-----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, pevITwRH2IAoMLLIUp/+M76b7OAzBySW8T2OtJi8XOkxdEQptfURWboD90F/qBLh Ohg/wOwO2iT7FjBT0fZ8sw== 0000950135-95-001497.txt : 199507100000950135-95-001497.hdr.sgml : 19950710 ACCESSION NUMBER: 0000950135-95-001497 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19950707 SROS: NASD 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: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-16048 FILM NUMBER: 95552713 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 485APOS 1 JOHN HANCOCK SERIES INC. MONEY MARKET FUND 1 As filed with the Securities and Exchange Commission on July 7, 1995. File Nos. 33-16048; 811-5254 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X / Pre-Effective Amendment No. __ / / Post-Effective Amendment No. 20 / X / and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X / Amendment No. 22 / X / (Check appropriate box or boxes) JOHN HANCOCK SERIES, INC. --------------------------------------------------------------------- (Exact name of registrant as specified in charter) 101 Huntington Avenue, Boston, Massachusetts 02199-7603 --------------------------------------------------------------------- (Address of principal executive office) Zip Code Registrant's Telephone Number, including Area Code: (617) 375-1700 --------------------------------------------------------------------- Thomas H. Drohan, John Hancock Advisers, Inc. 101 Huntington Avenue, Boston, MA 02199 with a copy to: Jeffrey N. Carp, Esq., Hale and Dorr, 60 State Street, Boston, MA 02109 --------------------------------------------------------------------- (Name and address of agent for service) It is proposed that this filing will become effective (check appropriate box) / / immediately upon filing pursuant to paragraph (b), or / / on (date) pursuant to paragraph (b), or / / 60 days after filing pursuant (a), or / X / on September 12, 1995 pursuant to paragraph (a) of Rule 485 The Registrant has registered an indefinite number of shares pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. The Registrant filed the notice required by Rule 24f-2 for its most recent fiscal year on or about December 31, 1994. 2 JOHN HANCOCK SERIES, INC. CROSS REFERENCE SHEET JOHN HANCOCK MONEY MARKET FUND CLASS A AND CLASS B SHARES __________________________ Pursuant to Rule 495(a) under the Securities Act of 1993
ITEM NUMBER FORM N-1A STATEMENT OF ADDITIONAL PART A PROSPECTUS CAPTION INFORMATION CAPTION ___________________________________________________________________ 1 Front Cover Page * 2 Expense Information; The * Fund's Expenses; Share Price 3 The Fund's Financial * Highlights; Performance 4 Investment Objective and * Policies; Organization and Management of the Fund 5 Organization and * Management of the Fund; The Fund's Expenses; Back Cover Page 6 Organization and * Management of the Fund; Dividends and Taxes; How to Buy Shares; How to Redeem Shares; Additional Services and Programs 7 How to Buy Shares; Share * Price; Additional Services and Programs; The Fund's Expenses; Back Cover Page 8 How to Redeem Shares * 9 Not Applicable * 10 * Front Cover Page
3
ITEM NUMBER FORM N-1A STATEMENT OF ADDITIONAL PART A PROSPECTUS CAPTION INFORMATION CAPTION ___________________________________________________________________ 11 * Table of Contents 12 * Organization of the Corporation 13 * Investment Objective and Policies; Certain Investment Practices; Investment Restrictions 14 * Those Responsible for Management 15 * Those Responsible for Management 16 * Investment Advisory and Other Services; Distribution Contracts; Transfer Agent Services; Custody of Portfolio; Independent Auditors 17 * Brokerage Allocation 18 * Description of Corporation's Shares 19 * Net Asset Value; Additional Services and Programs 20 * Tax Status 21 * Distribution Contract 22 * Calculation of Performance 23 * Financial Statements
-2- 4 JOHN HANCOCK MONEY MARKET FUND CLASS A AND CLASS B SHARES PROSPECTUS SEPTEMBER 12, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- Expense Information................................................................... 2 The Fund's Financial Highlights....................................................... 3 Yield Information..................................................................... 4 Investment Objective and Policies..................................................... 4 Organization and Management of the Fund............................................... 6 The Fund's Expenses................................................................... 6 Dividends and Taxes................................................................... 8 How to Buy Shares..................................................................... 9 Share Price........................................................................... 10 How to Redeem Shares.................................................................. 13 Additional Services and Programs...................................................... 14 Investments, Techniques and Risk Factors.............................................. 17
This Prospectus sets forth the information about John Hancock Money Market Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Company"), that you should know before investing. Please read and retain it for future reference. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. Additional information about the Fund and the Company has been filed with the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement of Additional Information, dated September 12, 1995, and incorporated by reference into this Prospectus, free of charge by writing or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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 Class A and Class B shares of the Fund. The operating expenses included in the table and hypothetical example below are based on fees and expenses of the Class B shares for the fiscal year ended October 31, 1994. No Class A shares were actually outstanding during the period. Actual fees and expenses of Class A and Class B shares in the future may be greater or less than those indicated.
CLASS A CLASS B SHARES SHARES ------- ------- SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge imposed on purchases (as a percentage of offering price)...................... None None Maximum sales charge imposed on reinvested dividends............................................... None None Deferred sales load................................................................................ None 5.00% Redemption fee+.................................................................................... None None Exchange fee....................................................................................... None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) Management fee..................................................................................... 0.50% 0.50% 12b-1 fee*......................................................................................... 0.15% 1.00% Other expenses**................................................................................... 0.74% 0.56% Total Fund operating expenses (net of reduction)***................................................ 1.39% 2.06% *The amount of the 12b-1 fee used to cover service expenses will be up to 0.15% and 0.25% of the Fund's average net assets attributable to Class A and Class B shares, respectively, and any remaining portion will be used to cover distribution expenses. **Other Expenses include transfer agent, legal, audit, custody and other expenses. ***Total Fund operating expenses in the table reflect the current agreement between the Fund and the Fund's distributor. In the future, the Class A distribution fee could increase to 0.25%, in which case the total Fund operating expenses of Class A shares would be 1.49%. +Redemption by wire fee (currently $4.00) not included.
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................................................................. $14 $ 44 $ 76 $ 166 Class B Shares -- Assuming complete redemption at end of period........................... $71 $ 95 $131 $ 206 -- Assuming no redemption.................................................. $21 $ 65 $111 $ 206
(This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown). The Fund's payment of a distribution fee may result in a long-term shareholder indirectly paying more than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. The management and 12b-1 fees referred to above are more fully explained in this Prospectus under the caption "The Fund's Expenses" and in the Statement of Additional Information under the captions "Investment Advisory and Other Services" and "Distribution Contracts." 2 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. Class A shares are a new class of shares; no financial highlights exist for Class A shares. Further information about the performance of the Fund is contained in the Fund's Annual Report to shareholders which may be obtained free of charge by writing or telephoning John Hancock Investor Services Corporation ("Investor Services") at the address or telephone number listed on the front page of this Prospectus. Selected data for a Class B share outstanding throughout each period is as follows:
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, PERIOD ENDED APRIL 30, 1995 --------------------------------------------------------------------------------- OCTOBER 31, (UNAUDITED)(1) 1994 1993 1992 1991 1990 1989 1988 1987(2) --------------- --------- --------- --------- --------- --------- --------- --------- ------------ Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income....... $ 0.02 0.018 0.009 0.017 0.045 0.061 0.072 0.059 0.0007 LESS DISTRIBUTIONS Dividends from net investment income....... (0.02) (0.018) (0.009) (0.017) (0.045) (0.061) (0.072) (0.059) (0.0007) ------- ------- ------- ------- ------- ------- ------- ------- -------- Net asset value, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= ======= ======= ======= ======== Total Return(3)... 1.88% 1.87% 0.85% 1.73% 4.61% 6.30% 7.40% 6.06% 0.06% ======= ======= ======= ======= ======= ======= ======= ======= ======== RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets....... 2.07%* 2.06% 2.44% 2.47% 2.23% 2.31% 2.59% 2.41% 0.03% Ratio of expense reduction to average net assets... -- -- -- -- (0.12)% (0.15)% (0.47)% (0.90)% (0.02)% ------- ------- ------- ------- ------- ------- ------- ------- -------- Ratio of net expenses to average net assets....... 2.07%* 2.06% 2.44% 2.47% 2.11% 2.16% 2.12% 1.51% 0.01% ======= ======= ======= ======= ======= ======= ======= ======= ======== Ratio of net investment income to average net assets....... 3.76%* 1.97% 0.85% 1.69% 4.45% 6.11% 7.16% 6.01% 0.07% Net Assets, end of period (in thousands)... $56,522 $58,366 $31,546 $31,480 $20,763 $21,099 $13,610 $ 7,692 $ 2,535 - --------------- (1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser to the Fund. (2) Financial highlights, including total return, are for the period from October 26, 1987 (date of the Fund's initial offering of shares to the public) to October 31, 1987 and have not been annualized. (3) Total return does not include the effect of the contingent deferred sales charge. * Annualized basis.
3 7 YIELD INFORMATION For the seven days ended April 30, 1995, the Fund's annualized yield and effective yield on Class B shares was 4.04% and 4.12%, respectively. On April 30, 1995, the Fund's average portfolio maturity was 37 days. Current information on the Fund's annualized yield during a recent seven-day period may be obtained by calling the Easi-Line at 1-800-338-8080 or a John Hancock customer service representative, 1-800-225-5291. The yield of Class A and Class B shares will be calculated separately and, because each class is subject to different expenses, the yield may differ with respect to that class for the same period. For information on how the Fund calculates its annualized yield see the Statement of Additional Information. INVESTMENT OBJECTIVE AND POLICIES - ------------------------------------------------------------------------------- THE FUND SEEKS TO PROVIDE MAXIMUM CURRENT INCOME CONSISTENT WITH CAPITAL PRESERVATION AND LIQUIDITY. - ------------------------------------------------------------------------------- The Fund seeks to provide maximum current income consistent with capital preservation and liquidity. The Fund's investments will be subject to the market fluctuations and risks inherent in all securities, and there is no assurance that the investment objective will always be achieved. The Fund seeks to achieve its objective by investing in money market instruments including, but not limited to, U.S. Government, municipal and foreign governmental securities; obligations of supranational organizations (e.g. the World Bank and the International Monetary Fund); obligations of U.S. and foreign banks and other lending institutions; corporate obligations; repurchase agreements and reverse repurchase agreements. As a fundamental policy, the Fund may not invest more than 25% of its total assets in obligations issued by (i) foreign banks or (ii) foreign branches of U.S. banks where John Hancock Advisers, Inc. (the "Adviser"), the Fund's investment adviser, has determined that the U.S. bank is not unconditionally responsible for the payment obligations of the foreign branch. All of the Fund's investments will be denominated in U.S. dollars. - ------------------------------------------------------------------------------- THE FUND INVESTS ONLY IN HIGH-QUALITY SECURITIES BELIEVED TO PRESENT MINIMAL CREDIT RISKS, UNDER PROCEDURES ADOPTED BY THE BOARD OF DIRECTORS. - ------------------------------------------------------------------------------- At the time the Fund acquires its investments, they will be rated (or issued by an issuer that is rated with respect to a comparable class of short-term debt obligations) in one of the two highest rating categories for short-term debt obligations assigned by at least two nationally recognized rating organizations (or one rating organization if the obligation was rated by only one such organization). These high quality securities are divided into "first tier" and "second tier" securities. First tier securities have received the highest rating from at least two rating organizations (or one, if only one has rated the security). Second tier securities have received ratings within the two highest categories from at least two rating agencies (or one, if only one has rated the security), but do not qualify as first tier securities. The Fund may also purchase obligations that are not rated, but are determined by the Adviser, based on procedures adopted by the Fund's Board of Directors, to be of comparable quality to rated first or second tier securities. The Fund may not purchase any second tier security if, as a result of its purchase (a) more than 5% of its total assets would be invested in second tier securities or 4 8 (b) more than 1% of its total assets or $1 million (whichever is greater) would be invested in the second tier securities of a single issuer. For a description of the ratings assigned by the rating organizations, see the Statement of Additional Information. - ------------------------------------------------------------------------------- BY LIMITING THE MATURITY OF ITS INVESTMENTS, THE FUND SEEKS TO LESSEN THE CHANGES IN THE VALUE OF ITS ASSETS CAUSED BY MARKET FACTORS. - ------------------------------------------------------------------------------- All of the Fund's investments will mature in 397 days or less. The Fund will maintain an average dollar-weighted portfolio maturity of 90 days or less. - ------------------------------------------------------------------------------- THE FUND FOLLOWS CERTAIN POLICIES THAT MAY HELP TO REDUCE INVESTMENT RISK. - ------------------------------------------------------------------------------- The Fund has adopted certain investment restrictions that are enumerated in detail in the Statement of Additional Information, where they are classified as fundamental or nonfundamental. Those restrictions designated as fundamental may not be changed without shareholder approval. The Fund's investment objective and, except as otherwise expressly provided, its investment policies are nonfundamental and may be changed by a vote of the Board of Directors without shareholder approval. Notwithstanding the Fund's fundamental investment restriction prohibiting investments in other investment companies, the Fund may, pursuant to an order granted by the SEC, invest in other investment companies in connection with a deferred compensation plan for the non-interested directors of the John Hancock funds. - ------------------------------------------------------------------------------- BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION. - ------------------------------------------------------------------------------- The primary consideration in choosing brokerage firms to carry out the Fund's transactions is execution at the most favorable prices, taking into account the broker's professional ability and quality of service. Consideration may also be given to the broker's sales of Fund shares. Pursuant to procedures determined by the Board of Directors, the Adviser may place securities transactions with brokers affiliated with the Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life Company"), which in turn indirectly owns the Adviser. See "Investments, Techniques and Risk Factors" for more information about the Fund's investments. 5 9 ORGANIZATION AND MANAGEMENT OF THE FUND - ------------------------------------------------------------------------------- THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTORS' POLICIES AND SUPERVISION. - ------------------------------------------------------------------------------- The Fund is a diversified series of the Company, which is an open-end management investment company organized as a Maryland corporation in 1987. The Company reserves the right to create and issue a number of series of shares, or funds or classes of these series, which are separately managed and have different investment objectives. The Directors have authorized the issuance of three classes of the Fund, designated Class A, Class B and Class S. The shares of each class represent an interest in the same portfolio of investments of the Fund. Each class has equal rights as to voting, redemption, dividends and liquidation. However, each class is subject to different fees and expenses (which affect performance), has different minimum investment requirements, is entitled to different services and, in the case of Class S shares, may be offered only through certain brokers. Also, Class A, Class B and Class S shareholders have exclusive voting rights with respect to their distribution plans. Information regarding Class S shares may be obtained from an investor's sales representative or from the Fund by calling the number on the back cover of this Prospectus. The Company is not required to and does not intend to hold annual meetings of shareholders, although special meetings may be held for such purposes as electing or removing Directors, changing fundamental policies or approving a management contract. The Fund, under certain circumstances, will assist in shareholder communications with other shareholders of the Fund. - ------------------------------------------------------------------------------- JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL ASSET VALUE OF MORE THAN $13 BILLION. - ------------------------------------------------------------------------------- The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of the Life Company, a financial services company. The Adviser provides the Fund, and other investment companies in the John Hancock group of funds, with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of the John Hancock mutual funds through brokers who have arrangements with John Hancock Funds ("Selling Brokers"). Certain Fund officers are also officers of the Adviser and John Hancock Funds. In order to avoid any conflict with portfolio trades for the Fund, the Adviser and the Fund have adopted extensive restrictions on personal securities trading by personnel of the Adviser and its affiliates. Some of these restrictions are: preclearance for all personal trades and a ban on the purchase of initial public offerings, as well as contributions to specified charities of profits on securities held for less than 91 days. These restrictions are a continuation of the basic principle that the interests of the Fund and its shareholders come first. THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a monthly fee to the Adviser based on a stated percentage of the Fund's average daily net assets. During the fiscal year ended October 31, 1994, the Fund paid advisory fees in an amount equal to 0.50% of the Fund's average daily net assets to the Fund's former investment adviser. 6 10 - ------------------------------------------------------------------------------- THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED SHAREHOLDER SERVICING. - ------------------------------------------------------------------------------- The Class A and Class B shareholders have adopted distribution plans (each a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Under these Plans, John Hancock Funds and the Fund have agreed to limit the distribution and service fees pursuant to the Plans to 0.15% of the Class A shares' average daily net assets and to 1.00% of the Class B shares' average daily net assets. In the future, the Class A distribution fee could increase to 0.25%. In the case of the Class A Plan and the Class B Plan, up to 0.15% and 0.25%, respectively, is for service expenses and the remaining amount is for distribution expenses. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales compensation to Selling Brokers and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; (iii) unreimbursed distribution expenses under the Fund's prior distribution plans for Class B shares; (iv) distribution expenses incurred by other investment companies which sell all or substantially all of their assets to, merge with or otherwise engage in a reorganization transaction with the Fund; and (v) with respect to Class B shares only, interest expenses on unreimbursed distribution expenses. The service fees will be used to compensate Selling Brokers for providing personal and account maintenance services to shareholders. In the event John Hancock Funds is not fully reimbursed for payments it makes or expenses it incurs under the Class A Plan, these expenses will not be carried beyond one year from the date they were incurred. Unreimbursed expenses under the Class B Plan will be carried forward together with interest on the balance of these unreimbursed expenses. For the fiscal year ended October 31, 1994, an aggregate of $1,233,281 of distribution expenses or 2.88% of the average net assets of the Fund's Class B shares was not reimbursed or recovered by John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior periods. The higher ongoing distribution fee of Class B shares will cause these shares to have higher expenses than Class A shares. To the extent that any dividends are paid by the Fund, these higher expenses will also result in lower dividends than those paid on Class A shares. Information on the Fund's total expenses is in the Financial Highlights section of this Prospectus. 7 11 DIVIDENDS AND TAXES - ------------------------------------------------------------------------------- THE FUND GENERALLY DECLARES DIVIDENDS DAILY AND DISTRIBUTES DIVIDENDS MONTHLY. - ------------------------------------------------------------------------------- DIVIDENDS. The Fund generally declares dividends daily and distributes dividends monthly, representing all or substantially all of its net investment income. The Fund will distribute net realized capital gains, if any, at least annually. Dividends are reinvested in additional shares of your class unless you elect the option to receive them in cash. If you elect the cash option and the U.S. Postal Service cannot deliver your checks, your election will be converted to the reinvestment option. Because of the higher expenses associated with Class B shares, any dividend on these shares will be lower than those on the Class A shares. See "Share Price." TAXATION. Dividends from the Fund's net investment income and net short-term capital gains are taxable to you as ordinary income. Dividends from the Fund's net long-term capital gains, if any, are taxable as long-term capital gain. The Fund does not anticipate that it will generally realize any long-term capital gains. Dividends are taxable, whether received in cash or reinvested in additional shares. Certain dividends may be paid by the Fund in January of a given year but may be treated as if you received them the previous December. The Fund will send you a statement by January 31 showing the federal tax status of the dividends you received for the prior year. The Fund has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, the Fund will not be subject to Federal income tax on any net investment income or net realized capital gains distributed to its shareholders within the time period prescribed by the Code. On the account application, you must certify that the social security or other taxpayer identification number you provide is your correct number and that you are not subject to backup withholding of Federal income tax. If you do not provide this information or are otherwise subject to this withholding, the Fund may be required to withhold 31% of your dividends. In addition to Federal taxes, you may be subject to state and local or foreign taxes with respect to your investment in and distributions from the Fund. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent the Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders are subject to different tax rules not described herein. You should consult your tax adviser for specific advice. 8 12 HOW TO BUY SHARES Initial purchases of Class A shares of the Fund may be made either directly or by exchanging amounts invested in Class A shares of another John Hancock mutual fund into Class A shares of the Fund. Class B shares of the Fund may not be purchased directly. Due to the fee under the distribution plan and the contingent deferred sales charge, Class B shares of the Fund are intended only as a temporary investment pending exchanges into Class B shares of other John Hancock mutual funds. If your investment goals have changed after your initial investment in another John Hancock mutual fund, you may choose to exchange fund shares temporarily for shares in a short-term, high- grade money market portfolio like the Fund. Once you decide upon your new investment goals, you can exchange the Class B shares of the Fund for Class B shares of another John Hancock fund that matches your investment goals. Investments in Class B shares of the Fund, unlike investments in most money market funds, are subject to certain contingent deferred sales charges. If you do not intend to exchange your shares of the Fund for Class B shares of another John Hancock mutual fund, you should purchase Class A shares. - ------------------------------------------------------------------------------- OPENING AN ACCOUNT - ------------------------------------------------------------------------------- The minimum initial investment in Class A and Class B shares is $1,000 ($250 for group investments and retirement plans). Complete the Account Application attached to this Prospectus. Indicate whether you are making an initial purchase of Class A shares or exchanging Class B shares of another John Hancock mutual fund for Class B shares of the Fund. If you do not specify which class of shares you are purchasing, Investor Services will assume that you are investing in Class A shares. - --------------------------------------------------------------------------------- BY CHECK 1. Make your check payable to John Hancock Investor Services Corporation, P.O. Box 9115, Boston, MA 02205-9115. 2. Deliver the completed application and check to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- BY WIRE 1. Obtain an account number by contacting your registered representative or Selling Broker, or by calling 1-800-225-5291. 2. Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Money Market Fund Your Account Number Name(s) under which account is registered 3. Deliver the completed application to your registered representative or Selling Broker or mail it directly to Investor Services. - --------------------------------------------------------------------------------- MONTHLY 1. Complete the "Automatic Investing" and "Bank Information" AUTOMATIC sections on the Account Privileges Application designating a ACCUMULATION bank account from which funds may be drawn. - ------------------------------------------------------------------------------- BUYING ADDITIONAL CLASS A SHARES - ------------------------------------------------------------------------------- PROGRAM 2. The amount you elect to invest will be automatically withdrawn (MAAP) from your bank or credit union account. (CLASS A SHARES ONLY) - ---------------------------------------------------------------------------------
9 13 - ------------------------------------------------------------------------------------- BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account Privileges Application designating a bank account from which your funds may be drawn. Note that in order to invest by phone, your account must be in a bank or credit union that is a member of the Automated Clearing House system (ACH). 2. After your authorization form has been processed, you may purchase additional Class A shares by calling Investor Services toll-free 1-800-225-5291. 3. Give the Investor Services representative the name(s) in which your account is registered, the Fund name, your account number, and the amount you wish to invest in Class A shares. 4. Your investment normally will be credited to your account the business day following your phone request. - ------------------------------------------------------------------------------------- BY CHECK 1. Either complete the detachable stub included on your account statement or include a note with your investment listing the name of the Fund, the class of shares you own, your account number and the name(s) in which the account is registered. 2. Make your check payable to John Hancock Investor Services Corporation. 3. Mail the account information and check to: John Hancock Investor Services Corporation P.O. Box 9115 Boston, MA 02205-9115 or deliver it to your registered representative or Selling Broker. - ------------------------------------------------------------------------------------- BY WIRE Instruct your bank to wire funds to: First Signature Bank & Trust John Hancock Deposit Account No. 900000260 ABA Routing No. 211475000 For credit to: John Hancock Money Market Fund Class A shares Your Account Number Name(s) under which account is registered - ------------------------------------------------------------------------------------- Other Requirements: All purchases must be made in U.S. dollars. Checks written on foreign banks will delay purchases until U.S. funds are received, and a collection charge may be imposed. Shares of the Fund are priced at the offering price based on the net asset value computed after Investor Services receives notification of the dollar equivalent from the Fund's custodian bank. Wire purchases normally take two or more hours to complete and, to be accepted the same day, must be received by 4:00 p.m., New York time. Your bank may charge a fee to wire funds. Telephone transactions are recorded to verify information. Certificates are not issued unless a request is made to Investor Services. - -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- YOU WILL RECEIVE STATEMENTS REGARDING YOUR ACCOUNT, WHICH YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL RECORDKEEPING. - ------------------------------------------------------------------------------- You will receive a statement of your account after any transaction that affects your share balance or registration (statements related to reinvestment of dividends and automatic investment/withdrawal plans will be sent to you quarterly). A tax information statement will be mailed to you by January 31 of each year. SHARE PRICE - ------------------------------------------------------------------------------- THE PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PER SHARE, WHICH WILL NORMALLY BE CONSTANT AT $1.00. - ------------------------------------------------------------------------------- The net asset value per share ("NAV") is the value of one share. The NAV is calculated by dividing the net assets of each class by the number of outstanding shares of that class. The NAV of each class can differ. Securities in the Fund's portfolio are valued at amortized cost, which the Board of Directors has determined 10 14 approximates market value. Under the amortized cost pricing method, a portfolio investment is valued at its cost and thereafter any discount or premium is amortized to maturity, regardless of the impact of fluctuating interest rates on the market value of the investment. Amortized cost pricing facilitates the maintenance of a $1.00 constant net asset value per share, but, of course, this cannot be guaranteed. The NAV is calculated twice daily, at 12:00 noon Eastern time and as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on each day that the Exchange is open. The price you pay for shares of the Fund equals the NAV computed after your investment is accepted in good order by John Hancock Funds, which will normally be constant at $1.00 per share. You will not incur a sales charge when you purchase Class A shares or exchange into Class B shares of the Fund, but Class B shares are subject to a contingent deferred sales charge if you redeem them within six years of original purchase. See "Contingent Deferred Sales Charge -- Class B Shares" below. If you buy shares of the Fund through a Selling Broker, the Selling Broker must receive your investment before the close of regular trading on the Exchange and transmit it to John Hancock Funds before its close of business to receive that day's price. CLASS B SHARES -- CONTINGENT DEFERRED SALES CHARGE. Class B shares are offered at net asset value per share without an initial sales charge. However, Class B shares will be subject upon redemption to the contingent deferred sales charge ("CDSC") set forth in the prospectus of the John Hancock fund from which you initially exchanged your shares in order to acquire Class B shares of the Fund. You may be eligible for a waiver of the CDSC as described below. This charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the Class B shares being redeemed. Accordingly, you will not be assessed a CDSC on increases in account value above the initial purchase price, including Class B shares derived from dividend reinvestment. The amount of the CDSC, if any, will vary depending on the number of years from the time you purchased Class B shares of another John Hancock mutual fund which were subsequently exchanged into Class B shares of the Fund until the time you redeem your Class B shares of the Fund. Solely for the purpose of determining this holding period, any payments you make during the month will be aggregated and deemed to have been made on the last day of the month. In determining whether a CDSC applies to a redemption, the calculation will be determined in a manner that results in the lowest possible rate being charged. It will be assumed that your redemption comes first from Class B shares you have held beyond the applicable CDSC redemption period or those you acquired through reinvestment of dividends, and next from the Class B shares you have held the longest during the CDSC redemption period. The CDSC is waived on redemptions in certain circumstances. See discussion "Waiver of Contingent Deferred Sales Charges" below. 11 15 - ------------------------------------------------------------------------------- UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON CLASS B SHARE REDEMPTIONS WILL BE WAIVED. - ------------------------------------------------------------------------------- WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on redemptions of Class B shares, unless indicated otherwise, in these circumstances: - - Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How to Redeem Shares"), as long as your annual redemptions do not exceed 10% of your account value, at the time you establish your Systematic Withdrawal Plan and 10% of the value of your subsequent investments (less redemptions) in that account at the time you notify Investor Services. - - Redemptions made to effect distributions from an Individual Retirement Account either before or after age 59 1/2, as long as the distributions are based on the life expectancy or the joint-and-last survivor life expectancy of you and your beneficiary. These distributions must be free from penalty under the Code. - - Redemptions made to effect mandatory distributions under the Code after age 70 1/2 from a tax-deferred retirement plan. - - Redemptions made to effect distributions to participants or beneficiaries from certain employer-sponsored retirement plans including those qualified under Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the Code and deferred compensation plans under Section 457 of the Code. The waiver also applies to certain returns of excess contributions made to these plans. In all cases, the distributions must be free from penalty under the Code. - - Redemptions due to death or disability. - - Redemptions made under the Reinvestment Privilege, as described in "Additional Services and Programs" of this Prospectus. - - Redemptions made pursuant to the Fund's right to liquidate your account if you have less than $500 invested in the Fund. - - Redemptions made in connection with certain liquidation, merger or acquisition transactions involving other investment companies or personal holding companies. - - Redemptions from certain IRA and retirement plans that purchased shares prior to October 1, 1992. If you qualify for a CDSC waiver under one of these situations, you must notify Investor Services either directly or through your Selling Broker at the time you make your redemption. The waiver will be granted once Investor Services has confirmed that you are entitled to the waiver. CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of reinvested dividends on those shares will be converted into Class A shares automatically. This will occur no later than the month following eight years after the shares were purchased, and will result in lower annual distribution fees. If you exchanged Class B shares into the Fund from another John Hancock fund, the calculation will be based on the time you purchased Class B shares in the original fund. 12 16 HOW TO REDEEM SHARES - ------------------------------------------------------------------------------- TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE PROCEDURES. - ------------------------------------------------------------------------------- You may redeem all or a portion of your shares on any business day. Your shares will be redeemed at the next NAV calculated after your redemption request is received in good order by Investor Services, less any applicable CDSC. The Fund may hold payment until reasonably satisfied that investments which were recently made by check or Invest-by-Phone have been collected (which may take up to 10 calendar days). Once your shares are redeemed, the Fund generally sends you payment on the next business day. Under unusual circumstances, the Fund may suspend redemptions or postpone payment for up to seven days or longer, as permitted by Federal securities laws. - ------------------------------------------------------------------------------------ BY CHECK You may elect the checkwriting privilege which allows you to write checks in amounts from a minimum of $100. Checks may not be written against shares in your account which have been purchased within the last 10 days, except for shares purchased by wire transfer (which are immediately available). - ------------------------------------------------------------------------------------ BY TELEPHONE All Fund shareholders are automatically eligible for the telephone redemption privilege. Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time), Monday through Friday, excluding days on which the Exchange is closed. Investor Services employs the following procedures to confirm that instructions received by telephone are genuine. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. You may redeem up to $100,000 by telephone, but the address on the account must not have changed for the last thirty days. A check will be mailed to the exact name(s) and address shown on the account. If reasonable procedures, such as those described above, are not followed, the Fund may be liable for any loss due to unauthorized or fraudulent telephone instructions. In all other cases, neither the Fund nor Investor Services will be liable for any loss or expense for acting upon telephone instructions made in accordance with the telephone transaction procedures mentioned above. Telephone redemption is not available for IRAs or other tax-qualified retirement plans or shares of the Fund that are in certificated form. During periods of extreme economic conditions or market changes, telephone requests may be difficult to implement due to a large volume of calls. During these times, you should consider placing redemption requests in writing or use EASI-Line. EASI-Line's telephone number is 1-800-338-8080. - ------------------------------------------------------------------------------------ BY WIRE If you have a telephone redemption form on file with the Fund, redemption proceeds of $1,000 or more can be wired on the next business day to your designated bank account, and a fee (currently $4.00) will be deducted. You may also use electronic funds transfer to your assigned bank account, and the funds are usually collectible after two business days. Your bank may or may not charge a fee for this service. Redemptions of less than $1,000 will be sent by check or electronic funds transfer. This feature may be elected by completing the "Telephone Redemption" section on the Account Privileges Application included with this Prospectus. - ------------------------------------------------------------------------------------ IN WRITING Send a stock power or "letter of instruction" specifying the name of the Fund, the dollar amount or the number of shares to be redeemed, your name, class of shares, your account number and the additional requirements listed below that apply to your particular account. - ------------------------------------------------------------------------------------
13 17 - ------------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS -------------------- ------------ Individual, Joint Tenants, Sole A letter of instruction signed (with titles Proprietorship, Custodial where applicable) by all persons authorized to (Uniform Gifts or Transfer to sign for the account, exactly as it is Minors Act), General Partners registered with the signature(s) guaranteed. Corporation, Association A letter of instruction and a corporate resolution, signed by person(s) authorized to act on the account with the signature(s) guaranteed. Trusts A letter of instruction signed by the Trustee(s) with the signature(s) guaranteed. (If the Trustee's name is not registered on your account, also provide a copy of the trust document, certified within the last 60 days.) If you do not fall into any of these registration categories, please call 1-800-225-5291 for further instructions.
- ------------------------------------------------------------------------------- WHO MAY GUARANTEE YOUR SIGNATURE. - ------------------------------------------------------------------------------- A signature guarantee is a widely accepted way to protect you and the Fund by verifying the signature on your request. It may not be provided by a notary public. If the net asset value of the shares redeemed is $100,000 or less, John Hancock Funds may guarantee the signature. The following institutions may provide you with a signature guarantee, provided that the institution meets credit standards established by Investor Services: (i) a bank; (ii) a securities broker or dealer, including a government or municipal securities broker or dealer, that is a member of a clearing corporation or meets certain net capital requirements; (iii) a credit union having authority to issue signature guarantees; (iv) a savings and loan association, a building and loan association, a cooperative bank, a federal savings bank or association; or (v) a national securities exchange, a registered securities exchange or a clearing agency. - ------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT REDEMPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- THROUGH YOUR BROKER. Your broker may be able to initiate the redemption. Contact your broker for instructions. If you have certificates for your shares, you must submit them with your stock power or a letter of instructions. Unless you specify to the contrary, any outstanding Class A shares will be redeemed before Class B shares. You may not redeem certificated shares by telephone. Due to the proportionately high cost of maintaining small accounts, the Fund reserves the right to redeem at net asset value all shares in an account which holds less than $500 (except accounts under retirement plans) and to mail the proceeds to the shareholder, or the transfer agent may impose an annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value of the account is in excess of the Fund's minimum initial investment or if the value of the account falls below the required minimum as a result of market action. No CDSC will be imposed on involuntary redemptions of shares. Shareholders will be notified before these redemptions are to be made or this fee is imposed and will have 60 days to purchase additional shares to bring their account balance up to the required minimum. Unless the number of shares acquired by further purchases and dividend reinvestments, if any, exceeds the number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this policy. - ------------------------------------------------------------------------------- ADDITIONAL SERVICES AND PROGRAMS EXCHANGE PRIVILEGE - ------------------------------------------------------------------------------- YOU MAY EXCHANGE SHARES OF THE FUND ONLY FOR SHARES OF THE SAME CLASS OF ANOTHER JOHN HANCOCK FUND. - ------------------------------------------------------------------------------- John Hancock offers other funds with a wide range of investment goals. Contact your registered representative or Selling Broker and request a prospectus for the John Hancock funds that interest you. Read the prospectus carefully before exchanging your shares. You can exchange shares of each class of the Fund only for shares of the same class of another John Hancock fund. For this purpose, John Hancock funds with only one class of shares will be treated as Class A, whether or not they have been so designated. Exchanges between funds with shares that are not subject to a CDSC are based on their respective net asset values. No sales charge or transaction charge is 14 18 imposed. Class B shares of the Fund may be exchanged into Class B shares of another John Hancock fund without incurring the CDSC; however, these shares will be subject to the CDSC schedule of the shares acquired (except that exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock Limited-Term Government Fund and John Hancock Intermediate Government Fund will be subject to the initial fund's CDSC unless your initial investment in the Fund resulted from an exchange from one of those funds, in which case the exchange will be subject to the respective CDSC schedule set forth in one of these funds' prospectuses). For purposes of computing the CDSC payable upon redemption of shares acquired in an exchange, the holding period of the original shares is added to the holding period of the shares acquired in an exchange. When you make an exchange, your account registration in both the existing and new account must be identical. The exchange privilege is available only in states where the exchange can be made legally. Under exchange agreements with John Hancock Funds, certain dealers, brokers and investment advisers may exchange their clients' Fund shares, subject to the terms of those agreements and John Hancock Funds' right to reject or suspend those exchanges at any time. Because of the restrictions and procedures under those agreements, the exchanges may be subject to timing limitations and other restrictions that do not apply to exchanges requested by shareholders directly, as described above. Because Fund performance and shareholders can be hurt by excessive trading, the Fund reserves the right to terminate the exchange privilege for any person or group that, in John Hancock Funds' judgment, is involved in a pattern of exchanges that coincide with a "market timing" strategy that may disrupt the Fund's ability to invest effectively according to its investment objective and policies, or might otherwise affect the Fund and its shareholders adversely. The Fund may also temporarily or permanently terminate the exchange privilege for any person who makes seven or more exchanges out of the Fund per calendar year. Accounts under common control or ownership will be aggregated for this purpose. Although the Fund will attempt to give you prior notice whenever it is reasonably able to do so, it may impose these restrictions at any time. MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) (CLASS A SHARES ONLY) - ------------------------------------------------------------------------------- YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING. - ------------------------------------------------------------------------------- 1. You can authorize an investment to be automatically withdrawn each month from your bank, for investment in Class A shares of the Fund under the "Automatic Investing" and "Bank Information" sections of the Account Privileges Application. Sign your request exactly as the account is registered. 2. Mail the request and information to: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 15 19 3. You can also authorize automatic investment through payroll deduction by completing the "Direct Deposit Investing" section of the Account Privileges Application. 4. You can terminate your Monthly Automatic Accumulation Program plan at any time. 5. There is no charge to you for this program, and there is no cost to the Fund. 6. If you have payments being withdrawn from a bank account and we are notified that the account has been closed, your withdrawals will be discontinued. BY TELEPHONE 1. When you complete the application for your initial purchase of Fund shares, you automatically authorize exchanges by telephone unless you check the box indicating that you do not wish to authorize telephone exchanges. 2. Call 1-800-225-5291. Have the account number of your current fund and the exact name in which it is registered available to give to the telephone representative. 3. Your name, the account number, taxpayer identification number applicable to the account and other relevant information may be requested. In addition, telephone instructions are recorded. IN WRITING 1. In a letter, request an exchange and list the following: -- the name and class of the Fund whose shares you currently own -- your account number -- the name(s) in which the account is registered -- the name of the fund in which you wish your exchange to be invested -- the number of shares, all shares or dollar amount you wish to exchange Sign your request exactly as the account is registered. 2. Mail the request and information to: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 16 20 SYSTEMATIC WITHDRAWAL PLAN - ------------------------------------------------------------------------------- YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF FUNDS FROM YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS. - ------------------------------------------------------------------------------- 1. You can elect the Systematic Withdrawal Plan at any time by completing the Account Privileges Application which is attached to this Prospectus. You can also obtain this application by calling your registered representative or by calling 1-800-225-5291. 2. To be eligible, you must have at least $5,000 in your account. 3. Payments from your account can be made monthly, quarterly, semi-annually or annually or on a selected monthly basis to yourself or any other designated payee. 4. There is no limit on the number of payees you may authorize, but all payments must be made at the same time or intervals. 5. Redemptions will be discontinued if the U.S. Postal Service cannot deliver your checks or if deposits to a bank account are returned for any reason. RETIREMENT PLANS 1. You may use the Fund as a funding medium for various types of qualified retirement plans, including Individual Retirement Accounts, Keogh Plans (H.R. 10), Pension and Profit Sharing Plans (including 401(k) Plans), Tax Sheltered Annuity Retirement Plans (403(b) Plans) and Section 457 Plans. 2. The initial investment minimum or aggregate minimum for any of the above plans is $250. However, accounts being established as group IRA, SEP, SARSEP, TSA, 401(k) and Section 457 Plans will be accepted without an initial minimum investment. INVESTMENTS, TECHNIQUES AND RISK FACTORS SECURITIES OF FOREIGN ISSUERS. Foreign issuers may not be subject to accounting standards and government supervision comparable to U.S. companies and there is often less publicly available information about their operations. Foreign markets generally provide less liquidity than U.S. markets (and thus potentially greater price volatility), and typically provide fewer regulatory protections for investors. Foreign securities can also be affected by political or financial instability abroad. Foreign branches of United States banks may be subject to less stringent reserve requirements than domestic branches. United States branches and agencies of foreign banks and foreign branches of United States banks may provide less public information than, and may not be subject to, the same accounting, auditing and financial record-keeping standards as domestic banks. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in illiquid investments, which include repurchase agreements maturing in more than seven days, restricted securities and securities not readily marketable. The Fund may also invest up to 10% of its assets in restricted securities eligible for resale to certain institutional investors pursuant to Rule 144A under the Securities Act of 1933. 17 21 LENDING OF SECURITIES. The Fund may lend portfolio securities to brokers, dealers, and financial institutions if the loan is collateralized by cash or U.S. Government securities according to applicable regulatory requirements. The Fund may reinvest any cash collateral in short-term securities. When the Fund lends portfolio securities, there is a risk that the borrower may fail to return the loaned securities. As a result, the Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in or prevented from liquidating the collateral. It is a fundamental policy of the Fund not to lend portfolio securities having a total value in excess of 30% of its total assets. REPURCHASE AGREEMENTS, FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. The Fund may enter into repurchase agreements and may purchase securities on a forward commitment or when-issued basis. In a repurchase agreement, the Fund buys a security subject to the right and obligation to sell it back to the seller at a higher price. These transactions must be fully collateralized at all times, but involve some credit risk to the Fund if the other party defaults its obligation and the Fund is delayed in or prevented from liquidating the collateral. The Fund will segregate in a separate account cash or liquid, high grade debt securities equal in value to its forward commitments and when-issued securities. Purchasing debt securities for future delivery or on a when-issued basis may increase the Fund's overall investment exposure and involves a risk of loss if the value of the securities declines before the settlement date. 18 22 JOHN HANCOCK JOHN HANCOCK MONEY MARKET MONEY MARKET FUND FUND INVESTMENT ADVISER John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 CLASS A AND CLASS B SHARES PRINCIPAL DISTRIBUTOR PROSPECTUS John Hancock Funds, Inc. SEPTEMBER 12, 1995 101 Huntington Avenue Boston, Massachusetts 02199-7603 A MONEY MARKET FUND THAT SEEKS TO PROVIDE CUSTODIAN MAXIMUM CURRENT INCOME Investors Bank & Trust Company CONSISTENT WITH 24 Federal Street CAPITAL PRESERVATION Boston, Massachusetts 02110 AND LIQUIDITY. TRANSFER AGENT John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 HOW TO OBTAIN INFORMATION ABOUT THE FUND For Service Information For Telephone Exchange call 1-800-225-5291 For Investment-by-Phone For Telephone Redemption For TDD call 1-800-554-6713 101 HUNTINGTON AVENUE BOSTON, MASSACHUSETTS 02199-7603 [LOGO] Printed on Recycled Paper TELEPHONE 1-800-225-5291 23 JOHN HANCOCK SERIES, INC. 101 Huntington Avenue Boston, Massachusetts 02199-7603 consisting of six series, JOHN HANCOCK MONEY MARKET FUND JOHN HANCOCK GLOBAL RESOURCES FUND JOHN HANCOCK GOVERNMENT INCOME FUND JOHN HANCOCK HIGH YIELD BOND FUND JOHN HANCOCK HIGH YIELD TAX-FREE FUND JOHN HANCOCK EMERGING GROWTH FUND (each, a "Fund" and collectively, the "Funds") CLASS A AND CLASS B SHARES STATEMENT OF ADDITIONAL INFORMATION SEPTEMBER 12, 1995 This Statement of Additional Information ("SAI") provides information about John Hancock Series, Inc. (the "Corporation") and the Funds, in addition to the information that is contained in the John Hancock Money Market Fund Class A and Class B Prospectus (the "Money Market Fund Prospectus") dated September 12, 1995 and in the Prospectuses of each of the other Funds dated May 15, 1995 (collectively with the Money Market Fund Prospectus, the "Prospectuses"). This SAI is not a prospectus. It should be read in conjunction with the Funds' Prospectuses, copies of which can be obtained free of charge by writing or telephoning: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 1-800-225-5291 TABLE OF CONTENTS
Page ---- Organization of the Corporation.......................... 3 Investment Objectives and Policies....................... 3 Certain Investment Practices............................. 4 Investment Restrictions.................................. 24 Those Responsible for Management......................... 29 Investment Advisory and Other Services................... 37 Distribution Contract.................................... 41 Net Asset Value.......................................... 45 Initial Sales Charge on Class A Shares................... 47 Deferred Sales Charge on Class B Shares.................. 48
24
Special Redemptions...................................... 49 Additional Services and Programs......................... 49 Description of the Corporation's Shares.................. 50 Tax Status............................................... 52 Calculation of Performance............................... 57 Brokerage Allocation..................................... 59 Transfer Agent Services.................................. 62 Custody of Porftolio..................................... 62 Independent Auditors..................................... 62 Appendix................................................. A-1 Financial Statements..................................... F-1
-2- 25 ORGANIZATION OF THE CORPORATION The Corporation is an open-end management investment company organized as a Maryland corporation on June 22, 1987. The Corporation currently has six series: John Hancock Emerging Growth Fund, John Hancock Global Resources Fund, John Hancock Government Income Fund, John Hancock High Yield Bond Fund, John Hancock High Yield Tax-Free Fund and John Hancock Money Market Fund. Prior to September 12, 1995, the John Hancock Money Market Fund was called John Hancock Money Market Fund B. Prior to December 22, 1994, the Funds were called Transamerica Emerging Growth Fund, Transamerica Global Resources Fund, Transamerica Government Income Fund, Transamerica High Yield Bond Fund, Transamerica High Yield Tax-Free Fund and Transamerica Money Market Fund. Each Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company (the "Life Company"), chartered in 1862 with national headquarters at John Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock Funds") acts as principal distributor of the shares of the Funds. INVESTMENT OBJECTIVES AND POLICIES JOHN HANCOCK MONEY MARKET FUND ("Money Market Fund") seeks to provide maximum current income consistent with capital preservation and liquidity. The Fund's investments will be subject to the market fluctuation and risks inherent in all securities. JOHN HANCOCK GLOBAL RESOURCES FUND'S ("Global Resources Fund") investment objectives are to protect the purchasing power of shareholders' capital and to achieve growth of capital. The first of these objectives means that the Fund seeks to protect generally shareholders' invested capital against erosion of the value of the U.S. dollar through inflation. Current income will not be a primary consideration in selecting securities. However, it will be an important factor in making selections among securities believed otherwise comparable by the Adviser. Investment Philosophy of Global Resources Fund. The Adviser believes that, based upon past performance, the securities of specific companies that hold different types of substantial resource assets or engage in resource-related or energy-related activities may move relatively independently of one another during different stages of inflationary or deflationary cycles because of different degrees of demand for, or market values of, their respective resource holdings or resource-related or energy-related business during particular portions of such cycles. For example, during the period 1976 to 1980, the prices of oil company stocks increased relatively more than the prices of coal company stocks when compared to the performance of relevant stock market indices. The Adviser will seek to identify companies or asset-based securities which it believes are attractively priced relative to the intrinsic value of the underlying resource assets or resource-related or energy-related business or are especially well positioned to benefit during particular portions of inflationary or deflationary cycles. It is expected that when management of the Fund anticipates significant economic, political or financial instability, such as high inflationary or deflationary pressures or major dislocations in the foreign currency exchange markets, the Fund may, in seeking to protect the purchasing power of shareholders' capital, invest a majority of its assets in companies that explore for, extract, process or deal in gold or in asset-based securities indexed to the value of gold bullion. Such a switch in investment strategies could result in substantial liquidation of portfolio securities and significant transaction costs. The Fund's approach of active investment management enables it to switch its emphasis among -3- 26 various industry groups, depending upon the Adviser's outlook with respect to prevailing trends and developments. The Fund may seek to hedge its portfolio partially by writing covered call options or purchasing put options on its portfolio holdings. JOHN HANCOCK GOVERNMENT INCOME FUND'S ("Government Income Fund") investment objective is to earn a high level of current income consistent with preservation of capital by investing primarily in securities that are issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities. The Fund may seek to enhance its current return and may seek to hedge against changes in interest rates by engaging in transactions involving options (subject to certain limits), futures and options on futures. The Fund expects that under normal market conditions it will invest at least 80% of its total assets in U.S. Government securities (and related repurchase agreements and forward commitments). JOHN HANCOCK HIGH YIELD BOND FUND'S ("High Yield Bond Fund") primary investment objective is to maximize current income without assuming undue risk by investing in a diversified portfolio consisting primarily of lower-rated, high yielding, fixed income securities, such as: domestic and foreign corporate bonds; debentures and notes; convertible securities; preferred stocks; and domestic and foreign government obligations. As a secondary objective, the Fund seeks capital appreciation, but only when it is consistent with the primary objective of maximizing current income. JOHN HANCOCK HIGH YIELD TAX-FREE FUND'S ("High Yield Tax-Free Fund") primary investment objective is to obtain a high level of current income that is largely exempt from federal income taxes and is consistent with the preservation of capital. The Fund pursues this objective by normally investing substantially all of its assets in medium and lower quality obligations, including bonds, notes and commercial paper, issued by or on behalf of states, territories and possessions of the United States, The District of Columbia and their political subdivisions, agencies or instrumentalities, the interest on which is exempt from federal income tax ("tax- exempt securities"). The Fund seeks as its secondary objective preservation of capital by purchasing and selling interest rate futures contracts ("financial futures") and tax-exempt bond index futures contracts ("index futures"), and by purchasing and writing put and call options on debt securities, financial futures, tax-exempt bond indices and index futures to hedge against changes in the general level of interest rates. JOHN HANCOCK EMERGING GROWTH FUND ("Emerging Growth Fund") seeks long-term growth of capital through investing primarily (at least 80% of its assets in normal circumstances) in the common stocks of rapidly growing small-sized companies (those with a market capitalization of $500 million or less) to medium-sized companies (those with a market capitalization of up to $1 billion.) Current income is not a factor of consequence in the selection of stocks for the Fund. There can be no assurance that the Funds will achieve their respective investment objectives. CERTAIN INVESTMENT PRACTICES GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government securities, which are obligations issued or guaranteed by the U.S. Government and its agencies, authorities or instrumentalities. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government -4- 27 securities, issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future. CUSTODIAL RECEIPTS. The Funds may each acquire custodial receipts in respect of U.S. government securities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds. These custodial receipts are known by various names, including Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS"). For certain securities law purposes, custodial receipts are not considered U.S. government securities. BANK AND CORPORATE OBLIGATIONS. Each of the Funds may invest in commercial paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations and finance companies. The commercial paper purchased by the Funds consists of direct U.S. dollar denominated obligations of domestic or foreign issuers. Bank obligations in which a Fund may invest include certificates of deposit, bankers' acceptances and fixed time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits. Bank notes and bankers' acceptances rank junior to domestic deposit liabilities of the bank and pari passu with other senior, unsecured obligations of the bank. Bank notes are not insured by the Federal Deposit Insurance Corporation or any other insurer. Deposit notes are insured by the Federal Deposit Insurance Corporation only to the extent of $100,000 per depositor per bank. MUNICIPAL OBLIGATIONS. Money Market Fund, High Yield Bond Fund and High Yield Tax-Free Fund may invest in a variety of municipal obligations which consist of municipal bonds, municipal notes and municipal commercial paper. Municipal Bonds. Municipal bonds are issued to obtain funds for various public purposes including the construction of a wide range of public facilities such as airports, highways, bridges, schools, hospitals, housing, mass transportation, streets and water and sewer works. Other public purposes for which municipal bonds may be issued include refunding outstanding obligations, obtaining funds for general operating expenses and obtaining funds to lend to other public institutions and facilities. In addition, certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds for many types of local, privately operated facilities. Such debt instruments are considered municipal obligations if the interest paid on them is exempt from federal income tax. The payment of principal and interest by issuers of certain obligations purchased by a Fund may be guaranteed by a letter of credit, note repurchase agreement, insurance or other credit facility agreement offered by a bank or other financial -5- 28 institution. Such guarantees and the creditworthiness of guarantors will be considered by the Adviser in determining whether a municipal obligation meets the Fund's investment quality requirements. No assurance can be given that a municipality or guarantor will be able to satisfy the payment of principal or interest on a municipal obligation. Municipal Notes. Municipal notes are short-term obligations of municipalities, generally with a maturity ranging from six months to three years. The principal types of such notes include tax, bond and revenue anticipation notes and project notes. Municipal Commercial Paper. Municipal commercial paper is a short-term obligation of a municipality, generally issued at a discount with a maturity of less than one year. Such paper is likely to be issued to meet seasonal working capital needs of a municipality or interim construction financing. Municipal commercial paper is backed in many cases by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks and other institutions. Federal tax legislation enacted in the 1980's placed substantial new restrictions on the issuance of the bonds described above and in some cases eliminated the ability of state or local governments to issue municipal obligations for some of the above purposes. Such restrictions do not affect the Federal income tax treatment of municipal obligations in which a Fund may invest which were issued prior to the effective dates of the provisions imposing such restrictions. The effect of these restrictions may be to reduce the volume of newly issued municipal obligations. Issuers of municipal obligations are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power or ability of any one or more issuers to pay when due the principal of and interest on their municipal obligations may be affected. The yields of municipal bonds depend upon, among other things, general money market conditions, general conditions of the municipal bond market, size of a particular offering, the maturity of the obligation and rating of the issue. The ratings of Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch Investors Service ("Fitch") represent their respective opinions on the quality of the municipal bonds they undertake to rate. It should be emphasized, however, that ratings are general and not absolute standards of quality. Consequently, municipal bond with the same maturity, coupon and rating may have different yields and municipal bonds of the same maturity and coupon with different ratings may have the same yield. See the Appendix for a description of ratings. Many issuers of securities choose not to have their obligations rated. Although unrated securities eligible for purchase by a Fund must be determined to be comparable in quality to securities having certain specified ratings, the market for unrated securities may not be as broad as for rated securities since many investors rely on rating organizations for credit appraisal. MORTGAGE-BACKED SECURITIES. Government Income Fund and High Yield Bond Fund may invest in mortgage pass-through certificates and multiple-class pass-through securities, such as real estate mortgage investment conduits ("REMIC") pass-through certificates, collateralized mortgage obligations ("CMOs") and stripped mortgage-backed securities ("SMBS"), and other types of "Mortgage-Backed Securities" that may be available in the future. -6- 29 GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed mortgage pass-through securities represent participation interests in pools of residential mortgage loans and are issued by U.S. Governmental or private lenders and guaranteed by the U.S. Government or one of its agencies or instrumentalities, including but not limited to the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full faith and credit of the U.S. Government for timely payment of principal and interest on the certificates. Fannie Mae certificates are guaranteed by Fannie Mae, a federally chartered and privately owned corporation, for full and timely payment of principal and interest on the certificates. Freddie Mac certificates are guaranteed by Freddie Mac, a corporate instrumentality of the U.S. Government, for timely payment of interest and the ultimate collection of all principal of the related mortgage loans. MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs and REMIC pass-through or participation certificates may be issued by, among others, U.S. Government agencies and instrumentalities as well as private lenders. CMOs and REMIC certificates are issued in multiple classes and the principal of and interest on the mortgage assets may be allocated among the several classes of CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC certificates, often referred to as a "tranche," is issued at a specific adjustable or fixed interest rate and must be fully retired no later than its final distribution date. Generally, interest is paid or accrues on all classes of CMOs or REMIC certificates on a monthly basis. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac certificates but also may be collateralized by other mortgage assets such as whole loans or private mortgage pass-through securities. Debt service on CMOs is provided from payments of principal and interest on collateral of mortgaged assets and any reinvestment income thereon. A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code of 1986, as amended (the "Code") and invests in certain mortgages primarily secured by interests in real property and other permitted investments. STRIPPED MORTGAGE-BACKED SECURITIES. SMBS are derivative multiple-class mortgage- backed securities. SMBS are usually structured with two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. A typical SMBS will have one class receiving some of the interest and most of the principal, while the other class will receive most of the interest and the remaining principal. In the most extreme case, one class will receive all of the interest (the "interest only" class) while the other class will receive all of the principal (the "principal only" class). The yields and market risk of interest only and principal only SMBS, respectively, may be more volatile than those of other fixed income securities. The staff of the SEC considers privately issued SMBS to be illiquid. STRUCTURED OR HYBRID NOTES. Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund may invest in "structured" or "hybrid" notes. The distinguishing feature of a structured or hybrid note is that the amount of interest and/or principal payable on the note is based on the performance of a benchmark asset or market other than fixed income securities or interest rates. Examples of these benchmarks include stock prices, currency exchange rates and physical commodity prices. Investing in a structured note allows a Fund to gain exposure to the benchmark market while fixing the maximum loss that the Fund may experience in the event that market does not perform as expected. Depending on the terms of the note, a Fund may forego all -7- 30 or part of the interest and principal that would be payable on a comparable conventional note; a Fund's loss cannot exceed this foregone interest and/or principal. An investment in structured or hybrid notes involves risks similar to those associated with a direct investment in the benchmark asset. RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing in Mortgage- Backed Securities involves certain risks, including the failure of a counter-party to meet its commitments, adverse interest rate changes and the effects of prepayments on mortgage cash flows. In addition, investing in the lowest tranche of CMOs and REMIC certificates involves risks similar to those associated with investing in equity securities. Further, the yield characteristics of Mortgage-Backed Securities differ from those of traditional fixed income securities. The major differences typically include more frequent interest and principal payments (usually monthly), the adjustability of interest rates, and the possibility that prepayments of principal may be made substantially earlier than their final distribution dates. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty. Both adjustable rate mortgage loans and fixed rate mortgage loans may be subject to a greater rate of principal prepayments in a declining interest rate environment and to a lesser rate of principal prepayments in an increasing interest rate environment. Under certain interest rate and prepayment rate scenarios, a Fund may fail to recoup fully its investment in Mortgage-Backed Securities notwithstanding any direct or indirect governmental, agency or other guarantee. When a Fund reinvests amounts representing payments and unscheduled prepayments of principal, it may receive a rate of interest that is lower than the rate on existing adjustable rate mortgage pass-through securities. Thus, Mortgage-Backed Securities, and adjustable rate mortgage pass-through securities in particular, may be less effective than other types of U.S. Government securities as a means of "locking in" interest rates. Conversely, in a rising interest rate environment, a declining prepayment rate will extend the average life of many Mortgage-Backed Securities. This possibility is often referred to as extension risk. Extending the average life of a Mortgage-Backed Security increases the risk of depreciation due to future increases in market interest rates. RISK ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT SECURITIES. Different types of derivative debt securities are subject to different combinations of prepayment, extension and/or interest rate risk. Conventional mortgage pass-through securities and sequential pay CMOs are subject to all of these risks, but are typically not leveraged. Thus, the magnitude of exposure may be less than for more leveraged Mortgage-Backed Securities. The risk of early prepayments is the primary risk associated with interest only debt securities ("IOs"), super floaters, other leveraged floating rate instruments and Mortgage-Backed Securities purchased at a premium to their par value. In some instances, early prepayments may result in a complete loss of investment in certain of these securities. The primary risks associated with certain other derivative debt securities are the potential extension of average life and/or depreciation due to rising interest rates. These securities include floating rate securities based on the Cost of Funds Index ("COFI floaters"), other "lagging rate" floating rate securities, floating rate securities that are subject to a maximum interest rate ("capped floaters"), Mortgage-Backed Securities purchased at a discount, leveraged inverse floating rate securities ("inverse floaters"), principal only debt securities ("POs"), certain residual or support tranches of CMOs and index amortizing notes. Index amortizing notes are not Mortgage-Backed Securities, but are subject to extension risk resulting from the issuer's failure to exercise its option to call or redeem the notes before their stated -8- 31 maturity date. Leveraged inverse IOs combine several elements of the Mortgage-Backed Securities described above and thus present an especially intense combination of prepayment, extension and interest rate risks. Planned amortization class ("PAC") and target amortization class ("TAC") CMO bonds involve less exposure to prepayment, extension and interest rate risk than other Mortgage-Backed Securities, provided that prepayment rates remain within expected prepayment ranges or "collars." To the extent that prepayment rates remain within these prepayment ranges, the residual or support tranches of PAC and TAC CMOs assume the extra prepayment, extension and interest rate risk associated with the underlying mortgage assets. Other types of floating rate derivative debt securities present more complex types of interest rate risks. For example, range floaters are subject to the risk that the coupon will be reduced to below market rates if a designated interest rate floats outside of a specified interest rate band or collar. Dual index or yield curve floaters are subject to depreciation in the event of an unfavorable change in the spread between two designated interest rates. X-reset floaters have a coupon that remains fixed for more than one accrual period. Thus, the type of risk involved in these securities depends on the terms of each individual X-reset floater. ASSET-BACKED SECURITIES. Government Income Fund and High Yield Bond Fund may invest a portion of their assets in asset-backed securities which are rated in one of the two highest rating categories by a nationally recognized statistical rating organization (e.g., S&P or Moody's) or if not so rated, of equivalent investment quality in the opinion of the Adviser. Asset-backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of prepayments of principal on the underlying loans. During periods of declining interest rates, prepayment of loans underlying asset-backed securities can be expected to accelerate. Accordingly, a Fund's ability to maintain positions in such securities will be affected by reductions in the principal amount of such securities resulting from prepayments, and its ability to reinvest the returns of principal at comparable yields is subject to generally prevailing interest rates at that time. Credit card receivables are generally unsecured and the debtors on such receivables are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set-off certain amounts owed on the credit cards, thereby reducing the balance due. Automobile receivables generally are secured, but by automobiles rather than residential real property. Most issuers of automobile receivables permit the loan servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the asset-backed securities. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in the underlying automobiles. Therefore, there is the possibility that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities. ASSET-BASED SECURITIES. Global Resources Fund may invest in debt securities, preferred stocks or convertible securities, the principal amount, redemption terms or conversion terms of which are related to the market price of some resource asset such as gold bullion. For the purposes of the Fund's investment policies, these securities are referred to as asset-based securities. -9- 32 If the asset-based security is backed by a bank letter of credit or other similar facility, the Adviser may take such backing into account in determining the credit quality of the asset-based security. Although an asset-based security and the related natural resource asset generally are expected to move in the same direction, there may not be perfect correlation in the two price movements. Asset-based securities may not be secured by a security interest in or claim on the underlying natural resource assets. The Fund's holdings of such securities may not generate appreciable current income and the return from such securities primarily will be from any profit on the sale, maturity or conversion thereof at a time when the price of the related asset is higher than it was when the Fund purchased such securities. The asset-based securities in which the Fund may invest may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Certain asset-based securities may be payable at maturity in cash at the stated principal amount or, at the option of the holder, directly in a stated amount of the asset to which it is related. In such instance, because the Fund presently does not intend to invest directly in natural resource assets other than gold bullion, the Fund would sell the asset-based security in the secondary market, to the extent one exists, prior to maturity if the value of the stated amount of the asset exceeds the stated principal amount and thereby realize the appreciation in the underlying asset. The Fund will not acquire asset-based securities for which no established secondary trading market exists if at the time of acquisition more than 10% of its total assets are invested in securities which are not readily marketable. The Fund may invest in asset-based securities without limit when it has the right to sell such securities to the issuer or a stand-by bank or broker and receive the principal amount or redemption price thereof less transaction costs on no more than seven days notice or when the Fund has the right to convert such securities into a readily marketable security in which it could otherwise invest upon not more than seven days notice. SPECIAL CONSIDERATIONS RELATED TO INVESTMENT IN GOLD. Under certain circumstances, Global Resources Fund may invest a majority of its assets in gold, gold related securities or securities of gold-related companies. Based on historic experience, during periods of economic or financial instability the securities of such companies may be subject to extreme price fluctuations, reflecting the high volatility of gold prices during such periods. Gold may be affected by unpredictable international monetary and political policies, social conditions within a particular country, trade imbalances or trade or currency restrictions between countries. In addition, the instability of gold prices may result in volatile earnings of gold-related companies which, in turn, may affect adversely the financial condition of such companies. Gold mining companies also are subject to the risks generally associated with mining operations. The major producers of gold include the Republic of South Africa, Russia, Canada, the United States, Brazil and Australia. Sales of gold by Russia are largely unpredictable and often relate to political and economic considerations rather than to market forces. Economic, social and political developments within South Africa may affect significantly South African gold production and the markets for South African gold which may in turn significantly affect the price of gold. The Fund is currently authorized to invest up to 10% of its assets in gold bullion and coins, although it does not currently intend to invest in coins. The Fund may seek to increase this limit to 25% through negotiation with a certain state which imposes the 10% limit as a condition for qualifying the shares of the Fund for sale in that state. -10- 33 Investments in gold may help to hedge against inflation and major fluctuations in the Fund's shares because at certain times the price of gold has fluctuated less widely than the value of the securities which are permitted investments. When the Fund purchases bullion, the Adviser currently intends that it will be only in a form that is readily marketable and that it will be delivered to and stored with a qualified U.S. bank. An investment in bullion earns no investment income and involves higher custody and transaction costs than investments in securities. The Fund will also incur the cost of insurance in connection with holding gold. The market for gold bullion is presently unregulated which could affect the ability of the Fund to acquire or dispose of gold bullion. In order to qualify as a regulated investment company for federal income taxes, the Fund may receive no more than 10% of its yearly gross income from gains caused by selling gold bullion or coins and from certain other sources that do not produce "qualifying" income. The Fund may be required, therefore, either to hold its gold bullion or sell it at a loss, or to sell its portfolio securities at a gain, when it would not otherwise do so for investment reasons. The Fund may also purchase precious metal warehouse receipts that may be convertible into cash or gold bullion as an alternative to a direct investment in gold. Whereas gold bullion is traded in the form of contracts to buy or sell bullion which are in the nature of futures or commodities contracts, warehouse receipts represent ownership of a specified quantity of identified gold bars held in storage. Although ownership of gold in this manner entails storage and insurance expense, there is an active over-the-counter market in such receipts so that they are a liquid investment. For purposes of the Fund's investment limitations, such warehouse receipts would be considered to be equivalent to direct investments in the precious metals. FOREIGN SECURITIES AND EMERGING COUNTRIES. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in securities of foreign issuers. These Funds may also invest in debt and equity securities of corporate and governmental issuers of countries with emerging economies or securities markets. Government Income Fund may invest in foreign currency denominated securities of foreign governments considered stable by the Adviser and may hedge such investments through various options and futures transactions involving foreign currencies. Money Market Fund may invest in foreign securities and in certificates of deposit, bankers' acceptances and fixed time deposits and other obligations issued by foreign banks and their U.S. and foreign branches and foreign branches of U.S. banks. Money Market Fund may also invest in municipal instruments backed by letters of credit issued by certain of such banks. Under current Securities and Exchange Commission ("SEC") rules relating to the use of the amortized cost method of portfolio securities valuation, Money Market Fund is restricted to purchasing U.S. dollar denominated securities. Investing in obligations of non-U.S. issuers and foreign banks, particularly securities of issuers located in emerging countries, may entail greater risks than investing in similar securities of U.S. issuers. These risks include (i) social, political and economic instability; (ii) the small current size of the markets for many such securities and the currently low or nonexistent volume of trading, which may result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict a Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; and (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property. Investing in securities of non-U.S. companies may entail additional risks due to the potential political and economic instability of certain countries and the risks of expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment and on repatriation of capital invested. In the event of such expropriation, nationalization or other confiscation by any country, a Fund could lose its entire investment in any such country. -11- 34 In addition, even though opportunities for investment may exist in foreign countries, and in particular emerging markets, any change in the leadership or policies of the governments of those countries or in the leadership or policies of any other government which exercises a significant influence over those countries, may halt the expansion of or reverse the liberalization of foreign investment policies now occurring and thereby eliminate any investment opportunities which may currently exist. Investors should note that upon the accession to power of authoritarian regimes, the governments of a number of Latin American countries previously expropriated large quantities of real and personal property similar to the property which may be represented by the securities purchased by the Funds. The claims of property owners against those governments were never finally settled. There can be no assurance that any property represented by foreign securities purchased by a Fund will not also be expropriated, nationalized, or otherwise confiscated. If such confiscation were to occur, a Fund could lose a substantial portion of its investments in such countries. A Fund's investments would similarly be adversely affected by exchange control regulation in any of those countries. Certain countries in which the Funds may invest may have vocal minorities that advocate radical religious or revolutionary philosophies or support ethnic independence. Any disturbance on the part of such individuals could carry the potential for widespread destruction or confiscation of property owned by individuals and entities foreign to such country and could cause the loss of a Fund's investment in those countries. Certain countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Funds. As illustrations, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment by foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Moreover, the national policies of certain countries may restrict investment opportunities in issuers or industries deemed sensitive to national interests. In addition, some countries require governmental approval for the repatriation of investment income, capital or the proceeds of securities sales by foreign investors. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investments. Foreign companies are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. companies. In particular, the assets, liabilities and profits appearing on the financial statements of such a company may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with U.S. generally accepted accounting principles. Most foreign securities held by the Funds will not be registered with the SEC and such issuers thereof will not be subject to the SEC's reporting requirements. Thus, there will be less available information concerning foreign issuers of securities held by the Funds than is available concerning U.S. issuers. In instances where the financial statements of an issuer are not deemed to reflect accurately the financial situation of the issuer, the Adviser or Subadviser will take appropriate steps to evaluate the proposed investment, which may include on-site inspection of the issuer, interviews with its management and consultations with accountants, bankers and other specialists. There is substantially less publicly available information about foreign companies than there are reports and ratings published about U.S. companies and the U.S. government. In addition, where public information is available, it may be less reliable than such information regarding U.S. issuers. -12- 35 Because the Funds (other than Money Market Fund) may invest, and Global Resources Fund will (under normal circumstances) invest a substantial portion of their total assets, in securities which are denominated or quoted in foreign currencies, the strength or weakness of the U.S. dollar against such currencies may account for part of the Funds' investment performance. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of a Fund's holdings of securities denominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and any net investment income and capital gains to be distributed in U.S. dollars to shareholders of the Fund. The rate of exchange between the U.S. dollar and other currencies is determined by several factors including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the pace of business activity in certain other countries and the U.S., and other economic and financial conditions affecting the world economy. Although the Funds value their respective assets daily in terms of U.S. dollars, the Funds do not intend to convert their holdings of foreign currencies into U.S. dollars on a daily basis. However, the Funds may do so from time to time, and investors should be aware of the costs of currency conversion. Although currency dealers do not charge a fee for conversion, they do realize a profit based on the difference ("spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should the Fund desire to sell that currency to the dealer. Securities of foreign issuers, and in particular many emerging country issuers, may be less liquid and their prices more volatile than securities of comparable U.S. issuers. In addition, foreign securities exchanges and brokers are generally subject to less governmental supervision and regulation than in the U.S., and foreign securities exchange transactions are usually subject to fixed commissions, which are generally higher than negotiated commissions on U.S. transactions. In addition, foreign securities exchange transactions may be subject to difficulties associated with the settlement of such transactions. Delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a portfolio security due to settlement problems either could result in losses to a Fund due to subsequent declines in value of the portfolio security or, if the Fund has entered into a contract to sell the security could result in possible liability to the purchaser. The Funds' investment income or, in some cases, capital gains from foreign issuers may be subject to foreign withholding or other taxes, thereby reducing the Funds' net investment income and/or net realized capital gains. See "Tax Status." DEPOSITARY RECEIPTS. As discussed in the Prospectuses, Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in the securities of foreign issuers in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other securities convertible into securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted but rather in the currency of the market in which they are traded. ADRs are receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe by banks or depositories which evidence a similar ownership arrangement. Generally, ADRs, in registered form, are designed for use in U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. -13- 36 OPTIONS ON FOREIGN CURRENCIES. Global Resources Fund may purchase and write put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. As in the case of other types of options, however, the writing of an option on foreign currency will constitute only a partial hedge, such as the amount of the premium received and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may constitute an effective hedge against fluctuations in exchange rates although, in the event of rate movements adverse to the Fund's position, it may forfeit the entire amount of the premium plus related transaction costs. Options on foreign currencies are traded in a manner substantially similar to options on securities. In particular, an option on foreign currency provides the holder with the right to purchase, in the case of a call option, or to sell, in the case of a put option, a stated quantity of a particular currency for a fixed price up to a stated expiration date. The writer of the option undertakes the obligation to deliver, in the case of a call option, or to purchase, in the case of a put option, the quantity of the currency called for in the option, upon exercise of the option by the holder. As in the case of other types of options, the holder of an option on foreign currency is required to pay a one-time, non-refundable premium, which represents the cost of purchasing the option. The holder can lose the entire amount of this premium, as well as related transaction costs, but not more than this amount. The writer of the option, in contrast, generally is required to make initial and variation margin payments similar to margin deposits required in the trading of futures contracts and the writing of other types of options. The writer is therefore subject to risk of loss beyond the amount originally invested and above the value of the option at the time it is entered into. Certain options on foreign currencies like forward contracts are traded over-the-counter through financial institutions acting as market-makers in such options and the underlying currencies. Such transactions therefore involve risks not generally associated with exchange- traded instruments. Options on foreign currencies may also be traded on national securities exchanges regulated by the SEC or commodities exchanges regulated by the Commodity Futures Trading Commission. FORWARD FOREIGN CURRENCY CONTRACTS. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may engage in forward foreign currency transactions. Generally, the foreign currency exchange transactions of the Funds may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market. A Fund may also deal in forward foreign currency exchange contracts involving currencies of the different countries in which it may invest as a hedge against possible variations in the foreign exchange rate between these currencies. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. The Funds' dealings in forward foreign currency exchange contracts will be limited to hedging either specified transactions or portfolio positions. Transaction hedging is the purchase or sale of forward foreign currency contracts with respect to specific receivables or payables of a Fund accruing in connection with the purchase and sale of its portfolio securities denominated in foreign currencies. Portfolio hedging is the use of forward foreign currency contracts to offset portfolio security positions denominated or quoted in such foreign currencies. A Fund will not attempt to hedge all of its foreign portfolio positions and will enter into such transactions only to the extent, if any, deemed appropriate by the Adviser. The Board of Directors has adopted a policy of monitoring the Funds' foreign currency contract income to assure that the Funds qualify as regulated investment companies under the Code. The Fund will not engage in speculative forward foreign currency exchange transactions. -14- 37 If a Fund purchases a forward contract, its custodian bank will segregate cash or high grade liquid debt securities in a separate account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. Those assets will be valued at market daily and if the value of the securities in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will be equal to the amount of the Fund's commitment with respect to such contracts. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency rises. Moreover, it may not be possible for a Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to a Fund of engaging in foreign currency exchange transactions varies with such factors as the currency involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currency are usually conducted on a principal basis, no fees or commissions are involved. REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund would acquire a security for a relatively short period (generally not more than seven days) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with securities dealers. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities and could experience losses, including the possible decline in the value of the underlying securities during the period which the Fund seeks to enforce its rights thereto, possible subnormal levels of income and lack of access to income during this period, and the expense of enforcing its rights. The Fund will not invest in a repurchase agreement maturing in more than seven days, if such investment, together with other illiquid securities held by the Fund (including restricted securities) would exceed 10% of the Fund's total assets. REVERSE REPURCHASE AGREEMENTS. Each Fund may also enter into reverse repurchase agreements which involve the sale of government securities held in its portfolio to a bank or securities firm with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund. The Fund will use proceeds obtained from the sale of securities pursuant to reverse repurchase agreements to purchase other investments. The use of borrowed funds to make investments is a practice known as "leverage," which is considered speculative. Use of reverse repurchase agreements is an investment technique that is intended to increase income. Thus, a Fund will enter into a reverse repurchase agreement only when the Adviser determines that the interest income to be earned from the investment of the proceeds is greater than the interest expense of the transaction. However, there is a risk that interest expense will nevertheless exceed the income earned. Reverse repurchase agreements involve the risk that the market value of securities purchased by a Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. A Fund will also continue to be subject to the -15- 38 risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, a Fund will establish and maintain with the Fund's custodian a separate account consisting of highly liquid, marketable securities in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. In addition, a Fund will not enter into reverse repurchase agreements and other borrowings exceeding in the aggregate more than 33 1/3% of the market value of its total net assets. A Fund will enter into reverse repurchase agreements only with selected registered broker/dealers or with federally insured banks or savings and loan associations which are approved in advance as being creditworthy by the Board of Directors. Under procedures established by the Board of Directors, the Adviser will monitor the creditworthiness of the firms involved. FORWARD COMMITMENT AND WHEN-ISSUED SECURITIES. Each Fund (other than Money Market Fund) may purchase securities on a when-issued or forward commitment basis. "When- issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. A Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, a Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. When a Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Funds losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when-issued and forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. On the date a Fund enters into an agreement to purchase securities on a when-issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid, high grade debt securities equal in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, a Fund may enter into offsetting contracts for the forward sale of other securities that it owns. SHORT SALES. Global Resources Fund may engage in short sales in order to profit from an anticipated decline in the value of a security. The Fund may also engage in short sales to attempt to limit its exposure to a possible market decline in the value of its portfolio securities through short sales of securities which the Adviser believes possess volatility characteristics similar to those being hedged. To effect such a transaction, the Fund must borrow the security sold short to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. Until the security is replaced, the Fund is required to pay to the lender any accrued interest and may be required to pay a premium. The Fund will realize a gain if the security declines in price between the date of the short sale and the date on which the Fund replaces the borrowed security. On the other hand, the Fund will incur a loss as a result of the short sale if the price of the security increases between those dates. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium or interest or dividends the Fund may be required to pay in connection with a short sale. The successful use of short selling as a hedging device may be adversely -16- 39 affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged. Under applicable guidelines of the staff of the SEC, if the Fund engages in short sales, it must put in a segregated account (not with the broker) an amount of cash or U.S. Government securities equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) any cash or U.S. Government securities required to be deposited as collateral with the broker in connection with the short sale (not including the proceeds from the short sale). In addition, until the Fund replaces the borrowed security, it must daily maintain the segregated account at such a level that (1) the amount deposited in it plus the amount deposited with the broker as collateral will equal the current market value of the securities sold short, and (2) the amount deposited in it plus the amount deposited with the broker as collateral will not be less than the market value of the securities at the time they were sold short. Short selling may produce higher than normal portfolio turnover which may result in increased transaction costs to the Fund and may result in gains from the sale of securities deemed to have been held for less than three months, which gains must be less than 30% of the Fund's gross income in order for the Fund to qualify as a regulated investment company under the Code. LOWER RATED HIGH YIELD DEBT OBLIGATIONS. Emerging Growth Fund, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund may invest in high yielding, fixed income securities rated below investment grade (e.g., rated Baa or lower by Moody's or BBB or lower by S&P. Ratings are based largely on the historical financial condition of the issuer. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition, which may be better or worse than the rating would indicate. See the Appendix to this SAI which describes the characteristics of corporate bonds in the various rating categories. The Fund may invest in comparable quality unrated securities which, in the opinion of the Adviser, offer comparable yields and risks to those securities which are rated. Debt obligations rated in the lower ratings categories, or which are unrated, involve greater volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a greater possibility of an adverse change in financial condition affecting the ability of the issuer to make payments of interest and principal. The high yield fixed income market is relatively new and its growth occurred during a period of economic expansion. The market has not yet been fully tested by an economic recession. The market price and liquidity of lower rated fixed income securities generally respond to short term corporate and market developments to a greater extent than do the price and liquidity of higher rated securities because such developments are perceived to have a more direct relationship to the ability of an issuer of such lower rated securities to meet its ongoing debt obligations. Reduced volume and liquidity in the high yield bond market or the reduced availability of market quotations will make it more difficult to dispose of the bonds and to value accurately a Fund's assets. The reduced availability of reliable, objective data may increase a Fund's reliance on management's judgment in valuing high yield bonds. In addition, a Fund's investments in high yield securities may be susceptible to adverse publicity and investor perceptions, whether or not justified by fundamental factors. A Fund's investments, and consequently its net asset value, will be subject to the market fluctuations and risks inherent in all securities. -17- 40 CREDIT AND INTEREST RATE RISKS. In addition to the information contained in the Prospectuses, investors should note that while ratings by a rating institution provide a generally useful guide to credit risks, they do not, nor do they purport to, offer any criteria for evaluating interest rate risk. Changes in the general level of interest rates cause fluctuations in the prices of fixed-income securities already outstanding and will therefore result in fluctuation in net asset value of the shares of Funds to the extent such the Funds invest in these securities. The extent of the fluctuation is determined by a complex interaction of a number of factors. The Adviser will evaluate those factors it considers relevant and will make portfolio changes when it deems it appropriate in seeking to reduce the risk of depreciation in the value of a Fund's portfolio. However, in seeking to achieve a Fund's primary objectives, there will be times, such as during periods of rising interest rates, when depreciation and realization of comparable losses on securities in the portfolio will be unavoidable. Moreover, medium and lower-rated securities and unrated securities of comparable quality tend to be subject to wider fluctuations in yield and market values than higher rated securities. Such fluctuations after a security is acquired do not affect the cash income received from that security but are reflected in the net asset value of the Fund's portfolio. Other risks of lower quality securities include: (i) subordination to the prior claims of banks and other senior lenders and (ii) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates whereby the Funds may reinvest premature redemption proceeds in lower yielding portfolio securities. In determining which securities to purchase or hold in a Fund's portfolio (including, in the case of High Yield Bond Fund, investments in either unrated or rated securities which are in default) and in seeking to reduce credit and interest rate risk consistent with a Fund's investment objective and policies, the Adviser will rely on information from various sources, including: the rating of the security; research, analysis and appraisals of brokers and dealers; the views of the Fund's Directors and others regarding economic developments and interest rate trends; and the Adviser's own analysis of factors it deems relevant as it pertains to achieving a Fund's investment objective(s). PURCHASES OF WARRANTS. Emerging Growth Fund's and Global Resources Fund's investment policies permit the purchase of rights and warrants, which represent rights to purchase the common stock of companies at designated prices. No such purchase will be made by a Fund, however, if the Fund's holdings of warrants (valued at lower of cost or market) would exceed 5% of the value of the Fund's total net assets as a result of the purchase. In addition, no Fund will purchase a warrant or right which is not listed on the New York or American Stock Exchanges if the purchase would result in the Fund's owning unlisted warrants in an amount exceeding 2% of its net assets. CONVERTIBLE SECURITIES. Emerging Growth Fund, Global Resources Fund and High Yield Bond Fund may invest in convertible securities. Convertible securities are securities that may be converted at either a stated price or stated rate into underlying shares of common stock of the same issuer. Convertible securities have general characteristics similar to both fixed income and equity securities. Although to a lesser extent than with straight debt securities, the market value of convertible securities tends to decline as interest rated increase, and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stocks and therefore will also react to variations in the general market for equity securities. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and consequently may not experience market value declines to the same extent as the underlying -18- 41 common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. However, the issuers of convertible securities may default on their obligations. MORTGAGE "DOLLAR ROLL" TRANSACTIONS. Government Income Fund and High Yield Bond Fund may enter into mortgage "dollar roll" transactions with selected banks and broker-dealers pursuant to which a Fund sells Mortgage-Backed Securities for delivery in the future (generally within 30 days) and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. These Funds will only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position which matures on or before the forward settlement date of the dollar roll transaction. Covered rolls are not treated as a borrowing or other senior securities. Dollar rolls in which the Funds may invest will be limited to covered rolls. For financial reporting and tax purposes, the Funds propose to treat mortgage dollar rolls as two separate transactions; one involving the purchase of a security and a separate transaction involving a sale. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a financing. Mortgage dollar rolls involve certain risks including the following: if the broker-dealer to whom a Fund sells the security becomes insolvent, the Fund's right to purchase or repurchase the Mortgage-Backed Securities subject to the mortgage dollar roll may be restricted and the instrument which the Fund is required to repurchase may be worth less than an instrument which the Fund originally held. Successful use of mortgage dollar rolls will depend upon the Adviser's ability to predict correctly interest rates and mortgage prepayments. For these reasons, there is no assurance that mortgage dollar rolls can be successfully employed. FINANCIAL FUTURES CONTRACTS. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may buy and sell futures contracts (and related options) on stocks, stock indices, debt securities, currencies, interest rate indices, and other instruments. Each Fund may hedge its portfolio by selling or purchasing financial futures contracts as an offset against the effects of changes in interest rates or in security or foreign currency values. Although other techniques could be used to reduce exposure to interest rate fluctuations, a Fund may be able to hedge its exposure more effectively and perhaps at a lower cost by using financial futures contracts. The Funds may enter into financial futures contracts for hedging and other non- speculative purposes to the extent permitted by regulations of the Commodity Futures Trading Commission ("CFTC"). Financial futures contracts have been designed by boards of trade which have been designated "contract markets" by the CFTC. Futures contracts are traded on these markets in a manner that is similar to the way a stock is traded on a stock exchange. The boards of trade, through their clearing corporations, guarantee that the contracts will be performed. Currently, financial futures contracts are based on interest rate instruments such as long-term U.S. Treasury bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA") modified pass-through mortgage-backed securities, three-month U.S. Treasury bills, 90-day commercial paper, bank certificates of deposit and Eurodollar certificates of deposit. It is expected that if other financial futures contracts are developed and traded the Funds may engage in transactions in such contracts. -19- 42 Although some financial futures contracts by their terms call for actual delivery or acceptance of financial instruments, in most cases the contracts are closed out prior to delivery by offsetting purchases or sales of matching financial futures contracts (same exchange, underlying security and delivery month). Other financial futures contracts, such as futures contracts on securities indices, by their terms call for cash settlements. If the offsetting purchase price is less than a Fund's original sale price, the Fund realizes a gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than a Fund's original purchase price, the Fund realizes a gain, or if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. Each Fund will pay a commission in connection with each purchase or sale of financial futures contracts, including a closing transaction. For a discussion of the Federal income tax considerations of trading in financial futures contracts, see the information under the caption "Tax Status" below. At the time a Fund enters into a financial futures contract, it is required to deposit with its custodian a specified amount of cash or U.S. Government securities, known as "initial margin," ranging upward from 1.1% of the value of the financial futures contract being traded. The margin required for a financial futures contract is set by the board of trade or exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the financial futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Funds expect to earn interest income on their initial margin deposits. Each day, the futures contract is valued at the official settlement price of the board of trade or exchange on which it is traded. Subsequent payments, known as "variation margin," to and from the broker are made on a daily basis as the market price of the financial futures contract fluctuates. This process is known as "mark to market." Variation margin does not represent a borrowing or lending by the Funds but is instead settlement between the Funds and the broker of the amount one would owe the other if the financial futures contract expired. In computing net asset value, the Funds will mark to market their respective open financial futures positions. Successful hedging depends on a strong correlation between the market for the underlying securities and the futures contract market for those securities. There are several factors that will probably prevent this correlation from being a perfect one, and even a correct forecast of general interest rate trends may not result in a successful hedging transaction. There are significant differences between the securities and futures markets which could create an imperfect correlation between the markets and which could affect the success of a given hedge. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for financial futures and debt securities, including technical influences in futures trading and differences between the financial instruments being hedged and the instruments underlying the standard financial futures contracts available for trading in such respects as interest rate levels, maturities and creditworthiness of issuers. The degree of imperfection may be increased where the underlying debt securities are lower-rated and, thus, subject to greater fluctuation in price than higher-rated securities. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. The Funds will bear the risk that the price of the securities being hedged will not move in complete correlation with the price of the futures contracts used as a hedging instrument. Although the Adviser believes that the use of financial futures contracts will benefit the Funds, an incorrect prediction could result in a loss on both the hedged securities in the respective Fund's portfolio and the hedging vehicle so that the Fund's return might have been better had hedging not been attempted. However, in the absence of the ability to hedge, the Adviser might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. The low -20- 43 margin deposits required for futures transactions permit an extremely high degree of leverage. A relatively small movement in a futures contract may result in losses or gains in excess of the amount invested. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount the price of a futures contract may vary either up or down from the previous day's settlement price, at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and, therefore, does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Finally, although the Funds engage in financial futures transactions only on boards of trade or exchanges where there appears to be an adequate secondary market, there is no assurance that a liquid market will exist for a particular futures contract at any given time. The liquidity of the market depends on participants closing out contracts rather than making or taking delivery. In the event participants decide to make or take delivery, liquidity in the market could be reduced. In addition, the Funds could be prevented from executing a buy or sell order at a specified price or closing out a position due to limits on open positions or daily price fluctuation limits imposed by the exchanges or boards of trade. If a Fund cannot close out a position, it will be required to continue to meet margin requirements until the position is closed. OPTIONS ON FINANCIAL FUTURES CONTRACTS. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may buy and sell options on financial futures contracts on stocks, stock indices, debt securities, currencies, interest rate indices, and other instruments. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise, the writer of the option delivers the futures contract to the holder at the exercise price. The Funds would be required to deposit with their custodian initial and variation margin with respect to put and call options on futures contracts written by them. Options on futures contracts involve risks similar to the risks relating to transactions in financial futures contracts. Also, an option purchased by a Fund may expire worthless, in which case a Fund would lose the premium it paid for the option. OTHER CONSIDERATIONS. The Funds will engage in futures and options transactions for bona fide hedging or other non-speculative purposes to the extent permitted by CFTC regulations. A Fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the Fund or which it expects to purchase. Except as stated below, the Funds' futures transactions will be entered into for traditional hedging purposes -- i.e., futures contracts will be sold to protect against a decline in the price of securities that the Funds own, or futures contracts will be purchased to protect the Funds against an increase in the price of securities, or the currency in which they are denominated, the Fund intends to purchase. As evidence of this hedging intent, the Funds expect that on 75% or more of the occasions on which they take a long futures or option position (involving the purchase of futures contracts), the Funds will have purchased, or will be in the process of purchasing equivalent amounts of related securities or assets denominated in the related currency in the cash market at the time when the futures contract or option position is closed out. However, in particular cases, when it is economically advantageous for a Fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities or other assets. -21- 44 As an alternative to literal compliance with the bona fide hedging definition, a CFTC regulation permits the Funds to elect to comply with a different test, under which the aggregate initial margin and premiums required to establish nonhedging positions in futures contracts and options on futures will not exceed 5% of the net asset value of the respective Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase. The Funds will engage in transactions in futures contracts only to the extent such transactions are consistent with the requirements of the Code for maintaining their qualifications as regulated investment companies for Federal income tax purposes. When the Funds purchase financial futures contracts, or write put options or purchase call options thereon, cash or liquid, high grade debt securities will be deposited in a segregated account with the Funds' custodian in an amount that, together with the amount of initial and variation margin held in the account of its broker, equals the market value of the futures contracts. OPTIONS TRANSACTIONS. To the extent set forth in their Prospectuses, the Funds (other than Money Market Fund) may write listed and over-the-counter covered call options and covered put options on securities in order to earn additional income from the premiums received. In addition, the Funds may purchase listed and over-the-counter call and put options. The extent to which covered options will be used by the Funds will depend upon market conditions and the availability of alternative strategies. A Fund will write listed and over-the-counter call options only if they are "covered," which means that the Fund owns or has the immediate right to acquire the securities underlying the options without additional cash consideration upon conversion or exchange of other securities held in its portfolio. A call option written by a Fund may also be "covered" if the Fund holds on a share-for-share basis a covering call on the same securities where (i) the exercise price of the covering call held is equal to or less than the exercise price of the call written if the difference is maintained by the Fund in cash, U.S. Treasury bills or high grade liquid debt obligations in a segregated account with the Fund's custodian, and (ii) the covering call expires at the same time as the call written. If a covered call option is not exercised, a Fund would keep both the option premium and the underlying security. If the covered call option written by a Fund is exercised and the exercise price, less the transaction costs, exceeds the cost of the underlying security, the Fund would realize a gain in addition to the amount of the option premium it received. If the exercise price, less transaction costs, is less than the cost of the underlying security, a Fund's loss would be reduced by the amount of the option premium. As the writer of a covered put option, each Fund will write a put option only with respect to securities it intends to acquire for its portfolio and will maintain in a segregated account with its custodian bank cash, U.S. Government securities or high-grade liquid debt securities with a value equal to the price at which the underlying security may be sold to the Fund in the event the put option is exercised by the purchaser. The Funds may also write a "covered" put option by purchasing on a share-for-share basis a put on the same security as the put written by the Fund if the exercise price of the covering put held is equal to or greater than the exercise price of the put written and the covering put expires at the same time or later than the put written. When writing listed and over-the-counter covered put options on securities, the Funds would earn income from the premiums received. If a covered put option is not exercised, the Funds would keep the option premium and the assets maintained to cover the option. If the option is exercised and the exercise price, including transaction costs, exceeds the market price of the underlying security, a Fund would realize a loss, but the amount of the loss would be reduced by the amount of the option premium. -22- 45 If the writer of an exchange-traded option wishes to terminate its obligation prior to its exercise, it may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that a Fund's position will be offset by the Options Clearing Corporation. The Funds may not effect a closing purchase transaction after they have been notified of the exercise of an option. There is no guarantee that a closing purchase transaction can be effected. Although the Funds will generally write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange or board of trade will exist for any particular option or at any particular time, and for some options no secondary market on an exchange may exist. In the case of a written call option, effecting a closing transaction will permit a Fund to write another call option on the underlying security with either a different exercise price, expiration date or both. In the case of a written put option, it will permit a Fund to write another put option to the extent that the exercise price thereof is secured by deposited cash or short-term securities. Also, effecting a closing transaction will permit the cash or proceeds from the concurrent sale of any securities subject to the option to be used for other investments. If a Fund desires to sell a particular security from its portfolio on which it has written a call option, it will effect a closing transaction prior to or concurrent with the sale of the security. A Fund will realize a gain from a closing transaction if the cost of the closing transaction is less than the premium received from writing the option. The Funds will realize a loss from a closing transaction if the cost of the closing transaction is more than the premium received for writing the option. However, because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by the Fund. OVER-THE-COUNTER OPTIONS. Funds that may engage in options transactions may engage in options transactions on exchanges and in the over-the-counter markets. In general, exchange- traded options are third-party contracts (i.e., performance of the parties' obligations is guaranteed by an exchange or clearing corporation) with standardized strike prices and expiration dates. Over-the-counter ("OTC") transactions are two-party contracts with price and terms negotiated by the buyer and seller. A Fund will acquire only those OTC options for which management believes the Fund can receive on each business day at least two separate bids or offers (one of which will be from an entity other than a party to the option) or those OTC options valued by an independent pricing service. The Funds will write and purchase OTC options only with member banks of the Federal Reserve System and primary dealers in U.S. Government securities or their affiliates which have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. The SEC has taken the position that OTC options are illiquid securities subject to each Fund's restriction that illiquid securities are limited to not more than 10% of the Fund's net assets. The SEC, however, has a partial exemption from the above restrictions on transactions in OTC options. The SEC allows a Fund to exclude from the 10% limitation on illiquid securities a portion of the value of the OTC options written by the Fund, provided that certain conditions are met. First, the other party to the OTC options has to be a primary U.S. Government securities dealer designated as such by the Federal Reserve Bank. Second, the Fund must have an absolute contractual right to repurchase the OTC options at a formula price. If the above conditions are met, a Fund may treat as illiquid only that portion of the OTC option's value (and the value of its underlying securities) which is equal to the formula price for repurchasing the OTC option, less the OTC option's intrinsic value. -23- 46 INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS Each Fund has adopted certain fundamental investment restrictions upon its investments as set forth below which cannot be changed as to any Fund without the approval of the holders of a majority of that Fund's outstanding shares. A majority for this purpose means: (a) more than 50% of the outstanding shares of a Fund, or (b) 67% or more of the shares represented at a meeting where more than 50% of the outstanding shares of a Fund are represented, whichever is less. If a percentage restriction or rating restriction on investment or utilization of assets is adhered to at the time an investment is made or assets are so utilized, a later change in percentage resulting from changes in the value of a Fund's portfolio securities or a later change in the rating of a portfolio security will not be considered a violation of policy. For the purpose of these restrictions, High Yield Bond Fund, Government Income Fund and Money Market Fund are referred to as the "Fixed Income Funds" and Emerging Growth Fund and Global Resources Fund are referred to as the "Equity Funds." The restrictions applicable to High Yield Tax-Free Fund are set out subsequently. Each Fixed Income Fund and each Equity Fund may not: (1) Borrow money in an amount in excess of 33-1/3% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes (except that it may enter into a reverse repurchase agreement within the limits described in the Prospectus or this SAI), or pledge, mortgage or hypothecate an amount of its assets (taken at market value) in excess of 15% of its total assets, in each case taken at the lower of cost or market value. For the purpose of this restriction, collateral arrangements with respect to options, futures contracts, options on futures contracts and collateral arrangements with respect to initial and variation margins are not considered a pledge of assets. (2) Underwrite securities issued by other persons except insofar as such Fund may technically be deemed an underwriter under the Securities Act of 1933 in selling a portfolio security. (3) Purchase or retain real estate (including limited partnership interests but excluding securities of companies, such as real estate investment trusts, which deal in real estate or interests therein and securities secured by real estate), or mineral leases, commodities or commodity contracts except, in the case of Resources Fund, precious metals (except contracts for the future delivery of fixed income securities, stock index and currency futures and options on such futures) in the ordinary course of its business. Each Fund reserves the freedom of action to hold and to sell real estate or mineral leases, commodities or commodity contracts acquired as a result of the ownership of securities. (4) Invest in direct participation interests in oil, gas or other mineral exploration or development programs. (5) Make loans to other persons except by the purchase of obligations in which such Fund is authorized to invest and by entering into repurchase agreements; provided that a Fund may lend its portfolio securities not in excess of 30% of its total assets (taken at market value). Not more than 10% of a Fund's total assets (taken at market value) will be subject to repurchase agreements maturing in more than seven days. For these purposes the purchase of all or a portion -24- 47 of an issue of debt securities shall not be considered the making of a loan. In addition, the Equity Funds may purchase a portion of an issue of debt securities of types commonly distributed privately to financial institutions. (6) Purchase the securities of any issuer if such purchase, at the time thereof, would cause more than 5% of its total assets (taken at market value) to be invested in the securities of such issuer, other than securities issued or guaranteed by the United States or, in the case of the Fixed Income Funds, any state or political subdivision thereof, or any political subdivision of any such state, or any agency or instrumentality of the United States, any state or political subdivision thereof, or any political subdivision of any such state. In applying these limitations, a guarantee of a security will not be considered a security of the guarantor, provided that the value of all securities issued or guaranteed by that guarantor, and owned by the Fund, does not exceed 10% of the Fund's total assets. In determining the issuer of a security, each state and each political subdivision agency, and instrumentality of each state and each multi-state agency of which such state is a member is a separate issuer. Where securities are backed only by assets and revenues of a particular instrumentality, facility or subdivision, such entity is considered the issuer. (7) Invest in companies for the purpose of exercising control or management. (8) Purchase or retain in its portfolio any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Director of such Fund, or is a member, partner, officer or Director of the Adviser, if after the purchase of the securities of such issuer by such Fund one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, all taken at market value, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both, all taken at market value. (9) Purchase any securities or evidences of interest therein on margin, except that each Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities and each Fund (other than the Money Market Fund) may make deposits on margin in connection with Futures Contracts and related options. (10) Sell any security which such Fund does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain securities without payment of further consideration equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon equivalent conditions. (11) Purchase securities issued by any other investment company or investment trust except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, or except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided, however, that a Fund will not purchase such securities if such purchase at the time thereof would cause more than 10% of its total assets (taken at market value) to be invested in the securities of such issuers; and, provided, further, that a Fund will not purchase securities issued by an open-end investment company. (12) Knowingly invest in securities which are subject to legal or contractual restrictions on resale or for which there is no readily available market (e.g., trading in the security is suspended or market makers do not exist or will not entertain bids or offers), except for repurchase agreements, if, as a result thereof more than 10% of such Fund's total assets (taken at market value) would be so invested. (The Staff of the Securities and Exchange Commission has taken the -25- 48 position that a money market fund may not invest more than 10% of its net assets in illiquid securities. The Money Market Fund has undertaken with the Staff to require, that as a matter of operating policy, it will not invest in illiquid securities in an amount exceeding 10% of its net assets.) (13) Issue any senior security (as that term is defined in the Investment Company Act of 1940 (the "1940 Act")) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder. For the purpose of this restriction, collateral arrangements with respect to options, Futures Contracts and Options on futures contracts and collateral arrangements with respect to initial and variation margins are not deemed to be the issuance of a senior security. In addition, no Fixed Income Fund (except for Money Market Fund and High Yield Bond Fund) may invest more than 25% of its total assets (taken at market value) in the securities of issuers engaged in any one industry. Money Market Fund may not invest more than 25% of its total assets in obligations issued by (i) foreign banks or (ii) foreign branches of U.S. banks where the Adviser has determined that the U.S. bank is not unconditionally responsible for the payment obligations of the foreign branch. High Yield Bond Fund may not invest more than 25% of its total assets (taken at market value) in the securities of issuers engaged in any one industry, except that High Yield Bond Fund may invest up to 40% of the value of its total assets in the securities of issuers engaged in the electric utility and telephone industries. Obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities are not subject to the Fixed Income Fund's limitations on industry concentration. Determinations of industries for purposes of the foregoing limitations are made in accordance with specific industry codes set forth in the Standard Industrial Classification Manual and without considering groups of industries (e.g., all utilities or all finance companies) to be an industry. Also, a Fixed Income Fund may not purchase securities of any issuer (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities) if such purchase, at the time thereof, would cause a Fund to hold more than 10% of any class of securities of such issuer. For this purpose, all indebtedness of an issuer (for the Money Market Fund, all indebtedness of an issuer maturing in less than one year) shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class. In addition, an Equity Fund may not: (1) Concentrate its investments in any particular industry, but if it is deemed appropriate for the attainment of its investment objective, such Fund may invest up to 25% of its assets (taken at market value at the time of each investment) in securities of issuers in any one industry. (2) Purchase voting securities of any issuer if such purchase, at the time thereof, would cause more than 10% of the outstanding voting securities of such issuer to be held by such Fund; or purchase securities of any issuer if such purchase at the time thereof would cause more than 10% of any class of securities of such issuer to be held by such Fund. For this purpose all indebtedness of an issuer shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class. In applying these limitations, a guarantee of a security will not be considered a security of the guarantor, provided that the value of all securities issued or guaranteed by that guarantor, and owned by the Fund, does not exceed 10% of the Fund's total assets. In determining the issuer of a security, each state and each political subdivision agency, and instrumentality of each state and each multi-state agency of which such state is a member is a separate issuer. Where securities are backed only by assets and revenues of a particular instrumentality, facility or subdivision, such entity is considered the issuer. -26- 49 High Yield Tax-Free Fund may not: (1) Borrow money except from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests that might otherwise require the untimely disposition of securities, in an amount up to 15% of the value of the Fund's total assets (including the amount borrowed) valued at market less liabilities (not including the amount borrowed) at the time the borrowing was made. While borrowings exceed 5% of the value of the Fund's total assets, the Fund will not purchase any additional securities. Interest paid on borrowings will reduce the Fund's net investment income. The borrowing restriction set forth above does not prohibit the use of reverse repurchase agreements, in an amount (including any borrowings) not to exceed 33-1/3% of net assets. (2) Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an amount up to 10% of the value of its total assets but only to secure borrowings for temporary or emergency purposes as may be necessary in connection with maintaining collateral in connection with writing put or call options or making initial margin deposits in connection with the purchase or sale of financial futures or index futures contracts and related options. (3) Purchase securities (except obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities) if the purchase would cause the Fund at the time to have more than 5% of the value of its total assets invested in the securities of any one issuer or to own more than 10% of the outstanding debt securities of any one issuer; provided, however, that up to 25% of the value of the Fund's asset may be invested without regard to these restrictions. (4) Purchase or retain the securities of any issuer, if to the knowledge of the Fund, any officer or director of the Fund or its Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and all such officers and directors own in the aggregate more than 5% of the outstanding securities of such issuer. (5) Write, purchase or sell puts, calls or combinations thereof, except put and call options on debt securities, futures contracts based on debt securities, indices of debt securities and futures contracts based on indices of debt securities, sell securities on margin or make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at current value) is held as collateral for such sales at any one time. (6) Underwrite the securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in disposing of a portfolio security. (7) Purchase the securities of any issuer if as a result more than 10% of the value of the Fund's total assets would be invested in securities that are subject to legal or contractual restrictions on resale ("restricted securities") and in securities for which there are no readily available market quotations; or enter into a repurchase agreement maturing in more than seven days, if as a result such repurchase agreement together with restricted securities and securities for which there are no readily available market quotations would constitute more than 10% of the Fund's total assets. -27- 50 (8) Purchase or sell real estate, real estate investment trust securities, commodities or commodity contracts, except commodities and commodities contracts which are necessary to enable the Fund to engage in permitted futures and options transactions necessary to implement hedging strategies, or oil and gas interests, but this shall not prevent the Fund from investing in municipal obligations secured by real estate or interests in real estate. (9) Make loans to others, except insofar as the Fund may enter in repurchase agreements as set forth in the Prospectus or this SAI. The purchase of an issue of publicly distributed bonds or other securities, whether or not the purchase was made upon the original issuance of securities, is not to be considered the making of a loan. (10) Invest more than 25% of its assets in the securities of the "issuers" in any single industry; provided that there shall be no limitation on the purchase of municipal obligations and obligations issued or guaranteed by the United States Government, its agencies or instrumentalities. For purposes of this limitation and that set forth in investment restriction (3) above, when the assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government creating the issuing entity and a security is backed only by the assets and revenues of the entity, the entity would be deemed to be the sole issuer of the security. Similarly, in the case of an industrial development or pollution control bond, if that bond is backed only by the assets and revenues of the nongovernmental user, then such non governmental user would be deemed to be the sole issuer. If, however, in either case, the creating government or some other entity guarantees a security, such a guarantee would be considered a separate security and would be treated as an issue of such government or other entity. (11) Invest in securities of other investment companies, except as they may be acquired as part of a merger, consolidation or acquisition of assets, and except for the purchase, to the extent permitted by Section 12 of the 1940 Act, of shares of registered unit investment trusts whose assets consist substantially of municipal obligations. (12) Invest more than 5% of the value of its total assets in the securities of issuers having a record, including predecessors, of fewer than three years of continuous operation, except obligations issued or guaranteed by the United States Government, its agencies or instrumentalities, unless the securities are rated by a nationally recognized rating service. (13) Invest for the purpose of exercising control or management of another company. (14) Issue any senior security (as that term is defined in the 1940 Act) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder. For the purpose of this restriction, collateral arrangements with respect to options, futures contracts and options on futures contracts and collateral arrangements with respect to initial and variation margins are not deemed to be the issuance of a senior security. OTHER OPERATING POLICIES Each of the Equity Funds (whose investment restrictions permit holdings in warrants not to exceed 10% of its assets) may, due to an undertaking with a state in the Fund's shares are currently qualified for sale, purchase warrants not to exceed 5% of such Fund's net assets. Included within that amount, but not exceeding 2% of a Fund's net assets, may be warrants for which there is no public market. Any such warrants which are attached to securities at the time such securities are acquired by a Fund will be deemed to be without value for the purpose of this restriction. -28- 51 Each Fund (other than High Yield Tax-Free Fund) will not invest more than 5% of its total assets in companies which, including their respective predecessors, have a record of less than three years' continuous operation. In order to comply with certain state regulatory policies, no Fund will, as a matter of operating policy, pledge, mortgage or hypothecate its portfolio securities if the percentage of securities so pledged, mortgaged or hypothecated would exceed 15%. In order to comply with certain state regulatory policies, the cost of investments in options, financial futures, stock index futures and currency futures, other than those acquired for hedging purposes, may not exceed 10% of a Fund's total net assets. These operating policies are not fundamental and may be changed without shareholder approval. In order to comply with certain state regulatory practices, certain policies, if changed, would require advance written notice to shareholders. The Corporation's Board of Directors has approved the following nonfundamental investment policy pursuant to an order of the SEC: Notwithstanding any investment restriction to the contrary, each Fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/Directors, purchase securities of other investment companies within the John Hancock Group of Funds provided that, as a result, (i) no more than 10% of the Fund's assets would be invested in securities of all other investment companies, (ii) such purchase would not result in more than 3% of the total outstanding voting securities of any one such investment company being held by the Fund and (iii) no more than 5% of the Fund's assets would be invested in any one such investment company. THOSE RESPONSIBLE FOR MANAGEMENT The business of the Corporation is managed by its Directors who elect officers who are responsible for the day-to-day operations of the Corporation and the Funds and who execute policies formulated by the Directors. Several of the officers and Directors of the Corporation are also officers and directors of the Adviser or officers and directors of John Hancock Funds. Set forth below is the principal occupation or employment of the Directors and principal officers of the Corporation during the past five years: POSITION HELD WITH PRINCIPAL OCCUPATION(S) NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS - ---------------- ------------------ ----------------------- Edward J. Boudreau, Jr.* Director, Chairman Chairman and Chief Executive 101 Huntington Avenue and Chief Officer, the Adviser and The Boston, MA 02199 Executive Berkeley Financial Group Officer(1)(2) ("The Berkeley Group"); Chairman, NM Capital Management, Inc. ("NM Capital"); John Hancock Advisers International Limited ("Advisers International"); John Hancock Funds, Inc.; John Hancock Investor Services Corporation -29- 52 ("Investor Services"); and Sovereign Asset Management Corporation ("SAMCorp"); (hereinafter the Adviser, the Berkeley Group, NM Capital, Advisers International, John Hancock Funds, Inc., Investor Services and SAMCorp are collectively referred to as the "Affiliated Companies"); Chairman, First Signature Bank & Trust; Director, John Hancock Freedom Securities Corporation, John Hancock Capital Corporation, New England/Canada Business Council; Member, Investment Company Institute Board of Governors; Trustee, Museum of Science; President, the Adviser (until July 1992); Trustee or Director of other investment companies managed by the Adviser; and Chairman, John Hancock Distributors, Inc. (until April, 1994). James F. Carlin Director Chairman and CEO, Carlin 233 West Central Street Consolidated, Inc. (insurance); Natick, MA 01760 Director, Arbella Mutual Insurance Company (insurance), Consolidated Group Trust (group health plan), Carlin Insurance Agency, Inc. and West Insurance Agency, Inc.; Receiver, the City of Chelsea (until August 1992); and Trustee or Director of other investment companies managed by the Adviser. William H. Cunningham Director Chancellor, University of 601 Colorado Street Texas System and former O'Henry Hall President of the University of Austin, TX 78701 Texas, Austin, Texas; Regents Chair in Higher Education Leadership; James L. Bayless Chair for Free Enterprise; Professor of Marketing and Dean College of Business Administration/Graduate -30- 53 School of Business (1983-1985); Centennial Chair in Business Education Leadership, 1983-1985; Director, LaQuinta Motor Inns, Inc. (hotel management company); Director, Jefferson-Pilot Corporation (diversified life insurance company); Director, Freeport-McMoran Inc. (oil and gas company); Director, Barton Creek Properties, Inc. (1988-1990) (real estate development) and LBJ Foundation Board (education foundation); Advisory Director, Texas Commerce Bank - Austin; and Trustee or Director of other investment companies managed by the Adviser. Charles L. Ladner Director(3) Director, Energy North, Inc. UGI Corporation (public utility holding 460 North Gulph Road company); Senior Vice King of Prussia, PA 19406 President, Finance UGI Corp. (public utility holding company) (until 1992); and Trustee or Director of other investment companies managed by the Adviser. Leo E. Linbeck, Jr. Director Chairman, President, Chief 3810 W. Alabama Executive Officer and Houston, TX 77027 Director, Linbeck Corporation (a holding company engaged in various phases of the construction industry and warehousing interests); Director and Chairman, Federal Reserve Bank of Dallas; Chairman of the Board and Chief Executive Officer, Linbeck Construction Corporation; Director, Panhandle Eastern Corporation (a diversified energy company); Director, Daniel Industries, Inc. (manufacturer of gas measuring products and energy related equipment); Director, GeoQuest -31- 54 International, Inc. (a geophysical consulting firm); Director, Greater Houston Partnership; and Trustee or Director of other investment companies managed by the Adviser. Patricia P. McCarter Director(3) Director and Secretary, the Swedesford Road McCarter Corp. (machine RD #3, Box 121 manufacturer); and Trustee or Malvern, PA 19355 Director of other investment companies managed by the Adviser. Steven R. Pruchansky Director(1)(3) Director and Treasurer, Mast 360 Horse Creek Drive, #208 Holdings, Inc.; Director, Naples, FL 33942 First Signature Bank & Trust Company (until August 1991); General Partner, Mast Realty Trust; President, Maxwell Building Corp. (until 1991); and Trustee or Director of other investment companies managed by the Adviser. Norman H. Smith Director(3) Lieutenant General, USMC, Rt. 1, Box 249 E Deputy Chief of Staff for Linden, VA 22642 Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991); and Trustee or Director of other investment companies managed by the Adviser. John P. Toolan Director(3) Director, The Smith Barney 13 Chadwell Place Muni Bond Funds, The Smith Morristown, NJ 07960 Barney Tax-Free Money Fund, Inc., Vantage Money Market Funds (mutual funds), The Inefficient-Market Fund, Inc. (closed-end investment company) and Smith Barney Trust Company of Florida; Chairman, Smith Barney Trust Company (retired December, 1991); Director, Smith Barney, Inc., Mutual Management Company and Smith, Barney Advisers, Inc. (investment -32- 55 advisers) (retired 1991); and Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991); and Trustee or Director of other investment companies managed by the Adviser. Robert G. Freedman* Vice Chairman Chief Investment Officer, 101 Huntington Avenue and Chief the Adviser Boston, MA 02199 Investment Officer(2) Anne C. Hodsdon* President(2) President, the Adviser. 101 Huntington Avenue Boston, MA 02199 James B. Little* Senior Vice Senior Vice President, the 101 Huntington Avenue President and Adviser. Boston, MA 02199 Chief Financial Officer Thomas H. Drohan* Senior Vice Senior Vice President and 101 Huntington Avenue President and Secretary, the Adviser. Boston, MA 02199 Secretary Michael P. DiCarlo* Senior Vice Senior Vice President, the 101 Huntington Avenue President(2) Adviser. Boston, MA 02199 Edgar Larsen* Senior Vice Senior Vice President, the 101 Huntington Avenue President Adviser. Boston, MA 02199 B.J. Willingham* Senior Vice Senior Vice President, the 101 Huntington Avenue President Adviser. Formerly, Director Boston, MA 02199 and Chief Investment Officer of Transamerica Fund Management Company. James J. Stokowski* Vice President Vice President, the Adviser. 101 Huntington Avenue and Treasurer Boston, MA 02199 -33- 56 Susan S. Newton* Vice President Vice President and Assistant 101 Huntington Avenue and Compliance Secretary, the Adviser. Boston, MA 02199 Officer John A. Morin* Vice President Vice President, the Adviser. 101 Huntington Avenue Boston, MA 02199 * An "interested person" of the Corporation, as such term is defined in the 1940 Act. (1) Member of the Executive Committee. (2) A member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Committee on Administration. (4) A Member of the Audit, Administration and Compensation Committee. All of the officers listed are officers or employees of the Adviser or affiliated companies. Some of the Directors and officers may also be officers and/or Directors and/or Trustees of one or more of the other funds for which the Adviser serves as investment adviser. As of June 30, 1995, there were 131,823,202 shares of the Corporation outstanding and officers and Directors as a group beneficially owned less than 1% of the outstanding shares of the Corporation and of each of the Funds. On such date, the following shareholders were the only record holders and beneficial owners of 5% or more of the shares of the respective Funds: NUMBER OF SHARES HELD (EXPRESSED AS PERCENTAGE OF FUND'S OUTSTANDING SHARES) Emerging Growth Fund: Class A 762,184 Shares National Westminster Bank PLC as 16.30% Trustee of American Smaller Companies Trust Juno Court 24 Prescott Street London, England E18BB 749,017 Shares Merrill Lynch Pierce Fenner & Smith 16.02% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 Class B 3,009,616 Shares Merrill Lynch Pierce Fenner & Smith 27.55% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 Global Resources Fund: Class B 151,841 Shares Merrill Lynch Pierce Fenner & Smith 7.06% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 Government Income Fund: Class A 16,946 Shares JHMLICO Custodian 29.13% FBO Kathleen L. Russell IRA R/O 4775 River College Drive Sacramento, California 95841-4247 8,517 Shares Bruno Barelare & 14.64% Helen D. Barelare JT TEN 1424 Montclair Birmingham, Alabama 35210-2208 8,040 Shares Max P. Clay, Jr. & 13.82% Max P. Clay, Sr. JTWROS P.O. Box 11 Pell City, Alabama 35125-0011 3,960 Shares Russell L. Mitchell, IRA 6.81% Sutro & Co. CUST 1615 Newhall Avenue Cambria, California 93428-5505 3,836 Shares Rauscher Pierce REFSNES CUST 6.60% FBO Clara Yamacka 942 Mira Valley Monterey Park, California 91754-4825 3,451 Shares Richard W. Russell & 5.93% Helen F. Russell JT TEN 349 Ash Space 44 Carpinteria, CA 93013-2232 Class B 3,081,649 Shares Merrill Lynch Pierce Fenner & Smith 12.34% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 High Yield Bond Fund: Class B 2,027,483 Shares Merrill Lynch Pierce Fenner & Smith 8.46% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484 High Yield Tax-Free Fund: Class B 2,911,838 Shares Merrill Lynch Pierce Fenner & Smith 17.48% 4800 Deerlake Drive East Jacksonville, Florida 32246-6484
-34- 57 At such date, no other person(s), owned of record or was known by the Corporation to beneficially own as much as 5% of the outstanding shares of the Corporation or of any of the Funds. As of December 22, 1994, the Directors have established an Advisory Board which acts to facilitate a smooth transition of management over a two-year period (between Transamerica Fund Management Company ("TFMC"), the prior investment adviser, and the Adviser). The members of the Advisory Board are distinct from the Board of Directors, do not serve the Funds in any other capacity and are persons who have no power to determine what securities are purchased or sold and behalf of the Funds. Each member of the Advisory Board may be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199. Members of the Advisory Board and their respective principal occupations during the past five years are as follows: R. Trent Campbell, President, FMS, Inc. (financial and management services); former Chairman of the Board, Mosher Steel Company. Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas; co-founder, Houston Parents' League; former board member of various civic and cultural organizations in Houston, including the Houston Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently active in various civic and cultural activities in the Washington, D.C. area, including membership on the Area Board for The March of Dimes and is a National Trustee for the Botanic Gardens of Washington, D. C. Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive Officer, TFMC; Director, West Central Advisory Board, Texas Commerce Bank; Trustee, Memorial Hospital System; Chairman of the Board of Regents of Baylor University; Member, Board of Governors, National Association of Securities Dealers, Inc.; Formerly, Chairman, Investment Company Institute; formerly, President, Houston Chapter of Financial Executive Institute. Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director, Houston Industries and Houston Lighting and Power Company; Director, TransAmerican Companies (natural gas producer and transportation); Member, Board of Managers, Harris County Hospital District; Advisory Director, Commercial State Bank, El Campo; Advisory Director, First National Bank of Bryan; Advisory Director, Sterling Bancshares; Former Director and Vice Chairman, Texas Commerce Bancshares; and Vice Chairman, Texas Commerce Bank. COMPENSATION OF THE BOARD OF DIRECTORS AND ADVISORY BOARD. The following tables provide information regarding the compensation paid by the Fund and the 22 other investment companies in the John Hancock Fund Complex to the Independent Directors and the Advisory Board members for their services. Mr. Boudreau, a non-Independent Director, and each of the officers of the Funds are interested persons of the Adviser, are compensated by the Adviser and received no compensation from the Funds for their services. -35- 58
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 by the Funds pursuant to different compensation arrangements then in effect, in the amount of: $5,200 and $3,800, respectively, from Government Income Fund; $5,200 and $3,800, respectively, from High Yield Bond Fund; $5,200 and $3,800, respectively, from High Yield Tax-Free Fund; $5,200 and $3,800, respectively, from Emerging Growth Fund; $2,100 and $1,150, respectively, from Global Resources Fund; and $3,600 and $2,400, respectively, from Money Market Fund. ** The total compensation paid by the John Hancock Fund Complex to the Independent Directors is as of the calendar year ended December 31, 1994. (The Funds were not part of the John Hancock Fund Complex until December 22, 1994 and Messrs. Cunningham and Linbeck were not trustees or directors of any funds in the John Hancock Fund Complex prior to December 22, 1994.)
-36- 59
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 $21,049 $0 $ 54,000 Mrs. Lloyd Bentsen $21,049 $0 $ 54,000 Thomas R. Powers $21,049 $0 $ 54,000 Thomas B. McDade $21,049 $0 $ 54,000 TOTAL $84,196 $0 $216,000 *** Estimated for the Funds' current fiscal year ending October 31, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES As described in the Funds' Prospectuses, the Funds receive their investment advice from the Adviser. Investors should refer to the Prospectuses for a description of certain information concerning the Funds' investment management contracts. Each of the Directors and principal officers affiliated with the Corporation who is also an affiliated person of the Adviser is named above, together with the capacity in which such person is affiliated with the Corporation and the Adviser. The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603, was organized in 1968 and has more than $13 billion in total assets under management in its capacity as investment adviser to the Funds and the other mutual funds and publicly traded investment companies in the John Hancock group of funds having a combined total of over 1,060,000 shareholders. The Adviser is a wholly-owned subsidiary of The Berkeley Financial Group, which is in turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is in turn a wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life Company"), one of the most recognized and respected financial institutions in the nation. With total assets under management of over $80 billion, the Life Company is one of the ten largest life insurance companies in the United States, and carries Standard & Poor's and A.M. Best's highest ratings. Founded in 1862, the Life Company has been serving clients for over 130 years. As described in the Prospectuses, the Corporation, on behalf of each Fund, has entered into investment management contracts with the Adviser. Under each investment management contract, the Adviser provides the Funds with (i) a continuous investment program, consistent with each Fund's stated investment objective and policies, (ii) supervision of all aspects of each Fund's operations except those that are delegated to a custodian, transfer agent or other agent and (iii) such executive, administrative and clerical personnel, officers and equipment as are necessary for the conduct of their business. The Adviser is responsible for the day-to-day management of each Fund's portfolio assets. -37- 60 No person other than the Adviser and its directors and employees regularly furnish advice to the Funds with respect to the desirability of a Fund investing in, purchasing or selling securities. The Adviser may from time to time receive statistical or other similar factual information, and information regarding general economic factors and trends, from the Life Company and its affiliates. Under the terms of the investment management contracts with the Corporation, on behalf of each Fund, the Adviser provides the Corporation with office space, equipment and supplies and other facilities required for the business of the Funds. The Adviser pays the compensation of all officers and employees of the Corporation, and pays the expenses of clerical services relating to the administration of the Funds. All expenses which are not specifically paid by the Adviser and which are incurred in the operation of the Funds including, but not limited to, (i) the fees of the Directors of the Corporation who are not "interested persons," as such term is defined in the 1940 Act (the "Independent Directors"), (ii) the fees of the members of the Corporation's Advisory Board (described above) and (iii) the continuous public offering of the shares of each Fund are borne by the Funds. As provided by the investment management contracts, each Fund pays the Adviser an investment management fee, which is accrued daily and paid monthly in arrears at the following rates of the Funds' average daily net assets: JOHN HANCOCK EMERGING GROWTH FUND FEE JOHN HANCOCK GLOBAL RESOURCES FUND (ANNUAL RATE) ------------- Average Daily Net Assets 0.75% JOHN HANCOCK GOVERNMENT INCOME FUND FEE AVERAGE DAILY NET ASSETS (ANNUAL RATE) - ------------------------ ------------- The first $200 million 0.65% The next $300 million 0.625% Over $500 million 0.60% JOHN HANCOCK HIGH YIELD TAX-FREE FUND JOHN HANCOCK HIGH YIELD BOND FUND FEE AVERAGE DAILY NET ASSETS (ANNUAL RATE) - ------------------------ ------------- The first $75 million 0.625% The next $75 million 0.5625% Over $150 million 0.50% JOHN HANCOCK MONEY MARKET FUND FEE AVERAGE DAILY NET ASSETS (ANNUAL RATE) - ------------------------ ------------- The first $500 million 0.50% The next $250 million 0.425% The next $250 million 0.375% The next $500 million 0.35%
-38- 61 The next $500 million 0.325% The next $500 million 0.30% Over $2.5 billion 0.275% The Adviser may temporarily reduce its advisory fee or make other arrangements to reduce a Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to re-impose the advisory fee and recover any other payments to the extent that, at the end of any fiscal year, a Fund's annual expenses fall below this limit. In the event normal operating expenses of a Fund, exclusive of certain expenses prescribed by state law, are in excess of any state limit where such Fund is registered to sell shares of common stock, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any additional arrangements necessary to eliminate any remaining excess expenses. The most restrictive limit applicable to the Funds is 2.5% of the first $30,000,000 of a Fund's average daily net asset value, 2% of the next $70,000,000 of such assets and 1.5% of the remaining average daily net asset value. Pursuant to the investment management contracts, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the matters to which their respective contracts relate, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from its reckless disregard of the obligations and duties under the applicable contract. The initial term of the investment management contracts expires on December 22, 1996, and will continue in effect from year to year thereafter if approved annually by a vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on such approval, and by either a majority of the Directors or the holders of a majority of the affected Fund's outstanding voting securities. Each management contract may be terminated without penalty on 60 days' notice at the option of either party or by vote of a majority of the outstanding voting securities of the Fund. Each management contract terminates automatically in the event of its assignment. Securities held by a Fund may also be held by other funds or investment advisory clients for which the Adviser or its affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more are selling the same security. If opportunities for purchase or sale of securities by the Adviser for the Funds or for other funds or clients for which the Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them To the extent that transactions on behalf of more than one client of the Adviser or its affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Under the investment management contracts, the Funds may use the name "John Hancock" or any name derived from or similar to it only for as long as the investment management contract or any extension, renewal or amendment thereof remains in effect. If a Fund's investment management contract is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. -39- 62 For the fiscal years ended October 31, 1994(a), 1993(b) and 1992(c), advisory fees payable by the Funds to TFMC, each Fund's former investment adviser, were as follows: (1) Emerging Growth Fund - (a) $2,706,438 (b) $1,668,514 and (c) $809,284 (2) Global Resources Fund - (a) $220,869 (b) $95,411 and (c) $57,774 (3) Government Income Fund - (a) $1,728,997 (b) $1,698,937 and (c) $1,197,515 (4) High Yield Bond Fund - (a) $976,834 (b) $777,673 and (c) $550,109 (5) High Yield Tax-Free Fund - (a) $886,380 (b) $541,737 and (c) $370,020 (6) Money Market Fund - (a) $214,088 (b) $142,298 and (c) $133,127 During the six-month period ended October 31, 1993 and the fiscal year ended October 31, 1994, TFMC paid subadvisory fees to Transamerica Investment Services, Inc., its former subadviser, of $34,536 and $71,992, respectively. High Yield Tax-Free Fund made no payments of subadvisory fees during these periods. ADMINISTRATIVE SERVICES AGREEMENT. The Corporation, on behalf of each Fund, was a party to an administrative services agreement with TFMC (the "Services Agreement"), pursuant to which TFMC performed bookkeeping and accounting services and functions, including preparing and maintaining various accounting books, records and other documents and keeping such general ledgers and portfolio accounts as are reasonably necessary for the operation of the Funds. Other administrative services included communications in response to shareholder inquiries and certain printing expenses of various financial reports. In addition, such staff and office space, facilities and equipment was provided as necessary to provide administrative services to the Funds. The Services Agreement was amended in connection with the appointment of the Adviser as adviser to the Fund to permit services under the Agreement to be provided to the Funds by the Adviser and its affiliates. The Services Agreement was terminated during the current fiscal year. The following amounts for each of the following Funds for their respective periods reflect (a) the total of administrative services fees paid and of such amount, (b) the amount of which was paid to TFMC and (c) the amount paid for certain data processing and pricing information services: EMERGING GROWTH FUND (1) for the fiscal year ended October 31, 1994 - (a) $222,044; (b) $192,019; and (c) $30,025. (2) for the fiscal year ended October 31, 1993 - (a) $157,911; (b) $134,656; and (c) $23,255. (3) for the fiscal year ended October 31, 1992 - (a) $100,346; (b) $81,923; and (c) $18,423. -40- 63 GLOBAL RESOURCES FUND (1) for the fiscal year ended October 31, 1994 - (a) $54,259; (b) $43,512; and (c) $10,747. (2) for the fiscal year ended October 31, 1993 - (a) $44,306; (b) 34,515; and (c) $9,791. (3) for the fiscal year ended October 31, 1992 - (a) $48,816; (b) $38,916; and (c) $9,900. GOVERNMENT INCOME FUND (1) for the fiscal year ended October 31, 1994 - (a) $132,786; (b) $107,246; and (c) $25,540. (2) for the fiscal year ended October 31, 1993 - (a) $116,354; (b) $90,782; and (c) $25,572. (3) for the fiscal year ended October 31, 1992 - (a) $86,781; (b) $62,627; and (c) $24,154. HIGH YIELD BOND FUND (1) for the fiscal year ended October 31, 1994 - (a) $100,822; (b) $80,593; and (c) $20,229. (2) for the fiscal year ended October 31, 1993 - (a) $82,030; (b) $64,844; and (c) $17,186. (3) for the fiscal year ended October 31, 1992 - (a) $69,403; (b) $52,920; and (c) $16,483. HIGH YIELD TAX-FREE FUND (1) for the fiscal year ended October 31, 1994 - (a) $88,709; (b) $60,488; and (c) $28,221. (2) for the fiscal year ended October 31, 1993 - (a) $69,485; (b) 46,591; and (c) $22,894. (3) for the fiscal year ended October 31, 1992 - (a) $63,272; (b) $40,793; and (c) $22,479. MONEY MARKET FUND (1) for the fiscal year ended October 31, 1994 - (a) $46,621; (b) $36,221; and (c) $10,400. (2) for the fiscal year ended October 31, 1993 - (a) $42,511; (b) $32,451; and (c) $10,060. -41- 64 (3) for the fiscal year ended October 31, 1992 - (a) $51,109; (b) $40,808; and (c) $10,301. DISTRIBUTION CONTRACT DISTRIBUTION AGREEMENT. As discussed in the Prospectuses, each Fund's shares are sold on a continuous basis at the public offering price. John Hancock Funds, a wholly-owned subsidiary of the Adviser, has the exclusive right, pursuant to the Distribution Agreement dated December 22, 1994 (the "Distribution Agreement"), to purchase shares from the Funds at net asset value for resale to the public or to broker-dealers at the public offering price. Upon notice to all broker-dealers with whom it has sales agreements ("Selling Brokers"), John Hancock Funds may allow such Selling Brokers up to the full applicable sales charge during periods specified in such notice. During these periods, such Selling Brokers may be deemed to be underwriters as that term is defined in the Securities Act of 1933. The Distribution Agreement was initially adopted by the affirmative vote of the Corporation's Board of Directors including the vote a majority of Directors who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for such purpose. The Distribution Agreement shall continue in effect with respect to each Fund until December 22, 1996 and from year to year if approved by either the vote of the Fund's shareholders or the Board of Directors including the vote of a majority of the Directors who are not parties to the agreement or interested persons of any such party, cast in person at a meeting called for such purpose. The Distribution Agreement may be terminated at any time as to one or more of the Funds, without penalty, by either party upon sixty (60) days' written notice or by a vote of a majority of the outstanding voting securities of the affected Fund and terminates automatically in the case of an assignment by John Hancock Funds. For the fiscal year ended October 31, 1994, the following amounts for each of Emerging Growth and High Yield Bond Fund reflect (a) the total underwriting commissions for sales of the Fund's Class A shares and (b) the portion of such amount retained by the Fund's former distributor, Transamerica Fund Distributors, Inc. In each case, the remainder of such underwriting commissions was reallowed to dealers. EMERGING GROWTH FUND (a) $1,042,959 and (b) $65,421. HIGH YIELD BOND FUND (a) $324,876 and (b) $23,651. The other Funds did not have Class A shares outstanding for the year ended October 31, 1994, and Emerging Growth Fund and High Yield Bond Fund did not have Class A shares outstanding for the years prior to the year ended October 31, 1994. DISTRIBUTION PLAN. The Board of Directors approved distribution plans pursuant to Rule 12b-1 under the 1940 Act for Class A Shares ("Class A Plans") and Class B Shares ("Class B Plans") of each Fund. Such Plans were approved by a majority of the outstanding shares of each respective class of each Fund (except for the Class A Plan for Money Market Fund) on December 16, 1994 and became effective on December 22, 1994. The Class A Plan for Money Market Fund was approved by the sole shareholder of the Class A shares of the Fund on September 12, 1995 and became effective on September 12, 1995. -42- 65 Under each Class A Plan, the distribution or service fee will not exceed an annual rate of 0.25% of the average daily net asset value of the Class A shares of a Fund (determined in accordance with the Fund's Prospectus as from time to time in effect). Money Market Fund has determined that it will pay distribution and service fees of 0.15% to John Hancock Funds but may in the future determine to pay up to 0.25% under the Class A Plan. Any expenses under the Class A Plan not reimbursed within 12 months of being presented to the Fund for repayment are forfeited and not carried over to future years. Under each Class B Plan, the distribution or services fee to be paid by the applicable Fund will not exceed an annual rate of 1.00% of the average daily net assets of the Class B shares of the Fund (in each case, determined in accordance with such Fund's prospectus as from time to time in effect); provided that the portion of such fee used to cover Service Expenses (described below) shall not exceed an annual rate of 0.25% of the average daily net asset value of the Class B Shares of the Fund. In accordance with generally accepted accounting principles, the Fund does not treat unreimbursed distribution expenses attributable to Class B shares as a liability of the Fund and does not reduce the current net assets of Class B by such amount although the amount may be payable under the Class B Plan in the future. Under the Plans, expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. The fee may be spent by John Hancock Funds on Distribution Expenses or Service Expenses. "Distribution Expenses" include any activities or expenses primarily intended to result in the sale of shares of the relevant class of the Fund, including, but not limited to: (i) initial and ongoing sales compensation payable out of such fee as such compensation is received by John Hancock Funds or by Selling Brokers, (ii) direct out-of-pocket expenses incurred in connection with the distribution of shares, including expenses related to printing of prospectuses and reports; (iii) preparation, printing and distribution of sales literature and advertising material; (iv) an allocation of overhead and other branch office expenses of John Hancock Funds related to the distribution of Fund Shares; (v) distribution expenses that were incurred by the Fund's former distributor and not recovered through payments under the Class A or Class B former plans or through receipt of contingent deferred sales charges ("CDSCs"); and (vi) in the event that any other investment company (the "Acquired Fund") sells all or substantially all of its assets, merges with or otherwise engages in a combination with the Fund, distribution expenses originally incurred in connection with the distribution of the Acquired Fund's shares. Service Expenses under the Plans include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of John Hancock Funds) and others who furnish personal and shareholder account maintenance services to shareholders of the relevant class of the Fund. For the fiscal year ended October 31, 1994, total payments made by Emerging Growth Fund under the Fund's former Class A Rule 12b-1 plan to the former distributor amounted to $277,671 and of such amount (1) $9,627, (2) $126,857, (3) $8,204, (4) $16,712 and (5) $116,271 represented payments for (1) advertising, (2) payments to dealers and for dealer meetings, (3) cost of prospectuses and shareholder reports, (4) various sales literature and (5) service fees, respectively. For the fiscal year ended October 31, 1994, total payments made by High Yield Bond Fund under the Fund's former Class A Rule 12b-1 plan to the former distributor amounted to $20,179 and of such amount (1) $68, (2) $5,975, (3) $383, (4) $1,431 and (5) $12,322 represented payments for (1) advertising, (2) payments to dealers and for dealer meetings, (3) cost of prospectuses and shareholder reports, (4) various sales literature and (5) service fees, respectively. There were no Class A shares of the Money Market Fund during this period. The following amounts for each of the Funds for the fiscal year ending October 31, 1994 represent each Fund's total payments to the former distributor made pursuant to its Class B Plan and of such amounts, portions representing: -43- 66 (1) total of service fees shown as (a) service fees paid to brokers and dealers; and (b) service fees paid to the former distributor (2) total of distribution fees shown as: (a) dealer commission payments; (b) underwriting fee; and (c) carrying charge (separate distribution fee). EMERGING GROWTH FUND (CLASS B SHARES) - $2,497,907 total; (1) $639,690; a) $401,762, and b) $237,928 and (2) $1,858,217; a) $916,075, b) $229,019 and c) $713,123. GLOBAL RESOURCES FUND (CLASS B SHARES) - $281,482 total; (1) $70,523; a) $40,920, and b) $29,603 and (2) $210,959; a) $124,689 b) $31,172 and c) $55,098. GOVERNMENT INCOME FUND (CLASS B SHARES) - $2,685,298, total; (1) $671,915; a) $538,084, and b) $133,831 and (2) $2,013,382; a) $944,718, b) 236,179 and c) $832,485 HIGH YIELD BOND FUND (CLASS B SHARES) - $1,583,989 total; (1) $390,708; a) $288,075, and b) $102,633 and (2) $1,193,281; a) $591,135, b) $147,784 and c) $454,362 HIGH YIELD TAX-FREE FUND (CLASS B SHARES) - $1,408,352 total; (1) $360,232; a) $192,666, and b) $167,566 and (2) $1,048,120; a) $511,586, b) $127,896 and c) $408,638. MONEY MARKET FUND - $428,177 total; (1) $107,432; a) $92,386, and b) $15,046 and (2) $320,745; a) $182,732, b) $45,683 and c) $92,330. The following amounts for each of the Funds for the fiscal years ended October 31, 1994, 1993 and 1992 represent amounts of CDSCs from redemptions of the Fund's shares as received by the former distributor: (a) Emerging Growth Fund (Class B Shares) - $382,553, $288,843 and $130,276; (b) Global Resources Fund (Class B Shares) - $68,696, $27,393 and $31,801; (c) Government Income Fund (Class B Shares) - $766,358, $518,924 and $398,691; (d) High Yield Bond Fund (Class B Shares) - $387,591, $408,082 and $316,349; (e) High Yield Tax-Free Fund (Class B Shares) - $253,265, $99,725 and $142,804; and (f) Money Market Fund (Class B shares) - $343,829, $211,332 and $271,728. -44- 67 Each of the Plans provides that it will continue in effect only so long as its continuance is approved at least annually by a majority of both the Directors and the Independent Directors. Each of the Plans provides that it may be terminated without penalty (a) by vote of a majority of the Independent Directors, (b) by a majority of the respective Class' outstanding voting securities upon 60 days' written notice to John Hancock Funds, and (c) automatically in the event of assignment. Each of the Plans further provides that it may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding shares of the class of the Fund which has voting rights with respect to the Plan. Each of the Plans provides that no material amendment to the Plan will, in any event, be effective unless it is approved by a majority vote of the Directors and the Independent Directors of the Corporation. The holders of Class A Shares and Class B Shares have exclusive voting rights with respect to the Plan applicable to their respective class of shares. In adopting the Plans, the Board of Directors has determined that, in their judgment, there is a reasonable likelihood that each Plan will benefit the holders of the applicable class of shares of the affected Fund. Information regarding the services rendered under the Plans and the Distribution Agreement and the amounts paid therefore by the respective Class of the Funds are provided to, and reviewed by, the Board of Directors on a quarterly basis. In its quarterly review, the Board of Directors considers the continued appropriateness of the Plans and the Distribution Agreement and the level of compensation provided therein. NET ASSET VALUE For purposes of calculating the net asset value ("NAV") of the shares of the Funds, the following procedures are utilized wherever applicable. Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. Equity securities traded on a principal exchange or NASDAQ National Market Issues are generally valued at last sale price on the day of valuation. Securities in the aforementioned category for which no sales are reported and other securities traded over-the-counter are generally valued at the mean between the current closing bid and asked prices. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if in the opinion of the Adviser any quotation or price is not representative of true market value, the fair value of the security may be determined in good faith in accordance with procedures approved by the Directors. Any assets or liabilities expressed in terms of foreign currencies are translated into U.S. dollars by the custodian bank based on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on the date of any determination of the Fund's NAV. The Funds will not price their securities on the following national holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. On any day an international market is closed and the New York Stock Exchange is open, any foreign securities will be valued at the prior day's close with the current day's exchange rate. Trading of foreign securities may take place on Saturdays and U.S. business holidays on which a Fund's NAV is not calculated. Consequently, a Fund's portfolio securities -45- 68 may trade and the NAV of the Fund's redeemable securities may be significantly affected on days when a shareholder has no access to the Fund. AMORTIZED COST METHOD OF PORTFOLIO VALUATION Money Market Fund utilizes the amortized cost valuation method of valuing portfolio instruments in the absence of extraordinary or unusual circumstances. Under the amortized cost method, assets are valued by constantly amortizing over the remaining life of an instrument the difference between the principal amount due at maturity and the cost of the instrument to the Fund. The Directors will from time to time review the extent of any deviation of the net asset value, as determined on the basis of the amortized cost method, from net asset value as it would be determined on the basis of available market quotations. If any deviation occurs which may result in unfairness either to new investors or existing shareholders, the Directors will take such actions as they deem appropriate to eliminate or reduce such unfairness to the extent reasonably practicable. These actions may include selling portfolio instruments prior to maturity to realize gains or losses or to shorten the Fund's average portfolio maturity, withholding dividends, splitting, combining or otherwise recapitalizing outstanding shares or utilizing available market quotations to determine net asset value per share. Since a dividend is declared to shareholders each time net asset value is determined, the net asset value per share of each class of the Money Market Fund will normally remain constant at $1.00 per share. There is no assurance that the Fund can maintain the $1.00 per share value. Monthly, any increase in the value of a shareholder's investment in either class from dividends is reflected as an increase in the number of shares of such class in the shareholder's account or is distributed as cash if a shareholder has so elected. It is expected that the Fund's net income will be positive each time it is determined. However, if because of a sudden rise in interest rates or for any other reason the net income of the Fund determined at any time is a negative amount, the Fund will offset the negative amount against income and accrued during the month for each shareholder account. If at the time of payment of a distribution such negative amount exceeds a shareholder's portion of accrued income, the Fund may reduce the number of its outstanding shares by treating the shareholder as having contributed to the capital of the Fund that number of full or fractional shares which represent the amount of excess. By investing in either class of shares of the Fund, shareholders are deemed to have agreed to make such a contribution. This procedure permits the Fund to maintain its net asset value at $1.00 per share. If in the view of the Directors it is inadvisable to continue the practice of maintaining net asset value at $1.00 per share, the Directors reserve the right to alter the procedures for determining net asset value. The Fund will notify shareholders of any such alteration. The Fund is permitted to redeem shares of either class in kind. Nevertheless, the Fund has filed with the Securities and Exchange Commission a notification of election committing itself to pay in cash on redemption by a shareholder of record, limited during any 90-day period to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of such period. The Fund will not price its securities on the following national holidays: New Year's Day; President's Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day and Christmas Day. -46- 69 INITIAL SALES CHARGE ON CLASS A SHARES Class A shares of the Funds (except for Money Market Fund) are offered at a price equal to their net asset value plus a sales charge which, at the option of the purchaser, may be imposed either at the time of purchase (the "initial sales charge alternative") or on a contingent deferred basis (the "deferred sales charge alternative"). Class A shares of Money Market Fund will be sold at their net asset value without a sales charge. Share certificates will not be issued unless requested by the shareholder in writing, and then only will be issued for full shares. The Directors reserve the right to change or waive a Fund's minimum investment requirements and to reject any order to purchase shares (including purchase by exchange) when in the judgment of the Adviser such rejection is in the Fund's best interest. The sales charges applicable to purchases of Class A shares of the Funds are described in each Fund's Prospectus. Methods of obtaining reduced sales charges referred to generally in the Prospectuses are described in detail below. In calculating the sales charge applicable to current purchases of Class A shares, the investor is entitled to cumulate current purchases with the greater of the current value (at offering price) of the Class A shares of the Fund, or if Investor Services is notified by the investor's dealer or the investor at the time of the purchase, the cost of the Class A shares owned. COMBINED PURCHASES. In calculating the sales charge applicable to purchases of Class A shares made at one time, the purchases will be combined if made by (a) an individual, his or her spouse and their children under the age of 21 purchasing securities for his or her own account, (b) a trustee or other fiduciary purchasing for a single trust, estate or fiduciary account and (c) certain groups of four or more individuals making use of salary deductions or similar group methods of payment whose funds are combined for the purchase of mutual fund shares. Further information about combined purchases, including certain restrictions on combined group purchases, is available from Investor Services or a Selling Broker's representative. WITHOUT SALES CHARGE. As described in the Prospectuses, Class A shares of the Funds may be sold without a sales charge to certain persons described in the Prospectuses. ACCUMULATION PRIVILEGE. Investors (including investors combining purchases) who are already Class A shareholders may also obtain the benefit of the reduced sales charge by taking into account not only the amount then being invested but also the purchase price or value of the Class A shares already held by such person. COMBINATION PRIVILEGE. Reduced sales charges (according to the schedule set forth in the Prospectuses) also are available to an investor based on the aggregate amount of his concurrent and prior investments in Class A shares of a Fund and shares of all other John Hancock funds which carry a sales charge. LETTER OF INTENTION. The reduced sales loads are also applicable to investments made over a specified period pursuant to a Letter of Intention (LOI), which should be read carefully prior to its execution by an investor. Each Fund (other than Money Market Fund) offers two options regarding the specified period for making investments under the LOI. All investors have the option of making their investments over a period of thirteen (13) months. Investors who are using the Fund as a funding medium for a qualified retirement plan, however, may opt to make the necessary investments called for by the LOI over a forty-eight (48) month period. These qualified retirement plans include IRA's, SEP, SARSEP, TSA, 401(k) plans, TSA plans and 457 plans. Such an investment (including accumulations and combinations) must aggregate $100,000 or more invested during the specified period from the date of the LOI or from a date within ninety -47- 70 (90) days prior thereto, upon written request to Investor Services ($50,000 in the case of Emerging Growth Fund and Global Resources Fund). The sales charge applicable to all amounts invested under the LOI is computed as if the aggregate amount intended to be invested had been invested immediately. If such aggregate amount is not actually invested, the difference in the sales charge actually paid and the sales charge payable had the LOI not been in effect is due from the investor. However, for the purchases actually made with the specified period (either 13 or 48 months), the sales charge applicable will not be higher than that which would have been applied (including accumulations and combinations) had the LOI been for the amount actually invested. The LOI authorizes Investor Services to hold in escrow sufficient Class A shares (approximately 5% of the aggregate) to make up any difference in sales charges on the amount intended to be invested and the amount actually invested, until such investment is completed within the specified period, at which time the escrow shares will be released. If the total investment specified in the LOI is not completed, the Class A shares held in escrow may be redeemed and the proceeds used as required to pay such sales charges as may be due. By signing the LOI, the investor authorizes Investor Services to act as his attorney-in-fact to redeem any escrowed shares and adjust the sales charge, if necessary. A LOI does not constitute a binding commitment by an investor to purchase, or by a Fund to sell, any additional shares and may be terminated at any time. DEFERRED SALES CHARGE ON CLASS B SHARES Investments in Class B shares are purchased at net asset value per share without the imposition of a sales charge so that the Fund will receive the full amount of the purchase payment. CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed within six years of purchase will be subject to a CDSC at the rates set forth in the Funds' respective Prospectuses as a percentage of the dollar amount subject to the CDSC. The charge will be assessed on an amount equal to the lesser of the current market value or the original purchase cost of the Class B shares being redeemed. Accordingly, no CDSC will be imposed on increases in account value above the initial purchase prices, including Class B shares derived from reinvestment of dividends or capital gains distributions. The amount of the CDSC, if any, will vary depending on the number of years from the time of payment for the purchase of Class B shares until the time of redemption of such shares. Solely for purposes of determining the number of years from the time of any payment for the purchases of shares, all payments during a month will be aggregated and deemed to have been made on the last day of the month. Class B shares of Money Market Fund will be subject upon redemption to the CDSC set forth in the Prospectus of the John Hancock fund from which the investor initially exchanged his/her shares. Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or in part by John Hancock Funds to defray its expenses related to providing distribution-related services to the Fund in connection with the sale of the Class B shares, such as the payment of compensation to select Selling Brokers for selling Class B shares. The combination of the CDSC and the distribution and service fees facilitates the ability of the Fund to sell the Class B shares without a sales charge being deducted at the time of the purchase. See the Prospectuses for additional information regarding the CDSC. -48- 71 SPECIAL REDEMPTIONS Although the Funds would not normally do so, each Fund has the right to pay the redemption price of shares of the Fund in whole or in part in portfolio securities as prescribed by the Directors. When the shareholder sells portfolio securities received in this fashion, he would incur a brokerage charge. Any such security would be valued for the purpose of making such payment at the same value as used in determining the Fund's net asset value. Each Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund during any 90-day period for any one account. ADDITIONAL SERVICES AND PROGRAMS EXCHANGE PRIVILEGE. As described more fully in the Prospectuses, the Funds permit exchanges of shares of any class for shares of the same class in any other John Hancock fund offering that class. SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Prospectuses, the Funds permit the establishment of a Systematic Withdrawal Plan. Payments under this plan represent proceeds arising from the redemption of Fund shares. Since the redemption price of Fund shares may be more or less than the shareholder's cost, depending upon the market value of the securities owned by the Fund at the time of redemption, the distribution of cash pursuant to this plan may result in realization of gain or loss for purposes of Federal, state and local income taxes. The maintenance of a Systematic Withdrawal Plan concurrently with purchases of additional Class A (except with respect to the Money Market Fund) or Class B shares of a Fund could be disadvantageous to a shareholder because of the initial sales charge payable on such purchases of Class A shares and the CDSC imposed on redemptions of Class B shares and because redemptions are taxable events. Therefore, a shareholder should not purchase Fund shares at the same time as a Systematic Withdrawal Plan is in effect. Each Fund reserves the right to modify or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice to such shareholder, or to discontinue the availability of such plan in the future. The shareholder may terminate the plan at any time by giving proper notice to Investor Services. MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is explained fully in each Fund's Prospectus and the Account Privileges Application. The program, as it relates to automatic investment checks, is subject to the following conditions: The investments will be drawn on or about the day of the month indicated. The privilege of making investments through the Monthly Automatic Accumulation Program may be revoked by Investor Services without prior notice if any investment is not honored by the shareholder's bank. The bank shall be under no obligation to notify the shareholder as to the non-payment of any check. The program may be discontinued by the shareholder either by calling Investor Services or upon written notice to Investor Services which is received at least five (5) business days prior to the due date of any investment. -49- 72 REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares may, within 120 days after the date of redemption, reinvest without payment of a sales charge any part of the redemption proceeds in shares of the same class of the Fund or another John Hancock mutual fund, subject to the minimum investment limit in that fund. The proceeds from the redemption of Class A shares may be reinvested at net asset value without paying a sales charge in Class A Shares of the Fund or in Class A shares of another John Hancock mutual fund. If a CDSC was paid upon a redemption, a shareholder may reinvest the proceeds from that redemption at net asset value in additional shares of the class from which the redemption was made. The shareholder's account will be credited with the amount of any CDSC charged upon the prior redemption and the new shares will continue to be subject to the CDSC. The holding period of the shares acquired through reinvestment will, for purposes of computing the CDSC payable upon a subsequent redemption, include the holding period of the redeemed shares. The Fund may modify or terminate the reinvestment privilege at any time. A redemption or exchange of Fund shares is a taxable transaction for Federal income tax purposes. Even if the reinvestment privilege is exercised, and any gain or loss realized by a shareholder on the redemption or other disposition of Fund shares will be treated for tax purposes as described under the caption "Tax Status." DESCRIPTION OF THE CORPORATION'S SHARES Each Fund operates as one series of the Corporation. All shares of stock of the Corporation ($.01 par value per share) have equal voting rights among shares of the same series (except that each class of shares within a series has sole voting rights with respect to matters solely affecting that class). On September 12, 1995, the Corporation's Articles of Incorporation were amended to increase the authorized common stock of the Corporation from 375,000,000 to 1,000,000,000 shares of Class A Common Stock, from 625,000,000 to 1,300,000,000 shares of Class B Common Stock; and from 0 to 1,000,000,000 shares of Class S Common Stock. No shares of any series or class have pre-emptive or conversion rights. Each series of shares represents interests in a separate portfolio of investments. Each is entitled to all income and gains (or losses) and bears all of the expenses associated with the operations of that portfolio except that each class of a series bears its own transfer agency fees. Common expenses of the Corporation are allocated among the series, based upon the respective net assets or ratably or a combination of both whichever is more appropriate, of each series. The Board of Directors is authorized to create additional series of shares and classes within any series at any time without approval by shareholders. Six series of shares representing interests in the Corporation are presently authorized. Each share of each series or class of the Corporation represents an equal proportionate interest with each other share in that series or class, none having priority or preference over other shares of the same series or class. The interest of investors in the various series or classes of the Corporation is separate and distinct. All consideration received for the sales of shares of a particular series or class of the Corporation, all assets in which such consideration is invested and all income, earnings and profits derived from such investments will be allocated to and belong to that series or class. As such, each share is entitled to dividends and distributions out of the net income belonging to that series or class as declared by the Board of Directors. The assets of each series are segregated on the Corporation's books and are charged with the liabilities of that series and with a share of the Corporation's general liabilities. -50- 73 The Board of Directors determines those assets and liabilities deemed to be general assets or liabilities of the Corporation, and these items are allocated among each series in proportion to the relative total net assets of each series. In the unlikely event that the liabilities allocable to a series exceed the assets of that series, the amount to be deemed available for distribution to each affected series shall be determined by the Board of Directors in order to effect an equitable allocation among each series of the Corporation. In accordance with a multiple class plan adopted pursuant to Rule 18f-3 under the 1940 Act, the directors of the Corporation have authorized the issuance of two classes of common stock for each Fund, designated as Class A and Class B shares, and, in the case of the Money Market Fund has authorized the issuance of a third class of common stock, designated as Class S shares. Class A, Class B shares and, in the case of Money Market Fund, Class S shares each represent an interest in the same assets of the respective Funds and are identical in all respects except that each class bears certain expenses related to the distribution of such shares and certain expenses related to transfer agency services and have exclusive voting rights with respect to matters relating to the distribution expenditures. The Directors of the Corporation may classify and reclassify the shares of all Funds into additional classes of common stock at a future date. VOTING RIGHTS. Each shareholder of the Corporation is entitled to a full vote for each full share held (and fractional votes for fractional shares). Shareholders of each series or class vote separately from other shareholders of the Corporation with respect to all matters which affect solely the interests ofthat series or class. After Directors have been elected by shareholders, they will continue to serve indefinitely and they may appoint their own successors, provided that always at least a majority of the Directors have been elected by the Corporation's shareholders. The voting rights of stockholders are not cumulative, so that the holders of more than 50 percent of the shares voting can, if they choose, elect all Directors being selected, while the holders of the remaining shares would be unable to elect any Directors. It is the intention of the Corporation not to hold annual meetings of shareholders. The Directors may call annual or special meetings of shareholders of the Corporation or any class of series for action by shareholder vote as may be required by the Investment Company Act of 1940. Pursuant to an undertaking to the Securities and Exchange Commission, the Corporation will call a meeting of shareholders for any purpose, including voting to remove one or more Director, on the written request of the holders of at least 10% of outstanding shares of the Corporation. The Funds, under certain circumstances, will assist shareholders with communications including shareholder proposals. DIRECTOR AND OFFICER LIABILITY. Under the Corporation's Articles of Incorporation and the Maryland General Corporation Law, the directors, officers, employees and agents of the Corporation are entitled to indemnification under certain circumstances against liabilities, claims and expenses arising from any threatened, pending or completed action, suit or proceeding to which they are made parties by reason of the fact that they are or were such directors, officers, employees or agents of the Corporation except as such liability may arise from their own bad faith, willful misfeasance, gross negligence or reckless disregard of duties. The Corporation is not required to issue stock certificates. The Corporation shall continue without limitation of time subject to the provisions in the Articles of Incorporation concerning termination by action of the shareholders. -51- 74 TAX STATUS Each Fund is treated as a separate entity for accounting and tax purposes. Each Fund has qualified and elected to be treated as a "regulated investment company" under Subchapter M of the Code, and intends to continue to so qualify in the future. As such and by complying with the applicable provisions of the Code regarding the sources of its income, the timing of its distributions, and the diversification of its assets, each Fund will not be subject to Federal income tax on taxable income (including net realized capital gains) which is distributed to shareholders at least annually in accordance with the timing requirements of the Code. Each Fund will be subject to a 4% non-deductible Federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. Each Fund intends under normal circumstances to avoid liability for such tax by satisfying such distribution requirements. Distributions from a Fund's current or accumulated earnings and profits ("E&P"), as computed for Federal income tax purposes, will be taxable as described in such Fund's Prospectus whether taken in shares or in cash. Distributions, if any, in excess of E&P will constitute a return of capital, which will first reduce an investor's tax basis in Fund shares and thereafter (after such basis is reduced to zero) will generally give rise to capital gains. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the amount of cash they would have received had they elected to receive the distributions in cash, divided by the number of shares received. Distributions of tax-exempt interest ("exempt-interest dividends") timely designated as such by High Yield Tax-Free Fund will be treated as tax-exempt interest under the Code, provided that such Fund qualifies as a regulated investment company and at least 50% of the value of its assets at the end of each quarter of its taxable year is invested in tax-exempt obligations. Shareholders are required to report their receipt of tax-exempt interest, including such distributions, on their Federal income tax returns. The portion of High Yield Tax-Free Fund's distributions designated as exempt-interest dividends may differ from the actual percentage that its tax-exempt income comprised of its total income during the period of any particular shareholder's investment. High Yield Tax-Free Fund will report to shareholders the amount designated as exempt-interest dividends for each year. Interest income from certain types of tax-exempt bonds that are private activity bonds in which High Yield Tax-Free Fund may invest is treated as an item of tax preference for purposes of the Federal alternative minimum tax. To the extent that High Yield Tax-Free Fund invests in these types of tax-exempt bonds, shareholders will be required to treat as an item of tax preference for Federal alternative minimum purposes that part of such Fund's exempt-interest dividends which is derived from interest on these tax-exempt bonds. Exempt-interest dividends derived from interest income from all tax-exempt bonds may be included in corporate "adjusted current earnings" for purposes of computing the alternative minimum tax liability, if any, of corporate shareholders of High Yield Tax-Free Fund. If Global Resources Fund or Emerging Growth Fund acquires stock in certain non-U.S. corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, rents, royalties or capital gain) or hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), that Fund could be subject to Federal income tax and additional interest charges on "excess distributions" received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund would -52- 75 not be able to pass through to its shareholders any credit or deduction for such a tax. Certain elections may, if available, ameliorate these adverse tax consequences, but any such election would require the applicable Fund to recognize taxable income or gain without the concurrent receipt of cash. Any Fund that is permitted to acquire stock in foreign corporations may limit and/ or manage its holdings in passive foreign investment companies to minimize its tax liability or maximize its return from these investments. Foreign exchange gains and losses realized by Emerging Growth Fund, Global Resources Fund, Government Income Fund or High Yield Bond Fund in connection with certain transactions involving foreign currency-denominated debt securities, certain foreign currency futures and options, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income and losses and may affect the amount, timing and character of distributions to shareholders. Any such transactions that are not directly related to a Fund's investment in stock or securities, possibly including speculative currency positions or currency derivatives not used for hedging purposes, may increase the amount of gain it is deemed to recognize from the sale of certain investments held for less than three months, which gain is limited under the Code to less than 30% of its annual gross income, and could under future Treasury regulations produce income not among the types of "qualifying income" from which the Fund must derive at least 90% of its annual gross income. Income from investments in commodities, such as gold and certain related derivative instruments, is also not treated as qualifying income under this test. If the net foreign exchange loss for a year treated as ordinary loss under Section 988 were to exceed a Fund's investment company taxable income computed without regard to such loss but after considering the post-October loss regulations (i.e., all of the Fund's net income other than any excess of net long-term capital gain over net short-term capital loss) the resulting overall ordinary loss for such year would not be deductible by the Fund or its shareholders in future years. Global Resources Fund, Emerging Growth Fund, Government Income Fund and High Yield Bond Fund may be subject to withholding and other taxes imposed by foreign countries with respect to their investments in foreign securities. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions with respect to such taxes, subject to certain provisions and limitations contained in the Code. Specifically, if more than 50% of the value of a Fund's total assets at the close of any taxable year consists of stock or securities of foreign corporations, the Fund may file an election with the Internal Revenue Service pursuant to which shareholders of the Fund will be required to (i) include in ordinary gross income (in addition to taxable dividends actually received) their pro rata shares of foreign income taxes paid by the Fund even though not actually received by them, and (ii) treat such respective pro rata portions as foreign income taxes paid by them. Global Resources Fund or Emerging Growth Fund may, but the other Funds probably will not satisfy this 50% requirement. If a Fund makes this election, shareholders may then deduct such pro rata portions of foreign income taxes in computing their taxable incomes, or, alternatively, use them as foreign tax credits, subject to applicable limitations, against their U.S. Federal income taxes. Shareholders who do not itemize deductions for Federal income tax purposes will not, however, be able to deduct their pro rata portion of foreign income taxes paid by the Fund, although such shareholders will be required to include their share of such taxes in gross income. Shareholders who claim a foreign tax credit for such foreign taxes may be required to treat a portion of dividends received from the Fund as a separate category of income for purposes of computing the limitations on the foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from this election. Each year that a Fund files the election described above, its shareholders will be notified of the amount of (i) each shareholder's pro rata share of foreign income taxes paid by the Fund and (ii) the -53- 76 portion of Fund dividends which represents income from each foreign country. A Fund that cannot or does not make this election may deduct such taxes in computing its taxable income. The amount of a Fund's net realized capital gains, if any, in any given year will vary depending upon the Adviser's current investment strategy and whether the Adviser believes it to be in the best interest of such Fund to dispose of portfolio securities or enter into options or futures transactions that will generate capital gains. At the time of an investor's purchase of Fund shares, a portion of the purchase price is often attributable to realized or unrealized appreciation in the Fund's portfolio or, in the case of Global Resources Fund and Emerging Growth Fund, to undistributed taxable income of the Fund. Consequently, subsequent distributions from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares, and the distributions in reality represent a return of a portion of the purchase price. Upon a redemption of shares of a Fund (including by exercise of the exchange privilege) a shareholder may realize a taxable gain or loss depending upon his basis in his shares, except that a redemption of shares of Money Market Fund may not result in a gain or loss if the Fund always successfully maintains a constant net asset value per share, although a loss may still arise if a CDSC is paid. Any gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's tax holding period for the shares. A sales charge paid in purchasing Class A shares of a Fund cannot be taken into account for purposes of determining gain or loss on the redemption or exchange of such shares within 90 days after their purchase to the extent shares of the Fund or another John Hancock fund are subsequently acquired without payment of a sales charge pursuant to the reinvestment or exchange privilege. Such disregarded load will result in an increase in the shareholder's tax basis in the shares subsequently acquired. Also, any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed of are replaced with other shares of the same Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to an election to reinvest dividends in additional shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized upon the redemption of shares with a tax holding period of six months or less will be disallowed (in the case of High Yield Tax-Free Fund) to the extent of all exempt-interest dividends paid with respect to such shares and, if not thus disallowed, will (in the case of any Fund) be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares. Although its present intention is to distribute all net capital gains, if any, each Fund reserves the right to retain and reinvest all or any portion of the excess, as computed for Federal income tax purposes, of net long-term capital gain over net short-term capital loss in any year. The Funds will not in any event distribute net long-term capital gain realized in any year to the extent that a capital loss is carried forward from prior years against such gain. To the extent such excess was retained and not exhausted by the carryforward of prior years' capital losses, it would be subject to Federal income tax in the hands of the Fund. Each shareholder would be treated for Federal income tax purposes as if the Fund had distributed to him on the last day of its taxable year his pro rata share of such excess, and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as long-term capital gain income in his return for his taxable year in which the last day of such Fund's taxable year falls, (b) be entitled either to a tax credit on his return for, or to a refund of, his pro rata share of the taxes paid by such Fund, and (c) be entitled to increase the adjusted tax basis for his shares in such Fund by the difference between his pro rata share of such excess and his pro rata share of such taxes. -54- 77 For Federal income tax purposes, each Fund is generally permitted to carry forward a net capital loss in any year to offset its own net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the applicable Fund and, as noted above, would not be distributed as such to shareholders. As of October 31, 1994, Emerging Growth Fund had capital loss carryforwards of $17,163,122, of which $1,477,890 will expire in 1996, $177,369 will expire in 1998, $2,304,137 will expire in 2000, $4,446,419 will expire in 2001 and $8,817,307 will expire in 2002. As of October 31, 1994, Global Resources Fund had capital loss carryforwards of $106,861, of which $16,520 will expire in 2000 and $90,341 will expire in 2002. As of December 31, 1994, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund had capital loss carryforwards of $15,347,195, $9,184,252 and $2,785,979, respectively, all of which will expire in 2002. Interest on indebtedness incurred by a shareholder to purchase or carry shares of High Yield Tax-Free Fund will not be deductible for Federal income tax purposes to the extent it is deemed related to exempt-interest dividends paid by such Fund. Pursuant to published guidelines, the Internal Revenue Service may deem indebtedness to have been incurred for the purpose of purchasing or carrying shares of this Fund even though the borrowed funds may not be directly traceable to the purchase of shares. For purposes of the dividends-received deduction available to corporations, dividends received by a Fund, if any, from U.S. domestic corporations in respect of the stock of such corporations held by the Fund, for U.S. Federal income tax purposes, for at least 46 days (91 days in the case of certain preferred stock) and distributed and designated by the Fund may be treated as qualifying dividends. Only Emerging Growth Fund or Global Resources Fund may sometimes have any significant portion of its distributions treated as qualifying dividends. Corporate shareholders must meet the minimum holding period requirement stated above (46 or 91 days) with respect to their shares of the applicable Fund in order to qualify for the deduction and, if they borrow to acquire such shares, may be denied a portion of the dividends-received deduction. The entire qualifying dividend, including the otherwise deductible amount, will be included in determining the excess (if any) of a corporate shareholder's adjusted current earnings over its alternative minimum taxable income, which may increase its alternative minimum tax liability. Additionally, any corporate shareholder should consult its tax adviser regarding the possibility that its basis in its shares may be reduced, for Federal income tax purposes, by reason of "extraordinary dividends" received with respect to the shares, for the purpose of computing its gain or loss on redemption or other disposition of the shares. Each Fund that invests in certain PIKs, zero coupon securities or certain increasing rate securities (an, in general, any other securities with original issue discount or with market discount if the Fund elects to include market discount in income currently) must accrue income on such investments prior to the receipt of the corresponding cash payments. However, each Fund must distribute, at least annually, all or substantially all of its net income, including such accrued income, to shareholders to qualify as a regulated investment company under the Code and avoid Federal income and excise taxes. Therefore, a Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to leverage itself by borrowing the cash, to satisfy distribution requirements. Investments in debt obligations that are at risk of or in default presents special tax issues for any Fund that may hold such obligations, such as High Yield Bond Fund and High Yield Tax- Free Fund. Tax rules are not entirely clear about issues such as when the Funds may cease to accrue interest, original issue discount, or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income, and whether exchanges of debt -55- 78 obligations in a workout context are taxable. These and other issues will be addressed by any Fund that may hold such obligations in order to reduce the risk of distributing insufficient income to preserve its status as a regulated investment company and seek to avoid becoming subject to Federal income or excise tax. Limitations imposed by the Code on regulated investment companies like the Funds may restrict a Fund's ability to enter into futures, options and currency forward transactions. Certain options, futures and forward foreign currency transactions undertaken by a Fund may cause such Fund to recognize gains or losses from marking to market even though its positions have not been sold or terminated and affect the character as long-term or short-term (or, in the case of certain currency forwards, options and futures, as ordinary income or loss) and timing of some capital gains and losses realized by the Fund. Also, certain of a Fund's losses on its transactions involving options, futures and forward foreign currency contracts and/or offsetting portfolio positions may be deferred rather than being taken into account currently in calculating the Fund's taxable income or gains. These transactions may therefore affect the amount, timing and character of a Fund's distributions to shareholders. Certain of the applicable tax rules may be modified if the Fund is eligible and chooses to make one or more of certain tax elections that may be available. The Funds will take into account the special tax rules (including consideration of available elections) applicable to options, futures or forward contracts in order to minimize any potential adverse tax consequences. Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. The foregoing discussion relates solely to U.S. Federal income tax law as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain classes of investors, such as tax-exempt entities, insurance companies, and financial institutions. Dividends, capital gain distributions, and ownership of or gains realized on the redemption (including an exchange) of Fund shares may also be subject to state and local taxes. Shareholders should consult their own tax advisers as to the Federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, a Fund in their particular circumstances. Non-U.S. investors not engaged in a U.S. trade or business with which their investment in a Fund is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to nonresident alien withholding tax at the rate of 30% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from a Fund and, unless an effective IRS Form W-8 or authorized substitute is on file, to 31% backup withholding on certain other payments from the Fund. Non- U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Funds. Provided that each Fund qualifies as a regulated investment company under the Code, it will not be required to pay any Massachusetts income, corporate excise or franchise taxes. -56- 79 CALCULATION OF PERFORMANCE YIELD (EXCEPT FOR THE MONEY MARKET FUND). For the 30-day period ended December 31, 1994, the yields of (a) High Yield Bond Fund's Class A and Class B shares were 11.55% and 11.35%, respectively, (b) High Yield Tax-Free Fund's Class A and Class B shares were 6.71% and 6.28%, respectively and (c) Government Income Fund's Class A and Class B shares were 6.14% and 5.64%, respectively. The performance of High Yield Bond Fund's Class A and Class B shares quoted (1) partially reflects an increase due to significant declines in prices of certain bonds held in the Fund's portfolio due to current adverse market conditions and (2) may not reflect the actual income stream investors can expect if portfolio issuers experience financial difficulties. For a thorough explanation, investors may obtain further information from their broker. Each Fund's (except for Money Market Fund) yield is computed by dividing net investment income per share determined for a 30-day period by the maximum offering price per share (which includes the full sales charge) on the last day of the period, according to the following standard formula: Yield = 2 [ (a-b + 1 )6 -1] cd Where: a= dividends and interest earned during the period. b= net expenses accrued during the period. c= the average daily number of fund shares outstanding during the period that would, be entitled to receive dividends. d= the maximum offering price per share on the last day of the period (NAV where applicable). High Yield Tax-Free Fund may advertise a tax-equivalent yield, which is computed by dividing that portion of the yield of that Fund which is tax-exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the yield of the Fund that is not tax- exempt. The tax-equivalent yields for the High Yield Tax-Free Fund's Class A and Class B Shares at the 36% federal income tax rate for the 30-day period ended December 31, 1994 were 10.48% and 9.81%, respectively. MONEY MARKET FUND YIELD. For the purposes of calculating yield for both classes of Money Market Fund, daily income per share consists of interest and discount earned on the Fund's investments less provision for amortization of premiums and applicable expenses, divided by the number of shares outstanding, but does not include realized or unrealized appreciation or depreciation. In any case in which the Fund reports its annualized yield, it will also furnish information as to the average portfolio maturities of the Fund. It will also report any material effect of realized gains or losses or unrealized appreciation on dividends which have been excluded from the computation of yield. Yield calculations are based on the value of a hypothetical preexisting account with exactly one share at the beginning of the seven day period. Yield is computed by determining the net change in the value of the account during the base period and dividing the net change by the value of the account at the beginning of the base period to obtain the base period return. Base period is multiplied by 365/7 and the resulting figure is carried to the nearest 100th of a percent. -57- 80 Net change in account value during the base period includes dividends declared on the original share, dividends declared on any shares purchased with dividends of that share and any account or sales charges that would affect an account of average size, but excludes any capital changes. Effective yield is computed by determining the net change, exclusive of capital changes, in the value of a hypothetical preexisting account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then compounding the base period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to the following formula: EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1 The yield of the Fund is not fixed or guaranteed. Yield quotations should not be considered to be representations of yield of the Fund for any period in the future. The yield of the Fund is a function of available interest rates on money market instruments, which can be expected to fluctuate, as well as of the quality, maturity and types of portfolio instruments held by the Fund and of changes in operating expenses. The Fund's yield may be affected if, through net sales of its shares, there is a net investment of new money in the Fund which the Fund invests at interest rates different from that being earned on current portfolio instruments. Yield could also vary if the Fund experiences net redemptions, which may require the disposition of some of the Fund's current portfolio instruments. TOTAL RETURN. Each Fund's total return is computed by finding the average annual compounded rate of return over the 1-year, 5-year, and 10-year periods that would equate the initial amount invested to the ending redeemable value according to the following formula: P(1+T)n = ERV P= a hypothetical initial payment of $1,000. T= average annual total return n= number of years ERV= ending redeemable value of a hypothetical $1,000 investment made at the beginning of the 1-year and life-of-fund periods. In the case of Class A shares or Class B shares, this calculation assumes the maximum sales charge is included in the initial investment or the CDSC is applied at the end of the period. This calculation also assumes that all dividends and distributions are reinvested at net asset value on the reinvestment dates during the period. The "distribution rate" is determined by annualizing the result of dividing the declared dividends of a Fund during the period stated by the maximum offering price or net asset value at the end of the period. The total return in the case of Class B shares of each Fund is calculated by determining the net asset value of all shares held at the end of the period for each share held from the beginning of the period (assuming reinvestment of all dividends and distributions at net asset value during the period and the deduction of any applicable contingent deferred sales charge as if the shares were redeemed at the end of the period), subtracting the maximum offering price (net asset value per share) per share at the beginning of such period and then dividing the result by the -58- 81 maximum offering price (net asset value per share) per share at the beginning of the same period. Total return for Class A shares of each of Emerging Growth Fund, Global Resources Fund, Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund is calculated in the same manner except the maximum offering price reflects the deduction of the maximum initial sales charge and the redemption value is at net asset value. In addition to average annual total returns, a Fund may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, and/or a series of redemptions, over any time period. Total returns may be quoted with or without taking the Fund's maximum sales charge on Class A shares or the CDSC on Class B shares into account. A Fund's "distribution rate" is determined by annualizing the result of dividing the declared dividends of the Fund during the stated period by the maximum offering price or net asset value at the end of the period. Excluding a Fund's sales charge on Class A shares and the CDSC on Class B shares from a total return calculation produces a higher total return figure. From time to time, in reports and promotional literature, a Fund's yield and total return will be compared to indices of mutual funds and bank deposit vehicles such as Lipper Analytical Services, Inc.'s "Lipper--Fixed Income Fund Performance Analysis," a monthly publication which tracks net assets, total return, and yield on approximately 1,700 fixed income mutual funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used for comparison purposes, as well as the Russell and Wilshire Indices. Performance rankings and ratings reported periodically in national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will also be utilized. A Fund's promotional and sales literature may make reference to the Fund's "beta." Beta reflects the market-related risk of the Fund by showing how responsive the Fund is to the market. The performance of a Fund is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of a Fund for any period in the future. The performance of a Fund is a function of many factors including its earnings, expenses and number of outstanding shares. Fluctuating market conditions; purchases, sales and maturities of portfolio securities; sales and redemptions of shares of beneficial interest; and changes in operating expenses are all examples of items that can increase or decrease a Fund's performance. BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser and officers of the Corporation pursuant to recommendations made by its investment committee, which consists of officers and directors of the Adviser and affiliates and officers and Directors who are interested persons of the Funds. Orders for purchases and sales of securities are placed in a manner which, in the opinion of the Adviser, will offer the best price and market for the execution of each such transaction. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market makers reflect a "spread." Investments in debt securities are generally traded on a net basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on such transactions. -59- 82 Each Fund's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. This policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with the foregoing primary policy, the Rules of Fair Practice of the NASD and other policies that the Directors may determine, the Adviser may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute a Fund's portfolio transactions. Purchase of securities for Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund are normally principal transactions made directly from the issuer or from an underwriter or market maker for which no brokerage commissions are usually paid. Purchases from underwriters will include a commission or concession paid by the issuer to the underwriter, and purchases and sales from dealers serving as market makers will usually include a mark up or mark down. Purchases and sales of options and futures will be effected through brokers who charge a commission for their services and are reflected in amounts for Government Income Fund and High Yield Bond Fund below. To the extent consistent with the foregoing, each Fund will be governed in the selection of brokers and dealers, and the negotiation of brokerage commission rates and dealer spreads, by the reliability and quality of the services, including primarily the availability and value of research information and to a lesser extent statistical assistance furnished to the Adviser of the Fund, and their value and expected contribution to the performance of the Fund. It is not possible to place a dollar value on information and services to be received from brokers and dealers, since it is only supplementary to the research efforts of the Adviser. The receipt of research information is not expected to reduce significantly the expenses of the Adviser. The research information and statistical assistance furnished by brokers and dealers may benefit the Life Company or other advisory clients of the Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser may result in research information and statistical assistance beneficial to the Funds. The Funds will make no commitments to allocate portfolio transactions upon any prescribed basis. While the Corporation's officers will be primarily responsible for the allocation of each Fund's brokerage business, their policies and practices in this regard must be consistent with the foregoing and will at all times be subject to review by the Directors. Brokerage commissions of those Funds which pay such commissions for their respective reporting periods, as follows, amounted to: EMERGING GROWTH FUND - (a) $318,023 for the fiscal year ended October 31, 1994; (b) $330,454 for the fiscal year ended October 31, 1993; and (c) $182,533 for the fiscal year ended October 31, 1992. GLOBAL RESOURCES FUND - (a) $148,469 for the fiscal year ended October 31, 1994; (b) $54,463 for the fiscal year ended October 31, 1993; and (c) $29,204 for the fiscal year ended October 31, 1992. GOVERNMENT INCOME FUND - (a) $96,931 for the fiscal year ended October 31, 1994; (b) $254,859 for the fiscal year ended October 31, 1993; and (c) $140,463 for the fiscal year ended October 31, 1992. HIGH YIELD BOND FUND - (a) $2,320 for the fiscal year ended October 31, 1994; (b) $13,050 for the fiscal year ended October 31, 1993; and (c) $0 for the fiscal year ended October 31, 1992. -60- 83 As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Directors that the price is reasonable in light of the services provided and to policies that the Directors may adopt from time to time. During the fiscal year ended October 31, 1994, the Funds did not pay commissions as compensation to any brokers for research services such as industry, economic and company reviews and evaluations of securities. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of John Hancock Freedom Securities Corporation and its subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker Anthony") John Hancock Distributors, Inc. ("John Hancock Distributors") and Sutro & Company, Inc. ("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through Tucker Anthony, Sutro or John Hancock Distributors. During the year ended October 31, 1994, the Fund did not execute any portfolio transactions with then affiliated brokers. Any of the Affiliated Brokers may act as broker for a Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Directors pursuant to the 1940 Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Directors believe to be contemporaneously charged by other brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers, except for accounts for which the Affiliated Broker acts as a clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to a Fund as determined by a majority of the Directors who are not "interested persons" (as defined in the 1940 Act) of the Funds, the Adviser or the Affiliated Brokers. Because the Adviser, which is affiliated with the Affiliated Brokers, has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills, such research and related skills will not be used by the Affiliated Brokers as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. The Funds will not effect principal transactions with Affiliated Brokers. The Funds may, however, purchase securities from other members of underwriting syndicates of which Tucker Anthony and Sutro are members, but only in accordance with the policy set forth above and procedures adopted and reviewed periodically by the Directors. Brokerage or other transactions costs of a Fund are generally commensurate with the rate of portfolio activity. The portfolio turnover rates for each of the following Funds for (a) the fiscal year ended October 31, 1994 and (b) the fiscal year ending October 31, 1993 were: EMERGING GROWTH FUND - (a) 25% and (b) 29%. GLOBAL RESOURCES FUND - (a) 96% and (b) 83%. GOVERNMENT INCOME FUND - (a) 92% and (b) 138%. HIGH YIELD BOND FUND - (a) 153%* and (b) 204%*. -61- 84 HIGH YIELD TAX-FREE FUND - (a) 62% and (b) 100%. * Higher turnover rates were due to volatile market conditions. TRANSFER AGENT SERVICES John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA 02205-9116, a wholly owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent for the Funds. Emerging Growth Fund and Global Resources Fund pay Investor Services monthly a transfer agent fee equal to $16 per account for the Class A Shares and $18.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. Government Income Fund and High Yield Bond Fund pay Investor Services monthly a transfer agent fee equal to $20 per account for the Class A shares and $22.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. High Yield Tax-Free Fund pays Investor Services monthly a transfer agent fee of $19 per account for the Class A shares and $21.50 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. Money Market Fund pays Investor Services monthly a transfer agent fee of $25 per account for the Class A shares and $27 per account for the Class B shares on an annual basis, plus out-of-pocket expenses. CUSTODY OF PORTFOLIO Portfolio securities of the Funds are held pursuant to a custodian agreement between the Corporation and Investors Bank & Trust Company ("IBT") 24 Federal Street, Boston, Massachusetts. Under the custodian agreement, IBT performs custody, portfolio and fund accounting services. INDEPENDENT AUDITORS The independent auditors of the Funds are Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116. The independent auditors audit and render an opinion on the Funds' annual financial statements and prepare the Funds' annual income tax returns. The financial statements of the Funds included in the Prospectuses and this Statement of Additional Information have been audited by Ernst & Young LLP for the periods indicated in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. -62- 85 APPENDIX A CORPORATE AND TAX-EXEMPT BOND RATINGS MOODY'S INVESTORS SERVICE, INC. ("MOODY'S) Aaa, Aa, A AND Baa - Tax-exempt bonds rated Aaa are judged to be of the "best quality." The rating of Aa is assigned to bonds that are of "high quality by all standards," but long-term risks appear somewhat larger than Aaa rated bonds. The Aaa and Aa rated bonds are generally known as "high grade bonds." The foregoing ratings for tax-exempt bonds are rated conditionally. Bonds for which the security depends upon the completion of some act or upon the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals that begin when facilities are completed, or (d) payments to which some other limiting condition attaches. Such conditional ratings denote the probable credit stature upon completion of construction or elimination of the basis of the condition. Bonds rated A are considered as upper medium grade obligations. Principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa are considered a medium grade obligations; i.e., they are neither highly protected or poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well. STANDARD & POOR'S RATINGS GROUP ("S&P") AAA, AA, A AND BBB - Bonds rated AAA bear the highest rating assigned to debt obligations, which indicates an extremely strong capacity to pay principal and interest. Bonds rated AA are considered "high grade," are only slightly less marked than those of AAA ratings and have the second strongest capacity for payment of debt service. Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat susceptible to the adverse effects of changes in circumstances and economic conditions. The foregoing ratings are sometimes followed by a "p" indicating that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the bonds being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. Although a provisional rating addresses credit quality subsequent to completion of the project, it makes no comment on the likelihood of, or the risk of default upon failure of, such completion. Bonds rated BBB are regarded as having an adequate capacity to repay principal and pay interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in the A category. FITCH INVESTORS SERVICE ("FITCH") AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of the highest quality. The obligor has an extraordinary ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. Bonds rated AA are considered to be investment grade and of high quality. The obligor's ability to pay interest and repay principal, while very strong, is somewhat less than for AAA rated securities or more subject to possible A-1 86 change over the term of the issue. Bonds rated A are considered to be investment grade and of good quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to weaken this ability than bonds with higher ratings. TAX-EXEMPT NOTE RATINGS MOODY'S - MIG-1 AND MIG-2. Notes rated MIG-1 are judged to be of the best quality, enjoying strong protection from established cash flow or funds for their services or from established and broad-based access to the market for refinancing or both. Notes rated MIG-2 are judged to be of high quality with ample margins of protection, though not as large as MIG-1. S&P - SP-1 AND SP-2. SP-1 denotes a very strong or strong capacity to pay principal and interest. Issues determined to possess overwhelming safety characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a satisfactory capacity to pay principal and interest. FITCH - FIN-1 AND FIN-2. Notes assigned FIN-1 are regarded as having the strongest degree of assurance for timely payment. A plus symbol may be used to indicate relative standing. Notes assigned FIN-2 reflect a degree of assurance for timely payment only slightly less in degree than the highest category. CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS MOODY'S - Commercial Paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Prime-1, indicates highest quality repayment capacity of rated issue and Prime-2 indicates higher quality. S&P - Commercial Paper ratings are a current assessment of the likelihood of timely payment of debts having an original maturity of no more than 365 days. Issues rated A have the greatest capacity for a timely payment and the designation 1, 2 and 3 indicates the relative degree of safety. Issues rated "A-1+" are those with an "overwhelming degree of credit protection." FITCH - Commercial Paper ratings reflect current appraisal of the degree of assurance of timely payment. F-1 issues are regarded as having the strongest degree of assurance for timely payment. (+) is used to designate the relative position of an issuer within the rating category. F-2 issues reflect an assurance of timely payment only slightly less in degree than the strongest issues. The symbol (LOC) may follow either category and indicates that a letter of credit issued by a commercial bank is attached to the commercial paper note. OTHER CONSIDERATIONS - The ratings of S&P, Moody's, and Fitch represent their respective opinions of the quality of the municipal securities they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the same maturity, coupon and ratings may have different yields and municipal securities of the same maturity and coupon with different ratings may have the same yield. A-2 87 FINANCIAL STATEMENTS -------------------- F-1 88 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 89 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 90 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. 91 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 92 NOTES TO FINANCIAL STATEMENTS October 31, 1994 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Transamerica Series, Inc. (the "Issuer"), formerly Transamerica Special Series, Inc., is a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Issuer operates as a series fund, currently issuing six series of shares. On May 20, 1994, the shareholders of the Issuer approved changes to the name of the Issuer and to the names of each of the series of the Issuer. These changes became effective on June 15, 1994. Transamerica Money Market Fund B (the "Fund"), formerly Transamerica Special Money Market Fund, is one of the series of the Issuer. The Fund made its initial offering of shares to the public on October 26, 1987. The following is a summary of significant accounting policies consistently followed by the Fund. (1) The Fund values its investment securities at amortized cost (original cost plus amortized discount or accrued interest). (2) With respect to U.S. government and U.S. government agency securities in which the Fund may invest, only U.S. Treasury and Government National Mortgage Association (GNMA) issues are backed by the full faith and credit of the U.S. government. All other government issues are backed by the issuing agencies and their general ability to borrow from the U.S. government. (3) Security transactions are accounted for on the trade date. Interest income is accrued daily. The identified cost of securities at October 31, 1994 is the same for both financial reporting and federal income tax purposes. (4) Distributions of the Fund are computed daily and reinvested in Fund shares or paid to shareholders monthly. Income distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions payable to shareholders at October 31, 1994 were $9,668. (5) No provision for federal income taxes has been made since it is the Fund's intention to distribute all of its taxable income and profits to its shareholders and to comply with the requirements applicable to regulated investment companies and the minimum distribution requirements of the Internal Revenue Code. (6) The Fund reports custodian fees net of credits and charges resulting from cash positions in the custodial accounts greater than or less than the amounts required to settle portfolio transactions. For the year ended October 31, 1994, these amounts were $1,375 and $1,558, respectively. 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 93 NOTES TO FINANCIAL STATEMENTS Continued NOTE C (Continued) October 31, 1994, payments made to the Distributor of $107,432 or 0.25% were related to the above activities. The plan also permits reimbursement to the Distributor up to 0.75% annually of average daily net assets for costs related to compensation paid to securities dealers, in place of an initial sales charge to investors. These costs are based upon a commission payment charge of 5% of the value of shares sold (excluding shares acquired through reinvestment), reduced by the amount of contingent deferred sales charges (CDSC) that have been received by the Distributor on redemptions of shares. These costs also include a charge of interest (carrying charge) at an annual rate of 1% over the prevailing prime rate to the extent cumulative commission payment charges, plus any previous carrying charges, less CDSC received by the Distributor, have not been paid in full by the Fund. For the year ended October 31, 1994, the Fund reimbursed the Distributor $320,745 or 0.75% for such costs. For the year ended October 31, 1994, the Distributor received $343,829 in CDSC. At October 31, 1994, the balance of unrecovered costs was $1,233,281. At October 31, 1994, the Fund had $53,504 payable to the Distributor pursuant to the above distribution plan. ----------------------------------- 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 94 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors John Hancock Money Market Fund B, a series of John Hancock Series, Inc. We have audited the accompanying statement of net assets of John Hancock Money Market Fund B, formerly Transamerica Money Market Fund B, a series of John Hancock Series, Inc., formerly Transamerica Series, Inc., as of October 31, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 1994, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock Money Market Fund B, a series of John Hancock Series, Inc., at October 31, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Houston, Texas December 2, 1994 9 95 Financial Statements John Hancock Funds - Money Market Fund B STATEMENT OF ASSETS AND LIABILITIES April 30, 1995 (Unaudited) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ASSETS: Investments, in money market instruments, at value - Note C: Commercial paper (cost - $36,423,414) $36,423,414 Negotiable bank certificates of deposit (cost - $4,000,089).............................. 4,000,089 Bankers' acceptances (cost - $1,982,274) 1,982,274 Corporate interest-bearing obligations (cost - $992,740)................................ 992,740 U.S. government obligations (cost - $5,736,722).. 5,736,722 Joint repurchase agreement (cost - $10,750,000) 10,750,000 ----------- 59,885,239 Cash............................................... 68 Interest receivable................................ 209,416 Miscellaneous assets............................... 13,767 ----------- Total Assets.................. 60,108,490 ---------------------------------------------------- Liabilities: Payable for investments purchased.................. 3,500,000 Payable to John Hancock Advisers, Inc. and affiliates - Note B................................ 27,875 Accounts payable and accrued expenses.............. 58,488 ----------- Total Liabilities............. 3,586,363 ---------------------------------------------------- Net Assets: Capital paid-in.................................... 56,522,127 ----------- Net Assets.................... $56,522,127 ==================================================== Net Asset Value, Offering Price and Redemption Price Per Share: (based on 56,522,127 shares of beneficial interest outstanding - 150,000,000 shares authorized with $0.01 per share par value)........... $ 1.00 ===========================================================================
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON APRIL 30, 1995. YOU'LL ALSO FIND THE NET ASSET VALUE AS OF THAT DATE. THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND EXPENSES INCURRED IN OPERATING THE FUND. STATEMENT OF OPERATIONS Six months ended April 30, 1995 (Unaudited) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - INVESTMENT INCOME: Interest........................................... $ 1,603,318 ----------- Expenses: Distribution/service fee - Note B................ 275,387 Investment management fee - Note B............... 137,693 Transfer agent fee - Note B...................... 52,718 Registration and filing fees..................... 34,813 Custodian fee.................................... 30,526 Auditing fee..................................... 14,530 Printing......................................... 6,789 Trustees' fees................................... 6,308 Shareholder service fee.......................... 4,374 Advisory board fee............................... 2,207 Legal fees....................................... 1,976 Miscellaneous.................................... 1,754 ----------- Total Expenses............... 569,075 --------------------------------------------------- Net Investment Income........ 1,034,243 =================================================== Net Increase in Net Assets Resulting from Operations.... $ 1,034,243 ===================================================
SEE NOTES TO FINANCIAL STATEMENTS. 5 96 Financial Statements John Hancock Funds - Money Market Fund B STATEMENT OF CHANGES IN NET ASSETS - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SIX MONTHS ENDED YEAR ENDED APRIL 30, 1995 OCTOBER 31, (UNAUDITED) 1994 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment Income......................................................... $ 1,034,243 $ 842,207 --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income ($0.0187 and $0.0180 per share, respectively) ( 1,034,243) ( 842,207) --------------- --------------- FROM FUND SHARE TRANSACTIONS - Net*................................................. ( 1,843,462) 26,819,423 --------------- --------------- NET ASSETS: Beginning of period........................................................... 58,365,589 31,546,166 --------------- --------------- End of period................................................................. $ 56,522,127 $ 58,365,589 =============== =============== * ANALYSIS OF FUND SHARE TRANSACTIONS: Shares sold................................................................... $ 117,586,279 $ 237,416,247 Shares issued to shareholders in reinvestment of distributions................ 828,944 683,416 --------------- --------------- 118,415,223 238,099,663 Less shares repurchased....................................................... ( 120,258,685) ( 211,280,240) --------------- --------------- Net increase (decrease)....................................................... $( 1,843,462) $ 26,819,423 =============== ===============
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS EARNINGS LESS EXPENSES, DISTRIBUTIONS PAID TO SHAREHOLDERS AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND REDEEMED DURING THE LAST TWO PERIODS. SEE NOTES TO FINANCIAL STATEMENTS. 6 97 Financial Statements John Hancock Funds - Money Market Fund B FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout the period indicated, investment returns, key ratios and supplemental data are as follows: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, 1995(b) ------------------------------------------------ (UNAUDITED) 1994 1993 1992 1991 1990 ---------- ------ ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- ------- Net Investment Income.............................. 0.02 0.02 0.01 0.02 0.05 0.06 Less Distributions: Dividends from Net Investment Income............... (0.02) (0.02) (0.01) (0.02) (0.05) (0.06) ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= ======= Total Investment Return at Net Asset Value......... 1.88% 1.87% 0.85% 1.73% 4.61% 6.30% Total Adjusted Investment Return at Net Asset Value (a).............................. ..... ..... ..... ..... 4.49%(c) 6.15%(c) RATIOS AND SUPPLEMENTAL DATA Net Assets, End of Period (000's omitted).......... $56,522 $58,366 $31,546 $31,480 $20,763 $21,099 Ratio of Expenses to Average Net Assets ........... 2.07%* 2.06% 2.44% 2.47% 2.11% 2.16% Ratio of Adjusted Expenses to Average Net Assets... ..... ..... ..... ..... 2.23% 2.31% Ratio of Net Investment Income to Average Net Assets (a)................................... 3.76%* 1.97% 0.85% 1.69% 4.57% 6.26% Ratio of Adjusted Net Investment Income to Average Net Assets (a)........................... ..... ..... ..... ..... 4.45% 6.11% * On an annualized basis. (a) On an unreimbursed basis without expense reduction. (b) On December 22, 1994 John Hancock Advisers, Inc. became the Investment Adviser of the Fund. (c) Unaudited.
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF NET INVESTMENT INCOME AND DIVIDENDS ON A SINGLE SHARE FOR THE PERIOD INDICATED. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM. SEE NOTES TO FINANCIAL STATEMENTS. 7 98 Financial Statements John Hancock Funds - Money Market Fund B SCHEDULE OF INVESTMENTS April 30, 1995 (Unaudited) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY MONEY MARKET FUND B ON APRIL 30, 1995. IT'S DIVIDED INTO SIX TYPES OF SHORT-TERM INVESTMENTS. MOST CATEGORIES OF SHORT-TERM INVESTMENTS ARE FURTHER BROKEN DOWN BY INDUSTRY GROUP.
PAR VALUE INTEREST QUALITY (000'S ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE - ------------------- -------- -------- --------- ----- COMMERCIAL PAPER AUTOMOTIVE (5.08%) Ford Motor Credit Co., 05-22-95.................................................. 6.020% Tier 1 $ 2,900 $ 2,870,903 ----------- BANKING (5.08%) Norwest Corp., 06-16-95................................................................... 6.000 Tier 1 2,900 2,871,000 ----------- BANKING - FOREIGN (0.37%) Deutsche Bank Financial, Inc., 05-01-95................................................................... 6.050 Tier 1 211 209,121 ----------- BROKER SERVICES (15.04%) Bear Stearns Cos., Inc., 06-20-95................................................................... 6.000 Tier 1 3,000 2,970,000 Goldman Sachs Group, L.P., 06-01-95................................................................... 6.100 Tier 1 2,400 2,365,027 Merrill Lynch & Co., Inc., 05-22-95................................................................... 6.030 Tier 1 300 296,985 Merrill Lynch & Co., Inc., 06-12-95................................................................... 6.020 Tier 1 1,000 990,970 Merrill Lynch & Co., Inc., 06-19-95................................................................... 6.010 Tier 1 1,900 1,880,968 ----------- 8,503,950 ----------- FINANCE (3.51%) American Honda Finance Corp., 06-01-95................................................................... 6.050 Tier 1 2,000 1,981,178 ----------- INSURANCE (5.08%) American General Finance Corp., 06-12-95................................................................... 6.000 Tier 1 2,900 2,871,000 ----------- MORTGAGE BANKING (5.10%) Countrywide Funding Corp., 05-12-95................................................................... 6.040 Tier 1 2,900 2,885,403 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 8 99 Financial Statements John Hancock Funds - Money Market Fund B
PAR VALUE INTEREST QUALITY (000'S ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE - ------------------- -------- -------- --------- ----- RETAIL STORES (10.18%) Dayton Hudson Corp., 06-16-95..................................................................... 6.020% Tier 1 $ 2,900 $ 2,870,903 Sears Roebuck Acceptance Corp., 05-12-95..................................................................... 6.000 Tier 1 2,900 2,885,500 ----------- 5,756,403 ----------- TOBACCO (5.29%) Philip Morris Cos., Inc., 05-05-95..................................................................... 6.000 Tier 13,000 2,987,500 ----------- UTILITIES (9.71%) Pennsylvania Power & Light Co., 05-09-95..................................................................... 5.970 Tier 1 2,000 1,995,356 Public Service Electric & Gas Co., 05-09-95..................................................................... 6.000 Tier 1 2,900 2,894,200 U.S. West Communications, Inc., 05-02-95..................................................................... 6.000 Tier 1 600 597,400 ----------- 5,486,956 ----------- TOTAL COMMERCIAL PAPER (Cost $36,423,414) ( 64.44%) 36,423,414 ------- ----------- NEGOTIABLE BANK CERTIFICATES OF DEPOSIT U.S. BRANCHES OF FOREIGN BANKS (7.08%) Industrial Bank of Japan Ltd., 06-21-95..................................................................... 6.250 Tier 1 2,000 2,000,076 Sanwa Bank Ltd., 05-25-95..................................................................... 6.040 Tier 1 2,000 2,000,013 ----------- 4,000,089 TOTAL NEGOTIABLE BANK CERTIFICATES OF DEPOSIT (Cost $4,000,089) ( 7.08%) 4,000,089 ------- ----------- BANKERS' ACCEPTANCES U.S. BRANCHES OF FOREIGN BANKS (3.51%) Bank of Tokyo Ltd., 06-05-95..................................................................... 6.020 Tier 1 2,000 1,982,274 ----------- TOTAL BANKERS' ACCEPTANCES (Cost $1,982,274) ( 3.51%) 1,982,274 ------- -----------
SEE NOTES TO FINANCIAL STATEMENTS. 9 100 Financial Statements John Hancock Funds - Money Market Fund B
PAR VALUE INTEREST QUALITY (000'S ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE - ------------------- -------- -------- --------- ----- CORPORATE INTEREST-BEARING OBLIGATIONS Finance (1.75%) General Electric Capital Corp., 11-15-95................................................................... 5.250% Tier 1 $ 1,000 $ 992,740 ----------- TOTAL CORPORATE INTEREST BEARING OBLIGATIONS (Cost $992,740) ( 1.75%) 992,740 ------- ----------- U. S. GOVERNMENT OBLIGATIONS Governmental - U. S. Agencies (10.15%) Federal Farm Credit Bank, 08-01-95................................................................... 6.650 Tier 1 1,000 1,000,083 Federal Farm Credit Bank, 11-01-95................................................................... 6.100 Tier 1 3,500 3,500,000 Federal Home Loan Mortgage Corp., 05-22-95................................................................... 7.438 Tier 1 250 241,684 Federal National Mortgage Association, 05-22-95................................................................... 6.340 Tier 1 485 473,128 Federal National Mortgage Association, 06-15-95................................................................... 6.549 Tier 1 540 521,827 ----------- 5,736,722 ----------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $5,736,722) ( 10.15%) 5,736,722 ------- ----------- JOINT REPURCHASE AGREEMENT Investment in a joint repurchase agreement transaction with BT Securities Corp. - Dated 04-28-95, Due 05-01-95 (secured by U.S. Treasury Bond, 10.75% Due 08-15-05 and U.S. Treasury Note, 6.875% Due 10-31-96)............................. 5.960 10,750 10,750,000 ------- ----------- TOTAL JOINT REPURCHASE AGREEMENT ( 19.02%) 10,750,000 ------- ----------- TOTAL INVESTMENTS (105.95%) $59,885,239 ======= =========== *Quality ratings indicate the categories of eligible securities, as defined by Rule 2a-7 of the U.S. Securities and Exchange Commission, owned by the Fund. The percentage shown for each investment category is the total value of that category expressed as a percentage of total net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS. 10 101 Notes to Financial Statements John Hancock Funds - Money Market Fund B (UNAUDITED) NOTE A - ACCOUNTING POLICIES John Hancock Series, Inc. (the "Trust") is a diversified, open-end management investment company, registered under the Investment Company Act of 1940, as amended. The Trust consists of six series portfolios: John Hancock Money Market Fund B (the "Fund"), John Hancock Emerging Growth Fund, John Hancock Global Resources Fund, John Hancock High Yield Tax Free Fund, John Hancock High Yield Bond Fund and John Hancock Government Income Fund. The Trustees may authorize the creation of additional Funds from time to time to satisfy various investment objectives. Effective December 22, 1994 (see Note B), the Trust and Funds changed names by replacing the word Transamerica with John Hancock. Significant accounting policies of the Fund are as follows: VALUATION OF INVESTMENTS The Trustees have determined appropriate methods for valuing portfolio securities. Accordingly, portfolio securities are valued at amortized cost, in accordance with Rule 2a-7 of the Investment Company Act of 1940, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between the principal amount due at maturity and the cost of the security to the Fund. Interest income on certain portfolio securities such as negotiable bank certificates of deposit and interest bearing notes is accrued daily and included in interest receivable. JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis for both financial reporting and federal income tax purposes. FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies. It will not be subject to Federal income tax on taxable earnings which are distributed to shareholders. DIVIDENDS The Fund's net investment income is declared daily as dividends to shareholders of record as of the close of business on the preceding day and distributed monthly. NOTE B - MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND TRANSACTIONS WITH AFFILIATES AND OTHERS On December 22, 1994, the Adviser became the investment adviser for the Fund with approval of the Trustees and shareholders of the Fund. The Fund's former investment manager was Transamerica Fund Management Company ("TFMC"). Under the present investment management contract, the Fund pays a monthly management fee to the Adviser for a continuous investment program equivalent, on an annual basis, to the sum of (a) 0.50% of the first $500,000,000 of the Fund's average daily net asset value, (b) 0.425% of the next $250,000,000, (c) 0.375% of the next $250,000,000, (d) 0.350% of the next $500,000,000, (e) 0.325% of the next $500,000,000, (f) 0.300% of the next $500,000,000 and (g) 0.275% of the Fund's average daily net asset value in excess of $2,500,000,000. This fee structure is consistent with the former agreement with TFMC. For the period ended April 30, 1995, the advisory fee earned by the Adviser and TFMC amounted to $87,082 and $50,611, respectively, resulting in a total fee of $137,693. 11 102 Notes to Financial Statements John Hancock Funds - Money Market Fund B The Adviser and TFMC, for their respective periods, provided administrative services to the Fund pursuant to an administrative service agreement through January 16, 1995 on which day the agreement was terminated. In the event normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of the most restrictive state limit where the Fund is registered to sell shares of beneficial interest, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make additional arrangements necessary to eliminate any remaining excess expenses. The current limits are 2.5% of the first $30,000,000 of the Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of the remaining average daily net asset value. On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a wholly-owned subsidiary of the Adviser, became the principal underwriter of the Fund. Prior to this date, Transamerica Fund Distributors, Inc. ("TFD") served as the principal underwriter and distributor of the Fund. Class B shares which are redeemed within six years of purchase will be subject to a contingent deferred sales charge ("CDSC") at declining rates beginning at 5.0% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSC are paid to JH Funds, formerly TFD, and are used in whole or in part to defray its expenses related to providing distribution related services to the Fund in connection with the sale of Class B shares. For the period ended April 30, 1995, contingent deferred sales charges amounted to $302,060. In addition, to compensate JH Funds for the services it provides as distributor of shares of the Fund, the Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940. Accordingly, the Fund will make payments for distribution and service expenses which in total will not exceed on an annual basis 1.00% of the Fund's average daily net assets to reimburse for its distribution/service costs. Up to a maximum of 0.25% of such payments may be service fees as defined by the amended Rules of Fair Practice of the National Association of Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. This fee structure and plan is similar to the former arrangement with TFD. The Board of Trustees approved a shareholder servicing agreement between the Fund and John Hancock Investor Services Corporation ("Investor Services"), a wholly owned subsidiary of The Berkeley Financial Group, for the period between December 22, 1994 and May 12, 1995, inclusive under which Investor Services processed telephone transactions on behalf of the Fund. As of May 15, 1995, the Fund entered into a full service transfer agent agreement with Investor Services. Prior to this date The Shareholder Services Group was the transfer agent. The Fund will pay Investor Services a fee based on transaction volume and number of shareholder accounts. A partner with Baker & Botts was an officer of the Trust until December 22, 1994. During the period ended April 30, 1995, legal fees paid to Baker & Botts amounted to $688. Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser and its affiliates as well as Trustee of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. Effective with the fees paid for 1995, the unaffiliated Trustees may elect to defer their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund will make investments into other John Hancock Funds, as applicable, to cover its liability with regard to the deferred compensation. Investments to cover the Fund's deferred compensation liability will be recorded on the Fund's books as other assets. The deferred compensation liability will be marked to market on a periodic basis and income earned by the investment will be recorded on the Fund's books. The Fund has an independent advisory board composed of certain members of the former Transamerica Board of Trustees who provide advice to the current Trustees in order to facilitate a smooth management transition for which the Fund pays the advisory board and its counsel a fee. 12 103 Notes to Financial Statements John Hancock Funds - Money Market Fund B NOTE C - INVESTMENT TRANSACTIONS Purchases and proceeds from sales and maturities, including discount earned on investment securities, during the period ended April 30, 1995 aggregated $1,348,016,627 and $1,332,603,541, respectively. The cost of investments owned at April 30, 1995 for Federal income tax purposes was $59,885,239. SEE NOTES TO FINANCIAL STATEMENTS. 13 104 JOHN HANCOCK SERIES, INC. CROSS REFERENCE SHEET JOHN HANCOCK MONEY MARKET FUND CLASS S SHARES __________________________ Pursuant to Rule 495(a) under the Securities Act of 1993
ITEM NUMBER FORM N-1A STATEMENT OF ADDITIONAL PART A PROSPECTUS CAPTION INFORMATION CAPTION ___________________________________________________________________ 1 Front Cover Page * 2 Expense Information; The * Fund's Expenses; Share Price 3 The Fund's Financial * Highlights; Performance 4 Investment Objective and * Policies; Organization and Management of the Fund 5 Organization and * Management of the Fund; The Fund's Expenses; Back Cover Page 6 Organization and * Management of the Fund; Dividends and Taxes; How to Buy Class S Shares; How to Redeem Class S Shares; Additional Services and Programs 7 How to Buy Class S Shares; * Share Price; Additional Services and Programs; The Fund's Expenses; Back Cover Page 8 How to Redeem Class S Shares * 9 Not Applicable * 10 * Front Cover Page
105
ITEM NUMBER FORM N-1A STATEMENT OF ADDITIONAL PART A PROSPECTUS CAPTION INFORMATION CAPTION ___________________________________________________________________ 11 * Table of Contents 12 * Organization of the Corporation 13 * Investment Objective and Policies; Certain Investment Practices; Investment Restrictions 14 * Those Responsible for Management 15 * Those Responsible for Management 16 * Investment Advisory and Other Services; Distribution Contracts; Transfer Agent Services; Custody of Portfolio; Independent Auditors 17 * Brokerage Allocation 18 * Description of Corporation's Shares 19 * Net Asset Value; Additional Services and Programs 20 * Tax Status 21 * Distribution Contract 22 * Calculation of Performance 23 * Financial Statements
-2- 106 JOHN HANCOCK MONEY MARKET FUND CLASS S SHARES PROSPECTUS SEPTEMBER 12, 1995 ____________________________________________________________________ TABLE OF CONTENTS
Page ---- Expense Information........................................ 3 The Fund's Financial Highlights............................ 4 Yield Information.......................................... 6 Investment Objective and Policies.......................... 6 Organization and Management of the Fund.................... 8 The Fund's Expenses........................................ 9 Dividends and Taxes........................................ 10 How to Buy Class S Shares.................................. 11 Share Price................................................ 12 How to Redeem Class S Shares............................... 12 Investments, Techniques and Risk Factors................... 13
This Prospectus sets forth the information about Class S shares of John Hancock Money Market Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Company"), that you should know before investing. Please read and retain it for future reference. Class S shares of the Fund are offered exclusively to investors who maintain brokerage accounts with certain brokers who offer the Fund's shares as part of a sweep account (the "Selling Broker"). To invest in Class S shares of the Fund, the credit balances in your brokerage account will be automatically invested or "swept" into the Fund, subject to the terms of your brokerage account agreement. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. Additional information about the Fund and the Company has been filed with the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement of Additional Information for Class S shares, dated September 12, 1995, and incorporated by reference into this Prospectus, free of charge by writing or telephoning: John Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD). If you have any service related questions you should contact your Selling Broker. 107 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -2- 108 EXPENSE INFORMATION The purpose of the following information is to help you to understand the various fees and expenses you will bear, directly or indirectly, when you purchase Class S shares of the Fund. The operating expenses included in the table and hypothetical example below are based on fees and expenses of the Class B shares of the Fund for the fiscal year ended October 31, 1994. No Class S shares were actually outstanding during the period. Actual fees and expenses of Class S shares in the future may be greater or less than those indicated.
SHAREHOLDER TRANSACTION EXPENSES Maximum sales charge imposed on purchases (as a percentage of offering price).................... None Maximum sales charge imposed on reinvested dividends................................... None Deferred sales load .................................... None Redemption fee+......................................... None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management fee. ........................................ 0.50% 12b-1 fee*.............................................. 0.40% Other expenses**. ...................................... 0.65% Total Fund operating expenses .......................... 1.55% ---- + Redemption by wire fee (currently $4.00) not included. * The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of the Fund's average net assets, and the remaining portion will be used to cover distribution expenses. ** Other Expenses include transfer agent, legal, audit, custody and other expenses.
In addition to the above expenses, the Selling Broker with whom a shareholder maintains a sweep account may charge an annual administration fee for making the account available.
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.............. $16 $49 $84 $185
-3- 109 (This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown). The Fund's payment of a distribution fee may result in a long-term shareholder indirectly paying more than the economic equivalent of the maximum front-end sales charge permitted under the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. The management and 12b-1 fees referred to above are more fully explained in this Prospectus under the caption "The Fund's Expenses" and in the Statement of Additional Information under the captions "Investment Advisory and Other Services" and "Distribution Contract." THE FUND'S FINANCIAL HIGHLIGHTS The information in the following table of financial highlights has been audited by Ernst & Young LLP, the Fund's independent auditors, whose unqualified report is included in the Statement of Additional Information. Class S shares are a new class of shares; no financial highlights exist for Class S shares. Further information about the performance of the Fund is contained in the Fund's Annual Report to shareholders, which may be obtained free of charge by writing or telephoning John Hancock Investor Services Corporation ("Investor Services") at the address or telephone number listed on the front page of this Prospectus. -4- 110 Selected data for a Class B share outstanding throughout each period is as follows: SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, 1995 ---------------------- PERIOD ENDED (UNAUDITED)(1) 1994 1993 1992 1991 1990 1989 1988 OCTOBER 31, 1987(2) --------------- ---- ---- ---- ---- ---- ---- ---- ------------------ Net asset value, beginning of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 INCOME FROM INVESTMENT OPERATIONS Net investment income............ $ 0.02 0.018 0.009 0.017 0.045 0.061 0.072 0.059 0.0007 LESS DISTRIBUTIONS Dividends from net investment income.......................... (0.02) (0.018) (0.009) (0.017) (0.045) (0.061) (0.072) (0.059) (0.0007) ------- ------- ------- ------- ------- ------- ------- ------ ------- Net asset value, end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= ======= ======= ====== ======= Total Return(3).................. 1.88% 1.87% 0.85% 1.73% 4.61% 6.30% 7.40% 6.06% 0.06% ======= ======= ======= ======= ======= ======= ======= ====== ======= RATIOS AND SUPPLEMENTAL DATA Ratio of expenses to average net assets...................... 2.07%* 2.06% 2.44% 2.47% 2.23% 2.31% 2.59% 2.41% 0.03% Ratio of expense reduction to average net assets........... -- -- -- -- (0.12)% (0.15)% (0.47)% (0.90)% (0.02)% ------- ------- ------- ------- ------- ------- ------- ------ ------- Ratio of net expenses to average net assets.............. 2.07%* 2.06% 2.44% 2.47% 2.11% 2.16% 2.12% 1.51% 0.01% ======= ======= ======= ======= ======= ======= ======= ====== ======= Ratio of net investment income to average net assets.......................... 3.76%* 1.97% 0.85% 1.69% 4.45% 6.11% 7.16% 6.01% 0.07% Net Assets, end of period (in thousands).................. $56,522 $58,366 $31,546 $31,480 $20,763 $21,099 $13,610 $7,692 $ 2,535 _____________ (1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser to the Fund. (2) Financial highlights, including total return, are for the period from October 26, 1987 (date of the Fund's initial offering of shares to the public) to October 31, 1987 and have not been annualized. (3) Total return does not include the effect of the contingent deferred sales charge. * Annualized basis.
-5- 111 YIELD INFORMATION Current information on the Fund's annualized yield during a recent seven-day period may be obtained by calling the Easi-Line at 1-800-338-8080 or a customer service representative, 1-800-225-5291. For information on how the Fund calculates its annualized yield see the Statement of Additional Information. INVESTMENT OBJECTIVE AND POLICIES THE FUND SEEKS TO PROVIDE MAXIMUM CURRENT INCOME CONSISTENT WITH CAPITAL PRESERVATION AND LIQUIDITY. The Fund seeks to provide maximum current income consistent with capital preservation and liquidity. The Fund's investments will be subject to the market fluctuations and risks inherent in all securities, and there is no assurance that the investment objective will always be achieved. The Fund seeks to achieve its objective by investing in money market instruments including, but not limited to, U.S. Government, municipal and foreign governmental securities; obligations of supranational organizations (E.G., the World Bank and the International Monetary Fund); obligations of U.S. and foreign banks and other lending institutions; corporate obligations; repurchase agreements and reverse repurchase agreements. As a fundamental policy, the Fund may not invest more than 25% of its total assets in obligations issued by (i) foreign banks or (ii) foreign branches of U.S. banks where John Hancock Advisers, Inc. (the "Adviser"), the Fund's investment adviser, has determined that the U.S. bank is not unconditionally responsible for the payment obligations of the foreign branch. All of the Fund's investments will be denominated in U.S. dollars. THE FUND INVESTS ONLY IN HIGH QUALITY SECURITIES BELIEVED TO PRESENT MINIMAL CREDIT RISKS, UNDER PROCEDURES ADOPTED BY THE BOARD OF DIRECTORS. At the time the Fund acquires its investments, they will be rated (or issued by an issuer that is rated with respect to a comparable class of short-term debt obligations) in one of the two highest rating categories for short-term debt obligations assigned by at least two nationally recognized rating organizations (or one rating organization if the obligation was rated by only one such organization). These high quality securities are divided into "first tier" and "second tier" securities. First tier securities have received the highest rating from at least two rating organizations (or one, if only one has rated the security). Second tier securities have received ratings within the two highest categories from at least two rating agencies (or one, if -6- 112 only one has rated the security), but do not qualify as first tier securities. The Fund may also purchase obligations that are not rated, but are determined by the Adviser, based on procedures adopted by the Fund's Board of Directors, to be of comparable quality to rated first or second tier securities. The Fund may not purchase any second tier security if, as a result of its purchase (a) more than 5% of its total assets would be invested in second tier securities or (b) more than 1% of its total assets or $1 million (whichever is greater) would be invested in the second tier securities of a single issuer. For a description of the ratings assigned by the rating organizations, see the Statement of Additional Information. BY LIMITING THE MATURITY OF ITS INVESTMENTS, THE FUND SEEKS TO LESSEN THE CHANGES IN THE VALUE OF ITS ASSETS CAUSED BY MARKET FACTORS. All of the Fund's investments will mature in 397 days or less. The Fund will maintain an average dollar-weighted portfolio maturity of 90 days or less. CLASS S SHARES OF THE FUND MAY BE APPROPRIATE FOR A VARIETY OF INVESTMENT PROGRAMS, WHICH CAN BE LONG-TERM OR SHORT-TERM IN NATURE. While the Fund is not a substitute for building an investment portfolio tailored to your investment needs and risk tolerance, the "sweep" feature of the Class S shares enables you to use the Fund as a high quality, conveniently liquid money market investment for cash balances in your brokerage account. See "How to Buy Class S Shares" and "How to Redeem Class S Shares." Because the Fund is designed to provide liquidity and stability of capital, as well as automatic investment of free credit balances, it may be especially suitable if you have short-term investment objectives or are awaiting an opportune time to invest in the equity and/or bond markets. However, the Fund may also be appropriate if you are a long-term investor seeking low-risk investment alternatives which are designed to provide current income. THE FUND FOLLOWS CERTAIN POLICIES THAT MAY HELP TO REDUCE INVESTMENT RISK. The Fund has adopted certain investment restrictions that are enumerated in detail in the Statement of Additional Information, where they are classified as fundamental or nonfundamental. Those restrictions designated as fundamental may not be changed without shareholder approval. The Fund's investment objective and, except as otherwise expressly stated, its investment policies are -7- 113 nonfundamental and may be changed by a vote of the Board of Directors without shareholder approval. Notwithstanding the Fund's fundamental investment restriction prohibiting investments in other investment companies, the Fund may, pursuant to an order granted by the SEC, invest in other investment companies in connection with a deferred compensation plan for the non- interested directors of the John Hancock funds. BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION. The primary consideration in choosing brokerage firms to carry out the Fund's transactions is execution at the most favorable prices, taking into account the broker's professional ability and quality of service. Pursuant to procedures determined by the Board of Directors, the Adviser may place securities transactions with brokers affiliated with the Adviser. The brokers include Tucker Anthony Incorporated, Sutro and Company, Inc. and John Hancock Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life Insurance Company (the "Life Company"), which in turn indirectly owns the Adviser. See "Investments, Techniques and Risk Factors" for more information about the Fund's investments. ORGANIZATION AND MANAGEMENT OF THE FUND THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTORS' POLICIES AND SUPERVISION. The Fund is a diversified series of the Company, which is an open-end management investment company organized as a Maryland corporation in 1987. The Company reserves the right to create and issue a number of series of shares, or funds or classes thereof, which are separately managed and have different investment objectives. The Directors have authorized the issuance of three classes of shares of the Fund, designated as Class A, Class B and Class S. The shares of each class represent an interest in the same portfolio of investments of the Fund. Each class has equal rights as to voting, redemption, dividends and liquidation. However, each class is subject to different fees and expenses (which affect performance), has different minimum investment requirements and is entitled to different services. Also Class A, Class B and Class S shareholders have exclusive voting rights with respect to their distribution plans. Information regarding Class A and Class B shares of the Fund may be obtained from your Selling Broker or from the Fund by calling a John Hancock customer service representative at the number on the front cover of this Prospectus. The Company is not required to and does not intend to -8- 114 hold annual meetings of shareholders, although special meetings may be held for such purposes as electing or removing Directors, changing fundamental policies or approving a management contract. The Fund, under certain circumstances, will assist in shareholder communications with other shareholders. JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL ASSET VALUE OF MORE THAN $13 BILLION. The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of the Life Company, a financial services company. The Adviser provides the Fund, and other investment companies in the John Hancock group of funds, with investment research and portfolio management services. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of the John Hancock mutual funds through brokers who have arrangements with John Hancock Funds. Certain Fund officers are also officers of the Adviser and John Hancock Funds. In order to avoid any conflict with portfolio trades for the Fund, the Adviser and the Fund have adopted extensive restrictions on personal securities trading by personnel of the Adviser and its affiliates. Some of these restrictions are: preclearance for all personal trades and a ban on the purchase of initial public offerings, as well as contributions to specified charities of profits on securities held for less than 91 days. These restrictions are a continuation of the basic principle that the interests of the Fund and its shareholders come first. THE FUND'S EXPENSES For managing its investment and business affairs, the Fund pays a monthly fee to the Adviser based on a stated percentage of the Fund's average daily net assets. During the fiscal year ended October 31, 1994, the Fund paid advisory fees in an amount equal to 0.50% of the Fund's average daily net assets to the Fund's former investment adviser. THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED SHAREHOLDER SERVICING. The Class S shareholders have adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Under this Plan, the Fund will pay distribution and service fees at an aggregate annual rate of up to 0.40% of the Class S shares' average daily net assets. Under the Plan, up to 0.25% is for service expenses and the remaining amount is for distribution expenses. The distribution fees will be used to reimburse John Hancock Funds for its distribution expenses, including but not limited to: (i) initial and ongoing sales -9- 115 compensation to other brokers or financial service firms who have arrangements with John Hancock Funds and others (including affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred in connection with the distribution of Fund shares; and (iii) distribution expenses incurred by other investment companies which sell all or substantially all of their assets to, merge with or otherwise engage in a reorganization transaction with the Fund. The service fees will be used to compensate brokers who have arrangements with John Hancock Funds for providing personal and account maintenance services to shareholders. In the event John Hancock Funds is not fully reimbursed for payments it makes or expenses it incurs under the Plan, these expenses will be carried forward together with interest on the balance of these unreimbursed expenses. Information on the Fund's total expenses is in the Financial Highlights section of this Prospectus. DIVIDENDS AND TAXES THE FUND GENERALLY DECLARES DIVIDENDS DAILY AND DISTRIBUTES DIVIDENDS MONTHLY. DIVIDENDS. The Fund generally declares dividends daily and distributes dividends monthly, representing all or substantially all of its net investment income. The Fund will distribute net realized capital gains, if any, at least annually. Dividends are reinvested in additional shares of your class. TAXATION. Dividends from the Fund's net investment income and net short-term capital gains are taxable to you as ordinary income. Dividends from the Fund's net long-term capital gains, if any, are taxable as long-term capital gain. The Fund does not anticipate that it will generally realize any long-term capital gains. Dividends are taxable, whether received in cash or reinvested in additional shares. Certain dividends may be paid by the Fund in January of a given year but may be treated as if you received them the previous December. Your Selling Broker will send you a statement by January 31 showing the federal tax status of the dividends you received for the prior year. The Fund has qualified and intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, the Fund will not be subject to Federal income tax on any net investment income or net realized capital gains distributed to its shareholders within the time period prescribed by the Code. -10- 116 On the account application, you must certify that the social security or other taxpayer identification number you provide is your correct number and that you are not subject to backup withholding of Federal income tax. If you do not provide this information or are otherwise subject to this withholding, the Fund may be required to withhold 31% of your dividends. In addition to Federal taxes, you may be subject to state and local or foreign taxes with respect to your investment in and distributions from the Fund. A state income (and possibly local income and/or intangible property) tax exemption is generally available to the extent the Fund's distributions are derived from interest on (or, in the case of intangibles taxes, the value of its assets is attributable to) certain U.S. Government obligations, provided in some states that certain thresholds for holdings of such obligations and/or reporting requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders are subject to different tax rules not described herein. You should consult your tax adviser for specific advice. HOW TO BUY CLASS S SHARES Class S shares of the Fund are offered exclusively to investors who maintain a brokerage account with certain brokers who offer the Fund's shares as part of a sweep account (the "Selling Broker"). When you open a brokerage account, free credit balances in your brokerage account will be automatically invested or "swept" into the Fund, subject to the terms and conditions of your brokerage account agreement. An initial purchase of Class S shares of the Fund will be made automatically when the free credit balance in your brokerage account (including deposits, proceeds of sales of securities, and miscellaneous cash dividends and interest, but not amounts held by the Selling Broker as collateral for margin obligations to the Selling Broker exceeds the amount specified in your brokerage account agreement at the time specified in your brokerage account agreement. Thereafter, free credit balances in your brokerage account which, in total, equal or exceed the amount specified in your brokerage account agreement at the time specified in your brokerage account agreement will be automatically invested in Class S shares of the Fund. Purchase orders for the shares will automatically be purchased on your behalf by the Selling Broker equal to free cash balances in your account as of [________] on that day. Upon request, the amount specified in your brokerage account agreement or more may be invested in Class S shares of the Fund on the business day following receipt by the transfer agent of investor instructions. Questions regarding the terms of your brokerage account agreement should be directed to the Selling Broker. -11- 117 YOU WILL RECEIVE ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL RECORDKEEPING. You will receive a statement of your account after any transaction that affects your share balance or registration (statements related to reinvestment of dividends will be sent to you quarterly). A tax information statement will be mailed to you by January 31 of each year. SHARE PRICE THE PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PER SHARE, WHICH WILL NORMALLY BE CONSTANT AT $1.00. The net asset value per share ("NAV") is the value of one share. The NAV is calculated by dividing the net assets allocable to the Class S shares by the number of outstanding Class S shares. Securities in the Fund's portfolio are valued at amortized cost, which the Board of Directors has determined approximates market value. Under the amortized cost pricing method, a portfolio investment is valued at its cost and thereafter any discount or premium is amortized to maturity, regardless of the impact of fluctuating interest rates on the market value of the investment. Amortized cost pricing facilitates the maintenance of a $1.00 constant net asset value per share, but, of course, this cannot be guaranteed. The NAV is calculated twice daily, at 12:00 noon Eastern time and as of the close of regular trading on the New York Stock Exchange (the "Exchange") (generally at 4:00 P.M., New York time) on each day that the Exchange is open. The price you pay for shares of the Fund equals the NAV computed after your investment is accepted in good order by John Hancock Funds, which will normally be constant at $1.00 per share. There is no sales charge on Class S shares of the Fund. HOW TO REDEEM CLASS S SHARES REDEMPTIONS WILL BE AUTOMATICALLY EFFECTED BY YOUR SELLING BROKER TO SATISFY DEBIT BALANCES IN YOUR BROKERAGE ACCOUNT. Redemptions will be automatically effected by your Selling Broker to satisfy debit balances in your brokerage account or to provide the necessary cash collateral for your margin obligations to your Selling Broker. Redemptions will also be automatically effected to settle securities transactions with your Selling Broker if your free credit balance on the day before settlement is insufficient to settle the transactions. Your Selling Broker will, as of the close of business on each business day, -12- 118 automatically scan each sweep account for debits and pending securities settlements, and, after application of any free credit balances in the sweep account to such debits, your Selling Broker will place a redemption order on your behalf for a sufficient number (or your entire balance of Class S shares in the event that your debits exceed the amount of Class S shares in your account) of Class S shares of the Fund. You may also redeem Class S shares of the Fund by placing a redemption request through your Selling Broker. The proceeds from this redemption will be deposited as cash balances in your sweep account with the Selling Broker. You may elect the checkwriting privilege which allows you to write checks in amounts from a minimum of $100. Checks may not be written against shares in your account which have been purchased within the last 10 days, except for shares purchased by wire transfer (which are immediately available). INVESTMENTS, TECHNIQUES AND RISK FACTORS SECURITIES OF FOREIGN ISSUERS. Foreign issuers may not be subject to accounting standards and government supervision comparable to U.S. companies, and there is often less publicly available information about their operations. Foreign markets generally provide less liquidity than U.S. markets (and thus potentially greater price volatility), and typically provide fewer regulatory protections for investors. Foreign securities can also be affected by political or financial instability abroad. Foreign branches of United States banks may be subject to less stringent reserve requirements than domestic branches. United States branches and agencies of foreign banks and foreign branches of United States banks may provide less public information than, and may not be subject to, the same accounting, auditing and financial record-keeping standards as domestic banks. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net assets in illiquid investments, which include repurchase agreements maturing in more than seven days, restricted securities and securities not readily marketable. The Fund may also invest up to 10% of its assets in restricted securities eligible for resale to certain institutional investors pursuant to Rule 144A under the Securities Act of 1933. LENDING OF SECURITIES. The Fund may lend portfolio securities to brokers, dealers, and financial institutions if the loan is collateralized by cash or U.S. Government securities according to applicable regulatory requirements. The Fund may reinvest any cash collateral in short-term securities. When the Fund lends portfolio securities, there is a risk that the borrower may fail to return the loaned securities. As a result, the Fund may incur a loss, or, in the event of the borrower's bankruptcy, the Fund -13- 119 may be delayed in or prevented from liquidating the collateral. It is a fundamental policy of the Fund not to lend portfolio securities having a total value in excess of 30% of its total assets. REPURCHASE AGREEMENTS, FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. The Fund may enter into repurchase agreements and may purchase securities on a forward commitment or when-issued basis. In a repurchase agreement, the Fund buys a security subject to the right and obligation to sell it back to the seller at a higher price. These transactions must be fully collateralized at all times, but involve some credit risk to the Fund if the other party defaults on its obligation and the Fund is delayed in or prevented from liquidating the collateral. The Fund will segregate in a separate account cash or liquid, high grade debt securities equal in value to its forward commitments and when-issued securities. Purchasing debt securities for future delivery or on a when-issued basis may increase the Fund's overall investment exposure and involves a risk of loss if the value of the securities declines before the settlement date. -14- 120 JOHN HANCOCK MONEY MARKET FUND JOHN HANCOCK MONEY MARKET FUND INVESTMENT ADVISER CLASS S SHARES John Hancock Advisers, Inc. PROSPECTUS 101 Huntington Avenue SEPTEMBER 12, 1995 Boston, Massachusetts 02199-7603 PRINCIPAL DISTRIBUTOR A MONEY MARKET FUND THAT SEEKS TO John Hancock Funds, Inc. PROVIDE MAXIMUM CURRENT INCOME 101 Huntington Avenue CONSISTENT WITH CAPITAL PRESER- Boston, Massachusetts 02199-7603 VATION AND LIQUIDITY. CUSTODIAN Investors Bank & Trust Company 101 HUNTINGTON AVENUE 24 Federal Street BOSTON, MASSACHUSETTS 02199-7603 Boston, Massachusetts 02110 TRANSFER AGENT John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116 121 JOHN HANCOCK MONEY MARKET FUND CLASS S SHARES STATEMENT OF ADDITIONAL INFORMATION SEPTEMBER 12, 1995 This Statement of Additional Information ("SAI") provides information about John Hancock Money Market Fund (the "Fund"), a diversified series of John Hancock Series, Inc. (the "Corporation"), in addition to the information that is contained in the Fund's Class S Prospectus, dated September 12, 1995 (the "Prospectus"). This SAI is not a prospectus. It should be read in conjunction with the Prospectus, a copy of which can be obtained free of charge by writing or telephoning: John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-5291 1-800-225-5291 TABLE OF CONTENTS
Page ---- Organization of the Corporation.......................... 2 Investment Objective and Policies........................ 2 Certain Investment Practices............................. 2 Investment Restrictions.................................. 7 Those Responsible for Management......................... 11 Investment Advisory and Other Services................... 19 Distribution Contract.................................... 22 Amortized Cost Method of Portfolio Valuation........................................... 24 Special Redemptions...................................... 25 Description of the Corporation's Shares.................. 25 Tax Status............................................... 27 Calculation of Performance............................... 29 Brokerage Allocation..................................... 31 Transfer Agent Services.................................. 33 Custody of Portfolio..................................... 33 Independent Auditors..................................... 33 Appendix................................................. A-1 Financial Statements..................................... F-1
122 ORGANIZATION OF THE CORPORATION The Corporation is an open-end management investment company organized as a Maryland corporation on June 22, 1987. The Corporation currently has six series: John Hancock Emerging Growth Fund, John Hancock Global Resources Fund, John Hancock Government Income Fund, John Hancock High Yield Bond Fund, John Hancock High Yield Tax-Free Fund and John Hancock Money Market Fund (the "Fund"). Prior to September 12, 1995, the Fund was called John Hancock Money Market Fund B. Prior to December 22, 1994, the Fund was called Transamerica Money Market Fund B. The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company (the "Life Company"), chartered in 1862 with national headquarters at John Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock Funds") acts as principal distributor of the shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES The Fund seeks to provide maximum current income consistent with the preservation of capital and liquidity. Securities in which the Fund invests may not earn as high a level of current income as longer term or lower quality securities, which generally have less liquidity, greater market risk, and more fluctuation in market value. There can be no assurance that the Fund's investment objective will be realized. CERTAIN INVESTMENT PRACTICES GOVERNMENT SECURITIES. The Fund may invest in U.S. government securities, which are obligations issued or guaranteed by the U.S. Government and its agencies, authorities or instrumentalities. Certain U.S. Government securities, including U.S. Treasury bills, notes and bonds, and Government National Mortgage Association certificates ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government securities, issued or guaranteed by Federal agencies or government sponsored enterprises, are not supported by the full faith and credit of the United States, but may be supported by the right of the issuer to borrow from the U.S. Treasury. These securities include obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given that the U.S. Government will provide financial -2- 123 support to such Federal agencies, authorities, instrumentalities and government sponsored enterprises in the future. CUSTODIAL RECEIPTS. The Fund may acquire custodial receipts in respect of U.S. government securities. Such custodial receipts evidence ownership of future interest payments, principal payments or both on certain notes or bonds. These custodial receipts are known by various names, including Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS"). For certain securities law purposes, custodial receipts are not considered U.S. government securities. BANK AND CORPORATE OBLIGATIONS. The Fund may invest in commercial paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations and finance companies. The commercial paper purchased by the Fund consists of direct U.S. dollar denominated obligations of domestic or foreign issuers. Bank obligations in which the Fund may invest include certificates of deposit, bankers' acceptances and fixed time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits. Bank notes and bankers' acceptances rank junior to domestic deposit liabilities of the bank and pari passu with other senior, unsecured obligations of the bank. Bank notes are not insured by the Federal Deposit Insurance Corporation or any other insurer. Deposit notes are insured by the Federal Deposit Insurance Corporation only to the extent of $100,000 per depositor per bank. MUNICIPAL OBLIGATIONS. The Fund may invest in a variety of municipal obligations which consist of municipal bonds, municipal notes and municipal commercial paper. -3- 124 Municipal Bonds. Municipal bonds are issued to obtain funds for various public purposes including the construction of a wide range of public facilities such as airports, highways, bridges, schools, hospitals, housing, mass transportation, streets and water and sewer works. Other public purposes for which municipal bonds may be issued include refunding outstanding obligations, obtaining funds for general operating expenses and obtaining funds to lend to other public institutions and facilities. In addition, certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds for many types of local, privately operated facilities. These debt instruments are considered municipal obligations if the interest paid on them is exempt from federal income tax. The payment of principal and interest by issuers of certain obligations purchased by the Fund may be guaranteed by a letter of credit, note repurchase agreement, insurance or other credit facility agreement offered by a bank or other financial institution. Such guarantees and the creditworthiness of guarantors will be considered by the Adviser in determining whether a municipal obligation meets the Fund's investment quality requirements. No assurance can be given that a municipality or guarantor will be able to satisfy the payment of principal or interest on a municipal obligation. Municipal Notes. Municipal notes are short-term obligations of municipalities, generally with a maturity ranging from six months to three years. The principal types of such notes include tax, bond and revenue anticipation notes and project notes. Municipal Commercial Paper. Municipal commercial paper is a short-term obligation of a municipality, generally issued at a discount with a maturity of less than one year. Such paper is likely to be issued to meet seasonal working capital needs of a municipality or interim construction financing. Municipal commercial paper is backed in many cases by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks and other institutions. Federal tax legislation enacted in the 1980's placed substantial new restrictions on the issuance of the bonds described above and in some cases eliminated the ability of state or local governments to issue municipal obligations for some of the above purposes. Such restrictions do not affect the Federal income tax treatment of municipal obligations in which the Fund may invest which were issued prior to the effective dates of the provisions imposing such restrictions. The effect of these restrictions may be to reduce the volume of newly issued municipal obligations. Issuers of municipal obligations are subject to the provisions of bankruptcy, insolvency and other laws affecting the -4- 125 rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power or ability of any one or more issuers to pay when due the principal of and interest on their municipal obligations may be affected. The yields of municipal bonds depend upon, among other things, general money market conditions, general conditions of the municipal bond market, size of a particular offering, the maturity of the obligation and rating of the issue. The ratings of Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch Investors Service ("Fitch") represent their respective opinions on the quality of the municipal bonds they undertake to rate. It should be emphasized, however, that ratings are general and not absolute standards of quality. Consequently, municipal bonds with the same maturity, coupon and rating may have different yields and municipal bonds of the same maturity and coupon with different ratings may have the same yield. See the Appendix for a description of ratings. Many issuers of securities choose not to have their obligations rated. Although unrated securities eligible for purchase by the Fund must be determined to be comparable in quality to securities having certain specified ratings, the market for unrated securities may not be as broad as for rated securities since many investors rely on rating organizations for credit appraisal. FOREIGN SECURITIES. The Fund may invest in foreign securities and in certificates of deposit, bankers' acceptances and fixed time deposits and other obligations issued by foreign banks and their U.S. and foreign branches and foreign branches of U.S. banks. The Fund may also invest in municipal instruments backed by letters of credit issued by certain of such banks. Under current Securities and Exchange Commission ("SEC") rules relating to the use of the amortized cost method of portfolio securities valuation, the Fund is restricted to purchasing U.S. dollar denominated securities. Investing in obligations of non-U.S. issuers and banks, may entail greater risks than investing in similar securities of U.S. issuers. These risks include (i) social, political and economic instability; (ii) the small current size of the markets for many such securities and the currently low or nonexistent volume of trading, which may result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict the Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; and (v) -5- 126 the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property. REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund would acquire a security for a relatively short period (generally not more than seven days) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with securities dealers. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book- entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities and could experience losses, including the possible decline in the value of the underlying securities during the period which the Fund seeks to enforce its rights thereto, possible subnormal levels of income and lack of access to income during this period, and the expense of enforcing its rights. The Fund will not invest in a repurchase agreement maturing in more than seven days, if such investment, together with other illiquid securities held by the Fund (including restricted securities) would exceed 10% of the Fund's total assets. REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase agreements which involve the sale of government securities held in its portfolio to a bank or securities firm with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund. The Fund will use proceeds obtained from the sale of securities pursuant to reverse repurchase agreements to purchase other investments. The use of borrowed funds to make investments is a practice known as "leverage," which is considered speculative. Use of reverse repurchase agreements is an investment technique that is intended to increase income. Thus, the Fund will enter into a reverse repurchase agreement only when the Adviser determines that the interest income to be earned from the investment of the proceeds is greater than the interest expense of the transaction. However, there is a risk that interest expense will nevertheless exceed the income earned. Reverse repurchase -6- 127 agreements involve the risk that the market value of securities purchased by the Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. The Fund will also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, the Fund will establish and maintain with the Fund's custodian a separate account consisting of highly liquid, marketable securities in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. In addition, the Fund will not enter into reverse repurchase agreements and other borrowings exceeding in the aggregate more than 33 1/3% of the market value of its total net assets. The Fund will enter into reverse repurchase agreements only with selected registered broker/dealers or with federally insured banks or savings and loan associations which are approved in advance as being creditworthy by the Board of Directors. Under procedures established by the Board of Directors, the Adviser will monitor the creditworthiness of the firms involved. INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS The Fund has adopted certain fundamental investment restrictions upon its investments as set forth below which may not be changed without the approval of the holders of a majority of the outstanding shares of the Fund. A majority for this purpose means: (a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of the shares represented at a meeting where more than 50% of the outstanding shares of the Fund are represented, whichever is less. If a percentage restriction or rating restriction on investment or utilization of assets is adhered to at the time an investment is made or assets are so utilized, a later change in percentage resulting from changes in the value of the Fund's portfolio securities or a later change in the rating of a portfolio security would not be considered a violation of policy. The Fund may not: (1) Borrow money in an amount in excess of 33-1/3% of its total assets, and then only as a temporary measure for extraordinary or emergency purposes (except that it may enter into a reverse repurchase agreement within the limits described in this SAI), or pledge, mortgage or hypothecate an amount of its assets (taken at market value) in excess of 15% of its total assets, in each case taken at the lower of cost or market value. For the -7- 128 purpose of this restriction, collateral arrangements with respect to options, futures contracts, options on futures contracts and collateral arrangements with respect to initial and variation margins are not considered a pledge of assets. (2) Underwrite securities issued by other persons except insofar as the Fund may technically be deemed an underwriter under the Securities Act of 1933 in selling a portfolio security. (3) Purchase or retain real estate (including limited partnership interests but excluding securities of companies, such as real estate investment trusts, which deal in real estate or interests therein and securities secured by real estate), or mineral leases, commodities or commodity contracts (except contracts for the future delivery of fixed income securities, stock index and currency futures and options on such futures) in the ordinary course of its business. The Fund reserves the freedom of action to hold and to sell real estate or mineral leases, commodities or commodity contracts acquired as a result of the ownership of securities. (4) Invest in direct participation interests in oil, gas or other mineral exploration or development programs. (5) Make loans to other persons except by the purchase of obligations in which the Fund is authorized to invest and by entering into repurchase agreements; provided that the Fund may lend its portfolio securities not in excess of 30% of its total assets (taken at market value). Not more than 10% of the Fund's total assets (taken at market value) will be subject to repurchase agreements maturing in more than seven days. For these purposes the purchase of all or a portion of an issue of debt securities shall not be considered the making of a loan. (6) Purchase the securities of any issuer if such purchase, at the time thereof, would cause more than 5% of its total assets (taken at market value) to be invested in the securities of such issuer, other than securities issued or guaranteed by the United States or any state or political subdivision thereof, or any political subdivision of any such state, or any agency or instrumentality of the United States, any state or political subdivision thereof, or any political subdivision of any such state. (7) Invest in companies for the purpose of exercising control or management. (8) Purchase or retain in its portfolio any securities issued by an issuer any of whose officers, directors, trustees or security holders is an officer or Director of the Fund, or is a -8- 129 member, partner, officer or Director of the Adviser, if after the purchase of the securities of such issuer by the Fund one or more of such persons owns beneficially more than 1/2 of 1% of the shares or securities, or both, all taken at market value, of such issuer, and such persons owning more than 1/2 of 1% of such shares or securities together own beneficially more than 5% of such shares or securities, or both, all taken at market value. (9) Purchase any securities or evidences of interest therein on margin, except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities. (10) Sell any security which the Fund does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain securities without payment of further consideration equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon equivalent conditions. (11) Purchase securities issued by any other investment company or investment trust except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than the customary broker's commission, or except when such purchase, though not made in the open market, is part of a plan of merger or consolidation; provided, however, that the Fund will not purchase such securities if such purchase at the time thereof would cause more than 10% of its total assets (taken at market value) to be invested in the securities of such issuers; and, provided, further, that the Fund will not purchase securities issued by an open-end investment company. (12) Knowingly invest in securities which are subject to legal or contractual restrictions on resale or for which there is no readily available market (e.g., trading in the security is suspended or market makers do not exist or will not entertain bids or offers), except for repurchase agreements, if, as a result thereof more than 10% of the Fund's total assets (taken at market value) would be so invested. (The Staff of the Securities and Exchange Commission has taken the position that a money market fund may not invest more than 10% of its net assets in illiquid securities. The Fund has undertaken with the Staff to require, that as a matter of operating policy, it will not invest in illiquid securities in an amount exceeding 10% of its net assets.) (13) Issue any senior security (as that term is defined in the Investment Company Act of 1940 ("1940 Act")) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder. For the purpose of this restriction, collateral arrangements with respect to options, -9- 130 futures contracts and options on futures contracts and collateral arrangements with respect to initial and variation margins are not deemed to be the issuance of a senior security. In addition, the Fund may not invest more than 25% of its total assets in obligations issued by (i) foreign banks or (ii) foreign branches of U.S. banks where the Adviser, has determined that the U.S. bank is not unconditionally responsible for the payment obligations of the foreign branch. Also, the Fund may not purchase securities of any issuer (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities) if such purchase, at the time thereof, would cause the Fund to hold more than 10% of any class of securities of such issuer. For this purpose, all indebtedness of an issuer maturing in less than one year) shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class. OTHER OPERATING POLICIES The Fund will not invest more than 5% of its total assets in companies which, including their respective predecessors, have a record of less than three years' continuous operation. In order to comply with certain state regulatory policies, the Fund will not, as a matter of operating policy, pledge, mortgage or hypothecate its portfolio securities if the percentage of securities so pledged, mortgaged or hypothecated would exceed 15%. These operating policies are not fundamental and may be changed without shareholder approval. In order to comply with certain state regulatory practices, certain policies, if changed, would require advance written notice to shareholders. The Corporation's Board of Directors has approved the following nonfundamental investment policy pursuant to an order of the SEC: Notwithstanding any investment restriction to the contrary, the Fund may, in connection with the John Hancock Group of Funds Deferred Compensation Plan for Independent Trustees/ Directors, purchase securities of other investment companies within the John Hancock Group of Funds provided that, as a result, (i) no more than 10% of the Fund's assets would be invested in securities of all other investment companies, (ii) such purchase would not result in more than 3% of the total outstanding voting securities of any one such investment company being held by the Fund and (iii) no more than 5% of the Fund's assets would be invested in any one such investment company. -10- 131 THOSE RESPONSIBLE FOR MANAGEMENT The business of the Corporation is managed by its Directors who elect officers who are responsible for the day-to-day operations of the Corporation and the Fund and who execute policies formulated by the Directors. Several of the officers and Directors of the Corporation are also officers and directors of the Adviser or officers and directors of John Hancock Funds. Set forth below is the principal occupation or employment of the Directors and principal officers of the Corporation during the past five years:
Positions Held Principal Occupation(s) Name and Address With the Corporation During the Past Years ---------------- -------------------- ---------------------- EDWARD J. BOUDREAU, JR.* Director, Chairman Chairman and Chief Executive 101 Huntington Ave. and Chief Executive Officer, the Adviser and The Boston, MA 02199 Officer (1)(2) Berkeley Financial Group ("The Berkeley Group"); Chairman, NM Capital Management, Inc. ("NM Capital"); John Hancock Advisers International Limited ("Advisers International"); John Hancock Funds, Inc.; John Hancock Investor Services Corporation ("Investor Services"); and Sovereign Asset Management Corporation ("SAMCorp"); (hereinafter the Adviser, the Berkeley Group, NM Capital, Advisers International, John Hancock Funds, Inc., Investor Services and SAMCorp are collectively referred to as the "Affiliated Companies"); Chairman, First Signature Bank & Trust; Director, John Hancock Freedom Securities Corporation, __________________________ * An "interested person" of the Corporation as such term is defined in the 1940 Act. (1) Member of the Executive Committee. (2) A member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Committee on Administration. (4) A Member of the Audit, Administration and Compensation Committees.
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Positions Held Principal Occupation(s) Name and Address With the Corporation During the Past Years ---------------- -------------------- ---------------------- John Hancock Capital Corporation, New England/Canada Business Council; Member, Investment Company Institute Board of Governors; Trustee, Museum of Science; President, the Adviser (until July 1992); Trustee or Director of other investment companies managed by the Adviser; and Chairman, John Hancock Distributors, Inc. (until April, 1994). JAMES F. CARLIN Director Chairman and CEO, Carlin 233 West Central Street Consolidated, Inc. (insurance); Natick, MA 01760 Director, Arbella Mutual Insurance Company (insurance), Consolidated Group Trust (group health plan), Carlin Insurance Agency, Inc. and West Insurance Agency, Inc.; Receiver, the City of Chelsea (until August 1992); and Trustee or Director of other investment companies managed by the Adviser. WILLIAM H. CUNNINGHAM Director Chancellor, University of Texas 601 Colorado Street System and former President of O'Henry Hall the University of Texas, Austin, Austin, TX 78701 Texas; Regents Chair in Higher Education Leadership; James L. Bayless Chair for Free Enterprise; Professor of Marketing and Dean College of Business Administration/Graduate School of Business (1983-1985); Centennial Chair in Business Education Leadership, 1983-1985; Director, LaQuinta Motor Inns, __________________________ * An "interested person" of the Corporation as such term is defined in the 1940 Act. (1) Member of the Executive Committee. (2) A member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Committee on Administration. (4) A Member of the Audit, Administration and Compensation Committees.
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Positions Held Principal Occupation(s) Name and Address With the Corporation During the Past Years ---------------- -------------------- ---------------------- Inc. (hotel management company); Director, Jefferson-Pilot Corporation (diversified life insurance company); Director, Freeport-McMoran Inc. (oil and gas company); Director, Barton Creek Properties, Inc. (1988-1990) (real estate development) and LBJ Foundation Board (education foundation); Advisory Director, Texas Commerce Bank - Austin; and Trustee or Director of other investment companies managed by the Adviser. CHARLES L. LADNER Director (3) Director, Energy North, Inc. UGI Corporation (public utility holding company); 460 North Gulph Road Senior Vice President, Finance King of Prussia, PA UGI Corp (public utility holding 19406 company) (until 1992); and Trustee or Director of other investment companies managed by the Adviser. LEO E. LINBECK, JR. Director Chairman, President, Chief 3810 W. Alabama Executive Officer and Director, Houston, TX 77027 Linbeck Corporation (a holding company engaged in various phases of the construction industry and warehousing interests); Director and Chairman, Federal Reserve Bank of Dallas; Chairman of the Board and Chief Executive Officer, Linbeck Construction Corporation; Director, Panhandle Eastern Corporation (a diversified energy company); Director, Daniel Industries, Inc. (manufacturer of gas measuring __________________________ * An "interested person" of the Corporation as such term is defined in the 1940 Act. (1) Member of the Executive Committee. (2) A member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Committee on Administration. (4) A Member of the Audit, Administration and Compensation Committees.
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Positions Held Principal Occupation(s) Name and Address With the Corporation During the Past Years ---------------- -------------------- ---------------------- products and energy related equipment); Director, GeoQuest International, Inc. (a geophysical consulting firm); Director, Greater Houston Partnership; and Trustee or Director of other investment companies managed by the Adviser. PATRICIA P. MCCARTER Director (3) Director and Secretary, the Swedesford Road McCarter Corp. (machine RD #2, Box 121 manufacturer); and Trustee or Malvern, PA 19355 Director of other investment companies managed by the Adviser. STEVEN R. PRUCHANSKY Director (1,3) Director and Treasurer, Mast 360 Horse Creek Dr. Holdings, Inc.; Director, First #208 Signature Bank & Trust Company Naples, FL 33942 (until August 1991); General Partner, Mast Realty Trust; President, Maxwell Building Corp. (until 1991); and Trustee or Director of other investment companies managed by the Adviser. NORMAN H. SMITH Director (3) Lieutenant General, USMC, Deputy Rt. 1, Box 249E Chief of Staff for Manpower and Linden, VA 22642 Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/ 3rd Marine Division (retired 1991); and Trustee or Director of other investment companies managed by the Adviser. JOHN P. TOOLAN Director (3) Director, The Smith Barney Muni 13 Chadwell Place Bond Funds, The Smith Barney Tax- Morristown, NJ 07960 Free Money Fund, Inc., Vantage Money Market Funds (mutual __________________________ * An "interested person" of the Corporation as such term is defined in the 1940 Act. (1) Member of the Executive Committee. (2) A member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Committee on Administration. (4) A Member of the Audit, Administration and Compensation Committees.
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Positions Held Principal Occupation(s) Name and Address With the Corporation During the Past Years ---------------- -------------------- ---------------------- funds), The Inefficient-Market Fund, Inc. (closed-end investment company) and Smith Barney Trust Company of Florida; Chairman, Smith Barney Trust Company (retired December, 1991); Director, Smith Barney, Inc., Mutual Management Company and Smith, Barney Advisers, Inc. (investment advisers) (retired 1991); and Senior Executive Vice President, Director and member of the Executive Committee, Smith Barney, Harris Upham & Co., Incorporated (investment bankers) (until 1991); and Trustee or Director of other investment companies managed by the Adviser. ROBERT G. FREEDMAN* Vice Chairman and Chief Investment Officer, the 101 Huntington Ave. Chief Investment Adviser. Boston, MA 02199 Officer (2) ANNE C. HODSDON* President (2) President, the Adviser. 101 Huntington Ave. Boston, MA 02199 JAMES B. LITTLE* Senior Vice President Senior Vice President, the 101 Huntington Ave. and Chief Financial Adviser Boston, MA 02199 Officer THOMAS H. DROHAN* Senior Vice President Senior Vice President and 101 Huntington Ave. and Secretary Secretary, the Adviser. Boston, MA 02199 MICHAEL P. DICARLO* Senior Vice President Senior Vice President, the 101 Huntington Ave. (2) Adviser Boston, MA 02199 __________________________ * An "interested person" of the Corporation as such term is defined in the 1940 Act. (1) Member of the Executive Committee. (2) A member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Committee on Administration. (4) A Member of the Audit, Administration and Compensation Committees.
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Positions Held Principal Occupation(s) Name and Address With the Corporation During the Past Years ---------------- -------------------- ---------------------- EDGAR LARSEN* Senior Vice President Senior Vice President, the Adviser B.J. WILLINGHAM* Senior Vice President Senior Vice President, the Adviser. Formerly, Director and Chief Investment Officer of Transamerica Fund Management Company. JAMES J. STOKOWSKI* Vice President and Vice President, the Adviser. 101 Huntington Ave. Treasurer. Boston, MA 02199 SUSAN S. NEWTON* Vice President and Vice President and Assistant 101 Huntington Ave. Compliance Officer Secretary, the Adviser. Boston, MA 02199 JOHN A. MORIN* Vice President Vice President, the Adviser. 101 Huntington Ave. Boston, MA 02199 All of the officers listed are officers or employees of the Adviser or affiliated companies. Some of the Directors and officers may also be officers and/or Directors and/or Trustees of one or more of the other funds for which the Adviser serves as investment adviser. As of June 30, there were 131,823,202 and 44,530,250 shares outstanding of the Corporation and the Fund, respectively, and the officers and Directors as a group beneficially owned less than 1% of the outstanding shares of the Corporation and the Fund. At such date, no person owned of record or was known by the Corporation to beneficially own as much as 5% of the outstanding shares of the Fund. __________________________ * An "interested person" of the Corporation as such term is defined in the 1940 Act. (1) Member of the Executive Committee. (2) A member of the Investment Committee of the Adviser. (3) Member of the Audit Committee and the Committee on Administration. (4) A Member of the Audit, Administration and Compensation Committees.
-16- 137 As of December 22, 1994, the Directors have established an Advisory Board which acts to facilitate a smooth transition of management over a two-year period (between Transamerica Fund Management Company ("TFMC"), the prior investment adviser, and the Adviser). The members of the Advisory Board are distinct from the Board of Directors, do not serve the Fund in any other capacity and are persons who have no power to determine what securities are purchased or sold and behalf of the Fund. Each member of the Advisory Board may be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199. Members of the Advisory Board and their respective principal occupations during the past five years are as follows: R. Trent Campbell, President, FMS, Inc. (financial and management services); former Chairman of the Board, Mosher Steel Company. Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas; co-founder, Houston Parents' League; former board member of various civic and cultural organizations in Houston, including the Houston Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently active in various civic and cultural activities in the Washington, D.C. area, including membership on the Area Board for The March of Dimes and is a National Trustee for the Botanic Gardens of Washington, D.C. Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive Officer, TFMC; Director, West Central Advisory Board, Texas Commerce Bank; Trustee, Memorial Hospital System; Chairman of the Board of Regents of Baylor University; Member, Board of Governors, National Association of Securities Dealers, Inc.; Formerly, Chairman, Investment Company Institute; formerly, President, Houston Chapter of Financial Executive Institute. Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director, Houston Industries and Houston Lighting and Power Company; Director, TransAmerican Companies (natural gas producer and transportation); Member, Board of Managers, Harris County Hospital District; Advisory Director, Commercial State Bank, El Campo; Advisory Director, First National Bank of Bryan; Advisory Director, Sterling Bancshares; Former Director and Vice Chairman, Texas Commerce Bancshares; and Vice Chairman, Texas Commerce Bank. COMPENSATION OF THE BOARD OF DIRECTORS AND ADVISORY BOARD. The following table provides information regarding the compensation paid by the Fund and the other investment companies -17- 138 in the John Hancock Fund Complex to the Independent Directors and the Advisory Board members for their services. Mr. Boudreau, a non-Independent Director, and each of the officers of the Fund who are interested persons of the Adviser, are compensated by the Adviser and received no compensation from the Fund for their services.
Pension or Total Compensation Retirement from all Funds in Aggregate Benefits Accrued John Hancock Compensation as Part of the Fund Complex to Directors from the Fund Fund's Expenses Directors** --------- ------------- ---------------- ------------------ James F. Carlin $ 0 $0 $60,450 William H. Cunningham 2,400* 0 0 Charles L. Ladner 0 0 60,450 Leo E. Linbeck, Jr. 3,600* 0 0 Patricia P. McCarter 0 0 60,200 Steven R. Pruchansky 0 0 62,450 Norman H. Smith 0 0 62,450 John P. Toolan 0 0 60,450 * Compensation made pursuant to different compensation arrangements then in effect for the fiscal year ended October 31, 1994. ** The total compensation paid by the John Hancock Fund Complex to the Independent Directors is $366,450 as of the calendar year ended December 31, 1994. (The Fund was not part of the John Hancock Fund Complex until December 22, 1994 and Messrs. Cunningham and Linbeck were not Trustees/Directors of any funds in The John Hancock Fund Complex prior to December 22, 1994.
Pension or Total Compensation Retirement from all Funds in Aggregate Benefits Accrued John Hancock Compensation as Part of the Fund Complex to Advisory Board*** from the Fund Fund's Expenses Advisory Board*** ----------------- ------------- ---------------- ------------------- R. Trent Campbell $ 948 $0 $ 54,000 Mrs. Lloyd Bentsen 948 0 54,000 Thomas R. Powers 948 0 54,000 Thomas B. McDade 948 0 54,000 TOTAL $3,792 $0 $216,000 *** Estimated for the Fund's current fiscal year ending October 31, 1995.
-18- 139 INVESTMENT ADVISORY AND OTHER SERVICES As described in the Prospectus, the Fund receives its investment advice from the Adviser. Investors should refer to the Prospectus for a description of certain information concerning the investment management contract. Each of the Directors and principal officers affiliated with the Fund who is also an affiliated person of the Adviser is named above, together with the capacity in which such person is affiliated with the Fund, the Adviser or TFMC (the Fund's prior investment adviser). The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603, was organized in 1968 and currently has more than $13 billion in assets under management in its capacity as investment adviser to the Fund and the other mutual funds and publicly traded investment companies in the John Hancock group of funds having a combined total of over 1,060,000 shareholders. The Adviser is a wholly-owned subsidiary of The Berkeley Financial Group, which is in turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is in turn a wholly-owned subsidiary of the Life Company, one of the most recognized and respected financial institutions in the nation. With total assets under management of $80 billion, the Life Company is one of the ten largest life insurance companies in the United States and carries Standard & Poor's and A.M. Best's highest ratings. Founded in 1862, the Life Company has been serving clients for over 130 years. As described in the Prospectus under the caption "Organization and Management of the Fund," the Fund has entered into an investment management contract with the Adviser. Under the investment management contract, the Adviser provides the Fund with (i) a continuous investment program, consistent with the Fund's stated investment objective and policies, (ii) supervision of all aspects of the Fund's operations except those that are delegated to a custodian, transfer agent or other agent and (iii) such executive, administrative and clerical personnel, officers and equipment as are necessary for the conduct of its business. The Adviser is responsible for the day-to-day management of the Fund's portfolio assets. No person other than the Adviser and its directors and employees regularly furnishes advice to the Fund with respect to the desirability of the Fund investing in, purchasing or selling securities. The Adviser may from time to time receive statistical or other similar factual information, and information regarding general economic factors and trends, from the Life Company and its affiliates. -19- 140 Under the terms of the investment management contract with the Fund, the Adviser provides the Fund with office space, equipment and supplies and other facilities and personnel required for the business of the Fund. The Adviser pays the compensation of all officers and employees of the Fund and pays the expenses of clerical services relating to the administration of the Fund. All expenses which are not specifically paid by the Adviser and which are incurred in the operation of the Fund including, but not limited to, (i) the fees of the Directors of the Fund who are not "interested persons," as such term is defined in the 1940 Act (the "Independent Directors"), (ii) the fees of the members of the Fund's Advisory Board (described above) and (iii) the continuous public offering of the shares of the Fund are borne by the Fund. As provided by the investment management contract, the Fund pays the Adviser an investment management fee, which is accrued daily and paid monthly in arrears, equal on an annual basis to a percentage of the Fund's average daily net asset value as follows:
Fee Average Daily Net Assets of the Fund (annual rate) ------------------------------------ ------------ First $500 million.............................. 0.500% Next $250 million............................... 0.425% Next $250 million............................... 0.375% Next $500 million............................... 0.350% Next $500 million............................... 0.325% Next $500 million............................... 0.300% Amount Over $2.5 billion........................ 0.275%
The Adviser may temporarily reduce its advisory fee or make other arrangements to reduce the Fund's expenses to a specified percentage of average daily net assets. The Adviser retains the right to re-impose the advisory fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit. In the event normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of any state limit where the Fund is registered to sell shares of beneficial interest, the fee payable to the Adviser will be reduced to the extent of such excess and the Adviser will make any additional arrangements necessary to eliminate any remaining excess expenses. Currently, the most restrictive limit applicable to the Fund is 2.5% of the first $30,000,000 of the Fund's average daily net asset value, 2% of the next $70,000,000 and 1.5% of the remaining average daily net asset value. Pursuant to the investment management contract, the Adviser is not liable to the Fund or its shareholders for any error of judgment or mistake of law or for any loss suffered by the Fund in -20- 141 connection with the matters to which the contract relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from its reckless disregard of the obligations and duties under the applicable contract. The investment management contract initially expires on December 22, 1996 and will continue in effect from year to year thereafter if approved annually by a vote of a majority of the Independent Directors of the Fund, cast in person at a meeting called for the purpose of voting on such approval, and by either a majority of the Directors or the holders of a majority of the Fund's outstanding voting securities. The management contract may, on 60 days' written notice, be terminated at any time without the payment of any penalty to the Fund by vote of a majority of the outstanding voting securities of the Fund, by the Directors or by the Adviser. The management contract terminates automatically in the event of its assignment. Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser or its affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more are selling the same security. If opportunities for purchase or sale of securities by the Adviser or for other funds or clients for which the Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser or its respective affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Under the investment management contract, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the investment management contract or any extension, renewal or amendment thereof remains in effect. If the Fund's investment management contract is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the non-exclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. -21- 142 For the fiscal years ended October 31, 1992, 1993 and 1994 advisory fees payable by the Fund to TFMC, the Fund's former investment adviser, amounted to $133,127, $142,298 and $214,088, respectively. DISTRIBUTION CONTRACT DISTRIBUTION CONTRACT. As discussed in the Prospectus, the Fund's shares are sold on a continuous basis at the public offering price. John Hancock Funds, a wholly-owned subsidiary of the Adviser, has the exclusive right, pursuant to the Distribution Contract dated December 22, 1994 (the "Distribution Contract"), to purchase shares from the Fund at net asset value for resale to the public or to broker-dealers at the public offering price. The Distribution Contract was initially adopted by the affirmative vote of the Fund's Board of Directors including the vote of a majority of Independent Directors, cast in person at a meeting called for such purpose. The Distribution Contract shall continue in effect until December 22, 1996 and from year to year thereafter if approved by either the vote of the Fund's shareholders or the Board of Directors including the vote of a majority of Independent Directors, cast in person at a meeting called for such purpose. The Distribution Contract may be terminated at any time, without penalty, by either party upon sixty (60) days' written notice or by a vote of a majority of the outstanding voting securities of the Fund and terminates automatically in the case of an assignment by John Hancock Funds. DISTRIBUTION PLAN. The Board of Directors, including the Independent Directors of the Fund, approved a new distribution plan pursuant to Rule 12b-1 under the 1940 Act for Class S shares of the Fund (the "Plan"). The Plan was approved by the sole shareholder of Class S shares of the Fund on September 12, 1995 and became effective on September 12, 1995. Under the Plan, the distribution or service fee will not exceed an annual rate of 0.40% of the average daily net asset value of the Fund attributable to Class S shares (determined in accordance with the Fund's Prospectus as from time to time in effect). In accordance with generally accepted accounting principles, the Fund does not treat unreimbursed distribution expenses attributable to Class S shares as a liability of the Fund and does not reduce the current net assets of Class B by such amount although the amount may be payable under the Plan in the future. The Plan was not in existence during the fiscal year ended October 31, 1994. -22- 143 Under the Plan, expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine. The fee may be spent by John Hancock Funds on Distribution Expenses or Service Expenses. "Distribution Expenses" include any activities or expenses primarily intended to result in the sale of Class S shares of the Fund, including, but not limited to: (i) initial and ongoing sales compensation payable out of such fee as such compensation is received by John Hancock Funds, other brokers or financial service firms who have arrangements with John Hancock Funds engaged in the sale of Class S shares, (ii) direct out-of-pocket expenses incurred in connection with the distribution of Class S shares, including expenses related to printing of prospectuses and reports; (iii) preparation, printing and distribution of sales literature and advertising material; (iv) an allocation of overhead and other branch office expenses of John Hancock Funds related to the distribution of Class S shares; and (v) in the event that any other investment company (the "Acquired Fund") sells all or substantially all of its assets to, merges with or otherwise engages in a combination with the Fund, distribution expenses originally incurred in connection with the distribution of the Acquired Fund's shares. Service Expenses under the Plan include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of John Hancock Funds) and others who furnish personal and shareholder account maintenance services to Class S shareholders of the Fund. The Plan provides that it will continue in effect only as long as its continuance is approved at least annually by a majority of both the Directors and the Independent Directors. The Plan provides that it may be terminated (a) at any time by vote of a majority of the Directors, a majority of the Independent Directors, or a majority of the outstanding voting securities of the Class S shares of the Fund or (b) by John Hancock Funds on 60 days' notice in writing to the Fund. The Plan further provides that it may not be amended to increase the maximum amount of the fees for the services described therein without the approval of a majority of the outstanding Class S shares of the Fund. The Plan provides that no material amendment to the Plan will, in any event, be effective unless it is approved by a majority vote of the Directors and the Independent Directors of the Fund. In adopting the Plans, the Board of Directors has determined that, in their judgment, there is a reasonable likelihood that the Plan will benefit the holders of the Class S shares of the Fund. Information regarding the services rendered under the Plan and the Distribution Contract and the amounts paid therefor by the Fund is provided to, and reviewed by, the Board of Directors on a quarterly basis. In its quarterly review, the Board of Directors considers the continued appropriateness of the Plan and the -23- 144 Distribution Contract and the level of compensation provided therein. When the Fund seeks an Independent Director to fill a vacancy or as a nominee for election by shareholders, the selection or nomination of the Independent Director is, under resolutions adopted by the Directors contemporaneously with their adoption of the Plan, committed to the discretion of the Committee on Administration of the Directors. The members of the Committee on Administration are all Independent Directors and identified in this Statement of Additional Information under the heading "Those Responsible for Management." AMORTIZED COST METHOD OF PORTFOLIO VALUATION The Fund utilizes the amortized cost valuation method of valuing portfolio instruments in the absence of extraordinary or unusual circumstances. Under the amortized cost method, assets are valued by constantly amortizing over the remaining life of an instrument the difference between the principal amount due at maturity and the cost of the instrument to the Fund. The Directors will from time to time review the extent of any deviation of the net asset value, as determined on the basis of the amortized cost method, from net asset value as it would be determined on the basis of available market quotations. If any deviation occurs which may result in unfairness either to new investors or existing shareholders, the Directors will take such actions as they deem appropriate to eliminate or reduce such unfairness to the extent reasonably practicable. These actions may include selling portfolio instruments prior to maturity to realize gains or losses or to shorten the Fund's average portfolio maturity, withholding dividends, splitting, combining or otherwise recapitalizing outstanding shares or utilizing available market quotations to determine net asset value per share. Since a dividend is declared to shareholders each time net asset value is determined, the net asset value per share of the Fund will normally remain constant at $1.00 per share. There is no assurance that the Fund can maintain the $1.00 per share value. Monthly, any increase in the value of a shareholder's investment from dividends is reflected as an increase in the number of shares in the shareholder's account or is distributed as cash if a shareholder has so elected. It is expected that the Fund's net income will be positive each time it is determined. However, if because of a sudden rise in interest rates or for any other reason the net income of the Fund determined at any time is a negative amount, the Fund will offset the negative amount against income accrued during the month -24- 145 for each shareholder account. If at the time of payment of a distribution such negative amount exceeds a shareholder's portion of accrued income, the Fund may reduce the number of its outstanding shares by treating the shareholder as having contributed to the capital of the Fund that number of full or fractional shares which represents the amount of excess. By investing in the Fund, shareholders are deemed to have agreed to make such a contribution. This procedure is intended to permit the Fund to maintain its net asset value at $1.00 per share. If in the view of the Directors it is inadvisable to continue the practice of maintaining net asset value at $1.00 per share, the Directors reserve the right to alter the procedures for determining net asset value. The Fund will notify shareholders of any such alteration. SPECIAL REDEMPTIONS Although it would not normally do so, the Fund has the right to pay the redemption price of shares of the Fund in whole or in part in portfolio securities as prescribed by the Directors. When the shareholder sells portfolio securities received in this fashion, he would incur a brokerage charge. Any such securities would be valued for the purposes of making such payment at the same value as used in determining net asset value. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund during any 90 day period for any one account. DESCRIPTION OF THE CORPORATION'S SHARES The Fund operates as one series of the Corporation. All shares of stock of the Corporation ($.01 par value per share) have equal voting rights among shares of the same series (except that each class of shares within a series has sole voting rights with respect to matters solely affecting that class). On September 12, 1995, the Corporation's Articles of Incorporation were amended to increase the authorized common stock of the Corporation from 375,000,000 to 1,000,000,000 shares of Class A Common Stock, from 625,000,000 to 1,300,000,000 shares of Class B Common Stock; and from 0 to 1,000,000,000 shares of Class S Common Stock. No shares of any series or class have pre-emptive or conversion rights. Each series of shares represents interests in a separate portfolio of investments. Each is entitled to all income and gains (or losses) and bears all of the expenses associated with the operations of that portfolio except that each class of a series bears its own transfer agency fees. Common expenses of the -25- 146 Corporation are allocated among the series, based upon the respective net assets or ratably or a combination of both whichever is more appropriate, of each series. The Board of Directors is authorized to create additional series of shares and classes within any series at any time without approval by shareholders. Six series of shares representing interests in the Corporation are presently authorized. Each share of each series or class of the Corporation represents an equal proportionate interest with each other share in that series or class, none having priority or preference over other shares of the same series or class. The interest of investors in the various series or classes of the Corporation is separate and distinct. All consideration received for the sales of shares of a particular series or class of the Corporation, all assets in which such consideration is invested and all income, earnings and profits derived from such investments will be allocated to and belong to that series or class. As such, each share is entitled to dividends and distributions out of the net income belonging to that series or class as declared by the Board of Directors. The assets of each series are segregated on the Corporation's books and are charged with the liabilities of that series and with a share of the Corporation's general liabilities. The Board of Directors determines those assets and liabilities deemed to be general assets or liabilities of the Corporation, and these items are allocated among each series in proportion to the relative total net assets of each series. In the unlikely event that the liabilities allocable to a series exceed the assets of that series, the amount to be deemed available for distribution to each affected series shall be determined by the Board of Directors in order to effect an equitable allocation among each series of the Corporation. The Corporation has authorized the issuance of three classes of common stock for the Fund, designated as Class A, Class B and Class S shares pursuant to a multiple class plan adopted in accordance with the requirements of Rule 18f-3 under the 1940 Act. Class A, Class B and Class S shares each represent an interest in the same assets of the Fund and are identical in all respects except that each class bears certain expenses related to the distribution of such shares and certain expenses related to transfer agency services and have exclusive voting rights with respect to matters relating to the distribution expenditures. The Directors of the Corporation may classify and reclassify the shares of the Fund into additional classes of common stock at a future date. -26- 147 VOTING RIGHTS. Each shareholder of the Corporation is entitled to a full vote for each full share held (and fractional votes for fractional shares). Shareholders of each series or class vote separately from other shareholders of the Corporation with respect to all matters which affect solely the interests of that series or class. After Directors have been elected by shareholders, they will continue to serve indefinitely and they may appoint their own successors, provided that always at least a majority of the Directors have been elected by the Corporation's shareholders. The voting rights of stockholders are not cumulative, so that the holders of more than 50 percent of the shares voting can, if they choose, elect all Directors being selected, while the holders of the remaining shares would be unable to elect any Directors. It is the intention of the Corporation not to hold annual meetings of shareholders. The Directors may call annual or special meetings of shareholders of the Corporation or any class of series for action by shareholder vote as may be required by the 1940 Act. Pursuant to an undertaking to the Securities and Exchange Commission, the Corporation will call a meeting of shareholders for any purpose, including voting to remove one or more Director, on the written request of the holders of at least 10% of outstanding shares of the Corporation. The Fund will assist shareholders with any communications including shareholder proposals. DIRECTOR AND OFFICER LIABILITY. Under the Corporation's Articles of Incorporation and the Maryland General Company Law, the directors, officers, employees and agents of the Corporation are entitled to indemnification under certain circumstances against liabilities, claims and expenses arising from any threatened, pending or completed action, suit or proceeding to which they are made parties by reason of the fact that they are or were such directors, officers, employees or agents of the Corporation except as such liability may arise from their own bad faith, willful misfeasance, gross negligence or reckless disregard of duties. The Corporation is not required to issue stock certificates. The Corporation shall continue without limitation of time subject to the provisions in the Articles of Incorporation concerning termination by action of the shareholders. TAX STATUS The Fund has qualified and has elected to be treated as a "regulated investment company" under Subchapter M of the Code, and intends to continue to so qualify in the future. As such and by complying with the applicable provisions of the Code regarding the sources of its income, the timing of its distributions, and the diversification of its assets, the Fund will not be subject to -27- 148 Federal income tax on taxable income (including net realized capital gains, if any) which is distributed to shareholders at least annually in accordance with the timing requirements of the Code. The Fund will be subject to a 4% non-deductible federal excise tax on certain amounts not distributed (and not treated as having been distributed) on a timely basis in accordance with annual minimum distribution requirements. The Fund intends under normal circumstances to avoid liability for such tax by satisfying such distribution requirements. Distributions of net investment income (which include original issue discount and accrued, recognized market discount) and any net realized short-term capital gains, as computed for Federal income tax purposes, will be taxable as described in the Prospectus whether taken in shares or in cash. Although the Fund does not expect to realize any net long-term capital gains, distributions from such gains, if any, would be taxable as long- term capital gains. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for Federal income tax purposes in each share so received equal to the amount of cash they would have received had they taken the distribution in cash, divided by the number of shares received. Upon a redemption of shares (including by exercise of the exchange privilege) a shareholder ordinarily will not realize a taxable gain or loss if, as anticipated, the Fund maintains a constant net asset value per share. If the Fund is not successful in maintaining a constant net asset value per share, a redemption may produce a taxable gain or loss. Distributions from the Fund will not qualify for the dividends-received deduction for corporate shareholders. For Federal income tax purposes, the Fund is permitted to carry forward a net capital loss in any year to offset net capital gains, if any, during the eight years following the year of the loss. To the extent subsequent net capital gains are offset by such losses, they would not result in Federal income tax liability to the Fund and would not be distributed as such to shareholders. Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisers for more information. -28- 149 The foregoing discussion relates solely to U.S. Federal income tax laws applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or estates) subject to tax under such law. The discussion does not address special tax rules applicable to certain classes of investors, such as tax-exempt entities, insurance companies and financial institutions. Dividends, capital gain distributions (if any), and ownership of or gains realized (if any) on the redemption of shares of the Fund may also be subject to state and local taxes. Shareholders should consult their own tax advisers as to the federal, state or local tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their particular circumstances. Non-U.S. investors not engaged in U.S. trade or business with which their Fund investment is effectively connected will be subject to U.S. Federal income tax treatment that is different from that described above. These investors may be subject to nonresident alien withholding tax at the rate of 31% (or a lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from the Fund. Non-U.S. investors should consult their tax advisers regarding such treatment and the application of foreign taxes to an investment in the Fund. Provided that the Fund qualifies as a regulated investment company under the Code, the Fund will also not be required to pay any Massachusetts income tax. CALCULATION OF PERFORMANCE For the purposes of calculating yield, daily income per share consists of interest and discount earned on the Fund's investments less provision for amortization of premiums and applicable expenses, divided by the number of shares outstanding, but does not include realized or unrealized appreciation or depreciation. In any case in which the Fund reports its annualized yield, it will also furnish information as to the average portfolio maturities of the Fund. It will also report any material effect of realized gains or losses or unrealized appreciation on dividends which have been excluded from the computation of yield. Yield calculations are based on the value of a hypothetical preexisting account with exactly one share at the beginning of the seven day period. Yield is computed by determining the net change in the value of the account during the base period and dividing the net change by the value of the account at the beginning of the base period to obtain the base period return. Base period is multiplied by 365/7 and the resulting figure is carried to the -29- 150 nearest 100th of a percent. Net change in account value during the base period includes dividends declared on the original share, dividends declared on any shares purchased with dividends of that share and any account or sales charges that would affect an account of average size, but excludes any capital changes. Effective yield is computed by determining the net change, exclusive of capital changes, in the value of a hypothetical preexisting account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then compounding the base period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to the following formula: EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1 The yield of the Fund is not fixed or guaranteed. Yield quotations should not be considered to be representations of yield of the Fund for any period in the future. The yield of the Fund is a function of available interest rates on money market instruments, which can be expected to fluctuate, as well as of the quality, maturity and types of portfolio instruments held by the Fund and of changes in operating expenses. The Fund's yield may be affected if, through net sales of its shares, there is a net investment of new money in the Fund which the Fund invests at interest rates different from that being earned on current portfolio instruments. Yield could also vary if the Fund experiences net redemptions, which may require the disposition of some of the Fund's current portfolio instruments. From time to time, in reports and promotional literature, the Fund's yield and total return will be ranked or compared to indices of mutual funds and bank deposit vehicles such as Lipper Analytical Services, Inc. "Lipper-Fixed Income Fund Performance Analysis," a monthly publication which tracks net assets, total return, and yield on approximately 1,000 fixed income mutual funds in the United States or "IBC/Donahue's Money Fund Report," a similar publication. Comparisons may also be made to bank Certificates of Deposit, which differ from mutual funds, like the Fund, in several ways. The interest rate established by the sponsoring bank is fixed for the term of a CD, there are penalties for early withdrawal from CD's and the principal on a CD is insured. Unlike CD's, which are insured as to principal, an investment in the Fund is not insured or guaranteed. Performance rankings and ratings, reported periodically in national financial publications such as MONEY MAGAZINE, FORBES, -30- 151 BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRONS, will also be utilized. The Fund's promotional and sales literature may make reference to the Fund's "beta." Beta is a reflection of the market-related risk of the Fund by showing how responsive the Fund is to the market. BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities are made by the Adviser pursuant to recommendations made by its investment committee, which consists of officers and directors of the Adviser and affiliates and officers and Directors who are interested persons of the Fund. Orders for purchases and sales of securities are placed in a manner which, in the opinion of the Adviser will offer the best price and market for the execution of each such transaction. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer and transactions with dealers serving as market makers reflect a "spread." Investments in debt securities are generally traded on a net basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on such transactions. The Fund's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. This policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with the foregoing primary policy, the Rules of Fair Practice of the NASD and other policies that the Directors may determine, the Adviser may consider sales of shares of the Fund as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. To the extent consistent with the foregoing, the Fund will be governed in the selection of brokers and dealers, and the negotiation of brokerage commission rates and dealer spreads, by the reliability and quality of the services, including primarily the availability and value of research information and to a lesser extent statistical assistance furnished to the Adviser of the Fund, and their value and expected contribution to the performance of the Fund. It is not possible to place a dollar value on information and services to be received from brokers and dealers, since it is only supplementary to the research efforts of the Adviser. The receipt of research information is not expected to reduce significantly the expenses of the Adviser. The research information and statistical assistance furnished by brokers and dealers may benefit the Life Company or other advisory clients of the Adviser, and conversely, brokerage commissions and spreads -31- 152 paid by other advisory clients of the Adviser may result in research information and statistical assistance beneficial to the Fund. The Fund will make no commitments to allocate portfolio transactions upon any prescribed basis. While the Fund's officers will be primarily responsible for the allocation of the Fund's brokerage business, their policies and practices in this regard must be consistent with the foregoing and will at all times be subject to review by the Directors. For the fiscal years ended October 31, 1994, 1993 and 1992, no negotiated brokerage commissions were paid on portfolio transactions. As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay to a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Directors that the price is reasonable in light of the services provided and to policies that the Directors may adopt from time to time. During the fiscal year ended October 31, 1994, the Fund did not pay commissions as compensation to any brokers for research services such as industry, economic and company reviews and evaluations of securities. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of John Hancock Freedom Securities Corporation and its subsidiaries, three of which, Tucker Anthony Incorporated ("Tucker Anthony"), John Hancock Distributors, Inc. ("John Hancock Distributors") and Sutro & Company, Inc. ("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to procedures determined by the Directors and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through Tucker Anthony, Sutro or John Hancock Distributors. During the year ended October 31, 1994, the Fund did not execute any portfolio transactions with then affiliated brokers. Any of the Affiliated Brokers may act as broker for the Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Directors pursuant to the 1940 Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Directors believe to be contemporaneously charged by other brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers, except for accounts for which the Affiliated Broker acts as a clearing broker for another -32- 153 brokerage firm, and any customers of the Affiliated Broker not comparable to the Fund as determined by a majority of the Directors who are not interested persons (as defined in the 1940 Act) of the Fund, the Adviser or the Affiliated Brokers. Because the Adviser, which is affiliated with the Affiliated Brokers, has, as an investment adviser to the Fund, the obligation to provide investment management services, which includes elements of research and related investment skills, such research and related skills will not be used by the Affiliated Brokers as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. The Fund will not effect principal transactions with Affiliated Brokers. The Fund may, however, purchase securities from other members of underwriting syndicates of which Tucker Anthony, Sutro and John Hancock Distributors are members, but only in accordance with the policy set forth above and procedures adopted and reviewed periodically by the Directors. TRANSFER AGENT SERVICES John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA 02205-9116, a wholly owned indirect subsidiary of the Life Company, is the transfer and dividend paying agent for the Fund. The Fund pays Investor Services a monthly transfer agent fee equal to $18 per account for Class S shares plus out-of-pocket expenses. CUSTODY OF PORTFOLIO Portfolio securities of the Fund are held pursuant to a custodian agreement between the Fund and Investors Bank and Trust Company ("IBT") 24 Federal Street, Boston, Massachusetts. Under the custodian agreement, IBT performs custody, portfolio and fund accounting services. INDEPENDENT AUDITORS Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has been selected as the independent auditors of the Fund. The financial statements of the Fund included in the Prospectus and this Statement of Additional Information have been audited by Ernst & Young LLP for the periods indicated in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. -33- 154 APPENDIX A CORPORATE AND TAX-EXEMPT BOND RATINGS MOODY'S INVESTORS SERVICE, INC. ("MOODY'S) Aaa, Aa, A AND Baa - Tax-exempt bonds rated Aaa are judged to be of the "best quality." The rating of Aa is assigned to bonds that are of "high quality by all standards," but long-term risks appear somewhat larger than Aaa rated bonds. The Aaa and Aa rated bonds are generally known as "high grade bonds." The foregoing ratings for tax-exempt bonds are rated conditionally. Bonds for which the security depends upon the completion of some act or upon the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals that begin when facilities are completed, or (d) payments to which some other limiting condition attaches. Such conditional ratings denote the probable credit stature upon completion of construction or elimination of the basis of the condition. Bonds rated A are considered as upper medium grade obligations. Principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds rated Baa are considered a medium grade obligations; i.e., they are neither highly protected or poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well. STANDARD & POOR'S RATINGS GROUP ("S&P") AAA, AA, A AND BBB - Bonds rated AAA bear the highest rating assigned to debt obligations, which indicates an extremely strong capacity to pay principal and interest. Bonds rated AA are considered "high grade," are only slightly less marked than those of AAA ratings and have the second strongest capacity for payment of debt service. Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat susceptible to the adverse effects of changes in circumstances and economic conditions. The foregoing ratings are sometimes followed by a "p" indicating that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the bonds being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. Although a provisional A-1 155 rating addresses credit quality subsequent to completion of the project, it makes no comment on the likelihood of, or the risk of default upon failure of, such completion. Bonds rated BBB are regarded as having an adequate capacity to repay principal and pay interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay principal and pay interest for bonds in this category than for bonds in the A category. FITCH INVESTORS SERVICE ("FITCH") AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of the highest quality. The obligor has an extraordinary ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. Bonds rated AA are considered to be investment grade and of high quality. The obligor's ability to pay interest and repay principal, while very strong, is somewhat less than for AAA rated securities or more subject to possible change over the term of the issue. Bonds rated A are considered to be investment grade and of good quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to weaken this ability than bonds with higher ratings. TAX-EXEMPT NOTE RATINGS MOODY'S - MIG-1 AND MIG-2. Notes rated MIG-1 are judged to be of the best quality, enjoying strong protection from established cash flow or funds for their services or from established and broad-based access to the market for refinancing or both. Notes rated MIG-2 are judged to be of high quality with ample margins of protection, though not as large as MIG-1. S&P - SP-1 AND SP-2. SP-1 denotes a very strong or strong capacity to pay principal and interest. Issues determined to possess overwhelming safety characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a satisfactory capacity to pay principal and interest. FITCH - FIN-1 AND FIN-2. Notes assigned FIN-1 are regarded as having the strongest degree of assurance for timely payment. A plus symbol may be used to indicate relative standing. Notes A-2 156 assigned FIN-2 reflect a degree of assurance for timely payment only slightly less in degree than the highest category. CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS MOODY'S - Commercial Paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Prime-1, indicates highest quality repayment capacity of rated issue and Prime-2 indicates higher quality. S&P - Commercial Paper ratings are a current assessment of the likelihood of timely payment of debts having an original maturity of no more than 365 days. Issues rated A have the greatest capacity for a timely payment and the designation 1, 2 and 3 indicates the relative degree of safety. Issues rated "A-1+" are those with an "overwhelming degree of credit protection." FITCH - Commercial Paper ratings reflect current appraisal of the degree of assurance of timely payment. F-1 issues are regarded as having the strongest degree of assurance for timely payment. (+) is used to designate the relative position of an issuer within the rating category. F-2 issues reflect an assurance of timely payment only slightly less in degree than the strongest issues. The symbol (LOC) may follow either category and indicates that a letter of credit issued by a commercial bank is attached to the commercial paper note. OTHER CONSIDERATIONS - The ratings of S&P, Moody's, and Fitch represent their respective opinions of the quality of the municipal securities they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the same maturity, coupon and ratings may have different yields and municipal securities of the same maturity and coupon with different ratings may have the same yield. A-3 157 FINANCIAL STATEMENTS [See the financial statements attached to the Statement of Additional Information for the Class A and Class B shares of the Fund included elsewhere in this Post-Effective Amendment.] F-1 158 JOHN HANCOCK SERIES, INC. PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements included in the Registration Statement: John Hancock Money Market Fund Statement of Assets and Liabilities as of October 31, 1994. Statement of Operations for the year ended October 31, 1994. Statement of Changes in Net Assets for the years ended October 31, 1993 and 1994. Notes to Financial Statements. Financial Highlights. Schedule of Investments as of October 31, 1994. Statement of Assets and Liabilities as of April 30, 1995. Statement of Operations for the six-months ended April 30, 1995. Statement of Changes in Net Assets for the six-months ended April 30, 1995. Notes to Financial Statements. Financial Highlights. Schedule of Investments as of April 30, 1995. (b) Exhibits: The exhibits to this Registration Statement are listed in the Exhibit Index hereto and are incorporated herein by reference. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT No person is directly or indirectly controlled by or under common control with Registrant. ITEM 26. NUMBER OF HOLDERS OF SECURITIES As of June 23, 1995, the number of record holders of shares of the Registrant were as follows:
TITLE OF CLASS NUMBER OF RECORD HOLDERS -------------- ------------------------ John Hancock Emerging Growth Fund Class A Shares 9,301 Class B Shares 20,644 John Hancock High Yield Tax-Free Fund Class A Shares 441 Class B Shares 3,069
C-1 159
TITLE OF CLASS NUMBER OF RECORD HOLDERS -------------- ------------------------ John Hancock High Yield Bond Fund Class A Shares 610 Class B Shares 6,939 John Hancock Money Market Fund Class A Shares 0 Class B Shares 1,935 Class S Shares 0 John Hancock Global Resources Fund Class A Shares 286 Class B Shares 3,797 John Hancock Government Income Fund Class A Shares 26 Class B Shares 8,378
ITEM 27. INDEMNIFICATION (a) Indemnification provisions relating to the Registrant's Directors, officers, employees and agents is set forth in Article V of the Registrant's By Laws included as Exhibit 2 herein. (b) Under Section 12 of the Distribution Agreement, John Hancock Funds, Inc. ("John Hancock Funds") has agreed to indemnify the Registrant and its Directors, officers and controlling persons against claims arising out of certain acts and statements of John Hancock Funds. Section 9(a) of the By-Laws of the John Hancock Mutual Life Insurance Company (the "Insurance Company") provides, in effect, that the Insurance Company will, subject to limitations of law, indemnify each present and former director, officer and employee of the of the Insurance Company who serves as a Director or officer of the Registrant at the direction or request of the Insurance Company against litigation expenses and liabilities incurred while acting as such, except that such indemnification does not cover any expense or liability incurred or imposed in connection with any matter as to which such person shall be finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interests of the Insurance Company. In addition, no such person will be indemnified by the Insurance Company in respect of any liability or expense incurred in connection with any matter settled without final adjudication unless such settlement shall have been approved as in the best interests of the Insurance Company either by vote of the Board of Directors at a meeting composed of directors who have no interest in the outcome of such vote, or by vote of the policyholders. The Insurance Company may pay expenses incurred in defending an action or claim in advance of its final disposition, but only upon receipt of an undertaking by the person indemnified to repay such payment if he should be determined to be entitled to indemnification. Article IX of the respective By-Laws of John Hancock Funds and John Hancock Advisers, Inc. (the "Adviser") provide as follows: C-2 160 "Section 9.01. Indemnity: Any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was at any time since the inception of the Corporation a director, officer, employee or agent of the Corporation, or is or was at any time since the inception of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by the Corporation against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and the liability was not incurred by reason of gross negligence or reckless disregard of the duties involved in the conduct of his office, and expenses in connection therewith may be advanced by the Corporation, all to the full extent authorized by the law." "Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided by Section 9.01 shall not be deemed exclusive of any other right to which those indemnified may be entitled, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person." Insofar as indemnification for liabilities under the Securities Act of 1933 (the "Act") may be permitted to Directors, officers and controlling persons of the Registrant pursuant to the Registrant's Amended and Restated Articles of Incorporation and By-Laws, the Distribution Agreement, the By-Laws of John Hancock Funds, the Adviser, or the Insurance Company or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Directors, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS ----------------------------------------------------- For information as to the business, profession, vocation or employment of a substantial nature of each of the officers and Directors of the Adviser, reference is made to Form ADV (801-8124) filed under the Investment Advisers Act of 1940, which is incorporated herein by reference. ITEM 29. PRINCIPAL UNDERWRITERS (a) John Hancock Funds acts as principal underwriter for the Registrant and also serves as principal underwriter or distributor of shares for John Hancock Cash Reserve, Inc., John Hancock Bond Fund, John Hancock Capital Growth Fund, John Hancock Current Interest, John Hancock Series, Inc., John Hancock Tax-Free Bond Fund, John Hancock California Tax-Free Income Fund, John Hancock Capital Series, John Hancock Limited-Term Government Fund, John Hancock Tax-Exempt Income Fund, John Hancock Sovereign Investors Fund, Inc., John Hancock Cash C-3 161 Management Fund, John Hancock Special Equities Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series, John Hancock Strategic Series, John Hancock Technology Series, Inc., John Hancock World Fund, John Hancock Investment Trust, John Hancock Institutional Series Trust, Freedom Investment Trust, Freedom Investment Trust II and Freedom Investment Trust III. (b) The following table lists, for each director and officer of John Hancock Funds, the information indicated.
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 None 101 Huntington Avenue President-Sales Boston, Massachusetts Thomas H. Drohan Senior Vice President Senior Vice President 101 Huntington Avenue and Secretary Boston, Massachusetts James W. McLaughlin Senior Vice President None 101 Huntington Avenue and Boston, Massachusetts Chief Financial Officer David A. King Senior Vice President None 101 Huntington Avenue Boston, Massachusetts James B. Little Senior Vice President Senior Vice President 101 Huntington Avenue and Chief Financial Boston, Massachusetts Officer William S. Nichols Senior Vice President None 101 Huntington Avenue Boston, Massachusetts
C-4 162
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES ------------------ --------------------- --------------------- BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT ---------------- ---------------- --------------- John A. Morin Vice President Vice President 101 Huntington Avenue Boston, Massachusetts Susan S. Newton Vice President Vice President, 101 Huntington Avenue and Secretary Assistant Secretary Boston, Massachusetts and Compliance Officer Christopher M. Meyer Treasurer None 101 Huntington Avenue Boston, Massachusetts Stephen L. Brown Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Thomas E. Moloney Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Jeanne M. Livermore Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Richard S. Scipione Director Trustee John Hancock Place P.O. Box 111 Boston, Massachusetts John Goldsmith Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Richard O. Hansen Director None John Hancock Place P.O. Box 111 Boston, Massachusetts John M. DeCiccio Director None John Hancock Place P.O. Box 111 Boston, Massachusetts
C-5 163
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES ------------------ --------------------- --------------------- BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT ---------------- ---------------- --------------- Foster Aborn Director None John Hancock Place P.O. Box 111 Boston, Massachusetts Hugh A. Dunlap, Jr. Director None 101 Huntington Avenue Boston, Massachusetts William C. Fletcher Director None 53 State Street Boston, Massachusetts James V. Bowhers Executive Vice President None 101 Huntington avenue Boston, Massachusetts Michael T. Carpenter Senior Vice President None 1000 Louisiana Street Houston, Texas
(c) None. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS -------------------------------- The Registrant maintains the records required to be maintained by it under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company Act of 1940 at its principal executive offices at 101 Huntington Avenue, Boston, Massachusetts 02199-7603. Certain records, including records relating to Registrant's shareholders and the physical possession of its securities, may be maintained pursuant to Rule 31a-3 at the main offices of Registrant's Transfer Agent and Custodian. ITEM 31. MANAGEMENT SERVICES ------------------- Not applicable. ITEM 32. UNDERTAKINGS ------------ (a) Not applicable. (b) Not applicable. (c) Registrant hereby undertakes to furnish each person to whom a prospectus with respect to a series of the Registrant is delivered with a copy of the latest annual report to shareholders with respect to that series upon request and without charge. C-6 164 (d) Registrant undertakes to comply with Section 16(c) of the Investment Company Act of 1940, as amended, which relates to the assistance to be rendered to shareholders by the Trustees of the Registrant in calling a meeting of shareholders for the purpose of voting upon the question of the removal of a trustee. C-7 165 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Boston, and the Commonwealth of Massachusetts on the 7th day of July, 1995. JOHN HANCOCK SERIES, INC. By: * -------------------------------- Edward J. Boudreau, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman and Chief - ------------------------- Executive Officer Edward J. Boudreau, Jr. (Principal Executive Officer) /s/James B. Little Senior Vice President July 7, 1995 - ------------------------- and Chief Financial James B. Little Officer (Principal Financial and Accounting Officer) * Director - ------------------------- James F. Carlin * Director - ------------------------- William H. Cunningham * Director - ------------------------- Charles L. Ladner
C-8 166
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 July 7, 1995 ------------------- Thomas H. Drohan, Attorney-in-Fact
C-9 167 JOHN HANCOCK SERIES, INC. (File Nos. 33-16048; 811-5254) INDEX TO EXHIBITS (1) (a) Registrant's Articles of Incorporation dated June 22, 1987.[1] (b) Articles of Amendment and Restatement dated July 1, 1987.[1] (c) Articles of Amendment dated July 24, 1987.[1] (d) Articles Supplementary dated August 6, 1987.[2] (e) Articles Supplementary filed October 8, 1987.[2] (f) Articles Supplementary filed June 16, 1989.[2] (g) Articles Supplementary.[3] (h) Articles Supplementary dated October 22, 1993.[4] (i) Articles Supplementary dated May 17, 1994.[2] (j) Articles Supplementary dated December 22, 1994.[5] (k) Articles Supplementary to be filed with the Commonwealth of Massachusetts on or about September 12, 1995.++ (2) Amended Bylaws.[6] (3) Not Applicable. (4) Form of Specimen Share Certificates for (i) Class A Shares (except for Money Market Fund) and (ii) Class B Shares of each series of the Registrant.[1] (5) (a) (1) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of Global Resources Fund.[6] (2) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of Emerging Growth Fund.[6] (3) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of High Yield Tax-Free Fund.[6] (4) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of Government Income Fund.[6] (5) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of Money Market Fund.[6] (6) Investment Advisory Agreement between John Hancock Advisers, Inc. and the Registrant on behalf of High Yield Bond Fund.[6] C-10 168 (b) (1) Sub-Advisory Agreement between John Hancock Advisers, Inc. and Transamerica Investment Services, Inc. (relating to High Yield Tax-Free Fund).[6] (c) (1) Form of substantially identical Amended and Restated Administrative Services Agreements among Transamerica Fund Management Company, Transamerica Funds Distributor, Inc. and the Registrant on behalf of each of Global Resources Fund, Emerging Growth Fund, High Yield Tax-Free Fund, Government Income Fund, Money Market Fund and High Yield Bond Fund.[6] (6) (a) Distribution Agreement between Registrant and John Hancock Broker Distribution Services, Inc. (b) Form of Soliciting Dealer Agreement between John Hancock Funds, Inc. and the John Hancock funds. (c) Form of Financial Institution Sales and Service Agreement between John Hancock Funds, Inc. and the John Hancock funds.[6] (7) Not Applicable. (8) Master Custodian Agreement between the John Hancock funds and Investor Bank & Trust Company.[6] (9) Transfer Agency Agreement between John Hancock Investor Services Corporation and the John Hancock funds.[6] (10) Not Applicable. (11) Consent of Independent Auditors.+ (12) Not Applicable. (13) Not Applicable. (14) Not Applicable. (15) (a) Rule 12b-1 Plans: Class A shares (i) Global Resources Fund[6] (ii) Emerging Growth Fund[6] (iii) Government Income Fund[6] (iv) High Yield Bond Fund[6] (v) High Yield Tax-Free Fund[6] (vi) Money Market Fund (Form of 12b-1 Plan)+ C-11 169 (b) Rule 12b-1 Plans: Class B shares (i) Money Market Fund[6] (ii) Global Resources Fund[6] (iii) Emerging Growth Fund[6] (iv) Government Income Fund[6] (v) High Yield Bond Fund[6] (vi) High Yield Tax-Free Fund[6] (c) Rule 12b-1 Plan: Class S shares (i) Money Market Fund (Form of 12b-1 Plan)+ (16) Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22 for each series of the Registrant.[2] (17) Financial Data Schedule. [6] (18) 18f-3 Plan.+ ________________________ [1] Incorporated by reference to Registration Statement filed July 24, 1987. [2] Previously filed with Registration Statement and/or post- effective amendments and incorporated by reference herein. [3] Incorporated by reference to Post-effective Amendment No. 10 filed on February 22, 1991. [4] Incorporated by reference to Post-effective Amendment No. 16 filed on April 13, 1994. [5] Incorporated by reference to Post-effective Amendment No. 18 filed on January 30, 1995. [6] Incorporated by reference to Post-effective Amendment No. 19 filed electronically on May 15, 1995. + Filed herewith electronically. ++ To be filed by amendment. C-12 EX-99.11 2 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 11 CONSENT OF INDEPENDENT AUDITORS We consent to the references to our firm under the captions "The Fund's Financial Highlights" in the Class A and Class B shares Prospectus and in the Class S shares Prospectus and "Independent Auditors" in the Class A and Class B shares Statement of Additional Information and in the Class S shares Statement of Additional Information and to the use, in this Post-Effective Amendment Number 20 to Registration Statement No. 33-16048 of John Hancock Money Market Fund B, a series of John Hancock Series, Inc., of our report dated December 2, 1994. /s/ ERNST & YOUNG LLP --------------------- Ernst & Young LLP Boston, Massachusetts July 6, 1995 EX-99.15(A)(VI) 3 12B-1 PLAN FOR CLASS A SHARES 1 EXHIBIT 15(a)(vi) JOHN HANCOCK MONEY MARKET FUND Form of Distribution Plan Class A Shares ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Money Market Fund (the "Fund"), on behalf of its Class A shares, will, after the effective date hereof, pay certain amounts to John Hancock Funds, Inc. ("John Hancock Funds") in connection with the provision by John Hancock Funds of certain services to the Fund and its Class A shareholders, as set forth herein. Certain of such payments by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Fund and John Hancock Funds heretofore entered into a Distribution Agreement, dated December 22, 1994 as amended (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Fund shall pay to John Hancock Funds a fee in the amount specified in Article III hereof. Such fee may be spent by John Hancock Funds on any activities or expenses primarily intended to result in the sale of Class A shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include but are not limited to, (a) initial and ongoing sales compensation out of such fee as it is received by John Hancock Funds or other broker-dealers ("Selling Brokers") that have entered into an agreement with John Hancock Funds for the sale of Class A shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class A shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class A shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of John Hancock Funds related to the distribution of Class A shares of the Fund; and (d) expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which which merges or otherwise combines with the Fund. Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of John Hancock Funds) and others who furnish personal and shareholder account maintenance services to Class A shareholders of the Fund. 2 ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Fund pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 0.25% of the average daily net asset value of the Class A shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover service expenses shall not exceed an annual rate of up to 0.25% of the average daily net asset value of the Class A shares of the Fund. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Board of Directors shall determine. In the event John Hancock Funds is not fully reimbursed for payments made or other expenses incurred by it under this Plan, such expenses will not be carried beyond one year from the date such expenses were incurred. Any fees paid to John Hancock Funds under this Plan during any fiscal year of the Fund and not expended or allocated by John Hancock Funds for actual or budgeted Distribution Expenses and Service Expenses during such fiscal year will be promptly returned to the Fund. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Company, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December 22, 1994 (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is primarily intended to or should reasonably result in the sale of shares of the Fund. ARTICLE V. APPROVAL BY DIRECTORS, ETC. This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the members of the Board of Directors of the Company and (b) those members of the Board of Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. 2 3 ARTICLE VII. INFORMATION John Hancock Funds shall furnish the Fund and its Board of Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Board of Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Board of Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class A shares, or (b) by John Hancock Funds on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class A shares. (b) That such agreement shall terminate automatically in the event of its assignment. ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class A shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 3 4 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the ____ day of ______, 1995 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. By ------------------------- President JOHN HANCOCK FUNDS, INC. By ------------------------- President 4 EX-99.15(C) 4 12B-1 PLAN FOR CLASS B SHARES 1 EXHIBIT 15(c) JOHN HANCOCK MONEY MARKET FUND Form of Distribution Plan Class S Shares ARTICLE I. THIS PLAN This Distribution Plan (the "Plan") sets forth the terms and conditions on which John Hancock Series, Inc. (the "Company"), on behalf of John Hancock Money Market Fund (the "Fund"), on behalf of its Class S shares, will, after the effective date hereof, pay certain amounts to John Hancock Funds, Inc. ("John Hancock Funds") in connection with the provision by John Hancock Funds of certain services to the Fund and its Class S shareholders, as set forth herein. Certain of such payments by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from time to time amended (the "Rule"), under the Investment Company Act of 1940, as amended (the "Act"), be deemed to constitute the financing of distribution by the Fund of its shares. This Plan describes all material aspects of such financing as contemplated by the Rule and shall be administered and interpreted, and implemented and continued, in a manner consistent with the Rule. The Fund and John Hancock Funds heretofore entered into a Distribution Agreement, dated December 22, 1994, as amended (the "Agreement"), the terms of which, as heretofore and from time to time continued, are incorporated herein by reference. ARTICLE II. DISTRIBUTION AND SERVICE EXPENSES The Fund shall pay to John Hancock Funds a fee in the amount specified in Article III hereof. Such fee may be spent by John Hancock Funds on any activities or expenses primarily intended to result in the sale of Class S shares of the Fund, including, but not limited to the payment of Distribution Expenses (as defined below) and Service Expenses (as defined below). Distribution Expenses include but are not limited to, (a) initial and ongoing sales compensation out of such fee as it is received by John Hancock Funds, other broker-dealers or financial service firms ("Selling Brokers") that have entered into an agreement with John Hancock Funds for the sale of Class S shares of the Fund, (b) direct out-of-pocket expenses incurred in connection with the distribution of Class S shares of the Fund, including expenses related to printing of prospectuses and reports to other than existing Class S shareholders of the Fund, and preparation, printing and distribution of sales literature and advertising materials, (c) an allocation of overhead and other branch office expenses of John Hancock Funds related to the distribution of Class S shares of the Fund; (d) expenses incurred in connection with the distribution of a corresponding class of any open-end, registered investment company which sells all or substantially all of its assets to the Fund or which which merges or otherwise combines with the Fund; and (e) interest expenses on unreimbursed distribution expenses related to Class S shares as described in Article III hereof. 2 Service Expenses include payments made to, or on account of, account executives of selected broker-dealers (including affiliates of John Hancock Funds) and others who furnish personal and shareholder account maintenance services to Class S shareholders of the Fund. ARTICLE III. MAXIMUM EXPENDITURES The expenditures to be made by the Fund pursuant to this Plan, and the basis upon which such expenditures will be made, shall be determined by the Fund, and in no event shall such expenditures exceed an annual rate of 0.40% of the average daily net asset value of the Class S shares of the Fund (determined in accordance with the Fund's prospectus as from time to time in effect) to cover Distribution Expenses and Service Expenses, provided that the portion of such fee used to cover service expenses shall not exceed an annual rate of up to 0.25% of the average daily net asset value of the Class S shares of the Fund. Such expenditures shall be calculated and accrued daily and paid monthly or at such other intervals as the Board of Directors shall determine. In the event John Hancock Funds is not fully reimbursed for payments made or other expenses incurred by it under this Plan, John Hancock Funds shall be entitled to carry forward such expenses to subsequent fiscal years for submission to the Class S shares of the Fund for payment, subject always to the annual maximum expenditures set forth in this Article III; provided, however, that nothing herein shall prohibit or limit the Board of Directors from terminiating this Plan and all payments hereunder at any time pursuant to Article VIII hereof. ARTICLE IV. EXPENSES BORNE BY THE FUND Notwithstanding any other provision of this Plan, the Company, the Fund and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall bear the respective expenses to be borne by them under the Investment Management Contract dated December 22, 1994 (the "Management Contract"), and under the Fund's current prospectus as it is from time to time in effect. Except as otherwise contemplated by this Plan, the Company and the Fund shall not, directly or indirectly, engage in financing any activity which is primarily intended to or should reasonably result in the sale of shares of the Fund. ARTICLE V. APPROVAL BY DIRECTORS, ETC. This Plan shall not take effect until it has been approved, together with any related agreements, by votes, cast in person at a meeting called for the purpose of voting on this Plan or such agreements, of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of (a) all of the members of the Board of Directors of the Company and (b) those members of the Board of Directors of the Company who are not "interested persons" of the Fund, as such term may be from time to time defined under the Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Independent Directors"). ARTICLE VI. CONTINUANCE 2 3 This Plan and any related agreements shall continue in effect for so long as such continuance is specifically approved at least annually in advance in the manner provided for the approval of this Plan in Article V. ARTICLE VII. INFORMATION John Hancock Funds shall furnish the Fund and its Board of Directors quarterly, or at such other intervals as the Fund shall specify, a written report of amounts expended or incurred for Distribution Expenses and Service Expenses pursuant to this Plan and the purposes for which such expenditures were made and such other information as the Board of Directors may request. ARTICLE VIII. TERMINATION This Plan may be terminated (a) at any time by vote of a majority of the Board of Directors, a majority of the Independent Directors, or a majority of the Fund's outstanding voting Class S shares, or (b) by John Hancock Funds on 60 days' notice in writing to the Fund. ARTICLE IX. AGREEMENTS Each agreement with any person relating to implementation of this Plan shall be in writing, and each agreement related to this Plan shall provide: (a) That, with respect to the Fund, such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Independent Directors or by vote of a majority of the Fund's then outstanding voting Class S shares. (b) That such agreement shall terminate automatically in the event of its assignment. ARTICLE X. AMENDMENTS This Plan may not be amended to increase the maximum amount of the fees payable by the Fund hereunder without the approval of a majority of the outstanding voting Class S shares of the Fund. No material amendment to the Plan shall, in any event, be effective unless it is approved in the same manner as is provided for approval of this Plan in Article V. 3 4 IN WITNESS WHEREOF, the Company, on behalf of the Fund, has executed this Distribution Plan effective as of the ____ day of ____, 1995 in Boston, Massachusetts. JOHN HANCOCK SERIES, INC. By ------------------------- President JOHN HANCOCK FUNDS, INC. By ------------------------- President 4 EX-99.18 5 RULE 18F-3 PLAN 1 EXHIBIT 18 JOHN HANCOCK MONEY MARKET FUND MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3 Each class of shares of John Hancock Money Market Fund (the "Fund"), a series of John Hancock Series, Inc., will have the same relative rights and privileges and be subject to the same sales charges, fees and expenses, except as set forth below. In addition, extraordinary expenses attributable to one or more classes shall be borne by such classes. The Board of Directors may determine in the future that other allocations of expenses or other services to be provided to a class of shares are appropriate and amend this Plan accordingly without the approval of shareholders of any class. Except as set forth in the Fund's prospectus, shares may be exchanged only for shares of the same class of another fund in the John Hancock group of funds. CLASS A SHARES Class A Shares are sold at net asset value without a sales charge and are subject to the minimum purchase requirements set forth in the Fund's prospectus. Class A Shares are subject to fees under the Fund's Class A Rule 12b-1 Distribution Plan on the terms set forth in the Fund's prospectus. The Class A Shareholders have exclusive voting rights, if any, with respect to the Class A Distribution Plan. Transfer agency fees are allocated to Class A Shares on a class basis. Class A Shares shall be entitled to the shareholder services set forth from time to time in the Fund's prospectus with respect to Class A Shares. CLASS B SHARES Class B Shares are sold at net asset value per share without the imposition of an initial sales charge. However, Class B shares redeemed within six years of purchase will be subject to a contingent deferred sales charge as set forth in the Fund's prospectus. Class B Shares are sold subject to the minimum purchase requirements set forth in the Fund's prospectus. Class B Shares are subject to fees under the Class B Rule 12b-1 Distribution Plan on the terms set forth in the Fund's prospectus. The Class B Shareholders of the Fund have exclusive voting rights, if any, with respect to the Fund's Class B Distribution Plan. Transfer agency fees are allocated to Class A Shares on a class basis. Class B Shares shall be entitled to the shareholder services set forth from time to time in the Fund's prospectus with respect to Class B Shares. 2 Class B Shares will automatically convert to Class A Shares of the Fund at the end of eight years after the initial purchase date of Class B shares, except as provided in the Fund's prospectus. The initial purchase date for Class B shares acquired through reinvestment of dividends on Class B Shares will be deemed to be the date on which the original Class B shares were purchased. Such conversion will occur at the relative net asset value per share of each class. Redemption requests placed by shareholders who own both Class A and Class B Shares of the Fund will be satisfied first by redeeming the shareholder's Class A Shares, unless the shareholder has made a specific election to redeem Class B Shares. The conversion of Class B Shares to Class A Shares is subject to the receipt of a ruling of the Internal Revenue Service or an opinion of counsel to the effect that the automatic conversion of Class B Shares to Class A Shares does not constitute a taxable event under federal income tax law. The conversion of Class B Shares to Class A Shares may be suspended if such a ruling is no longer effective or such an opinion is no longer available. CLASS S SHARES Class S Shares are sold at net asset value without a sales charge and are subject to the minimum purchase requirements set forth in the Fund's prospectus. Class S Shares are sold only to or through broker-dealers and other financial services firms in connection with cash management "sweep" programs. Class S Shares are subject to fees under the Class S Rule 12b-1 Distribution Plan on the terms set forth in the Fund's prospectus. The Class S Shareholders of the Fund have exclusive voting rights, if any, with respect to the Fund's Class S Distribution Plan. Transfer agency fees are allocated to Class S Shares. Class S Shares shall be entitled to the shareholder services set forth from time to time in the Fund's prospectus with respect to Class S Shares. -2- -----END PRIVACY-ENHANCED MESSAGE-----