, as the principal underwriter, retained $65,421 as its portion of the commissions charged on sales of Class A Shares of the Fund. At October 31, 1994, receivables from and payables to the Distributor for Fund share transactions were $453,568 and $245,546, respectively. The Fund paid no compensation directly to any officer. Certain officers and a director of the Issuer are affiliated with the Investment Adviser. During the year ended October 31, 1994, the Fund paid legal fees of $12,379 to Baker & Botts. A partner with Baker & Botts is an officer of the Issuer. NOTE C - COST, PURCHASES AND SALES OF INVESTMENT SECURITIES During the year ended October 31, 1994, purchases and sales of securities, other than short-term obligations, aggregated $171,536,375 and $86,559,288, respectively. At October 31, 1994, receivables from and payables to brokers for securities sold and purchased were $540,746 and $2,843,926, respectively. At October 31, 1994, the identified cost of total investments owned is the same for both financial reporting and federal income tax purposes. At October 31, 1994, the gross unrealized appreciation and gross unrealized depreciation of investments for federal income tax purposes were $122,594,705 and $11,245,790, respectively. NOTE D - PLAN OF DISTRIBUTION Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is authorized under separate distribution plans to finance activities related to the distribution of its Class A and Class B Shares (the "Class A Plan" and the "Class B Plan," respectively). The distribution plans, together with the initial sales charge on Class A Shares and the contingent deferred sales charge on Class B Shares, comply with the regulations covering maximum sales charges assessed by mutual funds distributed through securities dealers that are NASD members. The Class A Plan and the Class B Plan permit each class to make payments to the Distributor up to 0.25% annually of average daily net assets for certain distribution costs such as service fees paid to dealers, production and distribution of prospectuses to prospective investors, services provided to new and existing shareholders and other distribution related activities. During the year ended October 31, 1994, Class A and Class B made payments to the Distributor of $277,671 or 0.25% and $639,690 or 0.25%, respectively, related to the above activities. The Class B Plan also permits Class B to reimburse the Distributor up to 0.75% annually of average daily net assets for costs related to compensation paid to securities dealers, in place of an initial sales charge to investors, on the sale of Class B Shares. These costs are based upon a commission payment charge of 5% of the value of Class B Shares sold (excluding shares acquired through reinvestment), reduced by the amount of contingent deferred sales charges (CDSC) that have been received by the Distributor on redemptions of Class B Shares. These costs also include a charge of interest (carrying charge) at an annual rate of 1% over the prevailing prime rate to the extent cumulative commission payment charges, plus any previous carrying charges, less CDSC received by the Distributor, have not been paid in full by the Fund. For the year ended October 31, 1994, Class B reimbursed the Distributor $1,858,217 or 0.75% for such costs. For the year ended October 31, 1994, the Distributor received $382,553 in CDSC. At October 31, 1994, the balance of unrecovered costs was $10,122,481. At October 31, 1994, Class A had $60,704 and Class B had $314,192 payable to the Distributor pursuant to the above distribution plans. 21 321 Transamerica Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) NOTES TO FINANCIAL STATEMENTS Continued NOTE E - CAPITAL AND RELATED TRANSACTIONS A summary of capital stock transactions follows:
YEAR ENDED OCTOBER 31, ----------------------------------------------------------- 1994 1993 --------------------------- --------------------------- SHARES DOLLARS SHARES DOLLARS ---------- ------------- ---------- ------------- Shares sold - Class A ....................... 4,169,752 $ 107,936,683 2,776,240 $ 63,777,110 Shares sold - Class B ....................... 10,731,824 265,135,236 11,557,712 262,430,256 Shares redeemed - Class A ................... (2,421,719) (62,106,008) (1,876,824) (43,383,203) Shares redeemed - Class B ................... (8,513,937) (211,015,555) (7,165,167) (162,964,360) ---------- ------------- ---------- ------------- Net increase in capital shares outstanding .... 3,965,920 $ 99,950,356 5,291,961 $ 119,859,803 ========== ============= ========== =============
The components of net assets at October 31, 1994, are as follows: Capital paid-in (125,000,000 shares authorized) ............................................. $320,301,854 Accumulated net realized loss on investments ................................................ (17,163,122) Net unrealized appreciation of investments .................................................. 111,348,915 ------------ NET ASSETS .................................................................................. $414,487,647 ============
22 322 John Hancock Emerging Growth Fund (effective December 22, 1994, John Hancock Emerging Growth Fund) REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors John Hancock Emerging Growth Fund, a series of John Hancock Series, Inc. We have audited the accompanying statement of net assets of John Hancock Emerging Growth Fund (formerly Transamerica Emerging Growth Fund), a series of John Hancock Series, Inc. (formerly Transamerica Series, Inc.), as of October 31, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock Emerging Growth Fund, a series of John Hancock Series, Inc., at October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. Ernst & Young LLP Houston, Texas December 2, 1994, except as to Note F as to which the date is January 25, 1995. 23 323 JOHN HANCOCK SERIES, INC. PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements included in the Registration Statement: John Hancock Emerging Growth Fund John Hancock High Yield Tax-Free Fund John Hancock High Yield Bond Fund John Hancock Money Market Fund B John Hancock Global Resources Fund John Hancock Government Income Fund Statement of Assets and Liabilities as of October 31, 1994. Statement of Operations for the year ended October 31, 1994 Statement of Changes in Net Assets for the years ended October 31, 1993 and 1994. Notes to Financial Statements. Financial Highlights. Schedule of Investments as of October 31, 1994. (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 April 6, 1995, the number of record holders of shares of Registrant was as follows:
TITLE OF CLASS NUMBER OF RECORD HOLDERS -------------- ------------------------ John Hancock Emerging Growth Fund Class A Shares - 11,500 Class B Shares - 26,211 John Hancock High Yield Tax-Free Fund Class A Shares 547 Class B Shares 4,335
C-1 324
TITLE OF CLASS NUMBER OF RECORD HOLDERS -------------- ------------------------ John Hancock High Yield Bond Fund Class A Shares 788 Class B Shares 9,392 John Hancock Money Market Fund B Class B Shares 4,522 John Hancock Global Resources Fund Class A Shares 380 Class B Shares 5,001 John Hancock Government Income Fund Class A Shares 41 Class B Shares 12,330
ITEM 27. INDEMNIFICATION (a) Indemnification provisions relating to the Registrant's Directors, officers, employees and agents is set forth in Article V of the Registrant's By Laws included as Exhibit 2 herein. (b) Under Section 12 of the Distribution Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to indemnify the Registrant and its Directors, officers and controlling persons against claims arising out of certain acts and statements of John Hancock Funds. Section 9(a) of the By-Laws of the John Hancock Mutual Life Insurance Company (" the "Insurance Company") provides, in effect, that the Insurance Company will, subject to limitations of law, indemnify each present and former director, officer and employee of the of the Insurance Company who serves as a Directors or officer of the Registrant at the direction or request of the Insurance Company against litigation expenses and liabilities incurred while acting as such, except that such indemnification does not cover any expense or liability incurred or imposed in connection with any matter as to which such person shall be finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interests of the Insurance Company. In addition, no such person will be indemnified by the Insurance Company in respect of any liability or expense incurred in connection with any matter settled without final adjudication unless such settlement shall have been approved as in the best interests of the Insurance Company either by vote of the Board of Directors at a meeting composed of directors who have no interest in the outcome of such vote, or by vote of the policyholders. The Insurance Company may pay expenses incurred in defending an action or claim in advance of its final disposition, but only upon receipt of an undertaking by the person indemnified to repay such payment if he should be determined to be entitled to indemnification. C-2 325 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 Directors, officers and controlling persons of the Registrant pursuant to the Registrant's Amended and Restated Articles of Incorporation and By-Laws, the Distribution Agreement, the By-Laws of John Hancock Funds, the Adviser, or the Insurance Company or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Directors, officer or controlling person in connection with the securities being registered, theRegistrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS ----------------------------------------------------- For information as to the business, profession, vocation or employment of a substantial nature of each of the officers and Directors of the Adviser, reference is made to Form ADV (801- 8124) filed under the Investment Advisers Act of 1940, which is incorporated herein by reference. ITEM 29. PRINCIPAL UNDERWRITERS (a) John Hancock Funds acts as principal underwriter for the Registrant and also serves as principal underwriter or distributor of shares for John Hancock Cash Reserve, Inc., John C-3 326 Hancock Bond Fund, John Hancock Capital Growth Fund, John Hancock Current Interest, John Hancock Series, Inc., John Hancock Tax- Free Bond Fund, John Hancock California Tax-Free Income Fund, John Hancock Capital Series, John Hancock Limited-Term Government Fund, John Hancock Tax-Exempt Income Fund, John Hancock Sovereign Investors Fund, Inc., John Hancock Cash Management Fund, John Hancock Special Equities Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series, John Hancock Strategic Series, John Hancock Technology Series, Inc., John Hancock World Fund, John Hancock Investment Trust, John Hancock Institutional Series Trust, Freedom Investment Trust, Freedom Investment Trust II and Freedom Investment Trust III. (b) The following table lists, for each director and officer of John Hancock Funds, the information indicated. C-4 327
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES - ------------------ --------------------- --------------------- BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT ---------------- ---------------- --------------- Edward J. Boudreau, Jr. Chairman Chairman 101 Huntington Avenue Boston, Massachusetts Robert H. Watts Director and Senior None John Hancock Place Vice President P.O. Box 111 Boston, Massachusetts C. Troy Shaver, Jr. President, Chief None 101 Huntington Avenue Executive Officer and Boston, Massachusetts Director Robert G. Freedman Director Vice President, Chief 101 Huntington Avenue Investment Officer Boston, Massachusetts Stephen M. Blair Executive Vice President- None 101 Huntington Avenue Sales 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 None 101 Huntington Avenue Boston, Massachusetts James B. Little Senior Vice President Senior Vice President and 101 Huntington Avenue Chief Financial Officer Boston, Massachusetts
C-5 328
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES - ------------------ --------------------- --------------------- BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT ---------------- ---------------- --------------- 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 John Hancock Place P.O. Box 111 Boston, Massachusetts
C-6 329 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 Foster Aborn Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Hugh A. Dunlap, Jr. Director None 101 Huntington Avenue Boston, Massachusetts William C. Fletcher Director None 53 State Street Boston, Massachusetts James V. Bowhers Executive Vice President None 101 Huntington Avenue Boston, Massachusetts
(c) None. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS -------------------------------- The Registrant maintains the records required to be maintained by it under Rules 31a-1 (a), 31a-1(b), and 31a-2(a) under the Investment Company Act of 1940 at its principal executive offices at 101 Huntington Avenue, Boston Massachusetts 02199-7603. Certain records, including records relating to 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. ITEM 32. UNDERTAKINGS ------------ (a) Not applicable. C-7 330 (b) Not applicable. (c) Registrant hereby undertakes to furnish each person to whom a prospectus with respect to a series of the Registrant is delivered with a copy of the latest annual report to shareholders with respect to that series upon request and without charge. (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 Directors of the Registrant in calling a meeting of shareholders for the purpose of voting upon the question of the removal of a Director. C-8 331 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and 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 8th day of May, 1995. JOHN HANCOCK SERIES, INC. By: * -------------------------- Edward J. Boudreau, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman and Chief Executive - ------------------------ Officer (Principal Executive Edward J. Boudreau, Jr. Officer) /s/James B. Little - ------------------------ James B. Little Senior Vice President and Chief May 8, 1995 Financial Officer (Principal Financial and Accounting Officer) * Director - ------------------------ James F. Carlin * Director - ------------------------ William H. Cunningham * Director - ------------------------ Charles L. Ladner
C-9 332
SIGNATURE TITLE DATE --------- ----- ---- * Director - ------------------------ Leo E. Linbeck, Jr. * Director - ------------------------ Patricia P. McCarter * Director - ------------------------ Steven R. Pruchansky * Director - ------------------------ Norman H. Smith * Director - ------------------------ John P. Toolan *By: /s/Thomas H. Drohan May 8, 1995 ------------------- Thomas H. Drohan, Attorney-in-Fact
C-10 333 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 13th day of December, 1994. /s/William H. Cunningham ___________________________________ William H. Cunningham 334 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 22nd day of December, 1994. /s/Norman H. Smith _____________________________ Norman H. Smith 335 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 22nd day of December, 1994. /s/James F. Carlin ________________________________ James F. Carlin 336 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 22nd day of December, 1994. /s/Charles L. Ladner _________________________________ Charles L. Ladner 337 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 22nd day of December, 1994. /s/John P. Toolan ________________________________ John P. Toolan 338 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 22nd day of December, 1994. /s/Steven R. Pruchansky ________________________________ Steven R. Pruchansky 339 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 22nd day of December, 1994. /s/ Leo E. Linbeck, Jr. ________________________________ Leo E. Linbeck, Jr. 340 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 22nd day of December, 1994. /s/ Patricia P. McCarter ________________________________ Patricia P. McCarter 341 POWER OF ATTORNEY The undersigned Trustee of John Hancock Current Interest, John Hancock Capital Growth Fund, John Hancock Investment Trust, John Hancock California Tax-Free Income Fund, John Hancock Tax-Free Bond Fund and John Hancock Bond Fund, (each a "Trust"), and Director of John Hancock Series, Inc. and John Hancock Cash Reserve, Inc. (each a "Corporation"), does hereby severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan, Robert G. Freedman and James B. Little, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Form N-1A and any Registration Statement on Form N-14 to be filed by the Trust or the Corporation under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of its shares of beneficial interest and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust or the Corporation to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument the 22nd day of December, 1994. /s/ Edward J. Boudreau, Jr. ____________________________________ Edward J. Boudreau, Jr. 342 JOHN HANCOCK SERIES, INC. (File Nos. 33-16048; 811-5254) INDEX TO EXHIBITS (1) (a) Registrant's Articles of Incorporation dated June 22, 1987.* (b) Articles of Amendment and Restatement dated July 1, 1987.* (c) Articles of Amendment dated July 24, 1987.* (d) Articles Supplementary dated August 6, 1987.** (e) Articles Supplementary filed October 8, 1987.** (f) Articles Supplementary filed June 16, 1989.** (g) Articles Supplementary.*** (h) Articles Supplementary dated October 22, 1993.**** (i) Articles Supplementary dated May 17, 1994.** (j) Articles Supplementary dated December 22, 1994.***** (2) Amended Bylaws.+ (3) Not Applicable. (4) (a) Form of Specimen Share Certificates for (i) Class A Shares and (ii) Class B Shares of each series of the Registrant.* (5) (a) (1) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of Global Resources Fund.+ (2) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of Emerging Growth Fund.+ (3) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of High Yield Tax-Free Fund.+ (4) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of Government Income Fund.+ (5) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of Money Market Fund B.+ (6) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of High Yield Bond Fund.+ (b) (1) Sub-Advisory Agreement between John Hancock Advisers, Inc. and Transamerica Investment Services, Inc. (relating to High Yield Tax-Free Fund).+ 343 (c) (1) Form of substantially identical Amended and Restated Administrative Services Agreements among Transamerica Fund Management Company, Transamerica Funds Distributor, Inc. and the Registrant on behalf of each of Global Resources Fund, Emerging Growth Fund, High Yield Tax Free Fund, Government Income Fund, Money Market Fund B and High Yield Bond Fund.+ (6) (a) Distribution Agreement between Registrant and John Hancock Broker Distribution Services, Inc. (b) Form of Soliciting Dealer Agreement between John Hancock Funds, Inc. and the John Hancock funds. (c) Form of Financial Institution Sales and Service Agreement between John Hancock Funds, Inc. and the John Hancock funds.+ (7) Not Applicable. (8) Master Custodian Agreement between the John Hancock funds and Investors Bank & Trust Company.+ (9) Transfer Agency Agreement between John Hancock Investor Services Corporation and the John Hancock funds.+ (10) Not Applicable. (11) Consent of Independent Auditors.+ (12) Not Applicable. (13) Not Applicable. (14) Not Applicable. (15) (a) Rule 12b-1 Plans: Class A shares+ (i) Global Resources Fund (ii) Emerging Growth Fund (iii) Government Income Fund (iv) High Yield Bond Fund (v) High Yield Tax Free Fund (b) Rule 12b-1 Plans: Class B shares+ (i) Money Market "B" (ii) Global Resources Fund (iii) Emerging Growth Fund (iv) Government Income Fund (v) High Yield Bond Fund (vi) High Yield Tax Free Fund (16) Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22 for each series of the Registrant.** -2- 344 (27) Financial Data Schedule ----------------------- * Incorporated by reference to Registration Statement filed July 24, 1987. ** Previously filed with Registration Statement and/or post-effective amendments and incorporated by reference herein. *** Incorporated by reference to Post-effective Amendment No. 10 filed on February 22, 1991. **** Incorporated by reference to Post-effective Amendment No. 16 filed on April 13, 1994. ***** Incorporated by reference to Post-effective Amendment No. 18 filed in January 30, 1995. ****** Filed with the Securities and Exchange Commission on December 21, 1994 pursuant to Rule 24f-2. + Filed herewith. -3- EX-99.B2 2 AMENDED BY-LAWS 1 EXHIBIT 99.B2 AMENDED AND RESTATED BY-LAWS DATED December 22, 1994 OF JOHN HANCOCK SERIES, INC. (a Maryland corporation) 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I. OFFICES..................................... 1 Section 1. Principal Office............................ 1 Section 2. Principal Executive Office.................. 1 Section 3. Other Offices............................... 1 ARTICLE II. MEETINGS OF STOCKHOLDERS.................... 1 Section 1. Place of Holding Meetings................... 1 Section 2. Special Meetings............................ 1 Section 3. Notice of Meetings; Waiver of Notice........ 2 Section 4. Quorum...................................... 2 Section 5. Conduct of Stockholders' Meetings........... 2 Section 6. Order of Business........................... 3 Section 7. Voting...................................... 3 Section 8. Fixing of Record Date....................... 4 Section 9. Inspectors.................................. 4 Section 10. Consent of Stockholders in Lieu of Meeting.. 5 Section 11. List of Stockholders Entitled to Vote....... 5 ARTICLE III. BOARD OF DIRECTORS.......................... 5 Section 1. General Powers.............................. 5 Section 2. Number of Directors......................... 6 Section 3. Election and Term of Directors.............. 6 Section 4. Resignation................................. 6 Section 5. Removal of Directors........................ 6 Section 6. Vacancies................................... 6 Section 7. Place of Meetings........................... 7 Section 8. Regular Meetings............................ 7 Section 9. Special Meetings............................ 7 Section 10. Quorum and Voting........................... 8 Section 11. Organization................................ 8 Section 12. Compensation................................ 8 Section 13. Executive Committee......................... 9 Section 14. Other Committees............................ 9 Section 15. Meetings by Conference Telephone............ 9 Section 16. Written Consent of Directors in Lieu of a Meeting................................... 10
-i- 3
PAGE ---- ARTICLE IV. OFFICERS, AGENTS AND EMPLOYEES.............. 10 Section 1. Number, Election, Qualifications............ 10 Section 2. Resignations................................ 10 Section 3. Removal of Officer, Agent or Employee....... 11 Section 4. Vacancies................................... 11 Section 5. Compensation................................ 11 Section 6. Bonds or Other Security..................... 11 Section 7. Chairman of the Board....................... 11 Section 8. Vice Chairman .............................. 11 Section 9. President................................... 12 Section 10. Vice President.............................. 12 Section 11. Treasurer and Assistant Treasurers.......... 12 Section 12. Secretary and Assistant Secretaries......... 13 Section 13. Delegation of Duties........................ 14 ARTICLE V. INDEMNIFICATION AND INSURANCE............... 14 Section 1. Indemnification............................. 14 Section 2. Exemption from Liability.................... 15 Section 3. Insurance................................... 15 ARTICLE VI. STOCK....................................... 16 Section 1. Certificate for Stock....................... 16 Section 2. Transfers................................... 16 Section 3. Stock Ledger................................ 16 Section 4. Certificate of Beneficial Owners............ 17 Section 5. Lost Stock Certificates..................... 17 Section 6. Fractional Shares........................... 17 Section 7. Repurchase and Redemption of Shares......... 17 ARTICLE VII. SEAL........................................ 18 ARTICLE VIII. FISCAL YEAR................................. 19 ARTICLE IX. AMENDMENTS.................................. 19 Section 1. General..................................... 19
-ii- 4 ARTICLE I Offices Section 1. Principal Office. The principal office of the Corporation shall be in the City of Baltimore, State of Maryland. Section 2. Principal Executive Office. The principal executive office of the Corporation shall be at 101 Huntington Avenue, Boston Massachusetts. Section 3. Other Offices. The Corporation may have such other offices in such places within and without the State of Maryland as the Board of Directors may from time to time determine. ARTICLE II Meetings of Stockholders Section 1. Place of Holding Meetings. Meetings of stockholders of the Corporation shall be held at such place within or without the State of Maryland as shall be fixed by the Board of Directors from time to time and stated in the notice of such meeting. Section 2. Special Meetings. The Corporation shall not be required to hold annual meetings of stockholders. Special meetings of the stockholders, unless otherwise provided by law or by the Articles of Incorporation, for any purpose or purposes may be called by the Chairman of the Board of Directors, the President or a majority of the Board of Directors, and shall be called by the Secretary upon the written request of the holders of shares entitled to not less than 25 percent of all the votes entitled to be cast at such meeting. Such request shall state the purpose or purposes of such meeting and the matters proposed to be acted on thereat. The Secretary shall inform such stockholders of the reasonably estimated cost of preparing and mailing such notice of the meeting, and upon payment to the Corporation of such costs the Secretary shall give notice stating the purpose or purposes of the meeting to all stockholders entitled to notice of such meeting. No special meeting need be called to consider any matter which is substantially the same as a matter voted on at any special meeting of the stockholders held during the preceding twelve months, unless requested by stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting. 5 Section 3. Notice of Meetings; Waiver of Notice. Written or printed notice of the place, date and time of the holding of each meeting of the stockholders and, in the case of a special meeting or if otherwise required by law, the purpose or purposes of such meeting, shall be given to each stockholder entitled to vote thereat or to notice of such meeting by leaving the same with such stockholder or at such stockholder's residence or usual place of business or by mailing such notice, postage prepaid, not less than ten nor more than ninety days before the date of the meeting. Notice by mail shall be deemed to be duly given when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. No notice of the time, place or purpose of any meeting of stockholders need be given to any stockholder who attends such meeting in person or by proxy, or who, either before or after the meeting, submits a signed waiver of notice which is filed with the records of the meeting. Any meeting of stockholders may adjourn from time to time to reconvene at the same or some other place, and notice of adjournment of a stockholders' meeting to another time and place need not be given if such time and place are announced at the meeting, unless the Board of Directors, after the adjournment, shall fix a new record date for the adjourned meeting, or the adjournment is for more than 120 days after the original record date. Section 4. Quorum. The presence in person or by proxy of the holders of record of a majority of the shares of Common Stock issued and outstanding and entitled to vote thereat shall constitute a quorum for the transaction of any business at all meetings of the stockholders except (i) when shareholder approval is a prerequisite to the listing of any additional or new securities the presence in person or by proxy of more than 50% of the shares of common stock issued and outstanding and entitled to vote shall constitute a quorum or (ii) as otherwise provided by law or in the Articles of Incorporation or in these By-Laws. In the absence of the required quorum no business may be transacted, except that the holders of a majority of the shares of stock present in person or by proxy and entitled to vote may adjourn the meeting from time to time, without notice other than announcement thereat except as otherwise required by these By-Laws, until the holders of the requisite amount of shares of stock shall be so present. At any such adjournment meeting at which the required quorum may be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 5. Conduct of Stockholders' Meetings. At each meeting of the stockholders, the Chairman of the Board of Directors (if one has been designated by the Board of Directors), -2- 6 or if the Chairman of the Board of Directors is absent or unable to act, the President, or if the President is absent or unable to act, a Vice President, or if none of them are present or able to act a chairman to be elected at the meeting, shall act as chairman of the meeting. The Secretary of the Corporation, or if the Secretary is absent or unable to act, an Assistant Secretary, or if none are present or able to act, any person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes thereof. Section 6. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 7. Voting. Except as otherwise required by law (including the Maryland General Corporation Law, as currently in effect or as the same may hereafter be amended (the "Maryland General Corporation Law"), and the 1940 Act), the Articles of Incorporation or these By-Laws, at all meetings, each stockholder of record entitled to vote thereat shall have one vote for each share (and proportionate voting rights for each fraction of a share) on each matter as to which such stockholder is entitled to vote for every share of such stock, or fraction thereof, as the case may be, validly issued and outstanding and standing in such stockholder's name on the record of stockholders of the Corporation as of the record date determined pursuant to Section 9 of this Article, or, if such record date shall not have been so fixed, then at the later of (i) the close of business on the day on which notice of the meeting is mailed or (ii) the thirtieth day before the meeting. A majority of the votes cast at a meeting of stockholders, duly called and at which a quorum is present, shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, except as otherwise required by law (including the Maryland General Corporation Law and the 1940 Act), the Articles of Incorporation or these By-Laws. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a written proxy signed by such stockholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where such proxy states that it is irrevocable and where an irrevocable proxy is permitted by law. If a vote shall be taken on any question other than the election of directors, which shall be by written ballot, then -3- 7 unless otherwise required by law (including the Maryland General Corporation Law and the 1940 Act), the Articles of Incorporation or these By-Laws, or determined by the chairman of the meeting to be advisable, any such vote need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. All proxies shall be received and taken in charge of and all ballots shall be received and canvassed by the secretary of the meeting, who shall decide all questions touching the qualification of voters, the validity of the proxies and the acceptance or rejection of votes, unless inspectors of election shall have been appointed by the chairman of the meeting, in which event such inspectors of election shall decide all such questions. Section 8. Fixing of Record Date. The Board of Directors may set a record date for the purpose of determining stockholders entitled to vote at or notice of any meeting of the stockholders or to receive a dividend or be allotted rights or for the purpose of any other proper determination with respect to stockholders and only stockholders of record on such date shall be entitled to vote at or receive notice of such meeting, to receive such dividends or rights or otherwise, as the case may be. The record date, which may not be prior to the close of business on the day the record date is fixed, shall be not more than 90 days before the date of the meeting of stockholders, payment of dividend, allotment of rights or other action requiring determination of a record date, nor, in the case of a stockholders' meeting, less than ten days before the date of such meeting. All persons who were holders of record of shares as of the record date, and not others, shall be entitled to vote at such meeting and any adjournment thereof. Section 9. Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspector shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting may, and on the request of the holders of at least 10 percent of the stock entitled to vote thereat shall, appoint inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting powers of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and -4- 8 do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or the holders of at least 10 percent of the stock entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors need not be stockholders. Section 10. Consent of Stockholders in Lieu of Meeting. Except as otherwise required by law (including the Maryland General Corporation Law and the 1940 Act), the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if the following are filed with the records of stockholders' meetings: (i) a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter and (ii) if applicable, a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote thereat. Such consent shall be treated for all purposes as a vote at the meeting. Section 11. List of Stockholders Entitled to Vote. The Secretary of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. ARTICLE III Board of Directors Section 1. General Powers. The property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all the powers of the Corporation and do all such lawful acts as are not -5- 9 conferred upon or reserved to the stockholders of the Corporation by law (including the Maryland General Corporation Law and the 1940 Act), the Articles of Incorporation or these By-Laws. Section 2. Number of Directors. The number of directors shall be fixed from time to time by resolution of the Board of Directors adopted by a majority of the directors then in office No reduction in the number of directors shall have the effect of removing any director from office prior to the expiration of his term. Directors need not be stockholders of the Corporation or citizens or residents of the United States. Section 3. Election and Term of Directors. Directors shall be elected by written ballot at a meeting of stockholders, held for that purpose unless otherwise provided by law (including the Maryland General Corporation Law and the 1940 Act), the Articles of Incorporation or these By-Laws. The term of office of each director shall be from the time of his election and qualification until (a) death, resignation, retirement, removal or reelection, or (b) his successor is elected in the election of directors of his class next succeeding his election, as provided in the Articles of Incorporation, and until such successor shall have qualified, or (c) as otherwise provided by law (including the Maryland General Corporation Law and the 1940 Act) or the Articles of Incorporation. Section 4. Resignation. A director of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors, the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Removal of Directors. At any stockholders' meeting, provided a quorum is present, any director of the Corporation may be removed (with or without cause) by a vote of a majority of the shares entitled to be cast for the election of directors. At the same meeting a duly qualified person may be elected in his stead by a majority of the votes validly cast. Section 6. Vacancies. To the extent permitted by law (including the Maryland General Corporation Law and the 1940 Act), the Articles of Incorporation or these By-Laws, any vacancies in the Board of Directors, whether arising from death, resignation, removal or any other cause, shall be filled by a vote of the majority of the Board of Directors then in office even though that majority is less than a quorum, provided that no vacancy or vacancies shall be filled by action of the remaining directors if, -6- 10 after the filling of the vacancy or vacancies, fewer than two-thirds of the directors then holding office shall have been elected by the stockholders of the Corporation. In the event that at any time a vacancy exists in any office of a director that may not be filled by the remaining directors, a special meeting of the stockholders shall be held as promptly as possible and in any event within 60 days, for the purpose of filling the vacancy or vacancies. A director elected by the Board of Directors to fill any vacancy in the Board of Directors shall serve until the next meeting of stockholders and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. At any meeting of stockholders, stockholders shall be entitled to elect directors to fill any vacancies in the Board of Directors that have arisen since the preceding meeting of stockholders (whether or not any such vacancy has been filled by election of a new director by the Board of Directors) and any director so elected by the stockholders shall hold office for the balance of the term of the director whose death, resignation, retirement, disqualification or removal created the vacancy or until death, resignation, retirement or until a successor is elected and qualified. Section 7. Place of Meetings. Meetings of the Board of Directors may be held at such place, within or outside the State of Maryland, as the Board of Directors may from time to time determine or as shall be specified in the notice of such meeting. Section 8. Regular Meetings. The Board of Directors from time to time may provide by resolution for the holding of regular meetings and fix their time and place. Notice of regular meetings of the Board of Directors need not be given, provided that notice of any change in the time or place of such meetings shall be sent promptly to each director not present at the meeting at which such change was made, in the manner provided for notice of special meetings. The annual meeting of the Board of Directors shall be held as soon as practicable after the annual meeting of stockholders at which directors are elected. No notice of such meeting shall be necessary if held immediately after the adjournment, and at the site, of the meeting of stockholders. If not so held, notice shall be given as provided in Section 9 of this Article III for special meetings of the Board of Directors. Section 9. Special Meetings. Special meetings of the Board of Directors may be called by two or more directors of the Corporation or by the Chairman of the Board of Directors (if one has been designated by the Board of Directors) or the President. Oral or written notice of the time and place of any special -7- 11 meeting shall be given, delivered or telegraphed to each director not less than one day before the meeting or mailed to each director not less than three days before the meeting. Such notice need not include a statement of the business to be transacted at, or the purpose of, such special meeting. A written waiver of notice, signed, either before or after the meeting, by the director entitled to such notice and filed with the records of the meeting, or actual attendance at the meeting, shall be deemed equivalent to the giving of notice to such director. Except as otherwise specifically required by these By-Laws, a notice or waiver of notice of any regular or special meeting of the Board of Directors need not state the purpose of such meeting. Section 10. Quorum and Voting. One-third, but not less than two, of the members of the entire Board of Directors shall be present in person at any meeting of the Board of Directors in order to constitute a quorum for the transaction of business at such meeting, and, except as otherwise expressly required by law (including the Maryland General Corporation Law and the 1940 Act), the Articles of Incorporation or these By-Laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place until a quorum shall be present thereat. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Section 11. Organization. The Board of Directors may, by resolution adopted by a majority of the entire Board of Directors, designate a Chairman of the Board, who shall preside at each meeting of the Board of Directors. If the Chairman of the Board of Directors is absent or unable to act, the President (if he is also a director) or, if he is not a director or is absent or unable to act, another director chosen by a majority of the directors present, shall act as chairman of the meeting and preside thereat. The Secretary (or, if he is absent or unable to act, any person appointed by the chairman) shall act as secretary of the meeting and keep the minutes thereof. Section 12. Compensation. No director shall receive any stated salary or fees from the Corporation for his services as such if such director is, otherwise than by reason of being such director, an interested person (as such term is defined by the 1940 Act) of the Corporation or of its investment adviser, -8- 12 administrator or principal underwriter. Except as provided in the preceding sentence, directors shall be entitled to receive such compensation from the Corporation for their services, and reimbursement for reasonable expenses incurred by them in connection with such services, as may from time to time be voted by the Board of Directors. Section 13. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint from the directors an Executive Committee to consist of two or more of such number of directors as the Board may from time to time determine. The Chairman of the Committee shall be elected by the Board of Directors. The Board of Directors by such affirmative vote shall have power at any time to change the members of such Committee and may fill vacancies in the Committee by election from the directors. When the Board of Directors is not in session, to the extent permitted by law, the Executive Committee shall have and may exercise any or all of the powers of the Board of Directors in the management of the business and affairs of the Corporation. The Executive Committee may fix its own rules of procedure, and may meet when and as provided by such rules or by resolution of the Board of Directors, but in every case the presence of a majority shall be necessary to constitute a quorum. During the absence of a member of the Executive Committee, the remaining members may appoint a member of the Board of Directors to act in his place. Section 14. Other Committees. The Board of Directors may appoint from the directors or otherwise other committees which shall have and may exercise such powers as may be provided in their resolutions and which the Board of Directors may lawfully delegate. A majority of all the members of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board of Directors shall have power at any time to change the members and powers of any such committee, to fill vacancies and to discharge any such committee. Section 15. Meetings by Conference Telephone. The members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and such participation shall constitute presence in person at such meeting; provided, however, that such participation shall not constitute presence in person with respect to matters which pursuant to the 1940 Act or the rules and regulations thereunder require the approval of directors by vote cast in person at a meeting. -9- 13 Section 16. Written Consent of Directors in Lieu of a Meeting. Subject to the provisions of the 1940 Act and the rules and regulations thereunder, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writings or writing are filed with the minutes of the proceedings of the Board of Directors or committee. ARTICLE IV Officers, Agents and Employees Section 1. Number, Election, Qualifications. The officers of the Corporation shall be a Chairman, President, such number of Vice Presidents as the Board of Directors may deem necessary or proper, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors or the Executive Committee (if any) may also from time to time in its discretion appoint such officers (including one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries), and may itself appoint or delegate to the President the power to appoint such agents and employees, as may be necessary or desirable for the business of the Corporation. Such officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board of Directors or the Executive Committee. Any two or more offices may be held by the same person, except the offices of President and Vice President, but no officer shall execute, acknowledge or verify any instrument as an officer in more than one capacity if such instrument is required by law or these By-Laws to be executed, acknowledged or verified by two or more officers. Those officers who are elected by the Board of Directors shall be elected by the Board of Directors annually, each to hold office until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. The Board of Directors may designate a Chairman of the Board of Directors. Section 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of resignation to the Board of Directors, the Chairman of the Board of Directors, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. -10- 14 Section 3. Removal of Officer, Agent or Employee. Any officer, agent or employee of the Corporation may be removed by the Board of Directors or the Executive Committee (if any) with or without cause at any time, and the Board of Directors or the Executive Committee may delegate such power of removal as to agents and employees not elected by the Board of Directors. Such removal shall be without prejudice to such person's contract rights, if any, but the appointment of any person as an officer, agent or employee of the Corporation shall not of itself create contract rights. Section 4. Vacancies. A vacancy in any office, either arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in this Article IV for the regular election or appointment to such office. Section 5. Compensation. The compensation of the officers of the Corporation shall be fixed by the Board of Directors or the Executive Committee (if any), but this power may be delegated to the President or any other officer in respect of officers under his control. Section 6. Bonds or Other Security. The Board of Directors or the Executive Committee (if any) may require any officer, employee or agent of the Corporation to execute a bond (including, without limitation, any bond required by the 1940 Act or the rules and regulations thereunder) or other security to the Corporation in such sum and with such surety or sureties as the Board of Directors may determine, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting of any of the Corporation's property, funds or securities that may come into his hands. Section 7. Chairman of the Board. The Chairman of the Board and Chief Executive Officer, if there be such an officer, shall be the senior officer of the Corporation, preside at all stockholders' meetings and at all meetings of the Board of Directors and shall be ex officio a member of all committees of the Board of Directors. He shall have the power to appoint officers of the Company and such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors. Section 8. Vice Chairman. The Board of Directors may, but need not, appoint a Vice Chairman of the Corporation. The Vice Chairman may, but need not, be a member of the Board of Directors. The Vice Chairman shall have such powers and duties as the Board of Directors shall determine from time to time and in the absence -11- 15 of any such designation shall have the same powers as a vice president of the Corporation. Section 9. President. The Corporation shall have a President. In the absence of the Chairman of the Board of Directors (or if there be none), he shall preside at all meetings of the stockholders and of the Board of Directors (if he is also a director). Subject to the control of the Board of Directors, he shall have general charge of the business and affairs of the Corporation and general supervision over its officers, employees and agents. He may employ and discharge employees and agents of the Corporation, except such as shall be appointed by the Board of Directors, and he may delegate these powers. Except as the Board of Directors may otherwise order, he may sign in the name and on behalf of the Corporation all deeds, bonds, contracts or agreements. Section 10. Vice President. The Board of Directors or the Executive Committee (if any) may from time to time elect one or more vice presidents who shall have such powers and perform such duties as from time to time may be assigned to them by the Board of Directors or the Executive Committee. At the request or in the absence or disability of the President, the Vice President (or, if there are two or more Vice Presidents, the senior of the Vice Presidents present and able to act) may perform all the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 11. Treasurer and Assistant Treasurers. The Treasurer shall: (a) have general charge and custody of, and be generally responsible for, all the funds and securities of the Corporation, except those which the Corporation has placed in the custody of a bank, trust company or member of a national securities exchange (as that term is defined in the Securities Exchange Act of 1934, as amended) pursuant to a written agreement designating such bank, trust company or member of a national securities exchange as a custodian or subcustodian of the property of the Corporation (in which case the Treasurer shall have general supervision of the performance by the custodian or subcustodian of its duties pursuant thereto); (b) render to the Board of Directors, whenever directed by the Board of Directors, an account of the financial condition of the Corporation and of all transactions as Treasurer; (c) cause to be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding -12- 16 fiscal year, which shall be submitted at the annual meeting of stockholders and filed within twenty days thereafter at the principal office of the Corporation in the State of Maryland; (d) cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (e) cause all moneys and other valuables to be deposited to the credit of the Corporation; (f) provide assistance to any committee of the Board of Directors and report to such committee as necessary; and (g) in general, perform all the duties incident to the office of the chief financial and accounting officer of the corporation and such other duties as from time to time may be assigned to him by the Board of Directors or the President. Any Assistant Treasurer may perform such duties of the Treasurer as the Treasurer, the Board of Directors or the Executive Committee (if any) may assign, and, in the absence of the Treasurer, may perform all the duties of the Treasurer. Section 12. Secretary and Assistant Secretaries. The Secretary shall: (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors, the Executive Committee (if any) or the President. -13- 17 Any Assistant Secretary may perform such duties of the Secretary as the Secretary, the Board of Directors or the Executive Committee may assign, and, in the absence of the Secretary, may perform all the duties of the Secretary. Section 13. Delegation of Duties. In case of the absence of any officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may confer for the time being the powers or duties, or any of them, of such officer upon any other officer or upon any director. ARTICLE V Indemnification and Insurance Section 1. Indemnification. The Corporation shall indemnify to the fullest extent permitted by law (including the Maryland General Corporation Law and the 1940 Act), any person made or threatened to be made a party to any action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a director or officer of the Corporation or serves or served at the request of the Corporation any other enterprise as a director or officer. To the fullest extent permitted by law (including the Maryland General Corporation Law and the 1940 Act), expenses incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this Section 1 shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director or officer as provided above. No amendment of this Section 1 shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. For purposes of this Section 1, the term "Corporation" shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation merger; the term "other enterprise" shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include service as a director or officer of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to any -14- 18 employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation. The provisions of this Section 1 shall be in addition to the other provisions of this Article. Present or former employees and agents of the Corporation who are not or were not officers or directors of the Corporation may be indemnified by the Corporation, and reasonable expenses incurred by such persons may be paid or reimbursed by the Corporation, in accordance with the procedures and to the fullest extent permitted by law (including the Maryland General Corporation Law and the 1940 Act), and to such further extent, consistent with the foregoing, as may be provided by action of the Board of Directors or by written agreement. Nothing in this Section 1 protects or purports to protect any director, officer, employee or agent of the Corporation against any liability to the Corporation or its stockholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Section 2. Exemption From Liability. To the fullest extent permitted by law (including the Maryland General Corporation Law and the 1940 Act), no director or officer of the Corporation shall be personally liable to the Corporation or its stockholders for money damages; provided, however, that nothing in this Section 2 protects or purports to protect any director or officer of the Corporation against any liability to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. No amendment, modification or repeal of this Section 2 shall adversely affect any right or protection of a director or officer that exists at the time of such amendment, modification or repeal. Section 3. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or who, while serving in such a capacity is or was also serving at the request of the Corporation as a director, officer, employee or agent of any other enterprise, protecting such person, to the fullest extent permitted by law (including the Maryland General Corporation Law and the 1940 Act), from liability arising from his activities or position as director, officer, employee, or agent of the Corporation or such other enterprise, whether or not the Corporation would have the power to indemnify such person against such liability. The Corporation, however, may not purchase insurance on behalf of any officer or director of the Corporation -15- 19 that protects or purports to protect such person from liability to the Corporation or to its stockholders to which such officer or director would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. The Corporation may purchase insurance to the extent provided in this Section 3 on behalf of an employee or agent who is not an officer or director of the Corporation. ARTICLE VI Stock Section 1. Certification for Stock. Each stockholder is entitled, upon written request, to certificates which represent and certify the shares of stock he holds in the Corporation. Each stock certificate shall include on its face the name of the corporation that issues it, the name of the stockholder or other person to whom it is issued, and the class of stock and number of shares it represents. It shall be in such form, not inconsistent with law or with the Charter, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the Chairman of the Board, the President, or a Vice-President, and countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Section 2. Transfers. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issuance, transfer and registration of certificates of stock; and may appoint transfer agents and registrars thereof. The duties of transfer agent and registrar may be combined. Section 3. Stock Ledger. The Corporation shall maintain a stock ledger which contains the name and address of each Stockholder and the number of shares of stock of each class which the stockholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock, within or without the State of Maryland, or, if none, at the principal -16- 20 office or the principal executive offices of the Corporation in the State of Maryland. Section 4. Certification of Beneficial Owners. The Board of Directors may adopt by resolution a procedure by which a stockholder of the Corporation may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may certify; the purpose for which the certification may be made; the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board considers necessary or desirable. On receipt of a certification which complies with the procedure adopted by the Board of Director in accordance with this Section, the person specified in the certification is, for the purpose set forth in the certification, the holder of record of the specified stock in place of the stockholder who makes the certification. Section 5. Lost Stock Certificates. The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate in place of one which is alleged to have been lost, stolen, or destroyed, or the Board of Directors may delegate such power to any officer or officers of the Corporation. In their discretion, the Board of Directors or such officer or officers may refuse to issue such new certificate save upon the order of some court having jurisdiction in the premises. Section 6. Fractional Shares. The Board of Directors may authorize the issue from time to time of shares of the capital stock of the Corporation in fractional denominations, provided that the transactions in which and the terms upon which shares in fractional denominations may be issued may from time to time be limited or determined by or under authority of the Board of Directors. Section 7. Repurchase and Redemption of Shares. All shares of the capital stock of the Corporation now or hereafter authorized shall be subject to redemption at the option of the Corporation's stockholders, and may be redeemed in the sense used in the laws of the State of Maryland governing corporations, at their net asset value determined in the manner set forth in these Bylaws. -17- 21 The Corporation will redeem from any stockholder all or any portion of the shares of capital stock owned by him provided that the stockholder delivers to the Corporation or its designated agent notice of such redemption, in the form and accompanied by such transfer documents as the Board of Directors of the Corporation shall require. The stockholder shall be entitled to payment in cash of the net asset value next computed after such delivery. The right to redeem may be suspended and the payment of the redemption price deferred during any period when the New York Stock Exchange is closed, other than customary weekend and holiday closings during periods when trading on the Exchange is restricted as determined by the Securities and Exchange Commission, or during any emergency as determined by the Commission, which makes it impracticable for the Corporation to dispose of its securities or value its assets, or during any other period permitted by order of the Commission for the protection of investors. The Corporation may at any time repurchase shares of its capital stock in the open market, or at private sale, or otherwise, in cash out of funds legally available therefor at a price not exceeding the net asset value at the time of purchase as determined in the manner set forth in these Bylaws, as authorized by the Board of Directors consistent with any applicable rules promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940, as amended. The right of the holder of shares of capital stock redeemed or repurchased by the Corporation as provided in this Section to receive dividends thereon and all other rights of such holder with respect to such shares shall forthwith cease and terminate from and after the time as of which the redemption or repurchase price of such shares has been determined (except the right of such holder to receive (a) the redemption or repurchase price of such shares from the Corporation or its designated agent, and (b) any unpaid dividend or distribution to which such holder had previously become entitled as the record holder of such shares on the record date for such dividend or distribution). ARTICLE VII Seal The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation and the year of its incorporation. Said seal may be used by causing it or a -18- 22 facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE VIII Fiscal Year Unless otherwise determined by the Board of Directors, the fiscal year of the Corporation shall end on the 31st day of October. ARTICLE IX Amendments Section 1. General. Except as provided in Section 2 of this Article IX, all By-Laws of the Corporation, whether adopted by the Board of Directors or the stockholders, shall be subject to amendment, alteration or repeal, and new By-Laws may be adopted, by the affirmative vote of a majority of either: (a) the holders of record of the outstanding shares of stock of the Corporation entitled to vote, at any annual or special meeting, the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new By-Law; or (b) the directors, at any regular or special meeting for which the notice or waiver of notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new By-Law. -19- EX-99.5A1 3 GLOBAL RESOURCES INVESTMENT ADVISORY AGMT 1 EXHIBIT 99.5a1 JOHN HANCOCK GLOBAL RESOURCES FUND, a series of John Hancock Series, Inc. Investment Management Contract Dated: December 22, 1994 2 JOHN HANCOCK GLOBAL RESOURCES FUND, a series of John Hancock Series, Inc. Boston, Massachusetts John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Investment Management Contract ------------------------------ Ladies and Gentlemen: John Hancock Series, Inc. (the "Corporation") has been organized as a corporation under the laws of the State of Maryland to engage in the business of an investment company. The Corporation's shares of common stock have been classified into one or more series representing the entire undivided interest in separate portfolios of the Corporation, including John Hancock Global Resources Fund (the "Fund"). The Directors of the Corporation (the "Directors") have selected John Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and management for the Fund, and to provide certain other services, as more fully set forth below, and you are willing to provide such advice, management and services under the terms and conditions hereinafter set forth. Accordingly, the Corporation agrees with you as follows: 1. DELIVERY OF DOCUMENTS. The Corporation has furnished you with copies, properly certified or otherwise authenticated, of each of the following: (a) Articles of Incorporation, dated June 22, 1987, as amended from time to time (the "Articles"); (b) By-Laws of the Corporation as in effect on the date hereof; (c) Resolutions of the Directors selecting the Adviser as investment adviser for the Corporation and the Fund and approving the form of this Agreement; and (d) Commitments, limitations and undertakings made by the Corporation to state securities or "blue sky" authorities for the purpose of qualifying shares of the 3 Fund for sale in such states. The Corporation will furnish you from time to time with copies, properly certified or otherwise authenticated, of all amendments of or supplements to the foregoing, if any. 2. INVESTMENT AND MANAGEMENT SERVICES. You will use your best efforts to provide to the Fund continuing and suitable investment programs with respect to investments, consistent with the investment policies, objectives and restrictions of the Fund. In the performance of the Adviser's duties hereunder, subject always (x) to the provisions contained in the documents delivered to the Adviser pursuant to Section 1, as each of the same may from time to time be amended or supplemented, and (y) to the limitations set forth in the registration statement of the Fund as in effect from time to time under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), the Adviser will, at its own expense: (a) furnish the Fund with advice and recommendations, consistent with the investment policies, objectives and restrictions of the Fund, with respect to the purchase, holding and disposition of portfolio securities; (b) advise the Fund in connection with policy decisions to be made by the Directors or any committee thereof with respect to the Fund's investments and, as requested, furnish the Fund with research, economic and statistical data in connection with the Fund's investments and investment policies; (c) provide administration of the day-to-day investment operations of the Fund; (d) submit such reports relating to the valuation of the Fund's securities as the Directors may reasonably request; (e) assist the Fund in any negotiations relating to the Fund's investments with issuers, investment banking firms, securities brokers or dealers and other institutions or investors; (f) consistent with the provisions of Section 6 of this Agreement, place orders for the purchase, sale or exchange of portfolio securities with brokers or dealers selected by you, PROVIDED that in connection with the placing of such orders and the selection of such brokers or dealers you shall seek to obtain execution and pricing within the policy guidelines determined by the Directors and set forth in the Prospectus and Statement of Additional Information of the Fund as in effect from time to time; 2 4 (g) provide office space and equipment and supplies, the use of accounting equipment when required, and necessary executive, clerical and secretarial personnel for the administration of the affairs of the Fund; (h) from time to time or at any time requested by the Directors, make reports to the Corporation of your performance of the foregoing services and furnish advice and recommendations with respect to other aspects of the business and affairs of the Fund; (i) maintain and preserve the records required by the Investment Company Act of 1940, as amended (the "1940 Act"), to be maintained and preserved by the Corporation on behalf of the Fund (you agree that such records are the property of the Corporation and will be surrendered to the Corporation promptly upon request therefor); (j) obtain and evaluate such information relating to economies, industries, businesses, securities markets and securities as you may deem necessary or useful in the discharge of your duties hereunder; (k) oversee, and use your best efforts to assure the performance of the activities and services of the custodian, transfer agent or other similar agents retained by the Corporation; and (l) give instructions to the Fund's custodian as to deliveries of securities to and from such custodian and transfer of payment of cash for the account of the Fund. The Adviser may engage one or more investment advisers which are either registered as such or specifically exempt from registration under the Investment Advisers Act of 1940, as amended, to act as subadvisers to provide with respect to the Fund certain services set forth in Section 2 of this Agreement, all as shall be set forth in a written contract, which contract shall be subject to approval by the vote of a majority of the Directors of the Corporation who are not interested persons of the Adviser, the subadviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval and by the vote of a majority of the outstanding voting securities of the Fund and otherwise consistent with the terms of the 1940 Act. Any fee, compensation or expense to be paid to any subadviser shall be paid by the Adviser, and no obligation to the subadviser shall be incurred on the Fund's or Corporation's behalf, except as agreed upon by the Directors of the Corporation and otherwise consistent with the terms of the 1940 Act. 3 5 3. Expenses of the Fund. You will pay: --------------------- (a) the compensation and expenses of all officers and employees of the Fund; (b) the expenses of office rent, telephone and other utilities, office furniture, equipment, supplies and other office expenses of the Fund; (c) any other expenses incurred by you in connection with the performance of your duties hereunder; and (d) premiums for such insurance as may be agreed upon by you and the Directors. 4. EXPENSES OF THE CORPORATION OR THE FUND NOT PAID BY YOU. You will not be required to pay any expenses which this Agreement does not expressly make payable by you. In particular, and without limiting the generality of the foregoing but subject to the provisions of Section 3, you will not be required to pay: (a) any and all expenses, taxes and governmental fees incurred by the Corporation or the Fund prior to the effective date of this Agreement; (b) without limiting the generality of the foregoing clause (a), the expenses of organizing the Fund (including without limitation, legal, accounting and auditing fees and expenses incurred in connection with the matters referred to in this clause (b)), of initially registering the shares of the Fund under the Securities Act of 1933, as amended, and of qualifying the shares for sale under state securities laws for the initial offering and sale of shares; (c) the compensation and expenses of Directors who are not interested persons (as used in this Agreement, such term shall have the meaning specified in the 1940 Act) of you, and of independent advisers, independent contractors, consultants, managers and other unaffiliated agents employed by the Corporation or the Fund other than through you; (d) legal, accounting and auditing fees and expenses of the Corporation or the Fund; (e) the fees or disbursements of custodians and depositories of the Fund's assets, transfer agents, disbursing agents, plan agents and registrars; 4 6 (f) taxes and governmental fees assessed against the Corporation's or the Fund's assets and payable by the Corporation; (g) the cost of preparing and mailing dividends, distributions, reports, notices and proxy materials to shareholders of the Fund; (h) brokers' commissions and underwriting fees; and (i) the expense of periodic calculations of the net asset value of the shares of the Fund. 5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by you as herein provided, the Fund will pay you monthly, a fee at the annual rate of 0.75% of the average daily net assets of the Fund. In the event that normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of any limitation imposed by a state where the Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any arrangements necessary to eliminate any remaining excess expenses. 6. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or sales of portfolio securities for the account of the Fund, neither your nor any investment management subsidiary of yours, nor any of your or their directors, officers or employees will act as principal or agent or receive any commission. If any occasion shall arise in which you advise persons concerning the shares of the Corporation, you will act solely on your own behalf and not in any way on behalf of the Corporation or the Fund. 7. NO PARTNERSHIP OR JOINT VENTURE. The Corporation, the Fund and you are not partners of or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on any of them. 8. NAME OF THE CORPORATION AND FUND. The Corporation and the Fund may use the name "John Hancock" or any name derived from or similar to the name "John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company" only for so long as this Agreement remains in effect. At such time as this Agreement shall no longer be in effect, the Corporation and the Fund will (to the extent they lawfully can) cease to use such a name or any other name indicating that the Fund is advised by or otherwise connected with you. The Corporation acknowledges that it has adopted the name "John Hancock Series, Inc." and the Fund has adopted the name "John Hancock Global Resources Fund" through permission of John Hancock Mutual Life Insurance Company, a Massachusetts insurance 5 7 company, and agrees that John Hancock Mutual Life Insurance Company reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which John Hancock Mutual Life Insurance Company or any subsidiary or affiliate thereof shall be the investment adviser. 9. LIMITATION OF LIABILITY OF THE ADVISER. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Corporation or the Fund shall be deemed, when acting within the scope of his employment by the Corporation or the Fund, to be acting in such employment solely for the Corporation or the Fund and not as your employee or agent. 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a majority of the Directors who are not interested persons of you or (other than as directors) of the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) either (i) the Directors or (ii) a majority of the outstanding voting securities of the Fund. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the Corporation or the Fund by vote of a majority of the outstanding voting securities of the Fund, by the Directors or by you. Termination of this Agreement with respect to the Fund shall not be deemed to terminate or otherwise invalidate any provisions of any contract between you and any other series of the Corporation. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 10, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "assignment," "interested person" and "voting security") shall be applied. 11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of this Agreement shall be effective until approved by (a) the Directors, including a majority of the Directors who are not interested persons of you or (other than as Directors) of the Corporation or the Fund, cast in person at a 6 8 meeting called for the purpose of voting on such approval, and (b) a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act. 12. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The names John Hancock Series, Inc. and John Hancock Global Resources Fund are the designations of the Directors under the Articles of Incorporation, dated June 22, 1987, as amended from time to time. The Articles of Incorporation and all amendments thereto have been filed with the Secretary of State of the State of Maryland. The obligations of the Corporation and the Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Directors, shareholders, officers, employees or agents of the Corporation or the Fund, but only the Fund's property shall be bound. The Fund shall not be liable for the obligations of any other series of the Corporation. 7 9 Very truly yours, JOHN HANCOCK SERIES, INC. on behalf of John Hancock Global Resources Fund /s/ Thomas M. Simmons By: ____________________________________ Thomas M. Simmons President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, INC. /s/ Anne C. Hodsdon By: ________________________ Anne C. Hodsdon Executive Vice President 8 EX-99.5A2 4 EMERGING GROWTH INVESTMENT ADVISORY AGMT 1 EXHIBIT 99.5a2 JOHN HANCOCK EMERGING GROWTH FUND, a series of John Hancock Series, Inc. Investment Management Contract Dated: December 22, 1994 2 JOHN HANCOCK EMERGING GROWTH FUND, a series of John Hancock Series, Inc. Boston, Massachusetts John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Investment Management Contract ------------------------------ Ladies and Gentlemen: John Hancock Series, Inc. (the "Corporation") has been organized as a corporation under the laws of the State of Maryland to engage in the business of an investment company. The Corporation's shares of common stock have been classified into one or more series representing the entire undivided interest in separate portfolios of the Corporation, including John Hancock Emerging Growth Fund (the "Fund"). The Directors of the Corporation (the "Directors") have selected John Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and management for the Fund, and to provide certain other services, as more fully set forth below, and you are willing to provide such advice, management and services under the terms and conditions hereinafter set forth. Accordingly, the Corporation agrees with you as follows: 1. DELIVERY OF DOCUMENTS. The Corporation has furnished you with copies, properly certified or otherwise authenticated, of each of the following: (a) Articles of Incorporation, dated June 22, 1987, as amended from time to time (the "Articles"); (b) By-Laws of the Corporation as in effect on the date hereof; (c) Resolutions of the Directors selecting the Adviser as investment adviser for the Corporation and the Fund and approving the form of this Agreement; and (d) Commitments, limitations and undertakings made by the Corporation to state securities or "blue sky" authorities for the purpose of qualifying shares of the 3 Fund for sale in such states. The Corporation will furnish you from time to time with copies, properly certified or otherwise authenticated, of all amendments of or supplements to the foregoing, if any. 2. INVESTMENT AND MANAGEMENT SERVICES. You will use your best efforts to provide to the Fund continuing and suitable investment programs with respect to investments, consistent with the investment policies, objectives and restrictions of the Fund. In the performance of the Adviser's duties hereunder, subject always (x) to the provisions contained in the documents delivered to the Adviser pursuant to Section 1, as each of the same may from time to time be amended or supplemented, and (y) to the limitations set forth in the registration statement of the Fund as in effect from time to time under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), the Adviser will, at its own expense: (a) furnish the Fund with advice and recommendations, consistent with the investment policies, objectives and restrictions of the Fund, with respect to the purchase, holding and disposition of portfolio securities; (b) advise the Fund in connection with policy decisions to be made by the Directors or any committee thereof with respect to the Fund's investments and, as requested, furnish the Fund with research, economic and statistical data in connection with the Fund's investments and investment policies; (c) provide administration of the day-to-day investment operations of the Fund; (d) submit such reports relating to the valuation of the Fund's securities as the Directors may reasonably request; (e) assist the Fund in any negotiations relating to the Fund's investments with issuers, investment banking firms, securities brokers or dealers and other institutions or investors; (f) consistent with the provisions of Section 6 of this Agreement, place orders for the purchase, sale or exchange of portfolio securities with brokers or dealers selected by you, PROVIDED that in connection with the placing of such orders and the selection of such brokers or dealers you shall seek to obtain execution and pricing within the policy guidelines determined by the Directors and set forth in the Prospectus and Statement of Additional Information of the Fund as in effect from time to time; 2 4 (g) provide office space and equipment and supplies, the use of accounting equipment when required, and necessary executive, clerical and secretarial personnel for the administration of the affairs of the Fund; (h) from time to time or at any time requested by the Directors, make reports to the Corporation of your performance of the foregoing services and furnish advice and recommendations with respect to other aspects of the business and affairs of the Fund; (i) maintain and preserve the records required by the Investment Company Act of 1940, as amended (the "1940 Act"), to be maintained and preserved by the Corporation on behalf of the Fund (you agree that such records are the property of the Corporation and will be surrendered to the Corporation promptly upon request therefor); (j) obtain and evaluate such information relating to economies, industries, businesses, securities markets and securities as you may deem necessary or useful in the discharge of your duties hereunder; (k) oversee, and use your best efforts to assure the performance of the activities and services of the custodian, transfer agent or other similar agents retained by the Corporation; and (l) give instructions to the Fund's custodian as to deliveries of securities to and from such custodian and transfer of payment of cash for the account of the Fund. The Adviser may engage one or more investment advisers which are either registered as such or specifically exempt from registration under the Investment Advisers Act of 1940, as amended, to act as subadvisers to provide with respect to the Fund certain services set forth in Section 2 of this Agreement, all as shall be set forth in a written contract, which contract shall be subject to approval by the vote of a majority of the Directors of the Corporation who are not interested persons of the Adviser, the subadviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval and by the vote of a majority of the outstanding voting securities of the Fund and otherwise consistent with the terms of the 1940 Act. Any fee, compensation or expense to be paid to any subadviser shall be paid by the Adviser, and no obligation to the subadviser shall be incurred on the Fund's or Corporation's behalf, except as agreed upon by the Directors of the Corporation and otherwise consistent with the terms of the 1940 Act. 3 5 3. Expenses of the Fund. You will pay: --------------------- (a) the compensation and expenses of all officers and employees of the Fund; (b) the expenses of office rent, telephone and other utilities, office furniture, equipment, supplies and other office expenses of the Fund; (c) any other expenses incurred by you in connection with the performance of your duties hereunder; and (d) premiums for such insurance as may be agreed upon by you and the Directors. 4. EXPENSES OF THE CORPORATION OR THE FUND NOT PAID BY YOU. You will not be required to pay any expenses which this Agreement does not expressly make payable by you. In particular, and without limiting the generality of the foregoing but subject to the provisions of Section 3, you will not be required to pay: (a) any and all expenses, taxes and governmental fees incurred by the Corporation or the Fund prior to the effective date of this Agreement; (b) without limiting the generality of the foregoing clause (a), the expenses of organizing the Fund (including without limitation, legal, accounting and auditing fees and expenses incurred in connection with the matters referred to in this clause (b)), of initially registering the shares of the Fund under the Securities Act of 1933, as amended, and of qualifying the shares for sale under state securities laws for the initial offering and sale of shares; (c) the compensation and expenses of Directors who are not interested persons (as used in this Agreement, such term shall have the meaning specified in the 1940 Act) of you, and of independent advisers, independent contractors, consultants, managers and other unaffiliated agents employed by the Corporation or the Fund other than through you; (d) legal, accounting and auditing fees and expenses of the Corporation or the Fund; (e) the fees or disbursements of custodians and depositories of the Fund's assets, transfer agents, disbursing agents, plan agents and registrars; 4 6 (f) taxes and governmental fees assessed against the Corporation's or the Fund's assets and payable by the Corporation; (g) the cost of preparing and mailing dividends, distributions, reports, notices and proxy materials to shareholders of the Fund; (h) brokers' commissions and underwriting fees; and (i) the expense of periodic calculations of the net asset value of the shares of the Fund. 5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by you as herein provided, the Fund will pay you monthly, a fee at the annual rate of 0.75% of the average daily net assets of the Fund. In the event that normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of any limitation imposed by a state where the Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any arrangements necessary to eliminate any remaining excess expenses. 6. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or sales of portfolio securities for the account of the Fund, neither your nor any investment management subsidiary of yours, nor any of your or their directors, officers or employees will act as principal or agent or receive any commission. If any occasion shall arise in which you advise persons concerning the shares of the Corporation, you will act solely on your own behalf and not in any way on behalf of the Corporation or the Fund. 7. NO PARTNERSHIP OR JOINT VENTURE. The Corporation, the Fund and you are not partners of or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on any of them. 8. NAME OF THE CORPORATION AND FUND. The Corporation and the Fund may use the name "John Hancock" or any name derived from or similar to the name "John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company" only for so long as this Agreement remains in effect. At such time as this Agreement shall no longer be in effect, the Corporation and the Fund will (to the extent they lawfully can) cease to use such a name or any other name indicating that the Fund is advised by or otherwise connected with you. The Corporation acknowledges that it has adopted the name "John Hancock Series, Inc." and the Fund has adopted the name "John Hancock Emerging Growth Fund" through permission of John Hancock Mutual Life Insurance Company, a Massachusetts insurance 5 7 company, and agrees that John Hancock Mutual Life Insurance Company reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which John Hancock Mutual Life Insurance Company or any subsidiary or affiliate thereof shall be the investment adviser. 9. LIMITATION OF LIABILITY OF THE ADVISER. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Corporation or the Fund shall be deemed, when acting within the scope of his employment by the Corporation or the Fund, to be acting in such employment solely for the Corporation or the Fund and not as your employee or agent. 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a majority of the Directors who are not interested persons of you or (other than as directors) of the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) either (i) the Directors or (ii) a majority of the outstanding voting securities of the Fund. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the Corporation or the Fund by vote of a majority of the outstanding voting securities of the Fund, by the Directors or by you. Termination of this Agreement with respect to the Fund shall not be deemed to terminate or otherwise invalidate any provisions of any contract between you and any other series of the Corporation. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 10, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "assignment," "interested person" and "voting security") shall be applied. 11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of this Agreement shall be effective until approved by (a) the Directors, including a majority of the Directors who are not interested persons of you or (other than as Directors) of the Corporation or the Fund, cast in person at a 6 8 meeting called for the purpose of voting on such approval, and (b) a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act. 12. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The names John Hancock Series, Inc. and John Hancock Emerging Growth Fund are the designations of the Directors under the Articles of Incorporation, dated June 22, 1987, as amended from time to time. The Articles of Incorporation and all amendments thereto have been filed with the Secretary of State of the State of Maryland. The obligations of the Corporation and the Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Directors, shareholders, officers, employees or agents of the Corporation or the Fund, but only the Fund's property shall be bound. The Fund shall not be liable for the obligations of any other series of the Corporation. 7 9 Very truly yours, JOHN HANCOCK SERIES, INC. on behalf of John Hancock Emerging Growth Fund /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, INC. /s/ Anne C. Hodsdon By: ________________________ Anne C. Hodsdon Executive Vice President 8 EX-99.5A3 5 HIGH YIELD TAX FREE INVESTMENT ADVISORY AGMT 1 EXHIBIT 99.5a3 JOHN HANCOCK HIGH YIELD TAX-FREE FUND, a series of John Hancock Series, Inc. Investment Management Contract Dated: December 22, 1994 2 JOHN HANCOCK HIGH YIELD TAX-FREE FUND, a series of John Hancock Series, Inc. Boston, Massachusetts John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Investment Management Contract ------------------------------ Ladies and Gentlemen: John Hancock Series, Inc. (the "Corporation") has been organized as a corporation under the laws of the State of Maryland to engage in the business of an investment company. The Corporation's shares of common stock have been classified into one or more series representing the entire undivided interest in separate portfolios of the Corporation, including John Hancock High Yield Tax-Free Fund (the "Fund"). The Directors of the Corporation (the "Directors") have selected John Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and management for the Fund, and to provide certain other services, as more fully set forth below, and you are willing to provide such advice, management and services under the terms and conditions hereinafter set forth. Accordingly, the Corporation agrees with you as follows: 1. DELIVERY OF DOCUMENTS. The Corporation has furnished you with copies, properly certified or otherwise authenticated, of each of the following: (a) Articles of Incorporation, dated June 22, 1987, as amended from time to time (the "Articles"); (b) By-Laws of the Corporation as in effect on the date hereof; (c) Resolutions of the Directors selecting the Adviser as investment adviser for the Corporation and the Fund and approving the form of this Agreement; and (d) Commitments, limitations and undertakings made by the Corporation to state securities or "blue sky" authorities for the purpose of qualifying shares of the 3 Fund for sale in such states. The Corporation will furnish you from time to time with copies, properly certified or otherwise authenticated, of all amendments of or supplements to the foregoing, if any. 2. INVESTMENT AND MANAGEMENT SERVICES. You will use your best efforts to provide to the Fund continuing and suitable investment programs with respect to investments, consistent with the investment policies, objectives and restrictions of the Fund. In the performance of the Adviser's duties hereunder, subject always (x) to the provisions contained in the documents delivered to the Adviser pursuant to Section 1, as each of the same may from time to time be amended or supplemented, and (y) to the limitations set forth in the registration statement of the Fund as in effect from time to time under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), the Adviser will, at its own expense: (a) furnish the Fund with advice and recommendations, consistent with the investment policies, objectives and restrictions of the Fund, with respect to the purchase, holding and disposition of portfolio securities; (b) advise the Fund in connection with policy decisions to be made by the Directors or any committee thereof with respect to the Fund's investments and, as requested, furnish the Fund with research, economic and statistical data in connection with the Fund's investments and investment policies; (c) provide administration of the day-to-day investment operations of the Fund; (d) submit such reports relating to the valuation of the Fund's securities as the Directors may reasonably request; (e) assist the Fund in any negotiations relating to the Fund's investments with issuers, investment banking firms, securities brokers or dealers and other institutions or investors; (f) consistent with the provisions of Section 6 of this Agreement, place orders for the purchase, sale or exchange of portfolio securities with brokers or dealers selected by you, PROVIDED that in connection with the placing of such orders and the selection of such brokers or dealers you shall seek to obtain execution and pricing within the policy guidelines determined by the Directors and set forth in the Prospectus and Statement of Additional Information of the Fund as in effect from time to time; 2 4 (g) provide office space and equipment and supplies, the use of accounting equipment when required, and necessary executive, clerical and secretarial personnel for the administration of the affairs of the Fund; (h) from time to time or at any time requested by the Directors, make reports to the Corporation of your performance of the foregoing services and furnish advice and recommendations with respect to other aspects of the business and affairs of the Fund; (i) maintain and preserve the records required by the Investment Company Act of 1940, as amended (the "1940 Act"), to be maintained and preserved by the Corporation on behalf of the Fund (you agree that such records are the property of the Corporation and will be surrendered to the Corporation promptly upon request therefor); (j) obtain and evaluate such information relating to economies, industries, businesses, securities markets and securities as you may deem necessary or useful in the discharge of your duties hereunder; (k) oversee, and use your best efforts to assure the performance of the activities and services of the custodian, transfer agent or other similar agents retained by the Corporation; and (l) give instructions to the Fund's custodian as to deliveries of securities to and from such custodian and transfer of payment of cash for the account of the Fund. The Adviser may engage one or more investment advisers which are either registered as such or specifically exempt from registration under the Investment Advisers Act of 1940, as amended, to act as subadvisers to provide with respect to the Fund certain services set forth in Section 2 of this Agreement, all as shall be set forth in a written contract, which contract shall be subject to approval by the vote of a majority of the Directors of the Corporation who are not interested persons of the Adviser, the subadviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval and by the vote of a majority of the outstanding voting securities of the Fund and otherwise consistent with the terms of the 1940 Act. Any fee, compensation or expense to be paid to any subadviser shall be paid by the Adviser, and no obligation to the subadviser shall be incurred on the Fund's or Corporation's behalf, except as agreed upon by the Directors of the Corporation and otherwise consistent with the terms of the 1940 Act. 3 5 3. Expenses of the Fund. You will pay: --------------------- (a) the compensation and expenses of all officers and employees of the Fund; (b) the expenses of office rent, telephone and other utilities, office furniture, equipment, supplies and other office expenses of the Fund; (c) any other expenses incurred by you in connection with the performance of your duties hereunder; and (d) premiums for such insurance as may be agreed upon by you and the Directors. 4. EXPENSES OF THE CORPORATION OR THE FUND NOT PAID BY YOU. You will not be required to pay any expenses which this Agreement does not expressly make payable by you. In particular, and without limiting the generality of the foregoing but subject to the provisions of Section 3, you will not be required to pay: (a) any and all expenses, taxes and governmental fees incurred by the Corporation or the Fund prior to the effective date of this Agreement; (b) without limiting the generality of the foregoing clause (a), the expenses of organizing the Fund (including without limitation, legal, accounting and auditing fees and expenses incurred in connection with the matters referred to in this clause (b)), of initially registering the shares of the Fund under the Securities Act of 1933, as amended, and of qualifying the shares for sale under state securities laws for the initial offering and sale of shares; (c) the compensation and expenses of Directors who are not interested persons (as used in this Agreement, such term shall have the meaning specified in the 1940 Act) of you, and of independent advisers, independent contractors, consultants, managers and other unaffiliated agents employed by the Corporation or the Fund other than through you; (d) legal, accounting and auditing fees and expenses of the Corporation or the Fund; (e) the fees or disbursements of custodians and depositories of the Fund's assets, transfer agents, disbursing agents, plan agents and registrars; 4 6 (f) taxes and governmental fees assessed against the Corporation's or the Fund's assets and payable by the Corporation; (g) the cost of preparing and mailing dividends, distributions, reports, notices and proxy materials to shareholders of the Fund; (h) brokers' commissions and underwriting fees; and (i) the expense of periodic calculations of the net asset value of the shares of the Fund. 5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by you as herein provided, the Fund will pay you monthly, a fee at the following annual rates of the Fund's average daily net assets:
Net Asset Value Annual Rate --------------- ----------- First $75 million 0.625% Next $75 million 0.5625% Amount over $150 million 0.500%
In the event that normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of any limitation imposed by a state where the Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any arrangements necessary to eliminate any remaining excess expenses. 6. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or sales of portfolio securities for the account of the Fund, neither your nor any investment management subsidiary of yours, nor any of your or their directors, officers or employees will act as principal or agent or receive any commission. If any occasion shall arise in which you advise persons concerning the shares of the Corporation, you will act solely on your own behalf and not in any way on behalf of the Corporation or the Fund. 7. NO PARTNERSHIP OR JOINT VENTURE. The Corporation, the Fund and you are not partners of or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on any of them. 8. NAME OF THE CORPORATION AND FUND. The Corporation and the Fund may use the name "John Hancock" or any name derived from or similar to the name "John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company" only for so long as this Agreement remains in effect. At such time as this Agreement shall no longer be in effect, the Corporation and the Fund will (to the extent 5 7 they lawfully can) cease to use such a name or any other name indicating that the Fund is advised by or otherwise connected with you. The Corporation acknowledges that it has adopted the name "John Hancock Series, Inc." and the Fund has adopted the name "John Hancock High Yield Tax-Free Fund" through permission of John Hancock Mutual Life Insurance Company, a Massachusetts insurance company, and agrees that John Hancock Mutual Life Insurance Company reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which John Hancock Mutual Life Insurance Company or any subsidiary or affiliate thereof shall be the investment adviser. 9. LIMITATION OF LIABILITY OF THE ADVISER. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Corporation or the Fund shall be deemed, when acting within the scope of his employment by the Corporation or the Fund, to be acting in such employment solely for the Corporation or the Fund and not as your employee or agent. 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a majority of the Directors who are not interested persons of you or (other than as directors) of the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) either (i) the Directors or (ii) a majority of the outstanding voting securities of the Fund. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the Corporation or the Fund by vote of a majority of the outstanding voting securities of the Fund, by the Directors or by you. Termination of this Agreement with respect to the Fund shall not be deemed to terminate or otherwise invalidate any provisions of any contract between you and any other series of the Corporation. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 10, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "assignment," "interested person" and "voting security") shall be applied. 11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which 6 8 enforcement of the change, waiver, discharge or termination is sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of this Agreement shall be effective until approved by (a) the Directors, including a majority of the Directors who are not interested persons of you or (other than as Directors) of the Corporation or the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act. 12. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The names John Hancock Series, Inc. and John Hancock High Yield Tax-Free Fund are the designations of the Directors under the Articles of Incorporation, dated June 22, 1987, as amended from time to time. The Articles of Incorporation and all amendments thereto have been filed with the Secretary of State of the State of Maryland. The obligations of the Corporation and the Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Directors, shareholders, officers, employees or agents of the Corporation or the Fund, but only the Fund's property shall be bound. The Fund shall not be liable for the obligations of any other series of the Corporation. 7 9 Very truly yours, JOHN HANCOCK SERIES, INC. on behalf of John Hancock High Yield Tax-Free Fund /s/ Thomas M. Simmons By: _________________________________ Thomas M. Simmons President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, INC. /s/ Anne C. Hodsdon By: _______________________ Anne C. Hodsdon Executive Vice President 8 EX-99.5A4 6 GOVERNMENT INCOME INVESTMENT ADVISORY AGMT 1 EXHIBIT 99.5a4 JOHN HANCOCK GOVERNMENT INCOME FUND, a series of John Hancock Series, Inc. Investment Management Contract Dated: December 22, 1994 2 JOHN HANCOCK GOVERNMENT INCOME FUND, a series of John Hancock Series, Inc. Boston, Massachusetts John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Investment Management Contract ------------------------------ Ladies and Gentlemen: John Hancock Series, Inc. (the "Corporation") has been organized as a corporation under the laws of the State of Maryland to engage in the business of an investment company. The Corporation's shares of common stock have been classified into one or more series representing the entire undivided interest in separate portfolios of the Corporation, including John Hancock Government Income Fund (the "Fund"). The Directors of the Corporation (the "Directors") have selected John Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and management for the Fund, and to provide certain other services, as more fully set forth below, and you are willing to provide such advice, management and services under the terms and conditions hereinafter set forth. Accordingly, the Corporation agrees with you as follows: 1. DELIVERY OF DOCUMENTS. The Corporation has furnished you with copies, properly certified or otherwise authenticated, of each of the following: (a) Articles of Incorporation, dated June 22, 1987, as amended from time to time (the "Articles"); (b) By-Laws of the Corporation as in effect on the date hereof; (c) Resolutions of the Directors selecting the Adviser as investment adviser for the Corporation and the Fund and approving the form of this Agreement; and (d) Commitments, limitations and undertakings made by the Corporation to state securities or "blue sky" authorities for the purpose of qualifying shares of the 3 Fund for sale in such states. The Corporation will furnish you from time to time with copies, properly certified or otherwise authenticated, of all amendments of or supplements to the foregoing, if any. 2. INVESTMENT AND MANAGEMENT SERVICES. You will use your best efforts to provide to the Fund continuing and suitable investment programs with respect to investments, consistent with the investment policies, objectives and restrictions of the Fund. In the performance of the Adviser's duties hereunder, subject always (x) to the provisions contained in the documents delivered to the Adviser pursuant to Section 1, as each of the same may from time to time be amended or supplemented, and (y) to the limitations set forth in the registration statement of the Fund as in effect from time to time under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), the Adviser will, at its own expense: (a) furnish the Fund with advice and recommendations, consistent with the investment policies, objectives and restrictions of the Fund, with respect to the purchase, holding and disposition of portfolio securities; (b) advise the Fund in connection with policy decisions to be made by the Directors or any committee thereof with respect to the Fund's investments and, as requested, furnish the Fund with research, economic and statistical data in connection with the Fund's investments and investment policies; (c) provide administration of the day-to-day investment operations of the Fund; (d) submit such reports relating to the valuation of the Fund's securities as the Directors may reasonably request; (e) assist the Fund in any negotiations relating to the Fund's investments with issuers, investment banking firms, securities brokers or dealers and other institutions or investors; (f) consistent with the provisions of Section 6 of this Agreement, place orders for the purchase, sale or exchange of portfolio securities with brokers or dealers selected by you, PROVIDED that in connection with the placing of such orders and the selection of such brokers or dealers you shall seek to obtain execution and pricing within the policy guidelines determined by the Directors and set forth in the Prospectus and Statement of Additional Information of the Fund as in effect from time to time; 2 4 (g) provide office space and equipment and supplies, the use of accounting equipment when required, and necessary executive, clerical and secretarial personnel for the administration of the affairs of the Fund; (h) from time to time or at any time requested by the Directors, make reports to the Corporation of your performance of the foregoing services and furnish advice and recommendations with respect to other aspects of the business and affairs of the Fund; (i) maintain and preserve the records required by the Investment Company Act of 1940, as amended (the "1940 Act"), to be maintained and preserved by the Corporation on behalf of the Fund (you agree that such records are the property of the Corporation and will be surrendered to the Corporation promptly upon request therefor); (j) obtain and evaluate such information relating to economies, industries, businesses, securities markets and securities as you may deem necessary or useful in the discharge of your duties hereunder; (k) oversee, and use your best efforts to assure the performance of the activities and services of the custodian, transfer agent or other similar agents retained by the Corporation; and (l) give instructions to the Fund's custodian as to deliveries of securities to and from such custodian and transfer of payment of cash for the account of the Fund. The Adviser may engage one or more investment advisers which are either registered as such or specifically exempt from registration under the Investment Advisers Act of 1940, as amended, to act as subadvisers to provide with respect to the Fund certain services set forth in Section 2 of this Agreement, all as shall be set forth in a written contract, which contract shall be subject to approval by the vote of a majority of the Directors of the Corporation who are not interested persons of the Adviser, the subadviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval and by the vote of a majority of the outstanding voting securities of the Fund and otherwise consistent with the terms of the 1940 Act. Any fee, compensation or expense to be paid to any subadviser shall be paid by the Adviser, and no obligation to the subadviser shall be incurred on the Fund's or Corporation's behalf, except as agreed upon by the Directors of the Corporation and otherwise consistent with the terms of the 1940 Act. 3 5 3. Expenses of the Fund. You will pay: --------------------- (a) the compensation and expenses of all officers and employees of the Fund; (b) the expenses of office rent, telephone and other utilities, office furniture, equipment, supplies and other office expenses of the Fund; (c) any other expenses incurred by you in connection with the performance of your duties hereunder; and (d) premiums for such insurance as may be agreed upon by you and the Directors. 4. EXPENSES OF THE CORPORATION OR THE FUND NOT PAID BY YOU. You will not be required to pay any expenses which this Agreement does not expressly make payable by you. In particular, and without limiting the generality of the foregoing but subject to the provisions of Section 3, you will not be required to pay: (a) any and all expenses, taxes and governmental fees incurred by the Corporation or the Fund prior to the effective date of this Agreement; (b) without limiting the generality of the foregoing clause (a), the expenses of organizing the Fund (including without limitation, legal, accounting and auditing fees and expenses incurred in connection with the matters referred to in this clause (b)), of initially registering the shares of the Fund under the Securities Act of 1933, as amended, and of qualifying the shares for sale under state securities laws for the initial offering and sale of shares; (c) the compensation and expenses of Directors who are not interested persons (as used in this Agreement, such term shall have the meaning specified in the 1940 Act) of you, and of independent advisers, independent contractors, consultants, managers and other unaffiliated agents employed by the Corporation or the Fund other than through you; (d) legal, accounting and auditing fees and expenses of the Corporation or the Fund; (e) the fees or disbursements of custodians and depositories of the Fund's assets, transfer agents, disbursing agents, plan agents and registrars; 4 6 (f) taxes and governmental fees assessed against the Corporation's or the Fund's assets and payable by the Corporation; (g) the cost of preparing and mailing dividends, distributions, reports, notices and proxy materials to shareholders of the Fund; (h) brokers' commissions and underwriting fees; and (i) the expense of periodic calculations of the net asset value of the shares of the Fund. 5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by you as herein provided, the Fund will pay you monthly, a fee at the following annual rates of the Fund's average daily net assets:
Net Asset Value Annual Rate --------------- ----------- First $200 million 0.650% Next $300 million 0.625% Amount over $500 million 0.600%
In the event that normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of any limitation imposed by a state where the Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any arrangements necessary to eliminate any remaining excess expenses. 6. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or sales of portfolio securities for the account of the Fund, neither your nor any investment management subsidiary of yours, nor any of your or their directors, officers or employees will act as principal or agent or receive any commission. If any occasion shall arise in which you advise persons concerning the shares of the Corporation, you will act solely on your own behalf and not in any way on behalf of the Corporation or the Fund. 7. NO PARTNERSHIP OR JOINT VENTURE. The Corporation, the Fund and you are not partners of or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on any of them. 8. NAME OF THE CORPORATION AND FUND. The Corporation and the Fund may use the name "John Hancock" or any name derived from or similar to the name "John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company" only for so long as this Agreement remains in effect. At such time as this Agreement shall no longer be in effect, the Corporation and the Fund will (to the extent 5 7 they lawfully can) cease to use such a name or any other name indicating that the Fund is advised by or otherwise connected with you. The Corporation acknowledges that it has adopted the name "John Hancock Series, Inc." and the Fund has adopted the name "John Hancock Government Income Fund" through permission of John Hancock Mutual Life Insurance Company, a Massachusetts insurance company, and agrees that John Hancock Mutual Life Insurance Company reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which John Hancock Mutual Life Insurance Company or any subsidiary or affiliate thereof shall be the investment adviser. 9. LIMITATION OF LIABILITY OF THE ADVISER. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Corporation or the Fund shall be deemed, when acting within the scope of his employment by the Corporation or the Fund, to be acting in such employment solely for the Corporation or the Fund and not as your employee or agent. 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a majority of the Directors who are not interested persons of you or (other than as directors) of the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) either (i) the Directors or (ii) a majority of the outstanding voting securities of the Fund. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the Corporation or the Fund by vote of a majority of the outstanding voting securities of the Fund, by the Directors or by you. Termination of this Agreement with respect to the Fund shall not be deemed to terminate or otherwise invalidate any provisions of any contract between you and any other series of the Corporation. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 10, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "assignment," "interested person" and "voting security") shall be applied. 11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which 6 8 enforcement of the change, waiver, discharge or termination is sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of this Agreement shall be effective until approved by (a) the Directors, including a majority of the Directors who are not interested persons of you or (other than as Directors) of the Corporation or the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act. 12. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The names John Hancock Series, Inc. and John Hancock Government Income Fund are the designations of the Directors under the Articles of Incorporation, dated June 22, 1987, as amended from time to time. The Articles of Incorporation and all amendments thereto have been filed with the Secretary of State of the State of Maryland. The obligations of the Corporation and the Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Directors, shareholders, officers, employees or agents of the Corporation or the Fund, but only the Fund's property shall be bound. The Fund shall not be liable for the obligations of any other series of the Corporation. 7 9 Very truly yours, JOHN HANCOCK SERIES, INC. on behalf of John Hancock Government Income Fund /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, INC. /s/ Anne C. Hodsdon By: ________________________ Anne C. Hodsdon Executive Vice President 8 EX-99.5A5 7 MONEY MARKET "B" INVESTMENT ADVISORY AGMT 1 EXHIBIT 99.5A5 JOHN HANCOCK MONEY MARKET FUND B, a series of John Hancock Series, Inc. Investment Management Contract Dated: December 22, 1994 2 JOHN HANCOCK MONEY MARKET FUND B, a series of John Hancock Series, Inc. Boston, Massachusetts John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Investment Management Contract ------------------------------ Ladies and Gentlemen: John Hancock Series, Inc. (the "Corporation") has been organized as a corporation under the laws of the State of Maryland to engage in the business of an investment company. The Corporation's shares of common stock have been classified into one or more series representing the entire undivided interest in separate portfolios of the Corporation, including John Hancock Money Market Fund B (the "Fund"). The Directors of the Corporation (the "Directors") have selected John Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and management for the Fund, and to provide certain other services, as more fully set forth below, and you are willing to provide such advice, management and services under the terms and conditions hereinafter set forth. Accordingly, the Corporation agrees with you as follows: 1. DELIVERY OF DOCUMENTS. The Corporation has furnished you with copies, properly certified or otherwise authenticated, of each of the following: (a) Articles of Incorporation, dated June 22, 1987, as amended from time to time (the "Articles"); (b) By-Laws of the Corporation as in effect on the date hereof; (c) Resolutions of the Directors selecting the Adviser as investment adviser for the Corporation and the Fund and approving the form of this Agreement; and (d) Commitments, limitations and undertakings made by the Corporation to state securities or "blue sky" authorities for the purpose of qualifying shares of the 3 Fund for sale in such states. The Corporation will furnish you from time to time with copies, properly certified or otherwise authenticated, of all amendments of or supplements to the foregoing, if any. 2. INVESTMENT AND MANAGEMENT SERVICES. You will use your best efforts to provide to the Fund continuing and suitable investment programs with respect to investments, consistent with the investment policies, objectives and restrictions of the Fund. In the performance of the Adviser's duties hereunder, subject always (x) to the provisions contained in the documents delivered to the Adviser pursuant to Section 1, as each of the same may from time to time be amended or supplemented, and (y) to the limitations set forth in the registration statement of the Fund as in effect from time to time under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), the Adviser will, at its own expense: (a) furnish the Fund with advice and recommendations, consistent with the investment policies, objectives and restrictions of the Fund, with respect to the purchase, holding and disposition of portfolio securities; (b) advise the Fund in connection with policy decisions to be made by the Directors or any committee thereof with respect to the Fund's investments and, as requested, furnish the Fund with research, economic and statistical data in connection with the Fund's investments and investment policies; (c) provide administration of the day-to-day investment operations of the Fund; (d) submit such reports relating to the valuation of the Fund's securities as the Directors may reasonably request; (e) assist the Fund in any negotiations relating to the Fund's investments with issuers, investment banking firms, securities brokers or dealers and other institutions or investors; (f) consistent with the provisions of Section 6 of this Agreement, place orders for the purchase, sale or exchange of portfolio securities with brokers or dealers selected by you, PROVIDED that in connection with the placing of such orders and the selection of such brokers or dealers you shall seek to obtain execution and pricing within the policy guidelines determined by the Directors and set forth in the Prospectus and Statement of Additional Information of the Fund as in effect from time to time; 2 4 (g) provide office space and equipment and supplies, the use of accounting equipment when required, and necessary executive, clerical and secretarial personnel for the administration of the affairs of the Fund; (h) from time to time or at any time requested by the Directors, make reports to the Corporation of your performance of the foregoing services and furnish advice and recommendations with respect to other aspects of the business and affairs of the Fund; (i) maintain and preserve the records required by the Investment Company Act of 1940, as amended (the "1940 Act"), to be maintained and preserved by the Corporation on behalf of the Fund (you agree that such records are the property of the Corporation and will be surrendered to the Corporation promptly upon request therefor); (j) obtain and evaluate such information relating to economies, industries, businesses, securities markets and securities as you may deem necessary or useful in the discharge of your duties hereunder; (k) oversee, and use your best efforts to assure the performance of the activities and services of the custodian, transfer agent or other similar agents retained by the Corporation; and (l) give instructions to the Fund's custodian as to deliveries of securities to and from such custodian and transfer of payment of cash for the account of the Fund. The Adviser may engage one or more investment advisers which are either registered as such or specifically exempt from registration under the Investment Advisers Act of 1940, as amended, to act as subadvisers to provide with respect to the Fund certain services set forth in Section 2 of this Agreement, all as shall be set forth in a written contract, which contract shall be subject to approval by the vote of a majority of the Directors of the Corporation who are not interested persons of the Adviser, the subadviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval and by the vote of a majority of the outstanding voting securities of the Fund and otherwise consistent with the terms of the 1940 Act. Any fee, compensation or expense to be paid to any subadviser shall be paid by the Adviser, and no obligation to the subadviser shall be incurred on the Fund's or Corporation's behalf, except as agreed upon by the Directors of the Corporation and otherwise consistent with the terms of the 1940 Act. 3 5 3. Expenses of the Fund. You will pay: --------------------- (a) the compensation and expenses of all officers and employees of the Fund; (b) the expenses of office rent, telephone and other utilities, office furniture, equipment, supplies and other office expenses of the Fund; (c) any other expenses incurred by you in connection with the performance of your duties hereunder; and (d) premiums for such insurance as may be agreed upon by you and the Directors. 4. EXPENSES OF THE CORPORATION OR THE FUND NOT PAID BY YOU. You will not be required to pay any expenses which this Agreement does not expressly make payable by you. In particular, and without limiting the generality of the foregoing but subject to the provisions of Section 3, you will not be required to pay: (a) any and all expenses, taxes and governmental fees incurred by the Corporation or the Fund prior to the effective date of this Agreement; (b) without limiting the generality of the foregoing clause (a), the expenses of organizing the Fund (including without limitation, legal, accounting and auditing fees and expenses incurred in connection with the matters referred to in this clause (b)), of initially registering the shares of the Fund under the Securities Act of 1933, as amended, and of qualifying the shares for sale under state securities laws for the initial offering and sale of shares; (c) the compensation and expenses of Directors who are not interested persons (as used in this Agreement, such term shall have the meaning specified in the 1940 Act) of you, and of independent advisers, independent contractors, consultants, managers and other unaffiliated agents employed by the Corporation or the Fund other than through you; (d) legal, accounting and auditing fees and expenses of the Corporation or the Fund; (e) the fees or disbursements of custodians and depositories of the Fund's assets, transfer agents, disbursing agents, plan agents and registrars; 4 6 (f) taxes and governmental fees assessed against the Corporation's or the Fund's assets and payable by the Corporation; (g) the cost of preparing and mailing dividends, distributions, reports, notices and proxy materials to shareholders of the Fund; (h) brokers' commissions and underwriting fees; and (i) the expense of periodic calculations of the net asset value of the shares of the Fund. 5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by you as herein provided, the Fund will pay you monthly, a fee at the following annual rates of the Fund's average daily net assets:
Net Asset Value Annual Rate --------------- ----------- First $500 million 0.5000% Next $250 million 0.4250% Next $250 million 0.3750% Next $500 million 0.3500% Next $500 million 0.3250% Next $500 million 0.3000% Amount over $2.5 billion 0.2750%
In the event that normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of any limitation imposed by a state where the Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any arrangements necessary to eliminate any remaining excess expenses. 6. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or sales of portfolio securities for the account of the Fund, neither your nor any investment management subsidiary of yours, nor any of your or their directors, officers or employees will act as principal or agent or receive any commission. If any occasion shall arise in which you advise persons concerning the shares of the Corporation, you will act solely on your own behalf and not in any way on behalf of the Corporation or the Fund. 7. NO PARTNERSHIP OR JOINT VENTURE. The Corporation, the Fund and you are not partners of or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on any of them. 5 7 8. NAME OF THE CORPORATION AND FUND. The Corporation and the Fund may use the name "John Hancock" or any name derived from or similar to the name "John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company" only for so long as this Agreement remains in effect. At such time as this Agreement shall no longer be in effect, the Corporation and the Fund will (to the extent they lawfully can) cease to use such a name or any other name indicating that the Fund is advised by or otherwise connected with you. The Corporation acknowledges that it has adopted the name "John Hancock Series, Inc." and the Fund has adopted the name "John Hancock Money Market Fund B" through permission of John Hancock Mutual Life Insurance Company, a Massachusetts insurance company, and agrees that John Hancock Mutual Life Insurance Company reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which John Hancock Mutual Life Insurance Company or any subsidiary or affiliate thereof shall be the investment adviser. 9. LIMITATION OF LIABILITY OF THE ADVISER. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Corporation or the Fund shall be deemed, when acting within the scope of his employment by the Corporation or the Fund, to be acting in such employment solely for the Corporation or the Fund and not as your employee or agent. 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a majority of the Directors who are not interested persons of you or (other than as directors) of the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) either (i) the Directors or (ii) a majority of the outstanding voting securities of the Fund. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the Corporation or the Fund by vote of a majority of the outstanding voting securities of the Fund, by the Directors or by you. Termination of this Agreement with respect to the Fund shall not be deemed to terminate or otherwise invalidate any provisions of any contract between you and any other series of the Corporation. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 10, the definitions contained in Section 2(a) of the 1940 Act 6 8 (particularly the definitions of "assignment," "interested person" and "voting security") shall be applied. 11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of this Agreement shall be effective until approved by (a) the Directors, including a majority of the Directors who are not interested persons of you or (other than as Directors) of the Corporation or the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act. 12. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The names John Hancock Series, Inc. and John Hancock Money Market Fund B are the designations of the Directors under the Articles of Incorporation, dated June 22, 1987, as amended from time to time. The Articles of Incorporation and all amendments thereto have been filed with the Secretary of State of the State of Maryland. The obligations of the Corporation and the Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Directors, shareholders, officers, employees or agents of the Corporation or the Fund, but only the Fund's property shall be bound. The Fund shall not be liable for the obligations of any other series of the Corporation. 7 9 Very truly yours, JOHN HANCOCK SERIES, INC. on behalf of John Hancock Money Market Fund B /s/ Thomas M. Simmons By: _________________________________ Thomas M. Simmons President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, INC. /s/ Anne C. Hodsdon By: ________________________ Anne C. Hodsdon Executive Vice President 8 EX-99.5A6 8 HIGHT YIELD BOND INVESTMENT ADVISORY AGMT 1 EXHIBIT 99.5a6 JOHN HANCOCK HIGH YIELD BOND FUND, a series of John Hancock Series, Inc. Investment Management Contract Dated: December 22, 1994 2 JOHN HANCOCK HIGH YIELD BOND FUND, a series of John Hancock Series, Inc. Boston, Massachusetts John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Investment Management Contract ------------------------------ Ladies and Gentlemen: John Hancock Series, Inc. (the "Corporation") has been organized as a corporation under the laws of the State of Maryland to engage in the business of an investment company. The Corporation's shares of common stock have been classified into one or more series representing the entire undivided interest in separate portfolios of the Corporation, including John Hancock High Yield Bond Fund (the "Fund"). The Directors of the Corporation (the "Directors") have selected John Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and management for the Fund, and to provide certain other services, as more fully set forth below, and you are willing to provide such advice, management and services under the terms and conditions hereinafter set forth. Accordingly, the Corporation agrees with you as follows: 1. DELIVERY OF DOCUMENTS. The Corporation has furnished you with copies, properly certified or otherwise authenticated, of each of the following: (a) Articles of Incorporation, dated June 22, 1987, as amended from time to time (the "Articles"); (b) By-Laws of the Corporation as in effect on the date hereof; (c) Resolutions of the Directors selecting the Adviser as investment adviser for the Corporation and the Fund and approving the form of this Agreement; and (d) Commitments, limitations and undertakings made by the Corporation to state securities or "blue sky" authorities for the purpose of qualifying shares of the 3 Fund for sale in such states. The Corporation will furnish you from time to time with copies, properly certified or otherwise authenticated, of all amendments of or supplements to the foregoing, if any. 2. INVESTMENT AND MANAGEMENT SERVICES. You will use your best efforts to provide to the Fund continuing and suitable investment programs with respect to investments, consistent with the investment policies, objectives and restrictions of the Fund. In the performance of the Adviser's duties hereunder, subject always (x) to the provisions contained in the documents delivered to the Adviser pursuant to Section 1, as each of the same may from time to time be amended or supplemented, and (y) to the limitations set forth in the registration statement of the Fund as in effect from time to time under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), the Adviser will, at its own expense: (a) furnish the Fund with advice and recommendations, consistent with the investment policies, objectives and restrictions of the Fund, with respect to the purchase, holding and disposition of portfolio securities; (b) advise the Fund in connection with policy decisions to be made by the Directors or any committee thereof with respect to the Fund's investments and, as requested, furnish the Fund with research, economic and statistical data in connection with the Fund's investments and investment policies; (c) provide administration of the day-to-day investment operations of the Fund; (d) submit such reports relating to the valuation of the Fund's securities as the Directors may reasonably request; (e) assist the Fund in any negotiations relating to the Fund's investments with issuers, investment banking firms, securities brokers or dealers and other institutions or investors; (f) consistent with the provisions of Section 6 of this Agreement, place orders for the purchase, sale or exchange of portfolio securities with brokers or dealers selected by you, PROVIDED that in connection with the placing of such orders and the selection of such brokers or dealers you shall seek to obtain execution and pricing within the policy guidelines determined by the Directors and set forth in the Prospectus and Statement of Additional Information of the Fund as in effect from time to time; 2 4 (g) provide office space and equipment and supplies, the use of accounting equipment when required, and necessary executive, clerical and secretarial personnel for the administration of the affairs of the Fund; (h) from time to time or at any time requested by the Directors, make reports to the Corporation of your performance of the foregoing services and furnish advice and recommendations with respect to other aspects of the business and affairs of the Fund; (i) maintain and preserve the records required by the Investment Company Act of 1940, as amended (the "1940 Act"), to be maintained and preserved by the Corporation on behalf of the Fund (you agree that such records are the property of the Corporation and will be surrendered to the Corporation promptly upon request therefor); (j) obtain and evaluate such information relating to economies, industries, businesses, securities markets and securities as you may deem necessary or useful in the discharge of your duties hereunder; (k) oversee, and use your best efforts to assure the performance of the activities and services of the custodian, transfer agent or other similar agents retained by the Corporation; and (l) give instructions to the Fund's custodian as to deliveries of securities to and from such custodian and transfer of payment of cash for the account of the Fund. The Adviser may engage one or more investment advisers which are either registered as such or specifically exempt from registration under the Investment Advisers Act of 1940, as amended, to act as subadvisers to provide with respect to the Fund certain services set forth in Section 2 of this Agreement, all as shall be set forth in a written contract, which contract shall be subject to approval by the vote of a majority of the Directors of the Corporation who are not interested persons of the Adviser, the subadviser or the Fund, cast in person at a meeting called for the purpose of voting on such approval and by the vote of a majority of the outstanding voting securities of the Fund and otherwise consistent with the terms of the 1940 Act. Any fee, compensation or expense to be paid to any subadviser shall be paid by the Adviser, and no obligation to the subadviser shall be incurred on the Fund's or Corporation's behalf, except as agreed upon by the Directors of the Corporation and otherwise consistent with the terms of the 1940 Act. 3 5 3. Expenses of the Fund. You will pay: -------------------- (a) the compensation and expenses of all officers and employees of the Fund; (b) the expenses of office rent, telephone and other utilities, office furniture, equipment, supplies and other office expenses of the Fund; (c) any other expenses incurred by you in connection with the performance of your duties hereunder; and (d) premiums for such insurance as may be agreed upon by you and the Directors. 4. EXPENSES OF THE CORPORATION OR THE FUND NOT PAID BY YOU. You will not be required to pay any expenses which this Agreement does not expressly make payable by you. In particular, and without limiting the generality of the foregoing but subject to the provisions of Section 3, you will not be required to pay: (a) any and all expenses, taxes and governmental fees incurred by the Corporation or the Fund prior to the effective date of this Agreement; (b) without limiting the generality of the foregoing clause (a), the expenses of organizing the Fund (including without limitation, legal, accounting and auditing fees and expenses incurred in connection with the matters referred to in this clause (b)), of initially registering the shares of the Fund under the Securities Act of 1933, as amended, and of qualifying the shares for sale under state securities laws for the initial offering and sale of shares; (c) the compensation and expenses of Directors who are not interested persons (as used in this Agreement, such term shall have the meaning specified in the 1940 Act) of you, and of independent advisers, independent contractors, consultants, managers and other unaffiliated agents employed by the Corporation or the Fund other than through you; (d) legal, accounting and auditing fees and expenses of the Corporation or the Fund; (e) the fees or disbursements of custodians and depositories of the Fund's assets, transfer agents, disbursing agents, plan agents and registrars; 4 6 (f) taxes and governmental fees assessed against the Corporation's or the Fund's assets and payable by the Corporation; (g) the cost of preparing and mailing dividends, distributions, reports, notices and proxy materials to shareholders of the Fund; (h) brokers' commissions and underwriting fees; and (i) the expense of periodic calculations of the net asset value of the shares of the Fund. 5. COMPENSATION OF THE ADVISER. For all services to be rendered, facilities furnished and expenses paid or assumed by you as herein provided, the Fund will pay you monthly, a fee at the following annual rates of the Fund's average daily net assets:
Net Asset Value Annual Rate --------------- ----------- First $75 million 0.625% Next $75 million 0.5625% Amount over $150 million 0.500%
In the event that normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of any limitation imposed by a state where the Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any arrangements necessary to eliminate any remaining excess expenses. 6. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or sales of portfolio securities for the account of the Fund, neither your nor any investment management subsidiary of yours, nor any of your or their directors, officers or employees will act as principal or agent or receive any commission. If any occasion shall arise in which you advise persons concerning the shares of the Corporation, you will act solely on your own behalf and not in any way on behalf of the Corporation or the Fund. 7. NO PARTNERSHIP OR JOINT VENTURE. The Corporation, the Fund and you are not partners of or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on any of them. 8. NAME OF THE CORPORATION AND FUND. The Corporation and the Fund may use the name "John Hancock" or any name derived from or similar to the name "John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company" only for so long as this Agreement remains in effect. At such time as this Agreement shall no longer be in effect, the Corporation and the Fund will (to the extent 5 7 they lawfully can) cease to use such a name or any other name indicating that the Fund is advised by or otherwise connected with you. The Corporation acknowledges that it has adopted the name "John Hancock Series, Inc." and the Fund has adopted the name "John Hancock High Yield Bond Fund" through permission of John Hancock Mutual Life Insurance Company, a Massachusetts insurance company, and agrees that John Hancock Mutual Life Insurance Company reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which John Hancock Mutual Life Insurance Company or any subsidiary or affiliate thereof shall be the investment adviser. 9. LIMITATION OF LIABILITY OF THE ADVISER. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Corporation or the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Corporation or the Fund shall be deemed, when acting within the scope of his employment by the Corporation or the Fund, to be acting in such employment solely for the Corporation or the Fund and not as your employee or agent. 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a majority of the Directors who are not interested persons of you or (other than as directors) of the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) either (i) the Directors or (ii) a majority of the outstanding voting securities of the Fund. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the Corporation or the Fund by vote of a majority of the outstanding voting securities of the Fund, by the Directors or by you. Termination of this Agreement with respect to the Fund shall not be deemed to terminate or otherwise invalidate any provisions of any contract between you and any other series of the Corporation. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 10, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "assignment," "interested person" and "voting security") shall be applied. 11. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which 6 8 enforcement of the change, waiver, discharge or termination is sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of this Agreement shall be effective until approved by (a) the Directors, including a majority of the Directors who are not interested persons of you or (other than as Directors) of the Corporation or the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) a majority of the outstanding voting securities of the Fund, as defined in the 1940 Act. 12. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The names John Hancock Series, Inc. and John Hancock High Yield Bond Fund are the designations of the Directors under the Articles of Incorporation, dated June 22, 1987, as amended from time to time. The Articles of Incorporation and all amendments thereto have been filed with the Secretary of State of the State of Maryland. The obligations of the Corporation and the Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Directors, shareholders, officers, employees or agents of the Corporation or the Fund, but only the Fund's property shall be bound. The Fund shall not be liable for the obligations of any other series of the Corporation. 7 9 Very truly yours, JOHN HANCOCK SERIES, INC. on behalf of John Hancock High Yield Bond Fund /s/ Thomas M. Simmons By: __________________________________ Thomas M. Simmons President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, INC. /s/ Anne C. Hodsdon By: _______________________ Anne C. Hodsdon Executive Vice President 8 EX-99.5B1 9 HIGH YIELD TAX-FREE SUB-ADVISORY AGMT 1 EXHIBIT 99.5b1 JOHN HANCOCK HIGH YIELD TAX-FREE FUND, a series of JOHN HANCOCK SERIES, INC. SUB-ADVISORY AGREEMENT Agreement made as of December 22, 1994 between John Hancock Advisers, Inc., (the "Investment Manager"), and Transamerica Investment Services, Inc., a Delaware corporation (the "Sub- adviser"). WHEREAS, the Investment Manager has entered into an Investment Management Agreement dated December 22, 1994 (the "Investment Management Agreement"), with John Hancock High Yield Tax-Free Fund (the "Fund"), a series of John Hancock Series, Inc. (the "Corporation"), pursuant to which the Investment Manager will act as Investment Manager of the Fund. WHEREAS, the Investment Manager desires to retain the Sub- adviser to provide investment advisory services to the Fund in connection with the management of the Fund and the Sub-adviser is willing to render such investment advisory services. NOW, THEREFORE, the Parties agree as follows: 1. (a) Subject to the supervision of the Investment Manager and of the Directors of the Corporation, the Sub-adviser shall manage the investment operations of the Fund and the composition of the Fund's portfolio, including the purchase, retention and disposition thereof, in accordance with the Fund's investment objectives, policies and restrictions as stated in the Prospectus (such Prospectus and Statement of Additional Information as currently in effect and as amended or supplemented from time to time, being herein called the "Prospectus"), and subject to the following understandings: (i) The Sub-adviser shall provide supervision of the Fund's investments and shall determine from time to time what investments and securities will be purchased, retained, sold or loaned by the Fund, and what portion of the assets will be invested or held uninvested as cash. (ii) In the performance of its duties and obligations under this Agreement, the Sub-adviser shall act in conformity with the Charter, By-Laws and Prospectus of the 2 Fund and with the instructions and directions of the Investment Manager and of the Directors of the Corporation and will conform to and comply with the requirements of the Investment Company Act of 1940 (the "1940 Act"), the Internal Revenue Code, as amended, and all other applicable federal and state laws and regulations. (iii) The Sub-adviser shall determine the securities to be purchased or sold by the Fund and will place orders with or through such persons, brokers or dealers in the manner as set forth in the Fund's Registration Statement and Prospectus or as the Directors may direct from time to time. (iv) The Sub-adviser shall provide both the Fund's Custodian and the Investment Manager on each business day with information relating to all transactions concerning the Fund's assets. (v) The investment management services provided by the Sub-adviser hereunder are not to be deemed exclusive, and the Sub-adviser shall be free to render similar services to others. (b) The Sub-adviser shall authorize and permit any of its directors, officers and employees who may be elected as Directors or officers of the Corporation to serve in the capacities in which they are elected. Services to be furnished by the Sub-adviser under this Agreement may be furnished through the medium of any of such directors, officers or employees. (c) The Sub-adviser shall keep the Fund's books and records required to be maintained by the Sub-adviser pursuant to Paragraph 1(a) hereof and as required by Rule 31a-1 (pursuant to subsections (b)(5), (b)(9), (b)(10), (b)(11) and (f)) and shall timely furnish to the Investment Manager all information relating to the Sub-adviser's services hereunder needed by the Investment Manager to keep the other books and records of the Fund required by Rule 31a-1 under the 1940 Act. The Sub-adviser agrees that all records which it maintains for the Fund are the property of the Fund and the Sub-adviser will surrender promptly to the Fund any of such records upon the Fund's request, provided however that the Sub-adviser may retain a copy of such records. The Sub-adviser further agrees to preserve for the periods prescribed by Rule 31a-2 of the Securities and Exchange Commission under the 1940 Act any such records as are required to be maintained by it pursuant to paragraph 1(a) hereof. -2- 3 2. The Investment Manager shall continue to have responsibility for all services to be provided to the Fund pursuant to the Investment Management Agreement and shall oversee and review the Sub-adviser's performance of its duties under this Agreement. 3. The Investment Manager shall reimburse the Sub-adviser for reasonable costs and expenses incurred by the Sub-adviser in furnishing the services described in paragraph 1 hereof, such costs and expenses to be determined in a manner acceptable to the Investment Manager and Sub-adviser. 4. The Sub-adviser shall not be liable for any error of judgment or for any loss suffered by the Fund or the Investment Manager in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Sub-adviser's part in the performance of its duties or from its reckless disregard of its obligations and duties under this Agreement. 5. This Agreement shall continue in effect for a period of more than one year from the date hereof only so long as such continuance is specifically approved at least annually in conformity with the requirements of 1940 Act; provided, however, that this Agreement may be terminated by the Fund at any time, without the payment of any penalty, by the Directors of the Corporation or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund, or by the Investment Manager or the Sub-adviser at any time, without the payment of any penalty, on not less than 60 days' written notice to the other party and the Fund (in the case of termination by a party), or to each party (in the case of termination by the Fund). This Agreement shall terminate automatically in the event of its assignment (as defined in the 1940 Act and the rules thereunder). 6. Nothing in this Agreement shall limit or restrict the right of any of the Sub-adviser's directors, officers or employees who may also be a Director, officer or employee of the Corporation to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or a dissimilar nature, nor limit nor restrict the Sub-adviser's right to engage in any other business or to render services of any kind to any other corporation, firm, individual or association. -3- 4 7. This Agreement may be amended by mutual consent, but the consent of the Fund must be obtained in conformity with the requirements of the 1940 Act. 8. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts and the applicable provisions of the 1940 Act. To the extent the applicable laws of the Commonwealth of Massachusetts or any of the provisions herein conflict with the applicable provisions of the 1940 Act, the latter shall control 9. The obligations of the Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Directors, shareholders, officers, employees or agents of the Corporation, but only the Fund's property shall be bound. -4- 5 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. JOHN HANCOCK ADVISERS, INC. /s/ John A. Morin By: ______________________________ John A. Morin Vice President TRANSAMERICA INVESTMENT SERVICES, INC. Gary V. Rolle By: ______________________________ Gary V. Rolle Name: ____________________________ Title: Executive Vice President and Chief Investment Officer -5- EX-99.5C1 10 AMENDED & RESTATED ADMINISTRATIVE SERVICES AGMT 1 EXHIBIT 99.____ AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT ------------------------------------------------------ AMENDED AND RESTATED AGREEMENT made as of the 22nd day of December, 1994 by and between John Hancock Series, Inc., a Maryland corporation (the "Corporation"), on behalf of John Hancock Money Market Fund B (the "Fund"), and Transamerica Fund Management Company, a Delaware corporation (the "Investment Adviser"), and Transamerica Fund Distributors, Inc., a Maryland corporation (the "Distributor"): WHEREAS, the Corporation is engaged in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "Act"); and WHEREAS, each of the Investment Adviser and the Distributor are registered as an investment adviser under the Investment Advisers Act of 1940, and engages in the business of acting as Investment Adviser or Distributor and providing certain other services to certain investment companies, including the Fund; and WHEREAS, each of the Investment Adviser and the Distributor are registered as broker dealers under the Securities Exchange Act of 1934, as amended, and serves as the principal underwriter of the shares of each of the investment companies for which the Investment Adviser and the Distributor serve as investment advisers; and WHEREAS, the Corporation desires to retain the Investment Adviser and the Distributor to render certain additional services to the Fund regarding certain bookkeeping, accounting and administrative services (the "Services") in the manner and on the terms and conditions hereinafter set forth; and WHEREAS, each of the Investment Adviser and the Distributor desires to be retained to perform such services on said terms and conditions; Now, Therefore, this agreement W I T N E S S E T H: that in consideration of the premises and the mutual covenants hereinafter contained, the Corporation and each of the Investment Adviser and the Distributor agree as follows: 1. The Corporation hereby retains each of the Investment Adviser and the Distributor, as the case may be, to provide to the Corporation: 2 A) such accounting and bookkeeping services and functions as are reasonably necessary for the operation of the Fund. Such services shall include, but shall not be limited to, preparation and maintenance of the following books, records and other documents: (1) journals containing daily itemized records of all purchases and sales, and receipts and deliveries of securities and all receipts and disbursements of cash and all other debits and credits, in the form required by Rule 31a-1(b)(1) under the Act; (2) general and auxiliary ledgers reflecting all asset, liability, reserve, capital, income and expense accounts, in the form required by Rules 31a-1(b)(2)(i)-(iii) under the Act; (3) a securities record or ledger reflecting separately for each portfolio security as of trade date all "long" and "short" positions carried by the Corporation for the account of the Fund, if any, and showing the location of all securities long and the off-setting position to all securities short, in the form required by Rule 31a-1(b)(3) under the Act; (4) a record of all portfolio purchases or sales, in the form required by Rule 31a-1(b)(6) under the Act; (5) a record of all puts, calls, spreads, straddles and all other options, if any, in which the Fund has any direct or indirect interest or which the Fund has granted or guaranteed, in the form required by Rule 31a-1(b)(7) under the Act; (6) a record of the proof of money balances in all ledger accounts maintained pursuant to this Agreement, in the form required by Rule 31a-1(b)(8) under the Act; and (7) price make-up sheets and such records as are necessary to reflect the determination of the Fund's net asset value. The foregoing books and records shall be maintained by the Investment Adviser in accordance with and for the time periods specified by applicable rules and regulations, including Rule 31a-2 under the Act. All such books and records shall be the property of the Fund and upon request therefor, the Investment Adviser shall surrender to the Corporation such of the books and records so requested; and B) certain administrative services including, but not limited to, administrative services to shareholders of the Fund to respond to inquiries related to shareholder accounts, processing confirmed purchase and redemption transactions, processing certain shareholder transactions, and maintaining dealer information related to shareholder accounts and typesetting and other financial printing services for the Corporation. 2. Each of the Investment Adviser and the Distributor shall, at its own expense, maintain such staff and employ or retain such personnel and consult with such other persons as it shall from time to time determine to be necessary or useful to the performance of its obligations under this Agreement. Without -2- 3 limiting the generality of the foregoing, such staff and personnel shall be deemed to include officers of the Investment Adviser, the Distributor and persons employed or otherwise retained by the Investment Adviser and the Distributor to provide or assist in providing of the services to the Fund. 3. Each of the Investment Adviser and the Distributor, as the case may be, shall provide such office space, facilities and equipment (including, but not limited to, telecommunication equipment and general office supplies) and such clerical help and other services as shall be necessary to provide the services to the Fund. In addition, each of the Investment Adviser and the Distributor, as the case may be, may arrange on behalf of the Corporation and the Fund to obtain: (1) data processing or other services, subject to approval by a majority of the Corporation's Board of Directors, as necessary to assist it in providing the Services to the Fund, (2) pricing information regarding the Fund's investment securities from such company or companies as are approved by a majority of the Corporation's Board of Directors and (3) computer and telecommunication lines and equipment used to provide the aforementioned services to the Fund, subject to approval by a majority of the Corporation's Board of Directors and the Corporation shall be financially responsible to such company or companies as aforesaid, for the reasonable cost of such services. 4. The Corporation will, from time to time, furnish or otherwise make available to each of the Investment Adviser and the Distributor, as the case may be, such information relating to the business and affairs of the Fund as the Investment Adviser and the Distributor, as the case may be, may each reasonably require in order to discharge its duties and obligations hereunder. 5. The Corporation shall reimburse the Investment Adviser and the Distributor, as the case may be, for: (1) a portion of the compensation, including all benefits, of officers and employees of the Investment Adviser and the Distributor, as the case may be, based upon the amount of time that such persons actually spend in providing or assisting in providing the Services to the Fund (including necessary supervision and review); and (2) such other direct expenses, including, but not limited to, those listed in paragraph 3 above, incurred on behalf of the Fund that are associated with the providing of the Services. In addition the Corporation will pay the Investment Adviser and the Distributor a per account Administrative Fee based on the shareholder service and recordkeeping duties performed. Such fees will be approved by a majority of the Corporation's Board of Directors (See Schedule A). In no event, however, shall such reimbursement exceed levels that are fair and reasonable in light of the usual and customary charges made by others for services of -3- 4 the same nature and quality. Compensation under this Agreement shall be calculated and paid monthly. 6. The Investment Adviser and the Distributor will each permit representatives of the Corporation, including the Corporation's independent auditors, to have reasonable access to the personnel and records of the Investment Adviser and the Distributor in order to enable such representatives to monitor the quality of services being provided and the determination of reimbursements due the Investment Adviser and the Distributor pursuant to this Agreement. In addition, the Investment Adviser and the Distributor shall promptly deliver to the Board of Directors of the Corporation such information as may reasonably be requested from time to time to permit the Board of Directors to make an informed determination regarding continuation of this Agreement and the payments contemplated to be made hereunder. 7. The Investment Adviser and the Distributor each will use its best efforts in providing the Services, but in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations hereunder, neither the Investment Adviser nor the Distributor shall be liable to the Corporation or the Fund or any of the Fund investors for any error or judgment or mistake of law or any act of omission either by the Investment Adviser or the Distributor or for any losses sustained by the Corporation, the Fund or the Fund investors. 8. The Investment Adviser and the Distributor each may assign all or any part of their respective obligations under this Agreement, and any such assignment will not cause this Agreement to terminate. Notwithstanding any such assignment, the Investment Adviser and the Distributor shall remain responsible for the performance of their respective obligations hereunder. 9. This Agreement shall remain in effect until no later than December 20, 1996 and from year to year thereafter provided such continuance is approved at least annually by the vote of a majority of the Directors of the Corporation who are not parties to this Agreement or "interested persons" (as defined in the Act) of any such party, which vote must be cast in person at a meeting called for the purpose of voting on such approval; and further provided, however, that (a) the Corporation may, at any time and without the payment of any penalty, terminate this Agreement upon thirty days written notice to the Investment Adviser or the Distributor and (b) either the Investment Adviser or the Distributor may terminate this Agreement without payment of penalty on sixty days' written notice to the Corporation. Any notice under this Agreement shall be given in writing, addressed and delivered, or mailed post-paid, to the other party at the principal office of such party. -4- 5 10. This Agreement shall be construed in accordance with the laws of The Commonwealth of Massachusetts and the applicable provisions of the Act. To the extent the applicable law of The Commonwealth of Massachusetts or any of the provisions herein conflict with the applicable provisions of the Act, the latter shall control. 11. The Directors have authorized the execution of this Agreement in their capacity as Directors and not individually and the Investment Adviser and the Distributor agree that neither the shareholders of the Fund nor the Directors nor any officer, employee, representative or agent of the Corporation shall be personally liable upon, nor shall resort be had to their private property for the satisfaction of, obligations given, executed or delivered on behalf of or by the Fund; that the shareholders of the Fund, the Directors, officers, employees, representatives and agents of the Corporation shall not be personally liable hereunder; and that they shall look solely to the property of the Corporation for the satisfaction of any claim hereunder. -5- 6 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the day and year first above written. TRANSAMERICA FUND MANAGEMENT JOHN HANCOCK SERIES, INC. COMPANY on behalf of John Hancock Money Market Fund B By:_________________________ By:_____________________________ Anne C. Hodsdon Thomas M. Simmons President President TRANSAMERICA FUND DISTRIBUTORS, INC. By:_________________________________ Name:_______________________________ Title:______________________________ -6- 7 Schedule A ---------- Reimbursement for shareholder and other activities under Section 1.B of the Administrative Services Agreements.
Reimbursement Amount per Fund Account per Year - ---- ---------------- John Hancock Capital Growth Fund $4 John Hancock California Tax-Free Income Fund, Class A & Class B $4 John Hancock Cash Reserve, Inc. $3 John Hancock Tax-Free Bond Fund, Class A & Class B $4 John Hancock Bond Fund - ---------------------- John Hancock Investment Quality Bond Fund $4 John Hancock Government Securities Trust $4 John Hancock U.S. Government Trust $4 John Hancock Intermediate Government Trust $4 John Hancock Adjustable U.S. Government Fund $4 John Hancock Adjustable U.S. Government Trust, Class A & Class B $4 John Hancock Investment Trust - ----------------------------- John Hancock Growth and Income Fund, Class A & Class B $4 John Hancock Series. Inc. - ------------------------- John Hancock Money Market Fund B $4 John Hancock Government Income Fund $4 John Hancock High Yield Tax-Free Fund $4 John Hancock High Yield Bond Fund $4 John Hancock Emerging Growth Fund, Class A & Class B $4 John Hancock Global Resources Fund $4 John Hancock Current Interest - ----------------------------- John Hancock U.S. Government Cash Reserve $3
-7- 8 Additional Duties to be Performed Under Section 1.B of the Administrative Services Agreement: In addition to responding to inquiries related to shareholder accounts, Transamerica Fund Management Co. ("TFMC") or Transamerica Fund Distributors, Inc. ("TFD"), as the case may be, will also process shareholder telephone requests for exchanges, Fed wire purchases and telephone redemptions. TFMC and TFD, as the case may be, will also process shareholder wire order purchases and redemption requests placed through dealers. In addition, TFMC and TFD, as the case may be, will maintain dealer, branch, and representative data on the transfer agency system for all shareholder accounts. -8- EX-99.6A1 11 DISTRIBUTION AGREEMENT 1 EXHIBIT 99.B6 December 22, 1994 John Hancock Broker Distribution Services, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Distribution Agreement Dear Sir: JOHN HANCOCK SERIES, INC. (the "Corporation") has been organized as a corporation under the laws of the State of Maryland to engage in the business of an investment company. The Corporation's Board of Directors has selected you to act as principal underwriter (as such term is defined in Section 2(a)(29) of the Investment Company Act of 1940, as amended) of the shares of common stock ("shares") of each series of the Corporation (collectively, the "Funds") and you are willing, as agent for the Corporation, to sell the shares to the public, to broker-dealers or to both, in the manner and on the conditions hereinafter set forth. Accordingly, the Corporation hereby agrees with you as follows: 1. Delivery of Documents. The Corporation will furnish you promptly with copies, properly certified or otherwise authenticated, of any registration statements filed by it with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, together with any financial statements and exhibits included therein, and all amendments or supplements thereto hereafter filed. 2. Registration and Sale of Additional Shares. The Corporation will from time to time use its best efforts to register under the Securities Act of 1933, as amended, such shares not already so registered as you may reasonably be expected to sell as agent on behalf of the Corporation. This Agreement relates to the issue and sale of shares that are duly authorized and registered and available for sale by the Corporation if, but only if, the Corporation sees fit to sell them. You and the Corporation will cooperate in taking such action as may be necessary from time to time to qualify shares for sale in Massachusetts and in any other states mutually agreeable to you and the Corporation, and to maintain such qualification if and so long as such shares are duly registered under the Securities Act of 1933, as amended. 3. Solicitation of Orders. You will use your best efforts (but only in states in which you may lawfully do so) to obtain from investors unconditional orders for shares authorized for issue by the Corporation and registered under the Securities Act of 1933, 2 as amended, provided that you may in your discretion refuse to accept orders for such shares from any particular applicant. 4. Sale of Shares. Subject to the provisions of Sections 5 and 6 hereof and to such minimum purchase requirements as may from time to time be currently indicated in a Fund's prospectus, you are authorized to sell as agent on behalf of the Corporation authorized and issued shares registered under the Securities Act of 1933, as amended. Such sales may be made by you on behalf of the Corporation by accepting unconditional orders to purchase such shares placed with your investors. The sales price to the public of such shares shall be the public offering price as defined in Section 6 hereof. 5. Sale of Shares to Investors by the Corporation. Any right granted to you to accept orders for shares or make sales on behalf of the Corporation will not apply to shares issued in connection with the merger or consolidation of any other investment company with the Corporation or any Fund or the Corporation's or a Fund's acquisition, by purchase or otherwise, of all or substantially all the assets of any investment company or substantially all the outstanding shares of any such company, and such right shall not apply to shares that may be offered or otherwise issued by a Fund to shareholders by virtue of their being shareholders of the Fund. 6. Public Offering Price. All shares sold by you as agent for the Corporation will be sold at the public offering price, which will be determined in the manner provided in the applicable Fund's prospectus or statement of additional information, as now in effect or as it may be amended. 7. No Sales Discount. The Corporation shall receive the applicable net asset value on all sales of shares by you as agent of the Corporation. 8. Delivery of Payments. You will deliver to the Corporation's transfer agent all payments made pursuant to orders accepted by you, and accompanied by proper applications for the purchase of shares, no later than the first business day following the receipt by you in your home office of such payments and applications. 9. Suspension of Sales. If and whenever a suspension of the right of redemption or a postponement of the date of payment or redemption has been declared pursuant to the Corporation's Charter and has become effective, then, until such suspension or postponement is terminated, no further orders for shares shall be accepted by you except such unconditional orders placed with you before you have knowledge of the suspension. The Corporation reserves the right to suspend the sale of shares and your authority to accept orders for shares on behalf of the Corporation -2- 3 if in the judgment of a majority of the Corporation's Board of Directors, it is in the best interests of the Corporation to do so, such suspension to continue for such period as may be determined by such majority; and in that event, no shares will be sold by the Corporation or by you on behalf of the Corporation while such suspension remains in effect except for shares necessary to cover unconditional orders accepted by you before you had knowledge of the suspension. 10. Expenses. The Corporation will pay (or will enter into arrangements providing that persons other than you will pay) all fees and expenses in connection with the preparation and filing of any registration statement and prospectus or amendments thereto under the Securities Act of 1933, as amended, covering the issue and sale of shares and in connection with the qualification of shares for sale in the various states in which the Corporation shall determine it advisable to qualify such shares for sale. It will also pay the issue taxes or (in the case of shares redeemed) any initial transfer taxes thereon. You will pay all expenses of printing prospectuses and other sales literature, all fees and expenses in connection with your qualification as a dealer in various states, and all other expenses in connection with the sale and offering for sale of the shares of the Corporation which have not been herein specifically allocated to the Corporation. 11. Conformity with Law. You agree that in selling the shares you will duly conform in all respects with the laws of the United States and any state in which such shares may be offered for sale by you pursuant to this Agreement. 12. Indemnification. You agree to indemnify and hold harmless the Corporation and each of its directors and officers and each person, if any, who controls the Corporation within the meaning of Section 15 of the Securities Act of 1933, as amended, against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses) to which the Corporation or such directors, officers or controlling person may become subject under such Act, under any other statute, at common law or otherwise, arising out of the acquisition of any shares by any person which (a) may be based upon any wrongful act by you or any of your employees or representatives or (b) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus or statement of additional information covering shares of a Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon information furnished or confirmed in writing to the Corporation by you, or (c) may be incurred or arise by reason of your acting as the -3- 4 director's agent instead of purchasing and reselling shares as principal in distributing shares to the public, provided that in no case is your indemnity in favor of a director or officer of the Corporation or any other person deemed to protect such director or officer of the Corporation or other person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement. You are not authorized to give any information or to make any representations on behalf of the Corporation or in connection with the sale of shares other than the information and representations contained in a registration statement, prospectus, or statement of additional information covering shares, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time. No person other than you is authorized to act as principal underwriter for the Corporation. 13. Duration and Termination of this Agreement. With respect to each Fund, this Agreement shall remain in force until two years from the date hereof and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a majority of the Board of Directors of the Corporation who are not interested persons of you (other than as directors) or of the Fund, cast in person at a meeting called for the purpose of voting on such approval, and (b) either (i) the Board of Directors of the Corporation, or (ii) a majority of the outstanding voting securities of the Fund. This Agreement may, on 60 days' written notice, be terminated as to one or more Funds at any time, without the payment of any penalty, by the Board of Directors of the Corporation, by a vote of a majority of the outstanding voting securities of each affected Fund, or by you. This Agreement will automatically terminate in the event of its assignment by you. In interpreting the provisions of this Section 13, the definitions contained in Section 2(a) of the Investment Company Act of 1940, as amended (particularly the definitions of "interested person," "assignment" and "voting security"), shall be applied. 14. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. If the Corporation should at any time deem it necessary or advisable in the best interests of the Corporation that any amendment of this agreement be made in order to comply with the recommendations or requirements of the Securities and Exchange Commission or other governmental authority or to obtain any -4- 5 advantage under state or federal tax laws and should notify you of the form of such amendment, and the reasons therefor, and if you should decline to assent to such amendment, the Corporation may terminate this Agreement forthwith. If you should at any time request that a change be made in the Corporation's Charter or By-Laws, or in its methods of doing business, in order to comply with any requirements of federal law or regulations of the Securities and Exchange Commission or of a national securities association of which you are or may be a member, relating to the sale of shares, and the Corporation should not make such necessary change within a reasonable time, you may terminate this Agreement forthwith. 15. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -5- 6 Very truly yours, JOHN HANCOCK SERIES, INC. on behalf of John Hancock Emerging Growth Fund John Hancock Global Resources Fund John Hancock Government Income Fund John Hancock High Yield Bond Fund John Hancock High Yield Tax-Free Fund John Hancock Money Market Fund B /s/ Thomas M. Simmons By: _______________________________________ Thomas M. Simmons President The foregoing Agreement is hereby accepted as of the date hereof JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: ____________________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer -6- EX-99.6B1 12 SOLICITING DEALER AGMT 1 EXHIBIT 99.B6.1 SOLICITING DEALER AGREEMENT [LOGO] JOHN HANCOCK FUNDS, INC. BOSTON -- MASSACHUSETTS -- 02199-7603 2 JOHN HANCOCK FUNDS, INC. 101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 [Form of] SOLICITING DEALER AGREEMENT Date ------------------------------ John Hancock Funds, Inc. ("the Distributor" or "Distributor") is the principal distributor of the shares of beneficial interest (the "securities") of each of the John Hancock Funds, ("We" or "us"), (the "Funds"). Such Funds are those listed on Schedule A hereto which may be amended or supplemented from time to time by the Distributor to include additional Funds for which the Distributor is the principal distributor. You represent that you are a member of the National Association of Securities Dealers, Inc., (the "NASD") and, accordingly, we invite you to become a non-exclusive soliciting dealer to distribute the securities of the Funds and you agree to solicit orders for the purchase of the securities on the following terms. Securities are offered pursuant to each Fund's prospectus and statement of additional information, as such prospectus and statement of additional information may be amended from time to time. To the extent that the prospectus or statement of additional information contains provisions that are inconsistent with the terms of this Agreement, the terms of the prospectus or statement of additional information shall be controlling. OFFERINGS 1. You agree to abide by the Rules of Fair Practice of the NASD and to all other rules and regulations that are now or may become applicable to transactions hereunder. 2. As principal distributor of the Funds, we shall have full authority to take such action as we deem advisable in respect of all matters pertaining to the distribution. This offer of shares of the Funds to you is made only in such jurisdictions in which we may lawfully sell such shares of the Funds. 3. You shall not make any representation concerning the Funds or their securities except those contained in the then- current prospectus or statement of additional information for each Fund. 4. With the exception of listings of product offerings, you agree not to furnish or cause to be furnished to any person or display, or publish any information or materials relating to any Fund (including, without limitation, promotional materials, sales literature, advertisements, press releases, announcements, posters, signs and other similar materials), except such information and materials as may be furnished to you by the Distributor or the Fund. All other materials must receive written approval by the Distributor before distribution or display to the public. Use of all approved advertising and sales literature materials is restricted to appropriate distribution channels. 5. You are not authorized to act as our agent. Nothing shall constitute you as a syndicate, association, joint venture, partnership, unincorporated business, or other separate entity or otherwise partners with us, but you shall be liable for your proportionate share of any tax, liability or expense based on any claim arising from the sale of shares of the Funds under this Agreement. We shall not be under any liability to you, except for obligations expressly assumed by us in this Agreement and liabilities under Section 11(f) of the Securities Act of 1933, and no obligations on our part shall be implied or inferred herefrom. -2- 3 6. DEALER COMPLIANCE/SUITABILITY STANDARDS (CLASS A AND CLASS B SHARES) - Certain mutual funds distributed by the Distributor are being offered with two or more classes of shares of the same investment portfolio ("Fund") - refer to each Fund prospectus for availability and details. It is essential that the following minimum compliance/suitability standards be adhered to in offering and selling shares of these Funds to investors. All dealers offering shares of the Funds and their associated persons agree to comply with these general suitability and compliance standards. SUITABILITY With two classes of shares of certain funds available to individual investors, (Class A and Class B), it is important that each investor purchases not only the fund that best suits his or her investment objective but also the class of shares that offers the most beneficial distribution financing method for the investor based upon his or her particular situation and preferences. Fund share recommendations and orders must be carefully reviewed by you and your registered representatives in light of all the facts and circumstances, to ascertain that the class of shares to be purchased by each investor is appropriate and suitable. These recommendations should be based on several factors, including but not limited to: (A) the amount of money to be invested initially and over a period of time; (B) the current level of front-end sales load or back-end sales load imposed by the Fund; (C) the period of time over which the client expects to retain the investment; (D) the anticipated level of yield from fixed income funds' Class A and Class B shares; (E) any other relevant circumstances such as the availability of reduced sales charges under letters of intent and/or rights of accumulation. There are instances when one distribution financing method may be more appropriate than another. For example, shares subject to a front-end sales charge may be more appropriate than shares subject to a contingent deferred sales charge for large investors who qualify for a significant quantity discount on the front-end sales charge. In addition, shares subject to a contingent deferred sales charge may be more appropriate for investors whose orders would not qualify for quantity discounts and who, therefore, may prefer to defer sales charges and also for investors who determine it to be advantageous to have all of their funds invested without deduction of a front-end sales commission. However, if it is anticipated that an investor may redeem his or her shares within a short period of time, the investor may, depending on the amount of his or her purchase, bear higher distribution expenses by purchasing contingent deferred sales charge shares than if he or she had purchased shares subject to a front-end sales charge. COMPLIANCE Your supervisory procedures should be adequate to assure that an appropriate person reviews and approves transactions entered into pursuant to this Soliciting Dealer Agreement for compliance with the foregoing standards. In certain instances, it may be appropriate to discuss the purchase with the registered representatives involved or to review the advantages and disadvantages of selecting one class of shares over another with the client. The Distributor will not accept orders for Class B Shares in any Fund from you for accounts maintained in street name. Trades for Class B Shares will only be accepted in the name of the shareholder. 7. CLASS C SHARES - Certain mutual funds distributed by the Distributor may be offered with Class C shares. Refer to each Fund prospectus for availability and details. Class C shares are designed for institutional investors and qualified benefit plans, including pension funds, and are sold without a sales charge or 12b-1 fee. If a commission is paid to you for transactions in Class C shares, it will be paid by the Distributor out of its own resources. SALES 8. Orders for securities received by you from investors will be for the sale of the securities at the public offering price, which will be the net asset value per share as determined in the manner provided in the relevant Fund's prospectus, as now in effect or as amended from time to time, next after receipt by us (or the relevant Fund's transfer agent) of the purchase application and payment for the securities, plus the relevant sales charges set forth in the relevant Fund's then- current prospectus (the "Public Offering Price"). The procedures relating to the handling of orders shall be subject to our instructions which we will forward from time to time to you. All orders are subject to acceptance by us, and we reserve the right in our sole discretion to reject any order. -3- 4 In addition to the foregoing, you acknowledge and agree to the initial and subsequent investment minimums, which may vary from year to year, as described in the then-current prospectus for each Fund. 9. You agree to sell the securities only (a) to your customers at the public offering price then in effect, or (b) back to the Funds at the currently quoted net asset value. 10. The amount of sales charge to be reallowed to you (the "Reallowance") as a percentage of the offering price is set forth in the then-current prospectus of each Fund. If a sales charge on the purchase is reduced in accordance with the provisions of the relevant Fund's then-current prospectus pertaining to "Methods of Obtaining Reduced Sales Charges," the Reallowance shall be reduced pro rata. 11. We shall pay a Reallowance subject to the provisions of this agreement as set forth in Schedule B hereto on all purchases made by your customers pursuant to orders accepted by us (a) where an order for the purchase of securities is obtained by a registered representative in your employ and remitted to us promptly by you, (b) where a subsequent investment is made to an account established by a registered representative in your employ or (c) where a subsequent investment is made to an account established by a broker/dealer other than you and is accompanied by a signed request from the account shareholder that your registered representative receive the Reallowance for that investment and/or for subsequent investments made in such account. If for any reason, a purchase transaction is reversed, you shall not be entitled to receive or retain any part of the Reallowance on such purchase and shall pay to us on demand in full the amount of the Reallowance received by you in connection with any such purchase. We may withhold and retain from the amount of the Reallowance due you a sum sufficient to discharge any amount due and payable by you to us. 12. Certain of the Funds have adopted a plan under Investment Company Act Rule 12b-1 ("Distribution Plan" as described in the the prospectus). To the extent you provide distribution and marketing services in the promotion of the sale of shares of these Funds, including furnishing services and assistance to your customers who invest in and own shares of such Funds and including, but not limited to, answering routine inquiries regarding such Funds and assisting in changing distribution options, account designations and addresses, you may be entitled to receive compensation from us as set forth in Schedule C hereto. All compensation, including 12b-1 fees, shall be payable to you only to the extent that funds are received and in the possession of the Distributor. 13. We will advise you as to the jurisdictions in which we believe the shares have been qualified for sale under the respective securities or "blue sky" laws of such jurisdictions, but we assume no responsibility or obligations as to your right to sell the shares of the Funds in any state or jurisdiction. 14. Orders may be placed through: John Hancock Funds, Inc. 101 Huntington Avenue Boston, MA 02199-7603 1-800-338-4265 SETTLEMENT 15. Settlements for wire orders shall be made within five business days after our acceptance of your order to purchase shares of the Funds. Certificates, when requested, will be delivered to you upon payment in full of the sum due for the sale of the shares of the Funds. If payment is not so received or made, we reserve the right forthwith to cancel the sale, or, at our option, to liquidate the shares of the Fund subject to such sale at the then prevailing net asset value, in which latter case you will agree to be responsible for any loss resulting to the Funds or to us from your failure to make payments as aforesaid. -4- 5 INDEMNIFICATION 16. The parties to this agreement hereby agree to indemnify and hold harmless each other, their officers and directors, and any person who is or may be deemed to be a controlling person of each other, from and against any losses, claims, damages, liabilities or expenses (including reasonable fees of counsel), whether joint or several, to which any such person or entity may become subject insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon, (a) any untrue statement or alleged untrue statement of material fact, or any omission or alleged omission to state a material fact made or omitted by it herein, or, (b) any willful misfeasance or gross misconduct by it in the performance of its duties and obligations hereunder. 17. NSCC INDEMNITY - SHAREHOLDER AND HOUSE ACCOUNTS - In consideration of the Distributor and John Hancock Investor Services Corporation ("Investor Services") liquidating, exchanging, and/or transferring unissued shares of the Funds for your customers without the use of original or underlying documentation supporting such instructions (e.g., a signed stock power or signature guarantee), you hereby agree to indemnify the Distributor, Investor Services and each respective Fund against any losses, including reasonable attorney's fees, that may arise from such liquidation exchange, and/or transfer of unissued shares upon your direction. This indemnification shall apply only to the liquidation, exchange and/or transfer of unissued shares in shareholder and house accounts executed as wire orders transmitted via NSCC's Fund/SERVsystem. You represent and warrant to the Funds, the Distributor and Investor Services that all such transactions shall be properly authorized by your customers. The indemnification in this Section 16 shall not apply to any losses (including attorney's fees) caused by a failure of the Distributor, Investor Services or a Fund to comply with any of your instructions governing any of the above transactions, or any negligent act or omission of the Distributor, Investor Services or a Fund, or any of their directors, officers, employees or agents. All transactions shall be settled upon your confirmation through NSCC transmission to Investor Services. The Distributor, Investor Services or you may revoke the indemnity contained in this Section 16 upon prior written notice to each of the other parties hereto, and in the case of such revocation, this indemnity agreement shall remain effective as to trades made prior to such revocation. MISCELLANEOUS 18. We will supply to you at our expense additional copies of the prospectus and statement of additional information for each of the Funds and any printed information supplemental to such material in reasonable quantities upon request. 19. Any notice to you shall be duly given if mailed or telegraphed to you at your address as registered from time to time with the NASD. 20. Miscellaneous provisions, if any, are attached hereto and incorporated herein by reference. 21. This agreement, which shall be construed in accordance with the laws of the Commonwealth of Massachusetts, may be terminated by any party hereto at any time upon written notice. -5- 6 SOLICITING DEALER ------------------------------------------------- Name of Organization By:------------------------------------------------- Authorized Signature of Soliciting Dealer ------------------------------------------------- Please Print or Type Name ------------------------------------------------- Title ------------------------------------------------- Print or Type Address ------------------------------------------------- Telephone Number Date: ------------------------------------------------- In order to service you efficiently, please provide the following information on your Mutual Funds Operations Department: OPERATIONS MANAGER: --------------------------------------------- ORDER ROOM MANAGER: --------------------------------------------- OPERATIONS ADDRESS: --------------------------------------------- --------------------------------------------- TELEPHONE: FAX: -------------------------------- ------------------------------ TO BE COMPLETED BY: TO BE COMPLETED BY: JOHN HANCOCK FUNDS, INC. JOHN HANCOCK INVESTOR SERVICES CORPORATION BY: BY: ------------------------------------------- ------------------------------------------- - ---------------------------------------------- ---------------------------------------------- TITLE TITLE
DEALER NUMBER: ------------------------------------ -6- 7 JOHNHANCOCK MUTUAL FUNDS John Hancock Broker Distrubution Services, Inc. 101 Huntington Avenue Boston, MA 02199-7608 1-800-225-5291 /s/ John Hancock 8 JOHN HANCOCK FUNDS, INC. SCHEDULE A DATED JANUARY 1, 1995 TO THE SOLICITING DEALER AGREEMENT RELATING TO SHARES OF JOHN HANCOCK FUNDS John Hancock Sovereign Achievers Fund John Hancock National Aviation & Technology Fund John Hancock Sovereign Investors Fund John Hancock Regional Bank Fund John Hancock Sovereign Balanced Fund John Hancock Gold and Government Fund John Hancock Sovereign Bond Fund John Hancock Global Rx Fund John Hancock Sovereign U.S. Government Income Fund John Hancock Global Technology Fund John Hancock Special Equities Fund* John Hancock Global Fund John Hancock Special Opportunities Fund John Hancock Pacific Basin Equities Fund John Hancock Discovery Fund John Hancock Global Income Fund John Hancock Growth Fund John Hancock International Fund John Hancock Strategic Income Fund John Hancock Global Resources Fund John Hancock Limited-Term Government Fund John Hancock Emerging Growth Fund John Hancock Cash Management Fund John Hancock Capital Growth Fund John Hancock Managed Tax-Exempt Fund John Hancock Growth & Income Fund John Hancock Tax-Exempt Income Fund John Hancock High Yield Bond Fund John Hancock Tax-Exempt Series Fund John Hancock Investment Quality Bond Fund John Hancock Special Value Fund John Hancock Government Securities Fund John Hancock Strategic Short-Term Income Fund John Hancock U.S. Government Fund John Hancock CA Tax-Free Fund John Hancock Government Income Fund John Hancock High Yield Tax-Free Fund John Hancock Intermediate Government Fund John Hancock Tax-Free Bond Fund John Hancock Adjustable U.S. Government Fund John Hancock U.S. Government Cash Reserve Fund John Hancock Cash Reserve Money Market B Fund
From time to time John Hancock Funds, Inc., as principal distributor of the John Hancock funds, will offer additional funds for sale. These funds will automatically become part of this Agreement and will be subject to all its provisions unless otherwise directed by John Hancock Funds, Inc. *Closed to new investors as of 9/30/94 9 JOHN HANCOCK FUNDS, INC. SCHEDULE B DATED JANUARY 1, 1995 TO THE SOLICITING DEALER AGREEMENT RELATING TO SHARES OF JOHN HANCOCK FUNDS I. REALLOWANCE The Reallowance paid to the selling Brokers for sales of John Hancock Funds is set forth in each Fund's then- current prospectus. No Commission will be paid on sales of John Hancock Cash Management Fund or any John Hancock Fund that is without a sales charge. Purchases of Class A shares of $1 million or more, or purchases into an account or accounts whose aggregate value of fund shares is $1 million or more will be made at net asset value with no initial sales charge. On purchases of this type, John Hancock Funds, Inc. will pay a commission as set forth in each Fund's then-current prospectus. John Hancock Funds, Inc. will pay Brokers for sales of Class B shares of the Funds a marketing fee as set forth in each Fund's then-current prospectus. 10 JOHN HANCOCK FUNDS, INC. SCHEDULE C DATED JANUARY 1, 1995 TO THE SOLICITING DEALER AGREEMENT RELATING TO SHARES OF JOHN HANCOCK FUNDS FIRST YEAR SERVICE FEES Pursuant to the Distribution Plan applicable to each of the Funds listed in Schedule A, John Hancock Funds, Inc. will advance to you a First Year Service Fee related to the purchase of Class A shares (only if subject to sales charge) or Class B shares of any of the Funds, as the case may be, sold by your firm. This Service Fee will be compensation for your personal service and/or the maintenance of shareholder accounts ("Customer Servicing") during the twelve-month period immediately following the purchase of such shares, in the amount not to exceed .25 of 1% of net assets invested in Class A shares or Class B shares of the Fund, as the case may be, purchased by your customers. SERVICE FEE SUBSEQUENT TO THE FIRST YEAR Pursuant to the Distribution Plan applicable to each of the Funds listed in Schedule A, the Distributor will pay you quarterly, in arrears, a Service Fee commencing at the end of the twelve month period immediately following the purchase of Class A shares (only if subject to sales charge) or Class B shares, as the case may be, sold by your firm, for Customer Servicing, in an amount not to exceed .25 of 1% of the average daily net assets attributable to the Class A shares or Class B shares of the Fund, as the case may be, purchased by your customers, provided your firm has under management with the Funds combined average daily net assets for the preceding quarter of no less than $1 million, or an individual representative of your firm has under management with the Funds combined average daily net assets for the preceding quarter of no less than $250,000 (an "Eligible Firm"). 11 JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. SCHEDULE D DATED JULY 1, 1992 TO THE SOLICITING DEALER AGREEMENT RELATING TO SHARES OF JOHN HANCOCK MUTUAL FUNDS No broker/dealer shall represent the FUnds or Distribution Services in any written communications without prior receipt of written approval from John Hancock Broker Distribution Services, Inc. This includes but is not limited to all advertising, public relations, marketing and sales literature, and media contacts. Further, subsequent to the creation of such materialsbefore written approval from JHBDS will be given, a copy of the NASD review document applicable to such materials must be furnished to John Hancock Broker Distribution Services, Inc. for its review and files. FOR PURPOSES OF THIS SCHEDULE D, THE FOLLOWING TERMS ARE DEFINED: Advertising: materials designed for the mass market, e.g. print ads, radio and tv commercials, billboards, etc. Sales literature: materials designed for a directed market, e.g. prospecting letters, brochures, mailers, stuffers, etc. Coop Advertising: advertising materials (as defined above) used by selling group members for which John Hancock pays some or all of the costs of publication whether the materials were developed by JHBDS Marketing or not. John Hancock Broker Distribution Services, Inc. Approval of Advertising: Approval has four meanings:approval of the material itself from a marketing perspective (JHBDS product managers), proactive compliance officer), parent company corporate advertising approval (John Hancock Mutual Life Insurance Company Advertising Dept. personnel) and approval for use and related cost-sharing arrangements (national sales coordinators). NASD Filing: Materials created by JHBDS will be filed with the NASD by the JHBDS Compliance Department. Materials not created by JHBDS but to be included in the coop program will be filed with the NASD by the broker-dealer creating the materials. However, prior to use of the materials in our coop program, we will need a copy of the final version of the material as well as the NASDcomment letter. When this is received, the above approvals can be obtained. EX-99.6C1 13 FINANCIAL INSTITUTION SALES & SERVICE AGMT 1 EXHIBIT 99.B6.2 FINANCIAL INSTITUTION SALES AND SERVICE AGREEMENT [LOGO] JOHN HANCOCK FUNDS, INC. Boston - Massachusetts - 02199-7603 2 JOHN HANCOCK FUNDS, INC. 101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 FINANCIAL INSTITUTION SALES AND SERVICE AGREEMENT Date -------------------------------- John Hancock Funds, Inc. ("The Distributor", or "Distributor"), ("We" or "us"), is the principal distributor of the shares of beneficial interest (the "securities") of each of the John Hancock Funds (the "Funds"). Such Funds are those listed on Schedule A hereto which may be amended or supplemented from time to time by the Distributor to include additional Funds for which the Distributor is the principal distributor. You hereby represent that you are a "bank" as defined in Section 3(a)(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and at the time of each transaction in shares of the Funds, are not required to register as a broker/dealer under the Exchange Act or regulations thereunder. We invite you to become a non-exclusive soliciting financial institution ("Financial Institution") to distribute the securities of the Funds and you agree to solicit orders for the purchase of the securities on the following terms. Securities are offered pursuant to each Fund's prospectus and statement of additional information, as such prospectus and statement of additional information may be amended from time to time. To the extent that the prospectus or statement of additional information contains provisions that are inconsistent with the terms of this Agreement, the terms of the prospectus or statement of additional information shall be controlling. OFFERINGS 1. You represent and warrant that you will use your best efforts to ensure that any purchase of shares of the Funds by your customers constitutes a suitable investment for such customers. You acknowledge that you will base such a decision of suitability on all the facts you have gathered about your customer's financial situation, investment objectives, risk tolerance and sophistication. 2. You represent and warrant that a copy of the then-current prospectus of a Fund will be delivered to your customer before any purchase of shares of that Fund are effected for that customer. You shall not effect any transaction in, or induce any purchase or sale of, any shares of the Funds by means of any manipulative, deceptive or other fraudulent device or contrivance, and shall otherwise deal equitably and fairly with your customers with respect to transactions in shares of a Fund. 3. You represent and warrant that you will not make shares of any Fund available to your customers, including your fiduciary customers, except in compliance with all Federal and state laws and rules and regulations of regulatory agencies or authorities applicable to you, or any of your affiliates engaging in such activity, which may affect your business practices. You confirm that you are not in violation of any banking law or regulations as to which you are subject. You agree that you will comply with the requirements of Banking Circular 274 issued by the Office of the Comptroller of the Currency in offering shares of the Funds to your customers. We agree that we will comply with all Federal and state laws and rules and regulations of regulatory agencies or authorities applicable to us. We and you acknowledge and agree that the offering of shares of the Funds pursuant to this agreement is subject to the oversight of your management and the regulatory authorities by which you are subject to review, and that appropriate records and materials relating to any activity by you or us undertaken pursuant to this agreement may be accessed by bank examiners in the due course of any regulatory review to which you may be subject. 4. As principal distributor of the Funds, we shall have full authority to take such action as we deem advisable in respect of all matters pertaining to the distribution. This offer of shares of the Funds to you is made only in such jurisdictions in which we may lawfully sell such shares of the Funds. -2- 3 5. You shall not make any representation concerning the Funds or their securities except those contained in the then-current prospectus or statement of additional information for each Fund. 6. We will supply to you at our expense additional copies of the then-current prospectus and statement of additional information for each of the Funds and any printed information supplemental to such material in reasonable quantities upon request. It shall be your obligation to ensure that all such information and materials are distributed to your customers who own or seek to own shares of the Funds in accordance with securities and/or banking law and regulations and any other applicable regulations. 7. With the exception of listings of product offerings, you agree not to furnish or cause to be furnished to any person or display, or publish any information or materials relating to any Fund (including, without limitation, promotional materials, sales literature, advertisements, press releases, announcements, posters, signs and other similar materials), except such information and materials as may be furnished to you by us the Distributor or the Fund. All other materials must receive written approval by the Distributor before distribution or display to the public. Use of all approved advertising and sales literature materials is restricted to appropriate distribution channels. 8. You are not authorized to act as our agent. In making available shares of the Funds under this Financial Institution Sales and Service Agreement, nothing herein shall be construed to constitute you or any of your agents, employees or representatives as our agent or employee, or as an agent or employee of the Funds, and you shall not make any representations to the contrary. Nothing shall constitute you as a syndicate, association, unincorporated business, or other separate entity or partners with us, but you shall be liable for your proportionate share of any tax, liability or expense based on any claim arising from the sale of shares of the Funds under this Agreement. We shall not be under any liability to you, except for obligations expressly assumed by us in this Agreement and liabilities under Section 11(f) of the Securities Act of 1933, and no obligations on our part shall be implied or inferred herefrom. 9. DEALER COMPLIANCE/SUITABILITY STANDARDS (CLASS A AND CLASS B SHARES) - Certain mutual funds distributed by the Distributor are being offered with two or more classes of shares of the same investment portfolio ("Fund") - refer to each Fund prospectus for availability and details. It is essential that the following minimum compliance/suitability standards be adhered to in offering and selling shares of these Funds to investors. All soliciting financial institutions offering shares of the Funds and their agents, employees and representatives agree to comply with these general suitability and compliance standards. SUITABILITY With two classes of shares of certain funds available to individual investors, (Class A and Class B), it is important that each investor purchases not only the fund that best suits his or her investment objective but also the class of shares that offers the most beneficial distribution financing method for the investor based upon his or her particular situation and preferences. Fund share recommendations and orders must be carefully reviewed by you and your agents, employees and representatives in light of all the facts and circumstances, to ascertain that the class of shares to be purchased by each investor is appropriate and suitable. These recommendations should be based on several factors, including but not limited to: (A) the amount of money to be invested initially and over a period of time; (B) the current level of front-end sales load or back-end sales load imposed by the Fund; (C) the period of time over which the customer expects to retain the investment; (D) the anticipated level of yield from fixed income funds' Class A and Class B shares; (E) any other relevant circumstances such as the availability of reduced sales charges under letters of intent and/or rights of accumulation. There are instances when one distribution financing method may be more appropriate than another. For example, shares subject to a front-end sales charge may be more appropriate than shares subject to a contingent deferred sales charge for large investors who qualify for a significant quantity discount on the front-end sales charge. In addition, shares subject to a contingent deferred sales charge may be more appropriate for investors whose orders would not qualify for quantity discounts and who, therefore, may prefer to defer sales charges and also for investors who determine it to be advantageous to have all of their funds invested without deduction of a front-end sales commission. However, if it is anticipated that an investor may redeem his or her shares within a short period of time, the investor may, depending on the amount of his or her purchase, bear higher distribution expenses by purchasing contingent deferred sales charge shares than if he or she had purchased shares subject to a front-end sales charge. -3- 4 COMPLIANCE Your supervisory procedures should be adequate to assure that an appropriate person reviews and approves transactions entered into pursuant to this Financial Institution Sales and Service Agreement for compliance with the foregoing standards. In certain instances, it may be appropriate to discuss the purchase with the agents, employees and representatives involved or to review the advantages and disadvantages of selecting one class of shares over another with the client. The Distributor will not accept orders for Class B Shares in any Fund from you for accounts maintained in your name or in the name of your nominee for the benefit of certain of your customers. Trades for Class B Shares will only be accepted in the name of the shareholder. 10. CLASS C SHARES - Certain mutual funds distributed by the Distributor may be offered with Class C shares. Refer to each Fund prospectus for availability and details. Class C shares are designed for institutional investors and qualified benefit plans, including pension funds, and are sold without a sales charge or 12b-1 fee. If a commission is paid to you for transactions in Class C shares, it will be paid by the Distributor out of its own resources. SALES 11. With respect to any and all transactions in the shares of any Fund pursuant to this Financial Institution Sales and Service Agreement it is understood and agreed in each case that: (a) you shall be acting solely as agent for the account of your customer; (b) each transaction shall be initiated solely upon the order of your customer; (c) we shall execute transactions only upon receiving instructions from you acting as agent for your customer or upon receiving instructions directly from your customer; (d) as between you and your customer, your customer will have full beneficial ownership of all shares; (c) each transaction shall be for the account of your customer and not for your account; and (f) unless otherwise agreed in writing we will serve as a clearing broker for you on a fully disclosed basis, and you shall serve as the introducing agent for your customers' accounts. Subject to the foregoing, however, and except for Class B shares, as described in Section 8 above, you may maintain record ownership of such customers' shares in an account registered in your name or the name of your nominee, for the benefit of such customers. Each transaction shall be without recourse to you provided that you act in accordance with the terms of this Financial Institution Sales and Service Agreement. You represent and warrant to us that you will have full right, power and authority to effect transactions (including, without limitation, any purchases and redemptions) in shares of the Funds on behalf of all customer accounts provided by you. 12. Orders for securities received by you from your customers will be for the sale of the securities at the public offering price, which will be the net asset value per share as determined in the manner provided in the relevant Fund's prospectus, as now in effect or as amended from time to time, next after receipt by us (or the relevant Fund's transfer agent) of the purchase application and payment for the securities, plus the relevant sales charges set forth in the relevant Fund's then-current prospectus (the "Public Offering Price"). The procedures relating to the handling of orders shall be subject to our instructions which we will forward from time to time to you. All orders are subject to acceptance by us, and we reserve the right in our sole discretion to reject any order. In addition to the foregoing, you acknowledge and agree to the initial and subsequent investment minimums, which may vary from year to year, as described in the then-current prospectus for each Fund. 13. You agree to sell the securities only (a) to your customers at the public offering price then in effect, or (b) back to the Funds at the currently quoted net asset value. 14. The amount of sales charge to be reallowed to you (the "Reallowance") as a percentage of the offering price is set forth in the then-current prospectus of each Fund. If a sales charge on the purchase is reduced in accordance with the provisions of the relevant Fund's then- current prospectus pertaining to "Methods of Obtaining Reduced Sales Charges," the Reallowance shall be reduced pro rata. 15. We shall pay a Reallowance subject to the provisions of this agreement as set forth in Schedule B hereto on all purchases made by your customers pursuant to orders accepted by us (a) where an order for the purchase of securities is obtained by you and remitted to us promptly by you, (b) where a subsequent investment is made to an account established by you or (c) where a subsequent investment is made to an account established by a financial institution or -4- 5 registered broker/dealer other than you and is accompanied by a signed request from the account shareholder that you receive the Reallowance for that investment and/or for subsequent investments made in such account. If for any reason, a purchase transaction is reversed, you shall not be entitled to receive or retain any part of the Reallowance on such purchase and shall pay to us on demand in full the amount of the Reallowance received by you in connection with any such purchase. We may withhold and retain from the amount of the Reallowance due you a sum sufficient to discharge any amount due and payable by you to us. 16. Certain of the Funds have adopted a plan under Investment Company Act Rule 12b-1 ("Distribution Plan" as described in the prospectus). To the extent you provide distribution and marketing services in the promotion of the sale of shares of these Funds, including furnishing services and assistance to your customers who invest in and own shares of such Funds and including, but not limited to, answering routine inquiries regarding such Funds and assisting in changing distribution options, account designations and addresses, you may be entitled to receive compensation from us as set forth in Schedule C hereto. All compensation, including 12b-1 fees, shall be payable to you only to the extent that funds are received and in the possession of the Distributor. 17. We will advise you as to the jurisdictions in which we believe the shares have been qualified for sale under the respective securities or "blue sky" laws of such jurisdictions, but we assume no responsibility or obligations as to your right to sell the shares of the Funds in any state or jurisdiction. 18. Orders may be placed through: John Hancock Funds, Inc. 101 Huntington Avenue Boston, MA 02199-7603 1-800-338-4265 SETTLEMENT 19. Settlements for wire orders shall be made within five business days after our acceptance of your order to purchase shares of the Funds. Certificates, when requested, will be delivered to you upon payment in full of the sum due for the sale of the shares of the Funds. If payment is not so received or made, we reserve the right forthwith to cancel the sale, or, at our option, to liquidate the shares of the Fund subject to such sale at the then prevailing net asset value, in which latter case you will agree to be responsible for any loss resulting to the Funds or to us from your failure to make payments as aforesaid. INDEMNIFICATION 20. The parties to this agreement hereby agree to indemnify and hold harmless each other, their officers and directors, and any person who is or may be deemed to be a controlling person of each other, from and against any losses, claims, damages, liabilities or expenses (including reasonable fees of counsel), whether joint or several, to which any such person or entity may become subject insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon, (a) any untrue statement or alleged untrue statement of material fact, or any omission or alleged omission to state a material fact made or omitted by it herein, or, (b) any willful misfeasance or gross misconduct by it in the performance of its duties and obligations hereunder. MISCELLANEOUS 21. Any notice to you shall be duly given if mailed or telegraphed to you at your address as most recently furnished to us by you. 22. Miscellaneous provisions, if any, are attached hereto and incorporated herein by reference. 23. This agreement, which shall be construed in accordance with the laws of the Commonwealth of Massachusetts, may be terminated by any party hereto at any time upon written notice. -5- 6 FINANCIAL INSTITUTION ------------------------------------------------- Financial Institution By: ------------------------------------------------- Authorized Signature of Financial Institution ------------------------------------------------- Please Print or Type Name ------------------------------------------------- Title ------------------------------------------------- Print or Type Address ------------------------------------------------- Telephone Number Date: ------------------------------------------------- In order to service you efficiently, please provide the following information on your Mutual Funds Operations Department: OPERATIONS MANAGER: --------------------------------------------- ORDER ROOM MANAGER: --------------------------------------------- OPERATIONS ADDRESS: --------------------------------------------- --------------------------------------------- TELEPHONE: FAX: --------------------- ---------------------------- TO BE COMPLETED BY: JOHN HANCOCK INVESTOR JOHN HANCOCK FUNDS, INC. SERVICES CORPORATION By: By: --------------------------------- ------------------------------------ - ------------------------------------ ------------------------------------ Title Title TO BE COMPLETED BY: FINANCIAL INSTITUTION NUMBER: ---------------------------------------------- -6- 7 JOHN HANCOCK FUNDS, INC. SCHEDULE A DATED JANUARY 1, 1995 TO THE FINANCIAL INSTITUTION SALES AND SERVICE AGREEMENT RELATING TO SHARES OF JOHN HANCOCK FUNDS John Hancock Sovereign Achievers Fund John Hancock National Aviation & Technology Fund John Hancock Sovereign Investors Fund John Hancock Regional Bank Fund John Hancock Sovereign Balanced Fund John Hancock Gold and Government Fund John Hancock Sovereign Bond Fund John Hancock Global Rx Fund John Hancock Sovereign U.S. Government Income Fund John Hancock Global Technology Fund John Hancock Special Equities Fund* John Hancock Global Fund John Hancock Special Opportunities Fund John Hancock Pacific Basin Equities Fund John Hancock Discovery Fund John Hancock Global Income Fund John Hancock Growth Fund John Hancock International Fund John Hancock Strategic Income Fund John Hancock Global Rescources Fund John Hancock Limited Term Government Fund John Hancock Emerging Growth Fund John Hancock Cash Management Fund John Hancock Capital Growth Fund John Hancock Managed Tax-Exempt Fund John Hancock Growth & Income Fund John Hancock Tax-Exempt Income Fund John Hancock High Yield Bond Fund John Hancock Tax-Exempt Series Fund John Hancock Investment Quality Bond Fund John Hancock Special Value Fund John Hancock Government SecurritiesFund John Hancock Strategic Short-Term Income Fund John Hancock U.S. Government Fund John Hancock CA Tax-Free Fund John Hancock Governtment Income Fund John Hancock High Yield Tax-Free Fund John Hancock Intermediate Government Fund John Hancock Tax-Free Bond Fund John Hancock Adjustable U.S. Government Fund John Hancock U.S. Government Cash Reserve Fund John Hancock Cash Reserve Money Market B Fund
From time to time John Hancock Funds, as principal distributor of the John Hancock Funds, will offer additional funds for sale. These funds will automatically become part of this Agreement and will be subject to all its provisions unless otherwise directed by John Hancock Funds, Inc. * Closed to new invstors as of 9/30/94. 8 JOHN HANCOCK FUNDS, INC. SCHEDULE B DATED JANUARY 1, 1995 TO THE FINANCIAL INSTITUTION SALES AND SERVICE AGREEMENT RELATING TO SHARES OF JOHN HANCOCK FUNDS I. REALLOWANCE The Reallowance paid to Financial Institutions for sales of John Hancock Funds is the same as that paid to Selling Brokers described and set forth in each Fund's then-current prospectus. No Commission will be paid on sales of John Hancock Cash Management Fund or any John Hancock Fund that is without a sales charge. Purchases of Class A shares of $1 million or more, or purchases into an account or accounts whose aggregate value of fund shares is $1 million or more will be made at net asset value with no initial sales charge. On purchases of this type, the Distributor will pay a commission as set forth in each Fund's then-current prospectus. John Hancock Funds, Inc. will pay Financial Institutions for sales of Class B shares of the Funds a marketing fee as set forth in each Fund's then- current prospectus for Selling Brokers. 9 JOHN HANCOCK FUNDS, INC. SCHEDULE C DISTRIBUTION PLAN SCHEDULE OF COMPENSATION DATED JANUARY 1, 1995 TO THE FINANCIAL INSTITUTION SALES AND SERVICE AGREEMENT RELATING TO SHARES OF JOHN HANCOCK FUNDS FIRST YEAR SERVICE FEE Pursuant to the Distribution Plan applicable to each of the Funds listed in Schedule A, the Distributor will advance to you a First Year Service Fee related to the purchase of Class A shares (only if subject to sales charge) or Class B shares of any of the Funds, as the case maybe, sold by your firm on or after July 1, 1993. This Service Fee will be compensation for your personal service and/or the maintenance of shareholder accounts ("Customer Servicing") during the twelve-month period immediately following the purchase of such shares, in an amount not to exceed .25 of 1% of the average daily net assets attributable to Class A shares or Class B shares of the Fund, as the case may be, purchased by your customers. SERVICE FEE SUBSEQUENT TO THE FIRST YEAR Pursuant to the Distribution Plan applicable to each of the Funds listed in Schedule A, the Distributor will pay you quarterly, in arrears, a Service Fee commencing at the end of the twelve-month period immediately following the purchase of Class A shares (only if subject to sales charge) or Class B shares, as the case may be, sold by your firm, for Customer Servicing, in an amount not to exceed .25 of 1% of the average daily net assets attributable to the Class A shares or Class B shares of the Fund, as the case may be, purchased by your customers, provided your Financial Institution has under management with the Funds combined average daily net assets for the preceding quarter of no less than $1 million, or an individual representative of your Financial Institution has under management with the Funds combined average daily net assets for the preceding quarter of no less than $250,000 (an "Eligible Financial Institution"). EX-99.8 14 MASTER CUSTODIAN AGMT 1 EXHIBIT 99.B8 MASTER CUSTODIAN AGREEMENT between JOHN HANCOCK MUTUAL FUNDS and INVESTORS BANK & TRUST COMPANY 2 TABLE OF CONTENTS ----------------- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3 2. Employment of Custodian and Property to be held by it . . . . . . . . . . . . . . . 3-4 3. Duties of the Custodian with Respect toProperty of the Fund . . . . . . . . . . . . 4 A. Safekeeping and Holding of Property . . . . . . . . . . . . . . . . . . . . . 4 B. Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8 C. Registration of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 8 D. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9 E. Payments for Shares of the Fund . . . . . . . . . . . . . . . . . . . . . . . 9 F. Investment and Availability of Federal Funds . . . . . . . . . . . . . . . . . 9 G. Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10 H. Payment of Fund Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-12 I. Liability for Payment in Advance of Receipt of Securities Purchased . . . . . 12-13 J. Payments for Repurchases of Redemptions of Shares of the Fund . . . . . . . . 13 K. Appointment of Agents by the Custodian . . . . . . . . . . . . . . . . . . . . 13 L. Deposit of Fund Portfolio Securities in Securities Systems . . . . . . . . . . 13-16 M. Deposit of Fund Commercial Paper in an Approved Book-Entry System for Commercial Paper . . . . . . . . . . . . . . . . . . 16-18 N. Segregated Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-19 O. Ownership Certificates for Tax Purposes . . . . . . . . . . . . . . . . . . . 19 P. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Q. Communications Relating to Fund Portfolio Securities . . . . . . . . . . . . . 19-20
3 R. Exercise of Rights; Tender Offers . . . . . . . . . . . . . . . . . . . . . . 20 S. Depository Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-21 T. Interest Bearing Call or Time Deposits . . . . . . . . . . . . . . . . . . . . 21 U. Options, Futures Contracts and Foreign Currency Transactions . . . . . . . . . 21-23 V. Actions Permitted Without Express Authority . . . . . . . . . . . . . . . . . 23-24 4. Duties of Bank with Respect to Books of Account and Calculations of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5. Records and Miscellaneous Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 24-25 6. Opinion of Fund`s Independent Public Accountants . . . . . . . . . . . . . . . . . . 25 7. Compensation and Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . 25-26 8. Responsibility of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-27 9. Persons Having Access to Assets of the Fund . . . . . . . . . . . . . . . . . . . . 27 10. Effective Period, Termination and Amendment; Successor Custodian . . . . . . . . . . 27-28 11. Interpretive and Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . 28-29 12. Certification as to Authorized Officers . . . . . . . . . . . . . . . . . . . . . . 29 13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 14. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 15. Adoption of the Agreement by the Fund . . . . . . . . . . . . . . . . . . . . . . . 30
4 MASTER CUSTODIAN AGREEMENT This Agreement is made as of December 15, 1992 between each investment company advised by John Hancock Advisers, Inc. which has adopted this Agreement in the manner provided herein and Investors Bank & Trust Company (hereinafter called "Bank", "Custodian" and "Agent"), a trust company established under the laws of Massachusetts with a principal place of business in Boston, Massachusetts. Whereas, each such investment company is registered under the Investment Company Act of 1940 and has appointed the Bank to act as Custodian of its property and to perform certain duties as its Agent, as more fully hereinafter set forth; and Whereas, the Bank is willing and able to act as each such investment company's Custodian and Agent, subject to and in accordance with the provisions hereof; Now, therefore, in consideration of the premises and of the mutual covenants and agreements herein contained, each such investment company and the Bank agree as follows: 1. Definitions ----------- Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: (a) "Fund" shall mean the investment company which has adopted this Agreement and is listed on Appendix A hereto. If the Fund is a Massachusetts business trust or Maryland corporation, it may in the future establish and designate other separate and distinct series of shares, each of which may be called a "portfolio"; in such case, the term "Fund" shall also refer to each such separate series or portfolio. (b) "Board" shall mean the board of directors/trustees/managing general partners/director general partners of the Fund, as the case may be. (c) "The Depository Trust Company", a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 which acts as a securities depository and which has been specifically approved as a securities depository for the Fund by the Board. (d) "Authorized Officer", shall mean any of the following officers of the Trust: The Chairman of the Board of Trustees, the President, a Vice President, the Secretary, the Treasurer or Assistant Secretary or Assistant Treasurer, or any other officer of the Trust duly authorized to sign by appropriate resolution of the Board of Trustees of the Trust. (e) "Participants Trust Company", a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 which acts as a securities depository and which has been specifically approved as a securities depository for the Fund by the Board. 5 (f) "Approved Clearing Agency" shall mean any other domestic clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934 which acts as a securities depository but only if the Custodian has received a certified copy of a vote of the Board approving such clearing agency as a securities depository for the Fund. (g) "Federal Book-Entry System" shall mean the book-entry system referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for United States and federal agency securities (i.e., as provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, and the book-entry regulations of federal agencies substantially in the form of Subpart O). (h) "Approved Foreign Securities Depository" shall mean a foreign securities depository or clearing agency referred to in rule 17f-4 under the Investment Company Act of 1940 for foreign securities but only if the Custodian has received a certified copy of a vote of the Board approving such depository or clearing agency as a foreign securities depository for the Fund. (i) "Approved Book-Entry System for Commercial Paper" shall mean a system maintained by the Custodian or by a subcustodian employed pursuant to Section 2 hereof for the holding of commercial paper in book-entry form but only if the Custodian has received a certified copy of a vote of the Board approving the participation by the Fund in such system. (j) The Custodian shall be deemed to have received "proper instructions" in respect of any of the matters referred to in this Agreement upon receipt of written or facsimile instructions signed by such one or more person or persons as the Board shall have from time to time authorized to give the particular class of instructions in question. Electronic instructions for the purchase and sale of securities which are transmitted by John Hancock Advisers, Inc. to the Custodian through the John Hancock equity trading system and the John Hancock fixed income trading system shall be deemed to be proper instructions; the Fund shall cause all such instructions to be confirmed in writing. Different persons may be authorized to give instructions for different purposes. A certified copy of a vote of the Board may be received and accepted by the Custodian as conclusive evidence of the authority of any such person to act and may be considered as in full force and effect until receipt of written notice to the contrary. Such instructions may be general or specific in terms and, where appropriate, may be standing instructions. Unless the vote delegating authority to any person or persons to give a particular class of instructions specifically requires that the approval of any person, persons or committee shall first have been obtained before the Custodian may act on instructions of that class, the Custodian shall be under no obligation to question the right of the person or persons giving such instructions in so doing. Oral instructions will be considered proper instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral 6 instructions to be confirmed in writing. The Fund authorizes the Custodian to tape record any and all telephonic or other oral instructions given to the Custodian. Upon receipt of a certificate signed by two officers of the Fund as to the authorization by the President and the Treasurer of the Fund accompanied by a detailed description of the communication procedures approved by the President and the Treasurer of the Fund, "proper instructions" may also include communications effected directly between electromechanical or electronic devices provided that the President and Treasurer of the Fund and the Custodian are satisfied that such procedures afford adequate safeguards for the Fund's assets. In performing its duties generally, and more particularly in connection with the purchase, sale and exchange of securities made by or for the Fund, the Custodian may take cognizance of the provisions of the governing documents and registration statement of the Fund as the same may from time to time be in effect (and votes, resolutions or proceedings of the shareholders or the Board), but, nevertheless, except as otherwise expressly provided herein, the Custodian may assume unless and until notified in writing to the contrary that so-called proper instructions received by it are not in conflict with or in any way contrary to any provisions of such governing documents and registration statement, or votes, resolutions or proceedings of the shareholders or the Board. 2. Employment of Custodian and Property to be Held by It ----------------------------------------------------- The Fund hereby appoints and employs the Bank as its Custodian and Agent in accordance with and subject to the provisions hereof, and the Bank hereby accepts such appointment and employment. The Fund agrees to deliver to the Custodian all securities, participation interests, cash and other assets owned by it, and all payments of income, payments of principal and capital distributions and adjustments received by it with respect to all securities and participation interests owned by the Fund from time to time, and the cash consideration received by it for such new or treasury shares ("Shares") of the Fund as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held by the Fund and not delivered by the Fund to the Custodian. The Fund will also deliver to the Bank from time to time copies of its currently effective charter (or declaration of trust or partnership agreement, as the case may be), by-laws, prospectus, statement of additional information and distribution agreement with its principal underwriter, together with such resolutions, votes and other proceedings of the Fund as may be necessary for or convenient to the Bank in the performance of its duties hereunder. The Custodian may from time to time employ one or more subcustodians to perform such acts and services upon such terms and conditions as shall be approved from time to time by the Board. Any such subcustodian so employed by the Custodian shall be deemed to be the agent of the Custodian, and the Custodian shall remain primarily responsible for the securities, participation interests, moneys and other property of the Fund held by such subcustodian. Any foreign subcustodian shall be a bank or trust company which is an eligible foreign custodian within the meaning of Rule 17f-5 under the Investment Company Act of 1940, and the foreign custody arrangements shall be approved by the Board and shall be in accordance with and subject to the provisions of said Rule. For 7 the purposes of this Agreement, any property of the Fund held by any such subcustodian (domestic or foreign) shall be deemed to be held by the Custodian under the terms of this Agreement. 3. Duties of the Custodian with Respect to Property of the Fund ------------------------------------------------------------ A. SAFEKEEPING AND HOLDING OF PROPERTY The Custodian shall keep safely all property of the Fund and on behalf of the Fund shall from time to time receive delivery of Fund property for safekeeping. The Custodian shall hold, earmark and segregate on its books and records for the account of the Fund all property of the Fund, including all securities, participation interests and other assets of the Fund (1) physically held by the Custodian, (2) held by any subcustodian referred to in Section 2 hereof or by any agent referred to in Paragraph K hereof, (3) held by or maintained in The Depository Trust Company or in Participants Trust Company or in an Approved Clearing Agency or in the Federal Book- Entry System or in an Approved Foreign Securities Depository, each of which from time to time is referred to herein as a "Securities System", and (4) held by the Custodian or by any subcustodian referred to in Section 2 hereof and maintained in any Approved Book-Entry System for Commercial Paper. B. DELIVERY OF SECURITIES The Custodian shall release and deliver securities or participation interests owned by the Fund held (or deemed to be held) by the Custodian or maintained in a Securities System account or in an Approved Book-Entry System for Commercial Paper account only upon receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities or participation interests for the account of the Fund, BUT ONLY against receipt of payment therefor; if delivery is made in Boston or New York City, payment therefor shall be made in accordance with generally accepted clearing house procedures or by use of Federal Reserve Wire System procedures; if delivery is made elsewhere payment therefor shall be in accordance with the then current "street delivery" custom or in accordance with such procedures agreed to in writing from time to time by the parties hereto; if the sale is effected through a Securities System, delivery and payment therefor shall be made in accordance with the provisions of Paragraph L hereof; if the sale of commercial paper is to be effected through an Approved Book-Entry System for Commercial Paper, delivery and payment therefor shall be made in accordance with the provisions of Paragraph M hereof; if the securities are to be sold outside the United States, delivery may be made in accordance with procedures agreed to in writing from time to time by the parties hereto; for the purposes of this subparagraph, the term "sale" shall include the disposition of a portfolio 8 security (i) upon the exercise of an option written by the Fund and (ii) upon the failure by the Fund to make a successful bid with respect to a portfolio security, the continued holding of which is contingent upon the making of such a bid; 2) Upon the receipt of payment in connection with any repurchase agreement or reverse repurchase agreement relating to such securities and entered into by the Fund; 3) To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund; 4) To the issuer thereof or its agent when such securities or participation interests are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof; 5) To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee of the Custodian or into the name or nominee name of any agent appointed pursuant to Paragraph K hereof or into the name or nominee name of any subcustodian employed pursuant to Section 2 hereof; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities or participation interests are to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof; 6) To the broker selling the same for examination in accordance with the "street delivery" custom; provided that the Custodian shall adopt such procedures as the Fund from time to time shall approve to ensure their prompt return to the Custodian by the broker in the event the broker elects not to accept them; 7) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion of such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof; 9 8) In the case of warrants, rights or similar securities, the surrender thereof in connection with the exercise of such warrants, rights or similar securities, or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof; 9) For delivery in connection with any loans of securities made by the Fund (such loans to be made pursuant to the terms of the Fund's current registration statement), but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities. 10) For delivery as security in connection with any borrowings by the Fund requiring a pledge or hypothecation of assets by the Fund (if then permitted under circumstances described in the current registration statement of the Fund), provided, that the securities shall be released only upon payment to the Custodian of the monies borrowed, except that in cases where additional collateral is required to secure a borrowing already made, further securities may be released for that purpose; upon receipt of proper instructions, the Custodian may pay any such loan upon redelivery to it of the securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing the loan; 11) When required for delivery in connection with any redemption or repurchase of Shares of the Fund in accordance with the provisions of Paragraph J hereof; 12) For delivery in accordance with the provisions of any agreement between the Custodian (or a subcustodian employed pursuant to Section 2 hereof) and a broker-dealer registered under the Securities Exchange Act of 1934 and, if necessary, the Fund, relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange, or of any similar organization or organizations, regarding deposit or escrow or other arrangements in connection with options transactions by the Fund; 13) For delivery in accordance with the provisions of any agreement among the Fund, the Custodian (or a subcustodian employed pursuant to Section 2 hereof), and a futures commission merchant, relating to compliance with the rules of the Commodity Futures Trading Commission and/or of any 10 contract market or commodities exchange or similar organization, regarding futures margin account deposits or payments in connection with futures transactions by the Fund; 14) For any other proper corporate purpose, but only upon receipt of, in addition to proper instructions, a certified copy of a vote of the Board specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. C. REGISTRATION OF SECURITIES Securities held by the Custodian (other than bearer securities) for the account of the Fund shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian, or in the name or nominee name of any agent appointed pursuant to Paragraph K hereof, or in the name or nominee name of any subcustodian employed pursuant to Section 2 hereof, or in the name or nominee name of The Depository Trust Company or Participants Trust Company or Approved Clearing Agency or Federal Book-Entry System or Approved Book-Entry System for Commercial Paper; provided, that securities are held in an account of the Custodian or of such agent or of such subcustodian containing only assets of the Fund or only assets held by the Custodian or such agent or such subcustodian as a custodian or subcustodian or in a fiduciary capacity for customers. All certificates for securities accepted by the Custodian or any such agent or subcustodian on behalf of the Fund shall be in "street" or other good delivery form or shall be returned to the selling broker or dealer who shall be advised of the reason thereof. D. BANK ACCOUNTS The Custodian shall open and maintain a separate bank account or accounts in the name of the Fund, subject only to draft or order by the Custodian acting in pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as the Custodian may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved in writing by two officers of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be subject to withdrawal only by the Custodian in that capacity. 11 E. PAYMENT FOR SHARES OF THE FUND The Custodian shall make appropriate arrangements with the Transfer Agent and the principal underwriter of the Fund to enable the Custodian to make certain it promptly receives the cash or other consideration due to the Fund for such new or treasury Shares as may be issued or sold from time to time by the Fund, in accordance with the governing documents and offering prospectus and statement of additional information of the Fund. The Custodian will provide prompt notification to the Fund of any receipt by it of payments for Shares of the Fund. F. INVESTMENT AND AVAILABILITY OF FEDERAL FUNDS Upon agreement between the Fund and the Custodian, the Custodian shall, upon the receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, invest in such securities and instruments as may be set forth in such instructions on the same day as received all federal funds received after a time agreed upon between the Custodian and the Fund. G. COLLECTIONS The Custodian shall promptly collect all income and other payments with respect to registered securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall promptly collect all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held by the Custodian or agent thereof and shall credit such income, as collected, to the Fund's custodian account. The Custodian shall do all things necessary and proper in connection with such prompt collections and, without limiting the generality of the foregoing, the Custodian shall 1) Present for payment all coupons and other income items requiring presentations; 2) Present for payment all securities which may mature or be called, redeemed, retired or otherwise become payable; 3) Endorse and deposit for collection, in the name of the Fund, checks, drafts or other negotiable instruments; 4) Credit income from securities maintained in a Securities System or in an Approved Book-Entry System for Commercial Paper at the time funds become available to the Custodian; in the case of securities maintained in The Depository Trust Company funds shall be deemed available to the Fund not later than the opening of business on the first business day after receipt of such funds by the Custodian. 12 The Custodian shall notify the Fund as soon as reasonably practicable whenever income due on any security is not promptly collected. In any case in which the Custodian does not receive any due and unpaid income after it has made demand for the same, it shall immediately so notify the Fund in writing, enclosing copies of any demand letter, any written response thereto, and memoranda of all oral responses thereto and to telephonic demands, and await instructions from the Fund; the Custodian shall in no case have any liability for any nonpayment of such income provided the Custodian meets the standard of care set forth in Section 8 hereof. The Custodian shall not be obligated to take legal action for collection unless and until reasonably indemnified to its satisfaction. The Custodian shall also receive and collect all stock dividends, rights and other items of like nature, and deal with the same pursuant to proper instructions relative thereto. H. PAYMENT OF FUND MONEYS Upon receipt of proper instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out moneys of the Fund in the following cases only: 1) Upon the purchase of securities, participation interests, options, futures contracts, forward contracts and options on futures contracts purchased for the account of the Fund but only (a) against the receipt of (i) such securities registered as provided in Paragraph C hereof or in proper form for transfer or (ii) detailed instructions signed by an officer of the Fund regarding the participation interests to be purchased or (iii) written confirmation of the purchase by the Fund of the options, futures contracts, forward contracts or options on futures contracts by the Custodian (or by a subcustodian employed pursuant to Section 2 hereof or by a clearing corporation of a national securities exchange of which the Custodian is a member or by any bank, banking institution or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940 to act as a custodian and which has been designated by the Custodian as its agent for this purpose or by the agent specifically designated in such instructions as representing the purchasers of a new issue of privately placed securities); (b) in the case of a purchase effected through a Securities System, upon receipt of the securities by the Securities System in accordance with the conditions set forth in Paragraph L hereof; (c) in the case of a purchase of commercial paper effected through an Approved Book-Entry System for Commercial Paper, upon 13 receipt of the paper by the Custodian or subcustodian in accordance with the conditions set forth in Paragraph M hereof; (d) in the case of repurchase agreements entered into between the Fund and another bank or a broker- dealer, against receipt by the Custodian of the securities underlying the repurchase agreement either in certificate form or through an entry crediting the Custodian's segregated, non-proprietary account at the Federal Reserve Bank of Boston with such securities along with written evidence of the agreement by the bank or broker-dealer to repurchase such securities from the Fund; or (e) with respect to securities purchased outside of the United States, in accordance with written procedures agreed to from time to time in writing by the parties hereto; 2) When required in connection with the conversion, exchange or surrender of securities owned by the Fund as set forth in Paragraph B hereof; 3) When required for the redemption or repurchase of Shares of the Fund in accordance with the provisions of Paragraph J hereof; 4) For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: advisory fees, distribution plan payments, interest, taxes, management compensation and expenses, accounting, transfer agent and legal fees, and other operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends or other distributions to holders of Shares declared or authorized by the Board; and 6) For any other proper corporate purpose, but only upon receipt of, in addition to proper instructions, a certified copy of a vote of the Board, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom such payment is to be made. I. LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED In any and every case where payment for purchase of securities for the account of the Fund is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions signed by two officers of the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian; EXCEPT that in the case of a repurchase agreement 14 entered into by the Fund with a bank which is a member of the Federal Reserve System, the Custodian may transfer funds to the account of such bank prior to the receipt of (i) the securities in certificate form subject to such repurchase agreement or (ii) written evidence that the securities subject to such repurchase agreement have been transferred by book-entry into a segregated non-proprietary account of the Custodian maintained with the Federal Reserve Bank of Boston or (iii) the safekeeping receipt, PROVIDED that such securities have in fact been so transferred by book-entry and the written repurchase agreement is received by the Custodian in due course; AND EXCEPT that if the securities are to be purchased outside the United States, payment may be made in accordance with procedures agreed to from time to time by the parties hereto. J. PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND From such funds as may be available for the purpose, but subject to any applicable votes of the Board and the current redemption and repurchase procedures of the Fund, the Custodian shall, upon receipt of written instructions from the Fund or from the Fund's transfer agent or from the principal underwriter, make funds and/or portfolio securities available for payment to holders of Shares who have caused their Shares to be redeemed or repurchased by the Fund or for the Fund's account by its transfer agent or principal underwriter. The Custodian may maintain a special checking account upon which special checks may be drawn by shareholders of the Fund holding Shares for which certificates have not been issued. Such checking account and such special checks shall be subject to such rules and regulations as the Custodian and the Fund may from time to time adopt. The Custodian or the Fund may suspend or terminate use of such checking account or such special checks (either generally or for one or more shareholders) at any time. The Custodian and the Fund shall notify the other immediately of any such suspension or termination. K. APPOINTMENT OF AGENTS BY THE CUSTODIAN The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company (provided such bank or trust company is itself qualified under the Investment Company Act of 1940 to act as a custodian or is itself an eligible foreign custodian within the meaning of Rule 17f-5 under said Act) as the agent of the Custodian to carry out such of the duties and functions of the Custodian described in this Section 3 as the Custodian may from time to time direct; provided, however, that the appointment of any such agent shall not relieve the Custodian of any of its responsibilities or liabilities hereunder, and as between the Fund and the Custodian the Custodian shall be fully responsible for the acts and omissions of any such agent. For the purposes of this Agreement, any property of the Fund held by any such agent shall be deemed to be held by the Custodian hereunder. 15 L. DEPOSIT OF FUND PORTFOLIO SECURITIES IN SECURITIES SYSTEMS The Custodian may deposit and/or maintain securities owned by the Fund (1) in The Depository Trust Company; (2) in Participants Trust Company; (3) in any other Approved Clearing Agency; (4) in the Federal Book-Entry System; or (5) in an Approved Foreign Securities Depository in each case only in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, and at all times subject to the following provisions: (a) The Custodian may (either directly or through one or more subcustodians employed pursuant to Section 2) keep securities of the Fund in a Securities System provided that such securities are maintained in a non-proprietary account ("Account") of the Custodian or such subcustodian in the Securities System which shall not include any assets of the Custodian or such subcustodian or any other person other than assets held by the Custodian or such subcustodian as a fiduciary, custodian, or otherwise for its customers. (b) The records of the Custodian with respect to securities of the Fund which are maintained in a Securities System shall identify by book-entry those securities belonging to the Fund, and the Custodian shall be fully and completely responsible for maintaining a recordkeeping system capable of accurately and currently stating the Fund's holdings maintained in each such Securities System. (c) The Custodian shall pay for securities purchased in book-entry form for the account of the Fund only upon (i) receipt of notice or advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of any entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer securities sold for the account of the Fund only upon (i) receipt of notice or advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all notices or advises from the Securities System of transfers of securities for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be promptly provided to the Fund at its request. 16 The Custodian shall promptly send to the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice of each such transaction, and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of the Fund on the next business day. (d) The Custodian shall promptly send to the Fund any report or other communication received or obtained by the Custodian relating to the Securities System's accounting system, system of internal accounting controls or procedures for safeguarding securities deposited in the Securities System; the Custodian shall promptly send to the Fund any report or other communication relating to the Custodian's internal accounting controls and procedures for safeguarding securities deposited in any Securities System; and the Custodian shall ensure that any agent appointed pursuant to Paragraph K hereof or any subcustodian employed pursuant to Section 2 hereof shall promptly send to the Fund and to the Custodian any report or other communication relating to such agent's or subcustodian's internal accounting controls and procedures for safeguarding securities deposited in any Securities System. The Custodian's books and records relating to the Fund's participation in each Securities System will at all times during regular business hours be open to the inspection of the Fund's authorized officers, employees or agents. (e) The Custodian shall not act under this Paragraph L in the absence of receipt of a certificate of an officer of the Fund that the Board has approved the use of a particular Securities System; the Custodian shall also obtain appropriate assurance from the officers of the Fund that the Board has annually reviewed and approved the continued use by the Fund of each Securities System, so long as such review and approval is required by Rule 17f-4 under the Investment Company Act of 1940, and the Fund shall promptly notify the Custodian if the use of a Securities System is to be discontinued; at the request of the Fund, the Custodian will terminate the use of any such Securities System as promptly as practicable. (f) Anything to the contrary in this Agreement notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or subcustodians or of any of its or their employees or from any failure of the Custodian or any such agent or subcustodian to enforce effectively such rights as it may have against the Securities System or any other person; at the election of the Fund, it shall be entitled to be 17 subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. M. DEPOSIT OF FUND COMMERCIAL PAPER IN AN APPROVED BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER Upon receipt of proper instructions with respect to each issue of direct issue commercial paper purchased by the Fund, the Custodian may deposit and/or maintain direct issue commercial paper owned by the Fund in any Approved Book-Entry System for Commercial Paper, in each case only in accordance with applicable Securities and Exchange Commission rules, regulations, and no-action correspondence, and at all times subject to the following provisions: (a) The Custodian may (either directly or through one or more subcustodians employed pursuant to Section 2) keep commercial paper of the Fund in an Approved Book-Entry System for Commercial Paper, provided that such paper is issued in book entry form by the Custodian or subcustodian on behalf of an issuer with which the Custodian or subcustodian has entered into a book-entry agreement and provided further that such paper is maintained in a non-proprietary account ("Account") of the Custodian or such subcustodian in an Approved Book-Entry System for Commercial Paper which shall not include any assets of the Custodian or such subcustodian or any other person other than assets held by the Custodian or such subcustodian as a fiduciary, custodian, or otherwise for its customers. (b) The records of the Custodian with respect to commercial paper of the Fund which is maintained in an Approved Book-Entry System for Commercial Paper shall identify by book-entry each specific issue of commercial paper purchased by the Fund which is included in the System and shall at all times during regular business hours be open for inspection by authorized officers, employees or agents of the Fund. The Custodian shall be fully and completely responsible for maintaining a recordkeeping system capable of accurately and currently stating the Fund's holdings of commercial paper maintained in each such System. (c) The Custodian shall pay for commercial paper purchased in book-entry form for the account of the Fund only upon contemporaneous (i) receipt of notice or advice from the issuer that such paper has been issued, sold and transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such purchase, payment and transfer for the account of the Fund. The Custodian shall transfer such commercial 18 paper which is sold or cancel such commercial paper which is redeemed for the account of the Fund only upon contemporaneous (i) receipt of notice or advice that payment for such paper has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer or redemption and payment for the account of the Fund. Copies of all notices, advises and confirmations of transfers of commercial paper for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be promptly provided to the Fund at its request. The Custodian shall promptly send to the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice of each such transaction, and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the System for the account of the Fund on the next business day. (d) The Custodian shall promptly send to the Fund any report or other communication received or obtained by the Custodian relating to each System's accounting system, system of internal accounting controls or procedures for safeguarding commercial paper deposited in the System; the Custodian shall promptly send to the Fund any report or other communication relating to the Custodian's internal accounting controls and procedures for safeguarding commercial paper deposited in any Approved Book-Entry System for Commercial Paper; and the Custodian shall ensure that any agent appointed pursuant to Paragraph K hereof or any subcustodian employed pursuant to Section 2 hereof shall promptly send to the Fund and to the Custodian any report or other communication relating to such agent's or subcustodian's internal accounting controls and procedures for safeguarding securities deposited in any Approved Book-Entry System for Commercial Paper. (e) The Custodian shall not act under this Paragraph M in the absence of receipt of a certificate of an officer of the Fund that the Board has approved the use of a particular Approved Book-Entry System for Commercial Paper; the Custodian shall also obtain appropriate assurance from the officers of the Fund that the Board has annually reviewed and approved the continued use by the Fund of each Approved Book-Entry System for Commercial Paper, so long as such review and approval is required by Rule 17f-4 under the Investment Company Act of 1940, and the Fund shall promptly notify the Custodian if the use of an Approved Book-Entry System for Commercial Paper is to be discontinued; at the request of the Fund, the Custodian will terminate the use of any such System as promptly as practicable. 19 (f) The Custodian (or subcustodian, if the Approved Book-Entry System for Commercial Paper is maintained by the subcustodian) shall issue physical commercial paper or promissory notes whenever requested to do so by the Fund or in the event of an electronic system failure which impedes issuance, transfer or custody of direct issue commercial paper by book-entry. (g) Anything to the contrary in this Agreement notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of any Approved Book-Entry System for Commercial Paper by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or subcustodians or of any of its or their employees or from any failure of the Custodian or any such agent or subcustodian to enforce effectively such rights as it may have against the System, the issuer of the commercial paper or any other person; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the System, the issuer of the commercial paper or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Fund has not been made whole for any such loss or damage. N. SEGREGATED ACCOUNT The Custodian shall upon receipt of proper instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Paragraph L hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and any registered broker-dealer (or any futures commission merchant), relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange (or of the Commodity Futures Trading Commission or of any contract market or commodities exchange), or of any similar organization or organizations, regarding escrow or deposit or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or U.S. Government securities in connection with options purchased, sold or written by the Fund or futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper purposes, but only, in the case of clause (iv), upon receipt of, in addition to proper instructions, a certificate signed by two officers of the Fund, setting forth the purpose such segregated account and declaring such purpose to be a proper purpose. 20 O. OWNERSHIP CERTIFICATES FOR TAX PURPOSES The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Fund held by it and in connection with transfers of securities. P. PROXIES The Custodian shall, with respect to the securities held by it hereunder, cause to be promptly delivered to the Fund all forms of proxies and all notices of meetings and any other notices or announcements or other written information affecting or relating to the securities, and upon receipt of proper instructions shall execute and deliver or cause its nominee to execute and deliver such proxies or other authorizations as may be required. Neither the Custodian nor its nominee shall vote upon any of the securities or execute any proxy to vote thereon or give any consent or take any other action with respect thereto (except as otherwise herein provided) unless ordered to do so by proper instructions. Q. COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES The Custodian shall deliver promptly to the Fund all written information (including, without limitation, pendency of call and maturities of securities and participation interests and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers and other persons relating to the securities and participation interests being held for the Fund. With respect to tender or exchange offers, the Custodian shall deliver promptly to the Fund all written information received by the Custodian from issuers and other persons relating to the securities and participation interests whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. R. EXERCISE OF RIGHTS; TENDER OFFERS In the case of tender offers, similar offers to purchase or exercise rights (including, without limitation, pendency of calls and maturities of securities and participation interests and expirations of rights in connection therewith and notices of exercise of call and put options and the maturity of futures contracts) affecting or relating to securities and participation interests held by the Custodian under this Agreement, the Custodian shall have responsibility for promptly notifying the Fund of all such offers in accordance with the standard of reasonable care set forth in Section 8 hereof. For all such offers for which the Custodian is responsible as provided in this Paragraph R, the Fund shall have responsibility for providing the Custodian with all necessary instructions in timely fashion. Upon receipt of proper instructions, the Custodian shall timely deliver to the issuer or trustee thereof, or to the agent of either, warrants, puts, calls, rights or similar 21 securities for the purpose of being exercised or sold upon proper receipt therefor and upon receipt of assurances satisfactory to the Custodian that the new securities and cash, if any, acquired by such action are to be delivered to the Custodian or any subcustodian employed pursuant to Section 2 hereof. Upon receipt of proper instructions, the Custodian shall timely deposit securities upon invitations for tenders of securities upon proper receipt therefor and upon receipt of assurances satisfactory to the Custodian that the consideration to be paid or delivered or the tendered securities are to be returned to the Custodian or subcustodian employed pursuant to Section 2 hereof. Notwithstanding any provision of this Agreement to the contrary, the Custodian shall take all necessary action, unless otherwise directed to the contrary by proper instructions, to comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions, or similar rights of security ownership, and shall thereafter promptly notify the Fund in writing of such action. S. DEPOSITORY RECEIPTS The Custodian shall, upon receipt of proper instructions, surrender or cause to be surrendered foreign securities to the depository used by an issuer of American Depository Receipts, European Depository Receipts or International Depository Receipts (hereinafter collectively referred to as "ADRs") for such securities, against a written receipt therefor adequately describing such securities and written evidence satisfactory to the Custodian that the depository has acknowledged receipt of instructions to issue with respect to such securities ADRs in the name of a nominee of the Custodian or in the name or nominee name of any subcustodian employed pursuant to Section 2 hereof, for delivery to the Custodian or such subcustodian at such place as the Custodian or such subcustodian may from time to time designate. The Custodian shall, upon receipt of proper instructions, surrender ADRs to the issuer thereof against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the Custodian that the issuer of the ADRs has acknowledged receipt of instructions to cause its depository to deliver the securities underlying such ADRs to the Custodian or to a subcustodian employed pursuant to Section 2 hereof. T. INTEREST BEARING CALL OR TIME DEPOSITS The Custodian shall, upon receipt of proper instructions, place interest bearing fixed term and call deposits with the banking department of such banking institution (other than the Custodian) and in such amounts as the Fund may designate. Deposits may be denominated in U.S. Dollars or other currencies. The Custodian shall include in its records with respect to the assets of the Fund appropriate notation as to the amount and currency of each such deposit, the accepting banking institution and other appropriate details and shall retain such forms of advice or receipt evidencing the deposit, if any, as may be forwarded to the Custodian by the banking 22 institution. Such deposits shall be deemed portfolio securities of the applicable Fund for the purposes of this Agreement, and the Custodian shall be responsible for the collection of income from such accounts and the transmission of cash to and from such accounts. U. Options, Futures Contracts and Foreign Currency Transactions ------------------------------------------------------------ 1. OPTIONS. The Custodians shall, upon receipt of proper instructions and in accordance with the provisions of any agreement between the Custodian, any registered broker-dealer and, if necessary, the Fund, relating to compliance with the rules of the Options Clearing Corporation or of any registered national securities exchange or similar organization or organizations, receive and retain confirmations or other documents, if any, evidencing the purchase or writing of an option on a security, securities index, currency or other financial instrument or index by the Fund; deposit and maintain in a segregated account for each Fund separately, either physically or by book-entry in a Securities System, securities subject to a covered call option written by the Fund; and release and/or transfer such securities or other assets only in accordance with a notice or other communication evidencing the expiration, termination or exercise of such covered option furnished by the Options Clearing Corporation, the securities or options exchange on which such covered option is traded or such other organization as may be responsible for handling such options transactions. The Custodian and the broker-dealer shall be responsible for the sufficiency of assets held in each Fund's segregated account in compliance with applicable margin maintenance requirements. 2. FUTURES CONTRACTS The Custodian shall, upon receipt of proper instructions, receive and retain confirmations and other documents, if any, evidencing the purchase or sale of a futures contract or an option on a futures contract by the Fund; deposit and maintain in a segregated account, for the benefit of any futures commission merchant, assets designated by the Fund as initial, maintenance or variation "margin" deposits (including mark- to-market payments) intended to secure the Fund's performance of its obligations under any futures contracts purchased or sold or any options on futures contracts written by Fund, in accordance with the provisions of any agreement or agreements among the Fund, the Custodian and such futures commission merchant, designed to comply with the rules of the Commodity Futures Trading Commission and/or of any contract market or commodities exchange or similar organization regarding such margin deposits or payments; and release and/or transfer assets in such margin accounts only in 23 accordance with any such agreements or rules. The Custodian and the futures commission merchant shall be responsible for the sufficiency of assets held in the segregated account in compliance with the applicable margin maintenance and mark-to-market payment requirements. 3. FOREIGN EXCHANGE TRANSACTIONS The Custodian shall, pursuant to proper instructions, enter into or cause a subcustodian to enter into foreign exchange contracts, currency swaps or options to purchase and sell foreign currencies for spot and future delivery on behalf and for the account of the Fund. Such transactions may be undertaken by the Custodian or subcustodian with such banking or financial institutions or other currency brokers, as set forth in proper instructions. Foreign exchange contracts, swaps and options shall be deemed to be portfolio securities of the Fund; and accordingly, the responsibility of the Custodian therefor shall be the same as and no greater than the Custodian's responsibility in respect of other portfolio securities of the Fund. The Custodian shall be responsible for the transmittal to and receipt of cash from the currency broker or banking or financial institution with which the contract or option is made, the maintenance of proper records with respect to the transaction and the maintenance of any segregated account required in connection with the transaction. The Custodian shall have no duty with respect to the selection of the currency brokers or banking or financial institutions with which the Fund deals or for their failure to comply with the terms of any contract or option. Without limiting the foregoing, it is agreed that upon receipt of proper instructions and insofar as funds are made available to the Custodian for the purpose, the Custodian may (if determined necessary by the Custodian to consummate a particular transaction on behalf and for the account of the Fund) make free outgoing payments of cash in the form of U.S. dollars or foreign currency before receiving confirmation of a foreign exchange contract or swap or confirmation that the countervalue currency completing the foreign exchange contract or swap has been delivered or received. The Custodian shall not be responsible for any costs and interest charges which may be incurred by the Fund or the Custodian as a result of the failure or delay of third parties to deliver foreign exchange; provided that the Custodian shall nevertheless be held to the standard of care set forth in, and shall be liable to the Fund in accordance with, the provisions of Section 8. V. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY The Custodian may in its discretion, without express authority from the Fund: 24 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, PROVIDED, that all such payments shall be accounted for by the Custodian to the Treasurer of the Fund; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and 4) in general, attend to all nondiscretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Fund. 4. Duties of Bank with Respect to Books of Account and Calculations of Net Asset Value ----------------------------------------------------------------------- The Bank shall as Agent (or as Custodian, as the case may be) keep such books of account and render as at the close of business on each day a detailed statement of the amounts received or paid out and of securities received or delivered for the account of the Fund during said day and such other statements, including a daily trial balance and inventory of the Fund's portfolio securities; and shall furnish such other financial information and data as from time to time requested by the Treasurer or any authorized officer of the Fund; and shall compute and determine, as of the close of regular trading on the New York Stock Exchange, or at such other time or times as the Board may determine, the net asset value of a Share in the Fund, such computation and determination to be made in accordance with the governing documents of the Fund and the votes and instructions of the Board at the time in force and applicable, and promptly notify the Fund and its investment adviser and such other persons as the Fund may request of the result of such computation and determination. In computing the net asset value the Custodian may rely upon security quotations received by telephone or otherwise from sources or pricing services designated by the Fund by proper instructions, and may further rely upon information furnished to it by any authorized officer of the Fund relative (a) to liabilities of the Fund not appearing on its books of account, (b) to the existence, status and proper treatment of any reserve or reserves, (c) to any procedures established by the Board regarding the valuation of portfolio securities, and (d) to the value to be assigned to any bond, note, debenture, Treasury bill, repurchase agreement, subscription right, security, participation interest or other asset or property for which market quotations are not readily available. 5. Records and Miscellaneous Duties -------------------------------- The Bank shall create, maintain and preserve all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund 25 under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules or procedures which may be applicable to the Fund. All books of account and records maintained by the Bank in connection with the performance of its duties under this Agreement shall be the property of the Fund, shall at all times during the regular business hours of the Bank be open for inspection by authorized officers, employees or agents of the Fund, and in the event of termination of this Agreement shall be delivered to the Fund or to such other person or persons as shall be designated by the Fund. Disposition of any account or record after any required period of preservation shall be only in accordance with specific instructions received from the Fund. The Bank shall assist generally in the preparation of reports to shareholders, audits of accounts, and other ministerial matters of like nature; and, upon request, shall furnish the Fund's auditors with an attested inventory of securities held with appropriate information as to securities in transit or in the process of purchase or sale and with such other information as said auditors may from time to time request. The Custodian shall also maintain records of all receipts, deliveries and locations of such securities, together with a current inventory thereof, and shall conduct periodic verifications (including sampling counts at the Custodian) of certificates representing bonds and other securities for which it is responsible under this Agreement in such manner as the Custodian shall determine from time to time to be advisable in order to verify the accuracy of such inventory. The Bank shall not disclose or use any books or records it has prepared or maintained by reason of this Agreement in any manner except as expressly authorized herein or directed by the Fund, and the Bank shall keep confidential any information obtained by reason of this Agreement. 6. Opinion of Fund's Independent Public Accountants ------------------------------------------------ The Custodian shall take all reasonable action, as the Fund may from time to time request, to enable the Fund to obtain from year to year favorable opinions from the Fund's independent public accountants with respect to its activities hereunder in connection with the preparation of the Fund's registration statement and Form N-SAR or other periodic reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 7. Compensation and Expenses of Bank --------------------------------- The Bank shall be entitled to reasonable compensation for its services as Custodian and Agent, as agreed upon from time to time between the Fund and the Bank. The Bank shall entitled to receive from the Fund on demand reimbursement for its cash disbursements, expenses and charges, including counsel fees, in connection with its duties as Custodian and Agent hereunder, but excluding salaries and usual overhead expenses. 8. Responsibility of Bank ---------------------- 26 So long as and to the extent that it is in the exercise of reasonable care, the Bank as Custodian and Agent shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. The Bank as Custodian and Agent shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Bank as Custodian and Agent shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement but shall be liable only for its own negligent or bad faith acts or failures to act. Notwithstanding the foregoing, nothing contained in this paragraph is intended to nor shall it be construed to modify the standards of care and responsibility set forth in Section 2 hereof with respect to subcustodians and in subparagraph f of Paragraph L of Section 3 hereof with respect to Securities Systems and in subparagraph g of Paragraph M of Section 3 hereof with respect to an Approved Book-Entry System for Commercial Paper. The Custodian shall be liable for the acts or omissions of a foreign banking institution to the same extent as set forth with respect to subcustodians generally in Section 2 hereof, provided that, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from, or caused by, the direction of or authorization by the Fund to maintain custody of any securities or cash of the Fund in a foreign county including, but not limited to, losses resulting from nationalization, expropriation, currency restrictions, acts of war, civil war or terrorism, insurrection, revolution, military or usurped powers, nuclear fission, fusion or radiation, earthquake, storm or other disturbance of nature or acts of God. If the Fund requires the Bank in any capacity to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Bank, result in the Bank or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. 9. Persons Having Access to Assets of the Fund ------------------------------------------- (i) No trustee, director, general partner, officer, employee or agent of the Fund shall have physical access to the assets of the Fund held by the Custodian or be authorized or permitted to withdraw any investments of the Fund, nor shall the Custodian deliver any assets of the Fund to any such person. No officer or director, employee or agent of the Custodian who holds any similar position with the Fund or the 27 investment adviser of the Fund shall have access to the assets of the Fund. (ii) Access to assets of the Fund held hereunder shall only be available to duly authorized officers, employees, representatives or agents of the Custodian or other persons or entities for whose actions the Custodian shall be responsible to the extent permitted hereunder, or to the Fund's independent public accountants in connection with their auditing duties performed on behalf of the Fund. (iii) Nothing in this Section 9 shall prohibit any officer, employee or agent of the Fund or of the investment adviser of the Fund from giving instructions to the Custodian or executing a certificate so long as it does not result in delivery of or access to assets of the Fund prohibited by paragraph (i) of this Section 9. 10. Effective Period, Termination and Amendment; Successor Custodian ---------------------------------------------------------------- This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing; provided, that the Fund may at any time by action of its Board, (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the Federal Deposit Insurance Corporation or by the Banking Commissioner of The Commonwealth of Massachusetts or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Agreement, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. Unless the holders of a majority of the outstanding Shares of the Fund vote to have the securities, funds and other properties held hereunder delivered and paid over to some other bank or trust company, specified in the vote, having not less than $2,000,000 of aggregate capital, surplus and undivided profits, as shown by its last published report, and meeting such other qualifications for custodians set forth in the Investment Company Act of 1940, the Board shall, forthwith, upon giving or receiving notice of termination of this Agreement, appoint as successor custodian, a bank or trust company having such qualifications. The Bank, as Custodian, Agent or otherwise, shall, upon termination of the Agreement, deliver to such successor custodian, all securities then held hereunder and all funds or other properties of the Fund deposited with or held by the Bank hereunder and all books of account and records kept by the Bank pursuant to this Agreement, and all documents held by the Bank relative thereto. In the event that no such vote has been 28 adopted by the shareholders and that no written order designating a successor custodian shall have been delivered to the Bank on or before the date when such termination shall become effective, then the Bank shall not deliver the securities, funds and other properties of the Fund to the Fund but shall have the right to deliver to a bank or trust company doing business in Boston, Massachusetts of its own selection, having an aggregate capital, surplus and undivided profits, as shown by its last published report, of not less than $2,000,000, all funds, securities and properties of the Fund held by or deposited with the Bank, and all books of account and records kept by the Bank pursuant to this Agreement, and all documents held by the Bank relative thereto. Thereafter such bank or trust company shall be the successor of the Custodian under this Agreement. 11. Interpretive and Additional Provisions -------------------------------------- In connection with the operation of this Agreement, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the governing instruments of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. 12. Certification as to Authorized Officers --------------------------------------- The Secretary of the Fund shall at all times maintain on file with the Bank his certification to the Bank, in such form as may be acceptable to the Bank, of the names and signatures of the authorized officers of each fund, it being understood that upon the occurence of any change in the information set forth in the most recent certification on file (including without limitation any person named in the most recent certification who has ceased to hold the office designated therein), the Secretary of the Fund shall sign a new or amended certification setting forth the change and the new, additional or ommitted names or signatures. The Bank shall be entitled to rely and act upon any officers named in the most recent certification. 13. Notices ------- Notices and other writings delivered or mailed postage prepaid to the Fund addressed to Thomas H. Drohan, John Hancock Advisers, Inc., 101 Huntington Avenue, Boston, Massachusetts 02199, or to such other address as the Fund may have designated to the Bank, in writing, or to Investors Bank & Trust Company, 24 Federal Street, Boston, Massachusetts 02110, shall be deemed to have been properly delivered or given hereunder to the respective addressees. 29 14. Massachusetts Law to Apply; Limitations on Liability ---------------------------------------------------- This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. If the Fund is a Massachusetts business trust, the Custodian expressly acknowledges the provision in the Fund's declaration of trust limiting the personal liability of the trustees and shareholders of the Fund; and the Custodian agrees that it shall have recourse only to the assets of the Fund for the payment of claims or obligations as between the Custodian and the Fund arising out of this Agreement, and the Custodian shall not seek satisfaction of any such claim or obligation from the trustees or shareholders of the Fund. Each Fund, and each series or portfolio of a Fund, shall be liable only for its own obligations to the Custodian under this Agreement and shall not be jointly or severally liable for the obligations of any other Fund, series or portfolio hereunder. 30 15. Adoption of the Agreement by the Fund ------------------------------------- The Fund represents that its Board has approved this Agreement and has duly authorized the Fund to adopt this Agreement. This Agreement shall be deemed to supersede and terminate, as of the date first written above, all prior agreements between the Fund and the Bank relating to the custody of the Fund's assets. * * * * 31 In Witness Whereof, the parties hereto have caused this agreement to be executed in duplicate as of the date first written above by their respective officers thereunto duly authorized. John Hancock Mutual Funds by: /s/ Robert G. Freedman ---------------------- Attest: /s/Avery P. Maher - ----------------- Investors Bank & Trust Company by: /s/ Henry M. Joyce ------------------ Attest: /s/ JM Keenan - ------------- 32 Page 1 of 2 INVESTORS BANK & TRUST COMPANY APPENDIX A [EFFECTIVE JANUARY 30, 1995] John Hancock Limited Term Government Fund John Hancock Capital Series John Hancock Special Value Fund John Hancock Growth Fund John Hancock Income Securities Trust John Hancock Investors Trust John Hancock Sovereign Bond Fund John Hancock Sovereign Investors Fund, Inc. John Hancock Sovereign Investors Fund John Hancock Sovereign Balanced Fund John Hancock Special Equities Fund John Hancock Strategic Series John Hancock Independence Diversified Core Equity Fund John Hancock Strategic Income Fund John Hancock Utilities Fund John Hancock Tax-Exempt Income Fund John Hancock Tax-Exempt Series Fund California Portfolio Massachusetts Portfolio New York Portfolio John Hancock Technology Series, Inc. John Hancock National Aviation & Technology Fund John Hancock Global Technology Fund Freedom Investment Trust John Hancock Gold & Government Fund John Hancock Regional Bank Fund John Hancock Sovereign U.S. Government Income Fund John Hancock Managed Tax-Exempt Fund John Hancock Sovereign Achievers Fund Freedom Investment Trust II John Hancock Special Opportunities Fund Freedom Investment Trust III John Hancock Discovery Fund 33 Page 2 of 2 INVESTORS BANK & TRUST COMPANY APPENDIX A [EFFECTIVE JANUARY 30, 1995] John Hancock Series, Inc. John Hancock Emerging Growth Fund John Hancock Global Resources Fund John Hancock Government Income Fund John Hancock High Yield Bond Fund John Hancock High Yield Tax-Free Fund John Hancock Money Market Fund B John Hancock Cash Reserve, Inc. John Hancock Current Interest John Hancock U.S. Government Cash Reserve John Hancock Capital Growth Fund John Hancock Investment Trust John Hancock Growth and Income Fund John Hancock California Tax-Free Income Fund John Hancock Tax-Free Bond Fund John Hancock Bond Fund John Hancock Investment Quality Bond Fund John Hancock Government Securities Trust John Hancock U.S. Government Trust John Hancock Adjustable U.S. Government Trust John Hancock Adjustable U.S. Government Fund John Hancock Intermediate Government Trust John Hancock Institutional Series Trust John Hancock Berkeley Dividend Performers Fund John Hancock Berkeley Bond Fund John Hancock Berkeley Fundamental Value Fund John Hancock Berkeley Sector Opportunity Fund John Hancock Independence Diversified Core Equity Fund II John Hancock Independence Value Fund John Hancock Independence Growth Fund John Hancock Independence Medium Capitalization Fund John Hancock Independence Balanced Fund EX-99.9 15 TRANSFER AGENCY & SERVICE AGMT 1 Exhibit 99.B9 TRANSFER AGENCY AND SERVICE AGREEMENT AGREEMENT made as of the 15th day of May, 1995 by and between JOHN HANCOCK BOND FUND, JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND, JOHN HANCOCK CAPITAL GROWTH FUND, JOHN HANCOCK CASH RESERVE, INC., JOHN HANCOCK CURRENT INTEREST, JOHN HANCOCK INVESTMENT TRUST, JOHN HANCOCK SERIES, INC., JOHN HANCOCK TAX-FREE BOND FUND (each a "Fund") and JOHN HANCOCK INVESTOR SERVICES CORPORATION ("INVESTOR SERVICES"), each having their principal office and place of business at 101 Huntington Avenue, Boston, Massachusetts 02199. WITNESSETH: WHEREAS, the Fund desires to appoint INVESTOR SERVICES as its transfer agent, dividend disbursing agent and agent in connection with certain other activities, and INVESTOR SERVICES desires to accept such appointment; WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: Article 1 Terms of Appointment: Duties of INVESTOR SERVICES 1.01 Subject to the terms and conditions set forth in this Agreement, the Fund hereby, employs and appoints INVESTOR SERVICES to act as, and INVESTOR SERVICES agrees to act as transfer agent for the Fund's authorized and issued shares of beneficial interest or common stock, as the case may be ("Shares"), with any accumulation, open-account or similar plans provided to the shareholders of the Fund ("Shareholders") and set out in the currently effective prospectus of the Fund, including without limitation any periodic investment plan or periodic withdrawal program. 1.02 INVESTOR SERVICES agrees that it will perform the following services: (a) In accordance with procedures established from time to time by agreement between the Fund and INVESTOR SERVICES, INVESTOR SERVICES shall: (i) Receive for acceptance orders for the purchase of Shares, and promptly deliver payment and appropriate documentation therefor to the custodian of the Fund (the "Custodian"); (ii) Pursuant to purchase orders, issue the appropriate number of Shares and hold such Shares in the appropriate Shareholder account; (iii) Receive for acceptance, redemption requests and redemption directions and deliver the appropriate documentation therefor to the Custodian; 1 2 (iv) At the appropriate time as and when it receives monies paid to it by the Custodian with respect to any redemption, pay over or cause to be paid over in the appropriate manner such monies as instructed by the redeeming Shareholders; (v) Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions; (vi) Prepare and transmit payments for dividends and distributions declared by the Fund; (vii) Maintain records of account for and advise the Fund and their Shareholders as to the foregoing; and (viii) Record the issuance of Shares of the Fund and maintain pursuant to SEC Rule 17Ad-10(e) a record of the total number of Shares of the Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. INVESTOR SERVICES shall also provide the Fund on a regular basis with the total number of Shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. (b) In addition to and not in lieu of the services set forth in the above paragraph (a), INVESTOR SERVICES shall: (i) perform all of the customary services of a transfer agent, dividend disbursing agent and, as relevant, agent in connection with accumulation, open-account or similar plans (including without limitation any periodic investment plan or periodic withdrawal program); including but not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, receiving and tabulating proxies, mailing Shareholder reports and prospectuses to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders, preparing and mailing confirmations forms and statements of account to Shareholders for all purchases and redemptions of Shares and other confirmable transactions in Shareholder accounts, preparing and mailing activity statements for Shareholders, and providing Shareholder account information and (ii) provide a system which will enable the Funds to monitor the total number of Shares sold in each State. (c) In addition, the Fund shall (i) identify to INVESTOR SERVICES in writing those transactions and assets to be treated as exempt from the blue sky reporting for each State and (ii) verify the establishment of transactions for each State on the system prior to activation and thereafter monitor the daily activity for each State. The responsibility of INVESTOR SERVICES for the Fund's blue sky State registration status is solely limited to the initial establishment of transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above. (d) Additionally, INVESTOR SERVICES shall: (i) Utilize a system to identify all share transactions which involve purchase and redemption orders that are processed at a time other than the time of the computation of net asset 2 3 value per share next computed after receipt of such orders, and shall compute the net effect upon the Fund of such transactions so identified on a daily and cumulative basis. (ii) If upon any day the cumulative net effect of such transactions upon a Fund is negative and exceed a dollar amount equivalent to 1/2 of 1 cent per share, INVESTOR SERVICES shall promptly make a payment to the Fund in cash or through the use of a credit, in the manner described in paragraph (iv) below, in such amount as may be necessary to reduce the negative cumulative net effect to less than 1/2 of 1 cent per share. (iii) If on the last business day of any month the cumulative net effect upon a Fund (adjusted by the amount of all prior payments and credits by INVESTOR SERVICES and the Fund) is negative, the Fund shall be entitled to a reduction in the fee next payable under the Agreement by an equivalent amount, except as provided in paragraph (iv) below. If on the last business day in any month the cumulative net effect upon a Fund (adjusted by the amount of all prior payments and credits by INVESTOR SERVICES and the Fund) is positive, INVESTOR SERVICES shall be entitled to recover certain past payments and reductions in fees, and to credit against all future payments and fee reductions that may be required under the Agreement as herein described in paragraph (iv) below. (iv) At the end of each month, any positive cumulative net effect upon a Fund shall be deemed to be a credit to INVESTOR SERVICES which shall first be applied to permit INVESTOR SERVICES to recover any prior cash payments and fee reductions made by it to the Fund under paragraphs (ii) and (iii) above during the calendar year, by increasing the amount of the monthly fee under the Agreement next payable in an amount equal to prior payments and fee reductions made by INVESTOR SERVICES during such calendar year, but not exceeding the sum of that month's credit and credits arising in prior months during such calendar year to the extent such prior credits have not previously been utilized as contemplated by this paragraph. Any portion of a credit to INVESTOR SERVICES not so used by it shall remain as a credit to be used as payment against the amount of any future negative cumulative net effects that would otherwise require a cash payment or fee reduction to be made to the Fund pursuant to paragraphs (ii) or (iii) above (regardless of whether or not the credit or any portion thereof arose in the same calendar year as that in which the negative cumulative net effects or any portion thereof arose). (v) INVESTOR SERVICES shall supply to the Funds from time to time, as mutually agreed upon, reports summarizing the transactions identified pursuant to paragraph (i) above, and the daily and cumulative net effects of such transactions, and shall advise the Funds at the end of each month of the net cumulative effect at such time. INVESTOR SERVICES shall promptly advise the Funds if at any time the cumulative net effect exceeds a dollar amount equivalent to 1/2 of 1 cent per share. (vi) In the event that this Agreement is terminated for whatever cause, the Funds shall promptly pay to INVESTOR SERVICES an amount in cash equal to the amount by which the cumulative net effect upon the Funds is positive or, if the cumulative net effect upon the Funds is negative, INVESTOR SERVICES shall promptly pay to the Funds an amount in cash equal to the amount of such cumulative net effect. Procedures applicable to certain of these services may be established from time to time by agreement between the Fund and INVESTOR SERVICES but the failure of the Funds to establish 3 4 such procedures with respect to any service shall not in any way diminish the duty and obligation of INVESTOR SERVICES to perform such services hereunder. Article 2 Fees and Expenses 2.01 For performance by INVESTOR SERVICES pursuant to this Agreement, the Funds agree to pay INVESTOR SERVICES an annual maintenance fee for each Shareholder account as set forth in the initial fee schedule attached hereto. Such fees and out-of-pocket expenses and advances identified under Section 2.02 below may be changed from time to time subject to mutual written agreement between the Fund and INVESTOR SERVICES. 2.02 In addition to the fee paid under Section 2.01 above the Funds agree to reimburse INVESTOR SERVICES for out-of- pocket expenses or advances incurred by INVESTOR SERVICES for the items set out in the fee schedule attached hereto. In addition, any other expenses incurred by INVESTOR SERVICES at the request or with the consent of the Funds, will be reimbursed by the Funds. 2.03 The Funds agree to pay all fees and reimbursable expenses promptly following the mailing of the respective billing notice. Postage for mailing of dividends, proxies, Fund reports and other mailings to all shareholder accounts shall be advanced to INVESTOR SERVICES by the Funds at least seven (7) days prior to the mailing date of such materials. Article 3 Indemnification 3.01 INVESTOR SERVICES shall not be responsible for, and the Funds shall indemnify and hold INVESTOR SERVICES harmless from and against, any and all losses, damages, costs, charges, counsel fees, payments, expenses and liabilities arising out of or attributable to: (a) All actions of INVESTOR SERVICES or its agent or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct. (b) The Funds' refusal or failure to comply with the terms of this Agreement, or which arise out of the Funds' lack of good faith, negligence or willful misconduct or which arise out of the breach of any representation or warranty of the Fund hereunder. (c) The offer or sale of Shares in violation of any requirement under the federal securities laws or regulations or the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any federal agency or any state with respect to the offer or sale of such Shares in such state unless such violation results from any action or omission by INVESTOR SERVICES or any of its agents or sub-contractors which fails to comply with written instructions of the Fund or any officer of the Fund that no offers or sales be made in general or to the residents of a particular state. 3.02 INVESTOR SERVICES shall indemnify and hold the Fund harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liabilities arising out of or attributed to any action or failure or omission to act by INVESTOR SERVICES as a result of INVESTOR SERVICES's lack of good faith, negligence or willful misconduct. 4 5 3.03 At any time INVESTOR SERVICES may apply to any officer of the Fund for instructions, and may consult with legal counsel with respect to any matter arising in connection with the services to be performed by INVESTOR SERVICES under this Agreement, and INVESTOR SERVICES and its agents or subcontractors shall not be liable and shall be indemnified by the Fund for any action taken or omitted by it in reliance upon such instructions or upon the opinion of such counsel. INVESTOR SERVICES, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document furnished by or on behalf of the Fund, reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided INVESTOR SERVICES or its agents or subcontractors by machine readable input, telex, CRT data entry or other similar means authorized by the Fund, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Fund. INVESTOR SERVICES, its agents and subcontractors shall also be protected and indemnified in recognizing share certificates which are reasonably believed to bear the proper manual or facsimile signatures of the officer of the Fund, and the proper countersignature of any former transfer agent or registrar, or of a co-transfer agent or co- registrar. 3.04 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. 3.05 Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement or for any act or failure to act hereunder. 3.06 In order that the indemnification provisions contained in this Article 4 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent. Article 4 Covenants of the Fund and INVESTOR SERVICES 4.01 INVESTOR SERVICES hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of share certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices. 4.02 INVESTOR SERVICES shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. To the extent required by Section 31 of the Investment Company Act of 1940, as amended, and the Rules thereunder, INVESTOR SERVICES agrees that all such records prepared or maintained by INVESTOR SERVICES relating to the services to be performed by INVESTOR SERVICES hereunder are the 5 6 property of the Fund and will be preserved, maintained and made available in accordance with such Section and Rules, and will be surrendered to the Fund on and in accordance with its request. 4.03 INVESTOR SERVICES and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law. 4.04 In case of any requests or demands for the inspection of the Shareholder records of the Fund, INVESTOR SERVICES will endeavor to notify the Fund and to secure instructions from an authorized officer of the Fund as to such instruction. INVESTOR SERVICES reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to exhibit the Shareholder records to such person. Article 5 Termination of Agreement 5.01 This Agreement may be terminated by either party upon one hundred twenty (120) days' written notice to the other. 5.02 Should the Fund exercise its right to terminate, all out-of-pocket expenses associated with the movement of records and material will be borne by the Fund. Additionally, INVESTOR SERVICES reserves the right to charge for any other reasonable expenses associated with such termination. Article 6 Assignment 6.01 Except as provided in Section 6.03 below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. 6.02 This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. 6.03 INVESTOR SERVICES may, without further consent on the part of the Fund, subcontract for the performance hereof with (i) Boston Financial Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as a transfer agent pursuant to Section 17A (c)(1) of the Securities Exchange Act of 1934 ("Section 17A (c)(1)"), (ii) or any other entity INVESTOR SERVICES deems appropriate in order to comply with the terms and conditions of this Agreement, provided, however, that INVESTOR SERVICES shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions. Article 7 Amendment 7.01 This Agreement may be amended or modified by a written agreement executed by both parties and authorized or approved by a resolution of the Board of Directors or Trustees, as the case may be, of the Fund. 6 7 Article 8 Massachusetts Law to Apply 8.01 This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. Article 9 Merger of Agreement 9.01 This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject hereof whether oral or written. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers, as of the day and year first above written. JOHN HANCOCK BOND FUND JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND JOHN HANCOCK CAPITAL GROWTH FUND JOHN HANCOCK CASH RESERVE, INC. JOHN HANCOCK CURRENT INTEREST JOHN HANCOCK INVESTMENT TRUST JOHN HANCOCK SERIES, INC. JOHN HANCOCK TAX-FREE BOND FUND ATTEST: ______________ BY: Anne C. Hodsdon --------------- Anne C. Hodsdon President ATTEST JOHN HANCOCK INVESTOR SERVICES CORPORATION ______________ BY: David A. King ------------- David A. King President 7 8 FEE SCHEDULE
Fund Name Annual Per Account - --------- ------------------ John Hancock Cash Reserve $25.00 John Hancock U.S. Government Cash Reserve $25.00 Money Market Fund B $25.00 John Hancock Government Securities Trust - Class A $20.00 John Hancock Government Securities Trust - Class B $22.50 John Hancock Investment Quality Bond Fund - Class A $20.00 John Hancock Investment Quality Bond Fund - Class B $22.50 John Hancock Capital Growth Fund - Class A $16.00 John Hancock Capital Growth Fund - Class B $18.50 John Hancock Growth and Income Fund - Class A $16.00 John Hancock Growth and Income Fund - Class B $18.50 John Hancock Intermediate Government Trust - Class A $16.00 John Hancock Intermediate Government Trust - Class B $18.50 John Hancock Tax-Free Bond Fund - Class A $19.00 John Hancock Tax-Free Bond Fund - Class B $22.50 John Hancock California Tax-Free Income Fund - Class A $19.00 John Hancock California Tax-Free Income Fund - Class B $21.50 John Hancock U.S. Government Cash Reserve - Class A $20.00 John Hancock U.S. Government Cash Reserve - Class B $22.50 John Hancock Adjustable U.S. Government Trust - Class A $20.00 John Hancock Adjustable U.S. Government Trust - Class B $22.50 John Hancock Government Income Fund - Class A $20.00 John Hancock Government Income Fund - Class B $22.50 John Hancock High Yield Bond Fund - Class A $20.00 John Hancock High Yield Bond Fund - Class B $22.50 John Hancock High Yield Tax-Free Fund - Class A $19.00 John Hancock High Yield Tax-Free Fund - Class B $21.50 John Hancock Emerging Growth Fund - Class A $16.00 John Hancock Emerging Growth Fund - Class B $18.50 John Hancock Global Resources Fund - Class A $16.00 John Hancock Global Resources Fund - Class B $18.50
8 EX-99.11 16 CONSENT OF INDEPENDENT AUDITORS 1 [ERNST & YOUNG LETTERHEAD] CONSENT OF INDEPENDENT AUDITORS We consent to the references made to our firm under the captions "Financial Highlights" and "Independent Auditors" and to the use of our reports dated December 2, 1994 related to John Hancock Money Market Fund B, John Hancock Global Resources Fund, John Hancock High Yield Tax Free Fund, John Hancock High Yield Bond Fund, John Hancock Emerging Growth Fund, and John Hancock Government Income Fund, in Post-Effective Amendment No. 19 to the Registration Statement (Form N-1A No. 33-16048) of John Hancock Series, Inc. (formerly Transamerica Series, Inc.) /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Houston, Texas May 9, 1995 EX-99.15A1 17 GLOBAL RESOURCES DISTRIBUTION PLAN 1 99.B15(H) JOHN HANCOCK GLOBAL RESOURCES FUND a series of John Hancock Series, Inc. Distribution Plan Class A Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Global Resources Fund (the "Fund"), will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class A shareholders, as set forth herein. Certain of such payments by the Company may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time, (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Company, on behalf of the Fund, shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class A shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include, but are not limited to, (a) initial and ongoing sales compensation payable out of such fee as it is received by Broker Services or other broker- dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class A shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class A shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class A shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class A 2 shares of the Fund, (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class A shares of the Fund, and (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class A shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Company, on behalf of the Fund, pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover Service Expenses may only constitute up to an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund payable annually pursuant to the Plan. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, such expenses will not be carried beyond one year from the date such expenses were incurred. Any fees paid to Broker Services under this Plan during any fiscal year of the Fund and not expended or allocated by Broker Services for actual or budgeted Distribution Expenses and Service Expenses during such fiscal year will be promptly returned to the Fund. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is primarily intended to or should reasonably result in the sale of shares of the Fund. 3 ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class A shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class A shares. (b) That such agreement shall terminate automatically in the event of its assignment. 4 ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class A shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK GLOBAL RESOURCES FUND /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: _______________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-99.15A2 18 EMERGING GROWTH DISTRIBUTION PLAN 1 99.B15(J) JOHN HANCOCK EMERGING GROWTH FUND a series of John Hancock Series, Inc. Distribution Plan Class A Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Emerging Growth Fund (the "Fund"), will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class A shareholders, as set forth herein. Certain of such payments by the Company may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time, (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Company, on behalf of the Fund, shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class A shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include, but are not limited to, (a) initial and ongoing sales compensation payable out of such fee as it is received by Broker Services or other broker- dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class A shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class A shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class A shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class A 2 shares of the Fund, (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class A shares of the Fund, and (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class A shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Company, on behalf of the Fund, pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover Service Expenses may only constitute up to an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund payable annually pursuant to the Plan. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, such expenses will not be carried beyond one year from the date such expenses were incurred. Any fees paid to Broker Services under this Plan during any fiscal year of the Fund and not expended or allocated by Broker Services for actual or budgeted Distribution Expenses and Service Expenses during such fiscal year will be promptly returned to the Fund. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is primarily intended to or should reasonably result in the sale of shares of the Fund. 3 ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class A shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class A shares. (b) That such agreement shall terminate automatically in the event of its assignment. 4 ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class A shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK EMERGING GROWTH FUND /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: ______________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-99.15A3 19 GOVERNMENT INCOME DISTRIBUTION PLAN 1 99.B15(F) JOHN HANCOCK GOVERNMENT INCOME FUND a series of John Hancock Series, Inc. Distribution Plan Class A Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Government Income Fund (the "Fund"), will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class A shareholders, as set forth herein. Certain of such payments by the Company may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time, (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Company, on behalf of the Fund, shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class A shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include, but are not limited to, (a) initial and ongoing sales compensation payable out of such fee as it is received by Broker Services or other broker- dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class A shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class A shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class A shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class A 2 shares of the Fund, (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class A shares of the Fund, and (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class A shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Company, on behalf of the Fund, pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover Service Expenses may only constitute up to an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund payable annually pursuant to the Plan. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, such expenses will not be carried beyond one year from the date such expenses were incurred. Any fees paid to Broker Services under this Plan during any fiscal year of the Fund and not expended or allocated by Broker Services for actual or budgeted Distribution Expenses and Service Expenses during such fiscal year will be promptly returned to the Fund. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is primarily intended to or should reasonably result in the sale of shares of the Fund. 3 ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class A shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class A shares. (b) That such agreement shall terminate automatically in the event of its assignment. 4 ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class A shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. EX-99.15A4 20 HIGH YIELD BOND DISTRIBUTION PLAN 1 99.B15(D) JOHN HANCOCK HIGH YIELD BOND FUND a series of John Hancock Series, Inc. Distribution Plan Class A Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock High Yield Bond Fund (the "Fund"), will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class A shareholders, as set forth herein. Certain of such payments by the Company may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time, (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Company, on behalf of the Fund, shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class A shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include, but are not limited to, (a) initial and ongoing sales compensation payable out of such fee as it is received by Broker Services or other broker- dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class A shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class A shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class A shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class A 2 shares of the Fund, (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class A shares of the Fund, and (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class A shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Company, on behalf of the Fund, pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover Service Expenses may only constitute up to an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund payable annually pursuant to the Plan. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, such expenses will not be carried beyond one year from the date such expenses were incurred. Any fees paid to Broker Services under this Plan during any fiscal year of the Fund and not expended or allocated by Broker Services for actual or budgeted Distribution Expenses and Service Expenses during such fiscal year will be promptly returned to the Fund. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is primarily intended to or should reasonably result in the sale of shares of the Fund. 3 ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class A shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class A shares. (b) That such agreement shall terminate automatically in the event of its assignment. 4 ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class A shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK HIGH YIELD BOND FUND /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: ______________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-99.15A5 21 HIGH YIELD TAX-FREE DISTRIBUTION PLAN 1 JOHN HANCOCK HIGH YIELD TAX-FREE FUND a series of John Hancock Series, Inc. Distribution Plan Class A Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock High Yield Tax-Free Fund (the "Fund"), will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class A shareholders, as set forth herein. Certain of such payments by the Company may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time, (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Company, on behalf of the Fund, shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class A shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include, but are not limited to, (a) initial and ongoing sales compensation payable out of such fee as it is received by Broker Services or other broker- dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class A shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class A shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class A shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class A 2 shares of the Fund, (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class A shares of the Fund, and (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class A shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Company, on behalf of the Fund, pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover Service Expenses may only constitute up to an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund payable annually pursuant to the Plan. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, such expenses will not be carried beyond one year from the date such expenses were incurred. Any fees paid to Broker Services under this Plan during any fiscal year of the Fund and not expended or allocated by Broker Services for actual or budgeted Distribution Expenses and Service Expenses during such fiscal year will be promptly returned to the Fund. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is primarily intended to or should reasonably result in the sale of shares of the Fund. 3 ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class A shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class A shares. (b) That such agreement shall terminate automatically in the event of its assignment. 4 ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class A shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK HIGH YIELD TAX-FREE FUND /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By:_____________________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-99.15B1 22 MONEY MARKET B SHARES 1 EXHIBIT 99.B15(A) JOHN HANCOCK MONEY MARKET FUND B a series of John Hancock Series, Inc. Distribution Plan December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Money Market Fund B (the "Fund"), on behalf of its Class B shares, will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its shareholders, as set forth herein. Certain of such payments by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Fund shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include but are not limited to, (a) initial and ongoing sales compensation out of such fee as it is received by Broker Services or other broker-dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of shares of the Fund, (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the shares of the Fund, (e) distribution expenses incurred in connection with the distribution of a 2 corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund and (f) interest expenses on unreimbursed distribution expenses related to shares as described in Article III hereof. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Fund pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 1.00% of the average daily net asset value of the shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover service expenses shall not exceed an annual rate of up to 0.25% of the average daily net asset value of the shares of the Fund. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, Broker Services shall be entitled to carry forward such expenses to subsequent fiscal years for submission to the shares of the Fund for payment, subject always to the annual maximum expenditures set forth in this Article III; provided, however, that nothing herein shall prohibit or limit the Directors from terminating this Plan and all payments hereunder at any time pursuant to Article VIII hereof. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Company, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is primarily intended to or should reasonably result in the sale of shares of the Fund. 3 ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting shares. (b) That such agreement shall terminate automatically in the event of its assignment. 4 ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. EX-99.15B2 23 GLOBAL RESOURCES CLASS B SHARES 1 99.15B(I) JOHN HANCOCK GLOBAL RESOURCES FUND a series of John Hancock Series, Inc. Distribution Plan Class B Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Global Resources Fund (the "Fund"), on behalf of its Class B shares, will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class B shareholders, as set forth herein. Certain of such payments by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Fund shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class B shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include but are not limited to, (a) initial and ongoing sales compensation out of such fee as it is received by Broker Services or other broker-dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class B shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class B shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class B shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class B shares of the Fund, 2 (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class B shares of the Fund, (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund and (f) interest expenses on unreimbursed distribution expenses related to Class B shares as described in Article III hereof. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class B shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Fund pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 1.00% of the average daily net asset value of the Class B shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover service expenses shall not exceed an annual rate of up to 0.25% of the average daily net asset value of the Class B shares of the Fund. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, Broker Services shall be entitled to carry forward such expenses to subsequent fiscal years for submission to the Class B shares of the Fund for payment, subject always to the annual maximum expenditures set forth in this Article III; provided, however, that nothing herein shall prohibit or limit the Directors from terminating this Plan and all payments hereunder at any time pursuant to Article VIII hereof. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Company, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is 3 primarily intended to or should reasonably result in the sale of Class B shares of the Fund. ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class B shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class B shares. 4 (b) That such agreement shall terminate automatically in the event of its assignment. ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class B shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK GLOBAL RESOURCES FUND /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: ____________________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-99.15B3 24 EMERGING GROWTH CLASS B SHARES 1 99.B15(K) JOHN HANCOCK EMERGING GROWTH FUND a series of John Hancock Series, Inc. Distribution Plan Class B Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Emerging Growth Fund (the "Fund"), on behalf of its Class B shares, will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class B shareholders, as set forth herein. Certain of such payments by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Fund shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class B shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include but are not limited to, (a) initial and ongoing sales compensation out of such fee as it is received by Broker Services or other broker-dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class B shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class B shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class B shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class B shares of the Fund, 2 (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class B shares of the Fund, (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantiallyall of its assets to the Fund or which merges or otherwise combines with the Fund and (f) interest expenses on unreimbursed distribution expenses related to Class B shares as described in Article III hereof. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class B shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Fund pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 1.00% of the average daily net asset value of the Class B shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover service expenses shall not exceed an annual rate of up to 0.25% of the average daily net asset value of the Class B shares of the Fund. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, Broker Services shall be entitled to carry forward such expenses to subsequent fiscal years for submission to the Class B shares of the Fund for payment, subject always to the annual maximum expenditures set forth in this Article III; provided, however, that nothing herein shall prohibit or limit the Directors from terminating this Plan and all payments hereunder at any time pursuant to Article VIII hereof. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Company, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is 3 primarily intended to or should reasonably result in the sale of Class B shares of the Fund. ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class B shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class B shares. 4 (b) That such agreement shall terminate automatically in the event of its assignment. ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class B shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK EMERGING GROWTH FUND /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: ______________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-99.15B4 25 GOVERNMENT INCOME CLASS B SHARES 1 99.B15G JOHN HANCOCK GOVERNMENT INCOME FUND a series of John Hancock Series, Inc. Distribution Plan Class B Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Government Income Fund (the "Fund"), on behalf of its Class B shares, will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class B shareholders, as set forth herein. Certain of such payments by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Fund shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class B shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include but are not limited to, (a) initial and ongoing sales compensation out of such fee as it is received by Broker Services or other broker-dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class B shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class B shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class B shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class B shares of the Fund, 2 (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class B shares of the Fund, (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund and (f) interest expenses on unreimbursed distribution expenses related to Class B shares as described in Article III hereof. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class B shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Fund pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 1.00% of the average daily net asset value of the Class B shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover service expenses shall not exceed an annual rate of up to 0.25% of the average daily net asset value of the Class B shares of the Fund. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, Broker Services shall be entitled to carry forward such expenses to subsequent fiscal years for submission to the Class B shares of the Fund for payment, subject always to the annual maximum expenditures set forth in this Article III; provided, however, that nothing herein shall prohibit or limit the Directors from terminating this Plan and all payments hereunder at any time pursuant to Article VIII hereof. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Company, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is 3 primarily intended to or should reasonably result in the sale of Class B shares of the Fund. ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class B shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class B shares. 4 (b) That such agreement shall terminate automatically in the event of its assignment. ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class B shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK GOVERNMENT INCOME FUND /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: ______________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-99.15B5 26 HIGH YIELD BOND CLASS B SHARES 1 99.B15(E) JOHN HANCOCK HIGH YIELD BOND FUND a series of John Hancock Series, Inc. Distribution Plan Class B Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock High Yield Bond Fund (the "Fund"), on behalf of its Class B shares, will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class B shareholders, as set forth herein. Certain of such payments by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Fund shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class B shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include but are not limited to, (a) initial and ongoing sales compensation out of such fee as it is received by Broker Services or other broker-dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class B shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class B shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class B shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class B shares of the Fund, 2 (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class B shares of the Fund, (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund and (f) interest expenses on unreimbursed distribution expenses related to Class B shares as described in Article III hereof. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class B shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Fund pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 1.00% of the average daily net asset value of the Class B shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover service expenses shall not exceed an annual rate of up to 0.25% of the average daily net asset value of the Class B shares of the Fund. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, Broker Services shall be entitled to carry forward such expenses to subsequent fiscal years for submission to the Class B shares of the Fund for payment, subject always to the annual maximum expenditures set forth in this Article III; provided, however, that nothing herein shall prohibit or limit the Directors from terminating this Plan and all payments hereunder at any time pursuant to Article VIII hereof. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Company, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is 3 primarily intended to or should reasonably result in the sale of Class B shares of the Fund. ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class B shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class B shares. 4 (b) That such agreement shall terminate automatically in the event of its assignment. ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class B shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK HIGH YIELD BOND FUND /s/ Thomas M. Simmons By: ________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: ________________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-99.15B6 27 HIGH YIELD TAX-FREE CLASS B SHARES 1 EXHIBIT 99.B15(C) JOHN HANCOCK HIGH YIELD TAX-FREE FUND a series of John Hancock Series, Inc. Distribution Plan Class B Shares December 22, 1994 ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock High Yield Tax-Free Fund (the "Fund"), on behalf of its Class B shares, will, after the effective date hereof, pay certain amounts to John Hancock Broker Distribution Services, Inc. ("Broker Services") in connection with the provision by Broker Services of certain services to the Fund and its Class B shareholders, as set forth herein. Certain of such payments by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Company, on behalf of the Fund, and Broker Services have entered into a Distribution Agreement of even date herewith, as amended from time to time (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Fund shall pay to Broker Services a fee in the amount specified in Article III hereof. Such fee may be spent by Broker Services on any activities or expenses primarily intended to result in the sale of Class B shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include but are not limited to, (a) initial and ongoing sales compensation out of such fee as it is received by Broker Services or other broker-dealers ("Selling Brokers") that have entered into an agreement with Broker Services for the sale of Class B shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class B shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class B shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of Broker Services related to the distribution of Class B shares of the Fund, 2 (d) distribution expenses incurred by Transamerica Fund Distributors, Inc. in connection with the Class B shares of the Fund, (e) distribution expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which merges or otherwise combines with the Fund and (f) interest expenses on unreimbursed distribution expenses related to Class B shares as described in Article III hereof. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of Broker Services) and others who furnish personal and shareholder account maintenance services to Class B shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Fund pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 1.00% of the average daily net asset value of the Class B shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover service expenses shall not exceed an annual rate of up to 0.25% of the average daily net asset value of the Class B shares of the Fund. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. In the event Broker Services is not fully reimbursed for payments made or other expenses incurred by it under this Plan, Broker Services shall be entitled to carry forward such expenses to subsequent fiscal years for submission to the Class B shares of the Fund for payment, subject always to the annual maximum expenditures set forth in this Article III; provided, however, that nothing herein shall prohibit or limit the Directors from terminating this Plan and all payments hereunder at any time pursuant to Article VIII hereof. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Company, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December __, 1994, as from time to time continued and amended (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is 3 primarily intended to or should reasonably result in the sale of Class B shares of the Fund. ARTICLE V. APPROVAL BY DIRECTORS This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the Directors of the Company and (b) those Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION Broker Services shall furnish the Fund and its Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class B shares, or (b) by Broker Services on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class B shares. 4 (b) That such agreement shall terminate automatically in the event of its assignment. ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class B shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 5 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the 22nd day of December, 1994 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. on behalf of JOHN HANCOCK HIGH YIELD TAX-FREE FUND /s/ Thomas M. Simmons By: __________________________________ Thomas M. Simmons President JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC. /s/ C. Troy Shaver, Jr. By: ____________________________________________ C. Troy Shaver, Jr. President and Chief Executive Officer EX-27.1 28 FDS FOR MONEY MARKET
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK MONEY MARKET FUND B FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 JOHN HANCOCK MONEY MARKET FUND B 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 58,511 58,511 0 8 0 58,518 0 0 152 152 0 58,366 58,366 31,546 0 0 0 0 0 58,366 0 1,725 0 883 842 0 0 0 0 842 0 0 237,416 211,280 684 26,820 0 0 0 0 214 0 883 42,818 1.00 0.018 0 (0.018) 0 0 1.00 2.06 0 0
EX-27.2 29 FDS HIGH YIELD TAX FREE CLASS A SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK HIGH YIELD TAX-FREE FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 2 CLASS A SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 176,078 166,747 4,477 14 0 171,238 2,588 0 2,180 4,768 0 177,720 18,872 11,363 0 0 (1,919) 0 (9,331) 166,470 0 10,754 0 2,713 8,041 (1,460) (14,473) (7,892) 0 8,041 1,980 1,204 93,485 25,710 4,370 72,145 0 1,510 0 0 886 0 2,713 149,245 9.85 0.48 (0.94) (0.48) 0 (0.09) 8.82 0.96 0 0
EX-27.3 30 FDS HIGH YIELD TAX FREE CLASS B SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK HIGH YIELD TAX-FREE FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3 CLASS B SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 176,078 166,747 4,477 14 0 171,238 2,588 0 2,180 4,768 0 177,720 18,872 11,363 0 0 (1,919) 0 (9,331) 166,470 0 10,754 0 2,713 8,041 (1,460) (14,473) (7,892) 0 8,041 1,980 1,204 93,485 25,710 4,370 72,145 0 1,510 0 0 886 0 2,713 149,245 9.98 0.48 (0.90) (0.48) (0.19) (0.07) 8.82 1.85 0 0
EX-27.4 31 FDS FOR HIGH YIELD BOND CLASS A
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLDIATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK HIGH YIELD BOND FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 4 CLASS A SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 173,068 168,263 6,261 15 345 174,884 927 0 1,522 2,449 0 186,399 23,509 19,207 86 0 (9,245) 0 (4,805) 172,435 290 18,602 0 3,137 15,755 (8,883) (9,525) (2,653) 0 16,152 889 0 115,472 87,789 7,888 35,571 393 527 0 0 977 0 3,137 167,241 8.23 0.80 (0.83) (0.82) (0.05) 0 7.33 1.16 0 0
EX-27.5 32 FDS FOR HIGH YIELD BOND CLASS B SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLDIATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK HIGH YIELD BOND FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 5 CLASS B SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 173,068 168,263 6,261 15 345 174,884 927 0 1,522 2,449 0 186,399 23,509 19,207 86 0 (9,245) 0 (4,805) 172,435 290 18,602 0 3,137 15,755 (8,883) (9,525) (2,653) 0 16,152 889 0 115,472 87,789 7,888 35,571 393 527 0 0 977 0 3,137 167,241 8.23 0.74 (0.83) (0.76) (0.05) 0 7.33 1.91 0 0
EX-27.6 33 FDS FOR GOVERNMENT INCOME CLASS A SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK GOVERNMENT INCOME FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6 CLASS A SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 225,241 237,755 5,766 99 2,052 245,672 2,501 0 1,887 4,388 0 271,080 27,573 29,201 0 0 (12,723) 0 (17,073) 241,284 0 23,941 0 5,202 18,739 (12,072) (24,905) (18,238) 0 18,622 730 0 43,926 68,337 9,873 (14,538) 0 609 0 0 1,729 14 5,202 268,803 8.85 0.06 (0.10) (0.06) 0 0 8.75 0.12 349 0.01
EX-27.7 34 FDS FOR GOVERNMENT INCOME CLASS B SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK GOVERNMENT INCOME FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 7 CLASS B SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 225,241 237,755 5,766 99 2,052 245,672 2,501 0 1,887 4,388 0 271,080 27,573 29,201 0 0 (12,723) 0 (17,073) 241,284 0 23,941 0 5,202 18,739 (12,072) (24,905) (18,238) 0 18,622 730 0 43,926 68,337 9,873 (14,538) 0 609 0 0 1,729 14 5,202 268,803 10.05 0.65 (1.28) (0.65) (0.02) 0 8.75 1.93 349 0.01
EX-27.8 35 FDS FOR GLOBAL RESOURCES CLASS A SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK GLOBAL RESOURCES FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 8 CLASS A SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 38,658 42,809 818 2 0 43,629 1,017 0 303 1,320 0 38,265 2,715 1,243 0 0 (107) 0 4,151 42,309 266 32 0 739 (441) (90) 553 22 0 0 0 0 34,047 11,259 0 22,788 0 0 0 0 221 0 739 31,565 14.89 (0.08) (0.81) 0 0 0 15.62 0.73 0 0
EX-27.9 36 FDS FOR GLOBAL RESOURCES CLASS B SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK GLOBAL RESOURCES FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9 CLASS B SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 38,658 42,809 818 2 0 43,629 1,017 0 303 1,320 0 38,265 2,715 1,243 0 0 (107) 0 4,151 42,309 266 32 0 739 (441) (90) 553 22 0 0 0 0 34,047 11,259 0 22,788 0 0 0 0 221 0 739 31,565 15.69 (0.23) (0.12) 0 0 0 15.58 2.54 0 0
EX-27.10 37 FDS FOR EMERGING GROWTH CLASS A SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK EMERGING GROWTH FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 10 CLASS A SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 305,774 417,123 1,195 43 19 418,380 2,844 0 1,048 3,892 0 320,302 15,771 11,805 0 0 (17,163) 0 111,349 414,488 2,182 451 0 7,073 (4,440) (8,817) 27,047 13,790 0 0 0 0 373,072 273,122 0 99,950 0 0 0 0 2,706 0 7,073 360,859 25.89 (0.18) 1.11 0 0 0 26.82 1.44 0 0
EX-27.11 38 FDS FOR EMERGING GROWTH CLASS B SHARES
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF JOHN HANCOCK EMERGING GROWTH FUND FOR THE YEAR ENDED OCTOBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 11 CLASS B SHARES 1,000 U.S. DOLLARS YEAR OCT-31-1994 NOV-01-1993 OCT-31-1994 1 305,774 417,123 1,195 43 19 418,380 2,844 0 1,048 3,892 0 320,302 15,771 11,805 0 0 (17,163) 0 111,349 414,488 2,182 451 0 7,073 (4,440) (8,817) 27,047 13,790 0 0 0 0 373,072 273,122 0 99,950 0 0 0 0 2,706 0 7,073 360,859 25.33 (0.36) 1.07 0 0 0 26.04 2.19 0 0
-----END PRIVACY-ENHANCED MESSAGE-----