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John Hancock Funds
- --------------------------------------------------------------------------------
U.S.
Government
Cash
Reserve
ANNUAL REPORT
May 31, 1996
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TRUSTEES
EDWARD J. BOUDREAY, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK*
PATRICIA P. McCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The stock market's record-breaking, whirlwind performance in 1995 is proving to
be a tough act to follow in 1996. Volatility has returned to the market after
being relatively calm last year. And while the stock market has continued its
advance, albeit at a slower and more erratic pace, bonds have retreated this
year in the face of stronger economic data that has sparked inflation fears. The
change is not surprising, especially after the anomaly of last year's almost
straight-up advance, when both the bond and stock markets soared.
As the old saying "trees don't grow to the sky" suggests, it would be
unrealistic to expect the market to stage a repeat in 1996. Shareholders would
do well to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY DAWN BAILLIE FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
U.S. Government
Cash Reserve
Stronger economic data in 1996 sends short-term
interest rates up, reversing 1995 trend
After declining for the last half of 1995, short-term interest rates began
climbing again early in 1996. From the beginning of the Fund's fiscal year in
May 1995 until early 1996, it looked as if slow growth and low inflation would
persist. In fact, many feared that the economy was headed toward a recession.
That prompted the Federal Reserve to lower rates three times between July and
January in an attempt to stimulate the economy.
This scenario started to unwind in March with the collapse of the federal
budget talks in Washington and a stronger-than-expected February employment
report. This, combined with increased commodity prices and concerns over wage
pressures, caused a change in market sentiment. Many participants began to
believe the economy was stronger than originally anticipated. With strong
employment driving consumer demand, the economy ended up growing at the upper
end of the Fed's targeted growth rate. A faster-growing economy, or the fear
that it's heating up, pushes interest rates up out of concern that more spending
will send prices higher, which could spark a jump in inflation. That could
prompt the Fed, which views inflation as public enemy number one, to raise
short-term interest rates to slow down the economy and keep inflation under
control. Higher interest rates mean more investment income for money market fund
investors, but they also create higher borrowing costs for consumers.
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"...short-term interest rates began climbing again early in 1996."
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On May 31, 1996, John Hancock U.S. Government Cash Reserve had a 7-day
average yield of 4.97%. By comparison, the average U.S. government/ agency money
market fund had a 7-day average yield of 5.03%, according to IBC/Donoghue's
Money Fund Report.
[A 2 1/4" x 2 1/4" photo of Dawn Baillie at bottom center. Caption reads: "Dawn
Baillie."]
3
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John Hancock Funds - U.S. Government Cash Reserve
[Bar chart with heading "7-Day Yield" at top of left hand column. Under the
heading is the footnote: "As of May 31, 1996." The chart is scaled in increments
of 2% from top to bottom, with 6% on the top and 0% at the bottom. Within the
chart, there are two solid bars. The first represents the 4.97% 7-day yield for
John Hancock U.S. Government Cash Reserve. The second represents the 5.03% 7-day
yield for the average U.S. government/agency money market fund. Footnote below
reads: "The average U.S. government/agency money market fund is tracked by
IBC/Donoghue's Money Fund Report."]
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"In the near term, we see short-term interest rates continuing their upward
trend..."
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FLEXIBLE STRATEGY
At the start of the fiscal year in May 1995, as interest rates were falling, the
Fund was taking an aggressive approach to finding higher yields by having the
Fund's average maturity at around 60 days. The longer maturity helped us lock in
higher yields as the Fed cut rates. As the mood shifted in March and investors
began to ponder whether the Fed would continue to lower rates or begin to raise
short-term rates, we started to shift strategies too. We are looking to decrease
our average maturity from 61 days to the average 45 days for taxable money
funds. We will continue to shorten to the average maturity and wait for a
clearer economic picture to emerge.
LOOKING AGEAD
In the near term, we see short-term interest rates continuing their upward trend
as long as there are signs of continued economic growth. Concerns about stronger
growth, inventory levels, higher commodity prices, the upcoming election, and,
more importantly, rising labor costs, will probably continue to put pressure on
yields. If the economy continues to grow faster than the desired target level,
it's possible that the Fed could raise short-term rates.
As we move toward the end of the year, we're likely to see a more marked
trend of slower growth. The gross domestic product (GDP) N the total value of
goods and services produced in the United States N is driven by four areas:
consumer spending, government spending, exports and investment. From where we
sit right now, none of these areas appears to hold much growth potential.
Consumers are strapped with debt right now, and the recent back-up in interest
rates has taken away significant purchasing power. Government spending isn't
likely to grow much, especially with the upcoming election, and exports will
probably be lackluster. Finally, investment is likely to wane as corporations
feel the strain of slower earnings. The net result should be slower growth and a
drop in short-term interest rates, although the timing of the latter is unclear.
So, until the view becomes clearer, we plan to stick to our neutral
strategy of maintaining an average maturity of around 45 days. This conservative
approach will allow us to remain flexible and respond quickly to changes in the
economic environment, while providing the major benefit of investing in a money
market fund, namely, stability of principal.
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This commentary reflects the views of the management team through the end of the
Fund's period discussed in this report. Of course, the team's views are subject
to change as market and other conditions warrant.
The Fund is neither insured nor guaranteed by the U.S. government. There can be
no assurance that the Fund will be able to maintain a net asset value of $1.00
per share.
4
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FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Cash Reserve
Statement of Assets and Liabilities
May 31, 1996
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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 May 31, 1996. You'll also
find the net asset value per share as of that date.
The STATEMENT OF OPERATIONS summarizes the Fund's investment income earned and
expenses incurred in operating the Fund for the period stated.
Assets:
Investments, in money market instruments,
at value - Note C:
U.S. government obligations (cost - $19,254,056) ........... $19,254,056
Joint repurchase agreement (cost - $10,691,000) ............ 10,691,000
-----------
............................................................... 29,945,056
Cash............................ ............................. 14,398
Interest receivable............. ............................. 281,023
Receivable from John Hancock Advisers, Inc. - Note B ......... 43,467
Other assets.................... 13,897
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Total Assets ........... 30,297,841
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Liabilities:
Payable for shares repurchased.. ............................. 34,268
Payable for investments purchased ............................ 1,292,898
Dividend payable................ ............................. 3,834
Payable to John Hancock Advisers, Inc. and
affiliates - Note B............. ........................... 20,811
Accounts payable and accrued expenses ........................ 39,266
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Total Liabilities ...... 1,391,077
Net Assets: -------------------------------------------------
Capital paid-in................. ............................. 28,906,764
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Net Assets ............. $28,906,764
=================================================
Net Asset Value, Offering Price and
Redemption Price Per Share:
(based on 28,906,764 shares of
beneficial interest outstanding -
unlimited number of shares
authorized with $0.01 per share
par value) $ 1.00
=================================================
Statement of Operations
Year ended May 31, 1996
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Investment Income:
Interest........................ $ 1,650,714
-----------
Expenses:
Investment management fee - Note B 143,299
Registration and filing fees.. 47,836
Custodian fee................. 28,711
Auditing fee.................. 22,275
Printing...................... 19,911
Legal fees.................... 17,432
Transfer agent fee - Note B... 14,781
Trustees' fees................ 9,291
Advisory board fee............ 8,624
Miscellaneous................. 1,695
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Total Expenses 313,855
Less Expenses Reimburseable
by John Hancock Advisers,
Inc. - Note B ( 213,546)
-------------------------------------------------
Net Expenses 100,309
-------------------------------------------------
Net Investment Income 1,550,405
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Net Increase in Net Assets
Resulting from Operations $1,550,405
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
5
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FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Cash Reserve
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment Income....................................................................... $ 1,550,405 $ 4,215,208
------------ ------------
Distributions to Shareholders:
Dividends from net investment income ($0.0548 and $0.0495 per share, respectively).......... ( 1,550,405) ( 4,215,208)
------------ ------------
From Fund Share Transactions - Net*........................................................... ( 223,951) ( 65,276,832)
------------ ------------
Net Assets:
Beginning of period......................................................................... 29,130,715 94,407,547
------------ ------------
End of period............................................................................... $ 28,906,764 $ 29,130,715
============ ============
* Analysis of Fund Share Transactions at $1 Per Share:
Shares sold................................................................................. $368,510,358 $215,745,531
Shares issued to shareholders in reinvestment of distributions.............................. 1,191,507 2,455,376
------------ ------------
369,701,865 218,200,907
Less shares repurchased..................................................................... ( 369,925,816) ( 283,477,739)
------------ ------------
Net decrease................................................................................ ($ 223,951) ($ 65,276,832)
============ ============
</TABLE>
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 Fund shares sold, reinvested and redeemed during the last two periods, along
with the corresponding dollar values.
SEE NOTES TO FINANCIAL STATEMENTS.
6
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FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Cash Reserve
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:
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<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------------
1996 1995(c) 1994 1993 1992
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------- --------
Net Investment Income.................................... 0.05 0.05 0.03 0.03 0.05
------- ------- ------- -------- --------
Less Distributions:
Dividends from Net Investment Income..................... ( 0.05) ( 0.05) ( 0.03) ( 0.03) ( 0.05)
------ ------- ------- -------- --------
Net Asset Value, End of Period .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======== ========
Total Investment Return at Net Asset Value (b)........... 5.59% 5.07% 3.04% 3.25% 4.95%
Total Adjusted Investment Return at Net Asset Value (a)(b) 4.84% 4.69% 2.74% 2.93% 4.62%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)................ $28,907 $29,131 $94,408 $123,106 $109,358
Ratio of Expenses to Average Net Assets ................. 0.35% 0.35% 0.35% 0.35% 0.35%
Ratio of Adjusted Expenses to Average Net Assets (a)..... 1.10% 0.73% 0.65% 0.67% 0.68%
Ratio of Net Investment Income to Average Net Assets..... 5.41% 4.79% 2.96% 3.19% 4.86%
Ratio of Adjusted Net Investment Income to Average Net Assets (a) 4.66% 4.41% 2.66% 2.87% 4.53%
</TABLE>
(a) On an unreimbursed basis.
(b) Total investment return assumes dividend reinvestment.
(c) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
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
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FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Cash Reserve
Schedule of Investments
May 31, 1996
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The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by the
Fund on May 31, 1996. It's divided into two types of short-term investments.
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
U. S. GOVERNMENT OBLIGATIONS
Governmental - U. S. Agencies (66.61%)
Federal Home Loan Bank,
06-03-96.......................... 5.260% $7,000 $ 6,997,954
Federal Home Loan Bank,
06-21-96.......................... 4.480 1,000 999,452
Federal Home Loan Bank,
07-08-96.......................... 4.410 1,000 999,010
Federal Home Loan Bank,
11-18-96.......................... 6.875 1,500 1,508,388
Federal Home Loan Bank,
02-07-97.......................... 5.250 500 500,000
Federal Home Loan Bank,
03-05-97.......................... 5.290 500 499,962
Federal Home Loan Bank,
03-06-97.......................... 5.035 500 498,391
Federal Home Loan Bank,
03-13-97.......................... 5.265 2,000 2,000,000
Federal Home Loan Bank,
03-18-97.......................... 5.392 500 500,000
Federal Home Loan Bank,
03-28-97.......................... 5.560 500 500,000
Federal Home Loan Mortgage
Corp., 09-09-96................... 6.185 400 400,636
Federal National Mortgage
Association, 06-10-96............. 8.750 1,240 1,240,757
Federal National Mortgage
Association, 06-12-96............. 5.500 1,630 1,630,006
Federal National Mortgage
Association, 09-10-96............. 8.625 670 675,447
Federal National Mortgage
Association, 11-04-96............. 8.450 300 304,053
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $19,254,056) (66.61%) 19,254,056
------ -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
Joint Repurchase Agreement (36.98%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Ltd. - Dated
05-31-96, Due 06-03-96
(secured by U.S. Treasury
Bill, 5.05% due 09-19-96 and
by U.S. Treasury Notes, 5.25%
through 8.875% due 10-15-97
through 05-15-06) - Note A 5.330% $10,691 $10,691,000
-----------
TOTAL JOINT REPURCHASE AGREEMENT
(Cost $10,691,000) ( 36.98%) 10,691,000
-------- -----------
TOTAL INVESTMENTS (103.59%) $29,945,056
======= ===========
The percentage shown for each investment category is the total value of that
category expressed as a percentage of the total net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
8
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Cash Reserve
NOTE A -
ACCOUNTING POLICIES
John Hancock Current Interest Trust (the "Trust") is a diversified open-end
management investment company, registered under the Investment Company Act of
1940. John Hancock U.S. Government Cash Reserve (the "Fund") is the only series
in the Trust presently issuing shares. The Trustees may authorize the creation
of additional Funds from time to time to satisfy various investment objectives.
The investment objective of the Fund is to obtain maximum current income to the
extent consistent with maintaining liquidity and preserving capital. 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. 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.
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.
Accordingly, the Fund 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.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from those estimates.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
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) 0.500% 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% in
excess of $2,500,000,000.
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.
The Adviser has agreed to limit Fund expenses further to the extent
required to prevent expenses from exceeding 0.35% of the
9
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - U.S. Government Cash Reserve
Fund's average daily net asset value, exclusive of certain expenses prescribed
by state law. Accordingly, for the period ended May 31, 1996, the reduction in
the Fund's expenses collectively with any additional amounts not borne by the
Fund by virtue of the expense limit amounted to $213,546. The Adviser reserves
the right to terminate this limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. 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 to JH Funds for
distribution and service expenses, at an annual rate not exceeding 0.15% of the
Fund's average daily net assets. Under the amended Rules of Fair Practice,
curtailment of a portion of the Fund's 12b-1 payments could occur under certain
circumstances. Payments of fees under the Distribution Plan has been suspended
until further notice is given to the shareholders.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodson and Mr. Richard S. Scipione
are directors and/or officers of the Adviser and/or its affiliates, as well as a
Trustees 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 for tax purposes their receipt of this compensation under the John
Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments
into other John Hancock funds, as applicable, to cover its liability for the
deferred compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The deferred
compensation liability and the related other asset are always equal and are
marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses.
The Fund has an independent advisory board composed of certain retired
Trustees who provide advice to the current Board of Trustees in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities, including discount earned on
investment securities, during the period ended May 31, 1996 aggregated
$3,765,008,214 and $3,763,895,615, respectively.
The cost of investments owned at May 31, 1996 for Federal income tax
purposes was $29,945,056.
10
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John Hancock Funds - U.S. Government Cash Reserve
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Current Interest Trust -
John Hancock U.S. Government Cash Reserve
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of John Hancock U.S. Government Cash Reserve (the
"Fund"), as of May 31, 1996, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fu nd'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 May
31, 1996, by correspondence with the custodian and brokers, and other procedures
where confirmations from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimat es 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 U.S. Government Cash Reserve at May 31, 1996, 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 five years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 3, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the dividends of the Fund during its fiscal year ended May 31, 1996.
All of the dividends paid for the fiscal year are taxable as ordinary income.
None of the 1996 dividends qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1996 U.S. Treasury Department Form 1099-DIV
in January of 1997. This will reflect the total of all distributions which are
taxable for calendar year 1996.
11
<PAGE>
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[LOGO] JOHN HANCOCK FUNDS BULK RATE
A Global Investment Management Firm U.S. POSTAGE
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
BROCKTON, MA
PERMIT NO. 582
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock U.S.
Government Cash Reserve. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 4300A 5/96
7/96
