ANNUAL REPORT
[PHOTO OMITTED]
U.S. Government Cash Reserve
MARCH 31, 1998
<PAGE>
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin
William H. Cunningham*
Charles F. Fretz
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Leo E. Linbeck, Jr.
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 and Chief Operating Officer
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
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 LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this
year wondering what the market would do for an encore in 1998. The answer so far
has been more of the same. This achievement continues to bolster many investors'
convictions that the market will produce these results forever, or, in the worst
case, that market declines will always be short-lived. While the economy remains
solid and the environment favorable, history and reason tell us it's a highly
unlikely scenario.
This doesn't mean we know what the market will do next, or that it's riding for
a fall. But after such a run, even in this "new era" of strong economic growth
with low inflation, we believe it would be wise for investors to set more
realistic expectations. As we've said before, markets do indeed move in two
directions, even though we've seen "up" much more than "down" recently. Over the
long term, the market's historical results have been more in the 10% per year
range, which is still a solid result, considering it has been produced despite
wars, depressions and other social upheavals along the way.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to third paragraph.]
In addition to adjusting, or at least re-examining, expectations, now could also
be a good time to review with your investment professional how your assets are
diversified, perhaps with an eye toward a more conservative approach. Stocks,
especially with their outsized gains of the last three years, might have grown
to represent a larger piece of your portfolio than you had originally intended,
given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial objectives
and maintain wealth. One way we can do that is by helping you keep your feet on
the ground as you pursue your dreams.
Sincerely,
/s/Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
By Dawn Baillie for the Portfolio Management Team
John Hancock U.S. Government Cash Reserve
Money market yields hold steady; dormant inflation
keeps Federal Reserve on the sidelines
Uncertainty was the watchword for money market funds over the last 12 months,
but status quo was the end result, as short-term interest rates remained fairly
stable. As the fiscal year began last April, the Federal Reserve had just pushed
short-term rates up one quarter percentage point to 5.50% in response to signs
that the economy, and inflation, might be heating up. Although that turned out
to be the only move the Fed made during the
"...the Fed's stance shifted... to a more solidly neutral position."
[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: Fund management
team (l-r): Bill Larkin, Roger Hamilton, Jeff Given, Dawn Baillie and Barry
Evans.]
year, money markets fretted over each set of monthly economic data. Fears
remained about the strength of the economy and whether the low unemployment rate
would inevitably translate into rising labor costs and higher inflation, which
has been the case in past economic cycles.
Despite all the concerns, inflation never budged, and Fed chairman Alan
Greenspan concluded that this economic cycle was different. By the end of 1997,
the Fed's stance shifted from its earlier inclination to raise short-term
interest rates to a more solidly neutral position. That's where the Fed remains
today, given the fact that there have been no consistent signs about the
economy's growth rate. Bolstering the Fed's neutral stance was the currency and
financial turmoil in Asia that began last summer and caused havoc in markets
worldwide in October. The result was a flight to safe-haven securities such as
U.S. Treasury bonds, causing yields to fall and prices to rise in a bond rally
that lasted into early 1998. What's more, the Asian crisis caused many to
believe that the U.S. economy would slow down and
3
<PAGE>
John Hancock Funds - U.S. Government Cash Reserve
["Bar Chart with the heading "7-Day Effective Yield " at the top left hand
column. Under the heading is the footnote: "As of March 31, 1998." The chart is
scaled in increments of 2% with 6% at the top and 0% at the bottom. The first
represents the 5.34% 7-day effective yield for John Hancock U.S. Government Cash
Reserves Fund. The second represents the 5.00% 7-day effective yield for the
Average U.S. government money market fund. A Footnote below reads "The average
U.S. government money market fund is tracked by Lipper Analytical Services,
Inc."]
stay in check in 1998 without the Fed's intervention. As a result, the federal
funds rate, which banks charge each other for overnight loans and which serves
as a pricing benchmark for money market securities, stayed at 5.50% for the
entire fiscal year. That caused money market yields to stay fairly steady all
year, even though longer-term rates fell.
On March 31, 1998, John Hancock U.S. Government Cash Reserve had a 7-day
effective yield of 5.34%. By comparison, the average U.S. government money
market fund had a 7-day effective yield of 5.00%, according to Lipper Analytical
Services, Inc.
Longer-than-average maturity pays off We kept the Fund's maturity longer than
average throughout the entire fiscal year, believing from the outset of the
period that the Fed was not going to raise rates further. We took this
aggressive stance to lock in higher yields, and that served us well in the fall
when the Asian crisis hit Wall Street and the bond
"...we intend to keep the Fund's maturity longer than average for now..."
market rallied and interest rates fell. For most of the year, the Fund's
maturity was about 10 days longer than average. That only changed briefly at the
end of 1997 so we could take advantage of the typically favorable buying
environment for money market securities.
A word about Asia Money market funds have not been affected by Asia's financial
woes because most money market funds that are permitted to invest in foreign
securities had stopped buying any short-term certificates of deposit from
Japanese banks. The Fund had no exposure to Asia because it is restricted to
buying only U.S. government securities.
Status quo ahead As long as the economy remains in its near-perfect mode of
solid growth, low interest rates and benign inflation, we believe the Fed will
stay on the sidelines for the foreseeable future. It also appears to be
maintaining its neutral stance, without a bias toward either raising or lowering
rates. At the same time, many believe that the impact of the Asian turmoil has
yet to play itself out, and that slower growth in that part of the world could
result in a slowdown here later in the year. Given this background, we intend to
keep the Fund's maturity longer than average for now to maintain our yield, and
we will keep watching the major economic indicators for clearer signs of where
the economy is headed. As always, we'll stay focused on providing shareholders
with a competitive level of current income, while maintaining stability of
principal.
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' 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
<PAGE>
John Hancock Funds - U.S. Government Cash Reserve
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 March 31, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
March 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, in money market instruments,
at value - Note C:
U.S. government obligations (cost - $65,779,342)... $65,779,342
Joint repurchase agreement (cost - $11,985,000).... 11,985,000
----------
77,764,342
Cash .................................................. 5,102
Receivable for shares sold .......................... 10,000
Interest receivable ................................. 709,064
Other assets ........................................ 13,964
----------
Total Assets ................................ 78,502,472
----------------------------------------------------------------------
Liabilities:
Payable for investments purchased ................... 3,741,765
Payable for shares repurchased ...................... 245,688
Dividend payable .................................... 11,328
Payable to John Hancock Advisers, Inc. and affiliates -
Note B .............................................. 8,767
Accounts payable and accrued expenses ................. 47,447
---------
Total Liabilities ........................... 4,054,995
----------------------------------------------------------------------
Net Assets:
Capital paid-in ..................................... 74,447,477
----------
Net Assets .................................. $74,447,477
=====================================================================
Net Asset Value, Offering Price and Redemption Price Per Share:
(Based on 74,447,477 shares of beneficial interest
outstanding - unlimited number of shares authorized
with $0.01 par value) .............................. $1.00
===============================================================================
The Statement of Operations summarizes the Fund's investment
income earned and expenses incurred in operating the Fund for
the period stated.
Statement of Operations
Year ended March 31, 1998
Investment Income:
Interest ............................................ $3,720,878
----------
Expenses:
Investment management fee - Note B .................. 329,385
Transfer agent fee - Note B ......................... 55,560
Custodian fee ....................................... 35,309
Registration and filing fees ........................ 34,685
Auditing fee ........................................ 24,500
Financial services fee - Note B ..................... 11,791
Trustees' fees ...................................... 5,307
Printing ............................................ 3,569
Legal fees .......................................... 2,447
Miscellaneous ....................................... 1,172
----------
Total Expenses .............................. 503,725
---------------------------------------------------------------------
Less Expense Reductions -
Note B ...................................... (273,156)
---------------------------------------------------------------------
Net Expenses ................................ 230,569
---------------------------------------------------------------------
Net Investment Income ....................... 3,490,309
---------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................... $3,490,309
=====================================================================
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
John Hancock Funds - U.S. Government Cash Reserve
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 1, 1996 TO YEAR ENDED
MAY 31, 1996 MARCH 31, 1997(1) MARCH 31, 1998
------------ ----------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............ $1,550,405 $2,003,583 $3,490,309
--------- --------- ---------
Distributions to Shareholders:
Dividends from net investment income
($0.0548, $0.0423 and $0.0536 per
share, respectively) ............ (1,550,405) (2,003,583) (3,490,309)
--------- --------- ---------
From Fund Share Transactions -
Net:* .............................. (223,951) 26,414,429 19,126,284
------- ---------- ----------
Net Assets:
Beginning of period .............. 29,130,715 28,906,764 55,321,193
---------- ---------- ----------
End of period .................... $28,906,764 $55,321,193 $74,447,477
---------- ---------- ----------
*Analysis of Fund Share Transactions at $1 Per Share:
Shares sold ....... ............... $368,510,358 $656,013,788 $293,684,385
Shares issued to shareholders in
reinvestment of distributions ...... 1,191,507 1,626,808 3,240,503
----------- ---------- ----------
369,701,865 657,640,596 296,924,888
Less shares repurchased ............ (369,925,816) (631,226,167) (277,798,604)
----------- ----------- -----------
Net increase (decrease) ............ ($223,951) $26,414,429 $19,126,284
========== ========== ==========
</TABLE>
(1) Effective March 31, 1997, the fiscal period changed from May 31 to March 31.
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 repurchased during the last three
periods.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios, and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 31, JUNE 1, 1996 YEAR ENDED
------------------------------------- MARCH 31, MARCH 31,
1993 1994 1995(1) 1996 1997(5) 1998
---- ---- ------- ---- ------- ----
<S> <C> <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 $1.00
------ ----- ----- ------ ------ ------
Net Investment Income ........................... 0.03 0.03 0.05 0.05 0.04 0.05
------ ----- ----- ------ ------ ------
Less Distributions:
Dividends from Net Investment Income ............ (0.03) (0.03) (0.05) (0.05) (0.04) (0.05)
----- ---- ---- ---- ---- ----
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(2).... 3.25% 3.04% 5.07% 5.59% 4.37%(6) 5.43%
Total Adjusted Investment Return at Net Asset
Value(2,3) ...................................... 2.93% 2.74% 4.69% 4.84% 3.93%(6) 5.02%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........$123,106 $94,408 $29,131 $28,907 $55,321 $74,447
Ratio of Expenses to Average Net Assets ......... 0.35% 0.35% 0.35% 0.35% 0.35%(7) 0.35%
Ratio of Adjusted Expenses to Average
Net Assets(4) ................................... 0.67% 0.65% 0.73% 1.10% 0.88%(7) 0.76%
Ratio of Net Investment Income to Average
Net Assets ...................................... 3.19% 2.96% 4.79% 5.41% 5.15%(7) 5.30%
Ratio of Adjusted Net Investment Income to Average
Net Assets(4) ................................... 2.87% 2.66% 4.41% 4.66% 4.62%(7) 4.89%
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Total investment return assumes dividend reinvestment.
(3) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reduction.
(5) Effective March 31, 1997, the fiscal period changed from May 31 to March 31.
(6) Not annualized.
(7) Annualized.
</TABLE>
The Financial Highlights summarizes the impact of net investment income and
dividends on a single share for each period indicated. Additionally, important
relationships between some items presented in the financial statements are
expressed in ratio form.
SEE NOTES TO FINANCIALS STATEMENTS.
7
<PAGE>
John Hancock - U.S. Government Cash Reserve
Schedule of Investments
March 31, 1998
The Schedule of Investments is a complete list of all securities owned by the
Fund on March 31, 1998. It's divided into two types of short-term investments.
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------- ----------- ---- -------- -----
U.S. GOVERNMENT OBLIGATIONS
Governmental - U.S. Agencies (88.36%)
Federal Farm Credit Bank,
05-01-98 ........................ 6.050% $1,025 $1,025,272
Federal Home Loan Bank,
04-29-98 ........................ 5.250 525 524,836
Federal Home Loan Bank,
05-28-98 ........................ 5.450 640 639,824
Federal Home Loan Bank,
06-11-98 ........................ 5.910 700 700,327
Federal Home Loan Bank,
06-12-98 # ...................... 5.615 3,000 3,000,000
Federal Home Loan Bank,
06-16-98 ........................ 5.820 945 945,527
Federal Home Loan Bank,
06-17-98 # ...................... 5.700 2,000 2,000,000
Federal Home Loan Bank,
06-26-98 ........................ 5.870 2,350 2,350,563
Federal Home Loan Bank,
07-08-98 # + .................... 5.750 2,000 2,000,000
Federal Home Loan Bank,
08-20-98 ........................ 5.484* 3,000 2,999,008
Federal Home Loan Bank,
09-25-98 ........................ 5.895 2,275 2,276,729
Federal Home Loan Bank,
10-28-98 ........................ 4.960 1,100 1,095,359
Federal Home Loan Bank,
11-25-98 ........................ 9.250 1,000 1,022,409
Federal Home Loan Bank,
03-02-99 ........................ 5.610 6,000 6,000,000
Federal Home Loan Bank Discount Corp.,
04-01-98 ........................ 5.900 7,300 7,300,000
Federal Home Loan Mortgage Corp.,
04-09-98# ....................... 8.000 250 250,118
Federal Home Loan Mortgage Corp.,
08-26-98 ........................ 5.180 150 149,747
Federal National Mortgage Association,
04-01-98 # ...................... 8.010 1,000 1,000,000
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
John Hancock Funds - U.S. Government Cash Reserve
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------- ----------- ---- -------- -----
Governmental - U.S. Agencies (continued)
Federal National Mortgage Association,
04-08-98 ........................ 5.430% $500 $499,980
Federal National Mortgage Association,
04-09-98# ....................... 8.000 350 350,166
Federal National Mortgage Association,
04-13-98 # ...................... 8.000 910 910,630
Federal National Mortgage Association,
04-21-98 ........................ 5.590* 2,000 2,000,000
Federal National Mortgage Association,
04-22-98 ........................ 5.250 355 354,916
Federal National Mortgage Association,
05-11-98 ........................ 8.150 2,450 2,456,399
Federal National Mortgage Association,
06-18-98 ........................ 5.840 500 500,097
Federal National Mortgage Association,
06-23-98 ........................ 5.710 1,875 1,875,705
Federal National Mortgage Association,
06-30-98 ........................ 5.750 500 500,060
Federal National Mortgage Association,
10-15-98 ........................ 4.875 1,000 995,722
Private Export Funding Corp.,
04-30-98 ........................ 5.750 2,000 1,999,964
Student Loan Marketing Association,
08-20-98 ........................ 5.468* 4,800 4,797,684
Student Loan Marketing Association,
09-10-98 ........................ 5.840 200 199,862
Student Loan Marketing Association,
11-10-98 ........................ 5.378* 5,000 4,992,210
Student Loan Marketing Association,
02-22-99 ........................ 5.388* 5,000 4,992,314
Tennessee Valley Authority,
04-03-98 # ...................... 6.875 3,000 3,073,914
---------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $65,779,342) (88.36%) 65,779,342
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
John Hancock Funds - U.S. Government Cash Reserve
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------- ----------- ---- -------- -----
JOINT REPURCHASE AGREEMENT (15.97%)
Investment in a joint repurchase
agreement transaction with Hong
Kong Shanghai Bank Corp. - Dated
03-31-98, Due 04-01-98 (Secured
by U.S. Treasury Bill 5.240%,
Due 08-20-98 and U.S. Treasury
Notes, 5.875% thru 8.750%, Due
08-31-99 thru 08-15-00)- Note A 5.900% $11,985 $11,985,000
----------
TOTAL JOINT REPURCHASE AGREEMENT
(Cost $11,985,000) (16.10%) 11,985,000
------- ----------
TOTAL INVESTMENTS (104.46%) 77,764,342
------- ----------
other assets and liabilities, net (4.46%) (3,316,865)
------ ---------
TOTAL NET ASSETS (100.00%) $74,447,477
====== ==========
* Floating rate note, interest rate effective March 31, 1998.
# Call date.
+ This security having a value of $2,000,000 or 2.669% of the Fund's net assets
has been purchased as a forward commitment. The Fund has agreed on the trade
date to take delivery of and make payment on a delayed basis subsequent to the
date of this schedule. The purchase price and interest rate of the security is
fixed at the trade date. The Fund does not earn any interest on this security
until its settlement date. The Fund has instructed its Custodian Bank to
segregate assets with the current value at least equal to the amount of its
forward commitment. Accordingly, $2,100,000 of the value of the Fund's
investment in Joint Repurchase Agreement, 5.900% due 04-01-98, has been
segregated to cover the forward commitment.
The percentage shown for each investment category is the total value of that
category expressed as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
John Hancock Funds - U.S. Government Cash Reserve
NOTE A -
ACCOUNTING POLICIES
John Hancock Current Interest (the "Trust") is a diversified open-end management
investment company registered under the Investment Company Act of 1940. The
Trust consists of two series: John Hancock U.S. Government Cash Reserve (the
"Fund") and John Hancock Money Market Fund (collectively, the "Funds"). The
other series of the Trust is reported in separate financial statements. 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 Board of Trustees has 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.
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, Inc., 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. Therefore, no federal income tax
provision is required.
DIVIDENDS The Fund's net investment income is declared daily as dividends to
hareholders of record as of the close of business on the preceding day and
distributed monthly.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an ndividual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
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 these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other Funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. The Fund is permitted to borrow from the uncommitted portion of
the unsecured lines of credit, which is $400 million. Interest is charged to
each Fund, based on its borrowing, at a rate equal to 0.50% over the Fed Funds
Rate. In addition, a commitment fee, at rates ranging from 0.070% to 0.075% per
annum based on the average daily unused portion of the line of credit, is
allocated among the participating Funds. The Fund had no borrowing activity for
the year ended March 31, 1998.
11
<PAGE>
John Hancock Funds - U.S. Government Cash Reserve
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% of
the average daily net asset value in excess of $2,500,000,000.
The Adviser has agreed to limit Fund expenses further to the extent
required to prevent expenses from exceeding 0.35% of the Fund's average daily
net asset value. Accordingly, for the year ended March 31, 1998, 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 $273,156. 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 reimburse 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 to exceed 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 have been suspended until further
notice is given to the shareholders.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of John Hancock
Mutual Life Insurance Company. The Fund pays transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are directors and/or officers of the Adviser and/or its affiliates as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. 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.
NOTE C -D INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investment securities,
during the year ended March 31, 1998, aggregated $3,692,984,881 and
$3,672,250,563, respectively.
The cost of investments owned at March 31, 1998 (including the joint
repurchase agreement) for federal income tax purposes was $77,764,342.
12
<PAGE>
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
John Hancock U.S. Government Cash Reserve
We have audited the accompanying statement of assets and liabilities of the John
Hancock U.S. Government Cash Reserve (the "Fund"), one of the portfolios
constituting John Hancock Current Interest, including the schedule of
investments, as of March 31, 1998, and the related statement of operations for
the year then ended, and the statement of changes in net assets 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 March
31, 1998, by correspondence with the custodian and brokers, and other auditing
procedures where replies from brokers were not received. 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 the
John Hancock U.S. Government Cash Reserve portfolio of John Hancock Current
Interest at March 31, 1998, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
/s/Ernst & Young LLP
Boston, Massachusetts
May 1, 1998
TAX INFORMATION NOTICE (UNAUDITED) For federal income tax purposes, the
following information is furnished with respect to the dividends of the Fund
during the fiscal year ended March 31, 1998. All of the dividends paid for the
fiscal year are taxable as ordinary income. None of the 1998 dividends qualify
for the dividends received deduction available to corporations. Shareholders
will be mailed a 1998 U.S. Treasury Department Form 1099-DIV in January of 1999.
This will reflect the total of all distributions which are taxable for calendar
year 1998.
13
<PAGE>
NOTES
John Hancock Funds - U.S. Government Cash Reserve
14
<PAGE>
NOTES
John Hancock Funds - U.S. Government Cash Reserve
15
<PAGE>
-------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph. MA
1-800-225-5291 1-800-554-65713 (DTD) Permit No. 75
INTERNET: www.jhanock.com/funds -------------
This report is for the information of shareholders of the John Hancock U.S.
Government Cash Reserve. It may be used as a sales literature when preceded
or accompanied by the current prospectus, which details charges, investments
objectives and operating policies.
Printed on recycled paper 4300A 3/98
5/98
<PAGE>
ANNUAL REPORT
[PHOTO OMITTED]
Money Market
Fund
MARCH 31, 1998
<PAGE>
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin
William H. Cunningham*
Charles F. Fretz
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Leo E. Linbeck, Jr.
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 and Chief Operating Officer
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
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 LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer so far has
been more of the same. This achievement continues to bolster many investors'
convictions that the market will produce these results forever, or, in the worst
case, that market declines will always be short-lived. While the economy remains
solid and the environment favorable, history and reason tell us it's a highly
unlikely scenario.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to third paragraph.]
This doesn't mean we know what the market will do next, or that it's
riding for a fall. But after such a run, even in this "new era" of strong
economic growth with low inflation, we believe it would be wise for investors to
set more realistic expectations. As we've said before, markets do indeed move in
two directions, even though we've seen "up" much more than "down" recently. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now could
also be a good time to review with your investment professional how your assets
are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
by Dawn Baillie for the Portfolio Management Team
John Hancock Money Market Fund
Money market yields hold steady; dormant inflation
keeps Federal Reserve on the sidelines
Uncertainty was the watchword for money market funds over the last 12
months, but status quo was the end result, as short-term interest rates remained
fairly stable. As the fiscal year began last April, the Federal Reserve had just
pushed short-term rates up one quarter percentage point to 5.50% in response to
signs that the economy, and inflation, might be heating up. Although that turned
out to be the
"...the Fed's stance shifted...to a more solidly neutral position."
only move the Fed made during the year, money markets fretted over each set of
monthly economic data. Fears remained about the strength of the economy and
whether the low unemployment rate would inevitably translate into rising labor
costs and higher inflation, which has been the case in past economic cycles.
Despite all the concerns, inflation never budged, and Fed chairman Alan
Green-span concluded that this economic cycle was different. By the end of 1997,
the Fed's stance shifted from its earlier inclination to raise short-term
interest rates to a more solidly neutral position. That's where the Fed remains
today, given the fact that there have been no consistent signs about the
economy's growth rate. Bolstering the Fed' neutral stance was the currency and
financial turmoil in Asia that began last summer and caused havoc in markets
worldwide in October. The result was a flight to safe-haven securities such as
U.S. Treasury bonds, causing yields to fall and prices to rise in a bond rally
that lasted into early 1998. What's more, the Asian crisis caused many to
believe that the U.S.
[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: Fund management
team members (l-r): Bill Larkin, Roger Hamilton, Jeff Given, Dawn Baillie and
Barry Evans.]
3
<PAGE>
["Bar Chart with the heading "7-Day Effective Yield " at the top left hand
column. Under the heading is the footnote: "As of March 31, 1998." The chart is
scaled in increments of 2% with 6% at the top and 0% at the bottom. The first
represents the 4.74% 7-day effective yield for John Hancock Money Market Fund:
Class A. The second represents the 3.86% 7-day effective yield for John Hancock
Money Market Fund: Class B. The third represents the 4.92% total return for
Average the Taxable Money Market Fund. A Footnote below reads " The average
taxable money market fund is tracked by Lipper Analytical Services, Inc."]
economy would slow down and stay in check in 1998 without the Fed's
intervention. As a result, the federal funds rate, which banks charge each other
for overnight loans and which serves as a pricing benchmark for money market
securities, stayed at 5.50% for the entire fiscal year. The Fed's inactivity
caused money market yields to remain fairly steady all year, even though
longer-term rates fell.
On March 31, 1998, John Hancock Money Market Fund had a 7-day effective
yield of 4.74% for Class A shares and 3.86% for Class B shares. By comparison,
the average taxable money market fund had a 7-day effective yield of 4.92%,
according to Lipper Analytical Services, Inc.
Longer-than-average maturity pays off We kept the Fund's maturity longer than
average throughout the entire fiscal year, believing from the outset of the
period that the Fed was not going to raise rates further. We took this
aggressive stance to lock in higher yields, and that served us
"...we intend to keep the Fund's maturity longer than average for now..."
well in the fall when the Asian crisis hit Wall Street and the bond market
rallied and interest rates fell. For most of the year, the Fund's maturity was
about 10 days longer than average. That only changed briefly at the end of 1997
so we could take advantage of the typically favorable buying environment for
money market securities.
A word about Asia Money market funds have not been affected by Asia's financial
woes because most money funds that are permitted to invest in foreign securities
had stopped buying any short-term certificates of deposit from Japanese banks.
John Hancock Money Market Fund was no exception.
Status quo ahead As long as the economy remains in its near-perfect mode of
solid growth, low interest rates and benign inflation, we believe the Fed will
stay on the sidelines for the foreseeable future. It also appears to be
maintaining its neutral stance, without a bias toward either raising or lowering
rates. At the same time, many believe that the impact of the Asian turmoil has
yet to play itself out, and that slower growth in that part of the world could
result in a slowdown here later in the year. Given this background, we intend to
keep the Fund's maturity longer than average for now to maintain our yield, and
we will keep watching the major economic indicators for clearer signs of where
the economy is headed. As always, we'll stay focused on providing shareholders
with a competitive level of current income, while maintaining stability of
principal.
This commentary reflects the views of the portfolio 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
<PAGE>
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 March 31, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
March 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, in money market instruments,
at value - Note C:
Commercial paper (cost-D $93,117,427) .............. $93,117,427
Negotiable bank certificates of deposit
(cost-D $5,644,243) .............................. 5,644,243
Bankers' acceptances (cost-D $7,478,368) ........... 7,478,368
Corporate interest bearing obligations
(cost-D $127,593,796) .............................. 127,593,796
U.S. government obligations (cost-D $95,472,049) .... 95,472,049
Joint repurchase agreement (cost-D $66,661,000) ..... 66,661,000
-------------
395,966,883
Cash ................................................. 20,275
Receivable for shares sold ........................... 8,415
Interest receivable .................................. 3,745,413
Other assets ......................................... 32,914
-------------
Total Assets ................. 399,773,900
--------------------------------------------------------
Liabilities:
Payable for investments purchased ................... 5,000,000
Payable for shares repurchased ...................... 624,100
Dividend payable .................................... 43,144
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ............................... 198,276
Accounts payable and accrued expenses ............... 119,601
-------------
Total Liabilities ............. 5,985,121
--------------------------------------------------------
Net Assets:
Capital paid-in ..................................... 393,788,779
------------
Net Assets .................... $393,788,779
========================================================
Net Asset Value, Offering Price and
Redemption Price Per Share:
(Based on net asset values and shares of beneficial
interest outstanding -3,500,000,000 shares
authorized with $0.01 per share par value)
Class A - $312,762,266 / 312,841,439 ................. $1.00
================================================================================
Class B- $81,026,513 / 81,045,023 .................... $1.00
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund.
Statement of Operations
Year ended March 31, 1998
- --------------------------------------------------------------------------------
Investment Income:
Interest .............................................. $22,731,245
Expenses:
Investment management fee- Note B ..................... 1,592,755
Distribution and service fee-D Note B
Class A ............................................. 449,259
Class B ............................................. 986,830
Transfer agent fee- Note B ............................ 1,082,991
Custodian fee ......................................... 89,448
Financial services fee- Note B ........................ 71,537
Auditing fee .......................................... 32,250
Trustees' fees ........................................ 29,275
Registration and filing fees .......................... 25,677
Printing .............................................. 20,689
Miscellaneous ......................................... 4,989
Legal fees ............................................ 4,242
Net Expenses .................. 4,389,942
--------------------------------------------------------
Net Investment Income ......... 18,341,303
--------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ...... $18,341,303
=========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
John Hancock Funds - Money Market Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED NOVEMBER 1, 1996 TO YEAR ENDED
OCTOBER 31, 1996 MARCH 31, 1997(1) MARCH 31, 1998
---------------- ----------------- --------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................. $13,918,908 $7,375,295 $18,341,303
------------ ----------- ------------
Distributions to Shareholders:
Dividends from net investment income
Class A- ($0.0444, $0.0178 and $0.0482
per share, respectively) ............ (11,196,942) (5,933,244) (14,426,990)
Class B- ($0.0363, $0.0144 and $0.0397
per share, respectively) ............ (2,721,966) (1,442,051) (3,914,313)
Distributions in excess of net investment income
Class A-D ($0.0003, none and none per share,
respectively) ....................... (79,146) - -
Class B- ($0.0020, none and none per share,
respectively) ....................... (18,508) - -
---------- ---------- ----------
Total Distributions to Shareholders...... (14,016,562) (7,375,295) (18,341,303)
---------- --------- ----------
From Fund Share Transactions-D Net: * ... 295,479,601 118,872,035 (95,720,210)
----------- ----------- ----------
Net Assets:
Beginning of period ................... 75,255,007 370,636,954 489,508,989
----------- ----------- -----------
End of period ......................... $370,636,954 $489,508,989 $393,788,779
============= ============ ============
* Analysis of Fund Share Transactions at $1 Per Share:
CLASS A
Shares sold .......................... $2,599,973,181 $ 3,214,973,176 $3,870,818,878
Shares issued in reorganization -
Note D ............................... 241,738,468 - -
Shares issued to shareholders in
reinvestment of distributions ........ 9,488,362 4,449,617 12,110,373
------------- ------------ ------------
2,851,200,011 3,219,422,793 3,882,929,251
Less shares repurchased .............. (2,609,587,924) (3,122,445,223) (3,929,619,558)
-------------- ------------- -------------
Net increase (decrease) .............. $241,612,087 $96,977,570 ($46,690,307)
============== ============== =============
CLASS B
Shares sold ........................... $859,812,437 $453,653,930 $619,548,975
Shares issued to shareholders in
reinvestment of distributions ......... 1,868,335 966,286 3,015,287
-------------- ------------ -----------
861,680,772 454,620,216 622,564,262
Less shares repurchased ............... (807,813,258) (432,725,751) (671,594,165)
-------------- ----------- -----------
Net increase (decrease) ............... $53,867,514 $21,894,465 ($49,029,903)
============== =========== ===========
</TABLE>
(1) Effective March 31, 1997, the fiscal period end changed from October 31 to
March 31.
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 repurchased during the last three
periods.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
John Hancock Funds - Money Market Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 12, 1995 PERIOD FROM
(COMMENCEMENT OF YEAR ENDED NOVEMBER 1, 1996 YEAR ENDED
OPERATIONS) TO OCTOBER 31, TO MARCH 31, MARCH 31,
OCTOBER 31, 1995 1996 1997(5) 1998
---------------- ---- ------- ----
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period... $1.00 $1.00 $1.00 $1.00
------ ------- ------ ------
Net Investment Income ................. 0.01 0.05 0.02 0.05
------ ------- ------ ------
Less Distributions:
Dividends from Net Investment Income (0.01) (0.05) (0.02) (0.05)
------ ------- ------ ------
Net Asset Value, End of Period ........ $1.00 $1.00 $1.00 $1.00
====== ======= ====== ======
Total Investment Return at Net
Asset Value (2) ....................... 0.64%(3) 4.56% 1.80%(3) 4.92%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) ........................ $20,942 $262,475 $359,453 $312,762
Ratio of Expenses to Average
Net Assets ............................ 1.07%(4) 1.17% 1.10%(4) 0.89%
Ratio of Net Investment Income to
Average Net Assets .................... 4.94%(4) 4.41% 4.44%(4) 4.82%
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 31, NOVEMBER 1, 1996 YEAR ENDED
------------------------------------- TO MARCH 31, MARCH 31,
1993 1994 1995(1) 1996 1997(5) 1998
---- ---- ------- ----- ------ ----
<S> <C> <C> <C> <C>
CLASS B
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 ................. 0.01 0.02 0.04 0.04 0.01 0.04
------ ------ ------ ------ ----- ------
Less Distributions:
Dividends from Net Investment Income... (0.01) (0.02) (0.04) (0.04) (0.01) (0.04)
------ ------ ----- ------ ----- ------
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 (2) ....................... 0.85% 1.87% 4.07% 3.71% 1.45%(3) 4.04%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) ....................... $31,546 $58,366 $54,313 $108,162 $130,056 $81,027
Ratio of Expenses to Average
Net Assets ............................ 2.44% 2.06% 1.92% 2.00% 1.96%(4) 1.74%
Ratio of Net Investment Income
to Average Net Assets ................. 0.85% 1.97% 3.96% 3.58% 3.60%(4) 3.97%
(1) On December 22, 1994 John Hancock Advisers, Inc. became the investment adviser of the Fund.
(2) Total investment return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(3) Not annualized.
(4) Annualized.
(5) Effective March 31, 1997, the fiscal period end changed from October 31 to March 31.
</TABLE>
The Financial Highlights summarizes the impact of net investment income and
dividends on a single share for each period indicated. Additionally, important
relationships between some items presented in the financial statements are
expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
John Hancock Funds - Money Market Fund
Schedule of Investments
March 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Money
Market Fund on March 31, 1998. It's divided into six types of short-term
investments. The categories of short-term investments are further broken down by
industry group.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000s MARKET
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
Banking - Foreign (2.54%)
Deutsche Bank Financial, Inc.,
04-06-98 .............................. 5.530% Tier 1 $10,000 $9,992,320
----------
Broker Services (3.89%)
Goldman Sachs Group, L.P.,
04-03-98 .............................. 5.520 Tier 1 15,300 15,295,308
----------
Electronics (4.06%)
Pitney Bowes Credit Corp.,
04-06-98 .............................. 5.670 Tier 1 16,000 15,987,400
----------
Finance (4.06%)
General Electric Capital Corp.,
04-02-98 .............................. 5.550 Tier 1 16,000 15,997,533
----------
Mortgage Banking (4.82%)
Countrywide Home Loans,
04-02-98 .............................. 5.550 Tier 1 19,000 18,997,071
----------
Utilities - Telephone (4.28%)
GTE Corp.,
04-16-98 5.700 Tier 1 10,000 9,976,250
GTE Corp.,
04-27-98 5.710 Tier 1 6,900 6,871,545
-----------
16,847,795
-----------
TOTAL COMMERCIAL PAPER
(Cost $93,117,427) (23.65%) 93,117,427
------- -----------
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT
U.S. Branches of Foreign Banks (1.43%)
Abbey National Treasury Services,
01-19-99 5.375 Tier 1 647 645,332
Deutsche Bank, AG,
10-26-98 5.950 Tier 1 5,000 4,998,911
----------
5,644,243
----------
TOTAL NEGOTIABLE BANK
CERTIFICATES OF DEPOSIT
(Cost $5,644,243) (1.43%) 5,644,243
------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000s MARKET
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
BANKERSO ACCEPTANCES
U.S Banks (1.90%)
BankBoston,
05-01-98 ............................ 5.500% Tier 1 $5,000 $4,977,083
BankBoston,
08-05-98 ............................. 5.400 Tier 1 2,549 2,501,285
----------
7,478,368
----------
TOTAL BANKERS' ACCEPTANCES
(Cost $7,478,368) (1.90%) 7,478,368
------ ----------
CORPORATE INTEREST BEARING OBLIGATIONS
Automotive (7.60%)
Chrysler Financial Corp.,
04-15-98 .............................. 6.180 Tier 1 1,500 1,500,232
Chrysler Financial Corp.,
06-15-98 .............................. 6.500 Tier 1 8,500 8,510,411
Chrysler Financial Corp.,
10-15-98 .............................. 5.375 Tier 1 5,000 4,990,508
General Motors Acceptance Corp.,
07-20-98 .............................. 7.375 Tier 1 500 502,438
General Motors Acceptance Corp.,
09-01-98 .............................. 6.375 Tier 1 2,200 2,206,395
General Motors Acceptance Corp.,
09-08-98 .............................. 6.250 Tier 1 4,800 4,809,971
General Motors Acceptance Corp.,
09-14-98 .............................. 6.625 Tier 1 2,410 2,418,910
General Motors Acceptance Corp.,
02-26-99 .............................. 5.950 Tier 1 5,000 5,008,915
----------
29,947,780
----------
Banking (3.30%)
Key Bank N.A.,
04-06-98 .............................. 6.050 Tier 1 3,000 3,000,174
NationsBank Corp.,
07-15-98 .............................. 5.570 Tier 1 5,000 4,996,535
NationsBank Corp.,
09-15-98 .............................. 5.125 Tier 1 5,000 4,986,915
----------
12,983,624
----------
Banking - Foreign (1.27%)
Swedish Export Credit Corp.,
04-24-98 .............................. 5.750 Tier 1 5,000 4,999,260
----------
Broker Services (0.48%)
Merrill Lynch & Co., Inc.,
06-22-98 .............................. 6.520 Tier 1 1,885 1,888,109
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
<TABLE>
<CAPTION>
PAR
VALUE
INTEREST QUALITY (000s MARKET
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
CORPORATE INTEREST BEARING OBLIGATIONS (continued)
Chemical (2.55%)
duPont (E.I.) de Nemours & Co.,
05-06-98 .............................. 8.360% Tier 1 $10,000 $10,027,268
----------
Finance (8.56%)
Associates Corp. of North America,
08-15-98 .............................. 6.375 Tier 1 5,000 5,014,117
Beneficial Corp.,
06-15-98 .............................. 8.220 Tier 1 2,895 2,908,335
CIT Group Holdings, Inc.,
04-01-98 .............................. 5.625 Tier 1 1,000 1,000,000
CIT Group Holdings, Inc.,
04-15-98 .............................. 8.750 Tier 1 2,478 2,480,697
CIT Group Holdings, Inc.,
07-31-98 .............................. 6.350 Tier 1 5,000 5,005,516
Heller Financial Inc.,
05-20-98 .............................. 6.270 Tier 1 7,000 7,002,892
Household Finance Corp.,
05-11-98 .............................. 6.890 Tier 1 6,000 6,006,594
Household Finance Corp.,
06-19-98 .............................. 6.130 Tier 1 3,300 3,303,302
International Business Machines Credit Corp.,
04-20-98 .............................. 6.750 Tier 1 1,000 1,000,393
----------
33,721,846
----------
Insurance (1.85%)
American General Finance Corp.,
05-11-98 .............................. 6.850 Tier 1 6,000 6,006,567
American General Finance Corp.,
07-28-98 .............................. 5.450 Tier 1 1,270 1,268,253
----------
7,274,820
----------
Machinery (0.99%)
John Deere Capital Corp.,
02-01-99 .............................. 6.000 Tier 1 3,900 3,907,715
----------
Retail Stores (4.50%)
Discover Credit Corp.,
04-01-98 .............................. 9.000 Tier 1 5,000 5,000,000
Sears Roebuck Acceptance Corp.,
04-15-98 .............................. 9.250 Tier 1 12,700 12,715,067
-----------
17,715,067
-----------
Utilities -D Electric (1.30%)
Southern California Edison Co.,
06-15-98 .............................. 5.450 Tier 1 5,130 5,128,307
----------
TOTAL CORPORATE INTEREST BEARING OBLIGATIONS
(Cost $127,593,796) (32.40%) 127,593,796
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
<TABLE>
<CAPTION>
PAR
VALUE
INTEREST QUALITY (000s MARKET
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
Governmental -D U.S. Agencies (24.24%)
Federal Home Loan Bank,
04-01-98 .............................. 5.900% Tier 1 $30,000 $30,000,000
Federal Home Loan Bank,
06-12-98 # ............................ 5.615 Tier 1 10,000 10,000,000
Federal Home Loan Bank,
06-17-98 # ............................ 5.700 Tier 1 8,000 8,000,000
Federal Home Loan Bank,
07-08-98 # + .......................... 5.750 Tier 1 5,000 5,000,000
Federal Home Loan Bank,
08-20-98 .............................. 5.484** Tier 1 5,500 5,498,182
Federal Home Loan Bank,
03-02-99 .............................. 5.610 Tier 1 20,000 20,000,000
Student Loan Marketing Association,
02-22-99 .............................. 5.388** Tier 1 17,000 16,973,867
----------
95,472,049
----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $95,472,049) (24.24%) 95,472,049
----- ----------
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase
agreement transaction with Hong
Kong Shanghai Bank Corp. - Dated
03-31-98, Due 04-01-98 (Secured by
U.S. Treasury Bill, 5.240%, Due
08-20-98 and U.S. Treasury Notes,
5.875% thru 8.750%, Due 08-31-99
thru 08-15-00) - Note A ................ 5.900% 66,661 66,661,000
----------
TOTAL JOINT REPURCHASE AGREEMENT
(Cost $66,661,000) 16.93%) 66,661,000
------ ----------
TOTAL INVESTMENTS (100.55%) 395,966,883
------- -----------
OTHER ASSETS AND
LIABILITIES, NET (0.55%) (2,178,104)
----- ---------
TOTAL NET ASSETS (100.00%)$393,788,779
------- -----------
</TABLE>
* Quality ratings indicate the categories of eligible securities, as defined
by Rule 2a-7 of the Investment Company Act of 1940, owned by the Fund.
** Floating rate note, interest rate effective March 31, 1998.
# Call date.
+ This security having a value of $5,000,000 or 1.27% of the Fund's net
assets has been purchased as a forward commitment. The Fund has agreed on
the trade date to take delivery of and make payment on a delayed basis
subsequent to the date of this schedule. The purchase price and interest
rate of the security is fixed at the trade date. The Fund does not earn any
interest on this security until its settlement date. The Fund has
instructed its Custodian Bank to segregate assets with current value at
least equal to the amount of its forward commitment. Accordingly,
$5,200,000 of the value of the Fund's investment in Joint Repurchase
Agreement, 5.900% due 04-01-98, has been segregated to cover the forward
commitment.
The percentage shown for each investment category is the total value of that
category expressed as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
John Hancock Funds - Money Market Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Current Interest (the "Trust") is a diversified open-end management
investment company registered under the Investment Company Act of 1940. The
Trust consists of two series: John Hancock Money Market Fund (the "Fund") and
the John Hancock U.S. Government Cash Reserve (collectively, the "Funds"). The
other series of the Trust is reported in separate financial statements. The
investment objective of the Fund is to provide maximum current income consistent
with capital preservation and liquidity.
The Board of Trustees have authorized the issuance of multiple classes of
shares of the Fund, designated as Class A and Class B shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Board of Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal Revenue
Service. Shareholders of a class which bears distribution and service expenses
under terms of a distribution plan have exclusive voting rights to that
distribution plan. Effective May 1, 1998, Class C shares will be sold to
commence class activity.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTSEThe Board of Trustees has 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,
Inc., 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. Therefore, no federal income tax
provision is required.
DIVIDENDS The Fund records all distributions to shareholders from net investment
income on the ex-dividend date. Such distributions are determined in conformity
with income tax regulations, which may differ from generally accepted accounting
principles. Dividends paid by the Fund with respect to each class of shares will
be calculated in the same manner, at the same time and will be in the same
amount, except for the effect of expenses that may be applied differently to
each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
12
<PAGE>
John Hancock Funds - Money Market Fund
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 these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. The Fund is permitted to borrow from the uncommitted portion of
the unsecured lines of credit, which is $400 million. Interest is charged to
each fund, based on its borrowing, at a rate equal to 0.50% over the Fed Funds
Rate. In addition, a commitment fee, at rates ranging from 0.070% to 0.075% per
annum based on the average daily unused portion of the line of credit, is
allocated among the participating funds. The Fund had no borrowing activity for
the year ended March 31, 1998.
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) 0.50% 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) 0.35% of the next $500,000,000, (e) 0.325% of the
next $500,000,000, (f) 0.30% of the next $500,000,000 and (g) 0.275% of the
average daily net asset value in excess of $2,500,000,000. Effective November
22, 1995, the maximum fee of the first $750,000,000 of the Fund's average daily
net assets has been reduced to 0.40% of the Fund's average daily net assets and
cannot be reinstated to the original contracted amounts without the Trustees'
consent.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the Adviser,
is the principal underwriter 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 and are used in whole or in part to defray its expenses for
providing distribution related services to the Fund in connection with the sale
of Class B shares. For the year ended March 31, 1998, contingent deferred sales
charges paid to JH Funds amounted to $715,572.
In addition, to reimburse JH Funds for the services it provides as distributor
of shares of the Fund, the Fund has adopted Distribution Plans with respect to
Class A and Class B 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 to exceed 0.25% of Class A average daily
net assets and 1.00% of Class B average daily net assets to reimburse JH Funds
for its distribution and service costs. Presently the 12b-1 expense rate on
Class A has been reduced to 0.15% of the average daily net assets and cannot be
reinstated to 0.25% without the Trustees' consent. 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.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of John Hancock Mutual Life
Insurance Company. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the fiscal year
was at an annual rate of less than 0.02% of the average net assets of the Fund.
13
<PAGE>
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione are
trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. 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.
NOTE C - INVESTMENT TRANSACTIONS Purchases and proceeds from sales and
maturities of investment securities, other than obligations of the U.S.
government and its agencies, during the year ended March 31, 1998, aggregated
$19,060,563,180 and $19,201,556,461, respectively. Purchases and proceeds from
maturities of obligations of the U.S. government and its agencies aggregated
$237,173,830 and $200,409,094, respectively, during the year ended March 31,
1998.
The cost of investments owned at March 31, 1998 (including the joint repurchase
agreement) for federal income tax purposes was $395,966,883.
NOTE D -
REORGANIZATION On November 15, 1995, the shareholders of John Hancock Cash
Management Fund ("CMF") approved a plan of reorganization between CMF and the
Fund providing for the transfer of substantially all of the assets and
liabilities of CMF to the Fund in exchange solely for Class A shares of the
Fund. The acquisition was accounted for as a tax free exchange of 241,738,468
Class A shares of the Fund, which amounted to $241,738,468, for the net assets
of CMF, after the close of business on November 17, 1995.
14
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Current Interest
John Hancock Money Market Fund
We have audited the accompanying statement of assets and liabilities of the John
Hancock Money Market Fund (the "Fund"), one of the portfolios constituting John
Hancock Current Interest, including the schedule of investments, as of March 31,
1998, and the related statement of operations for the year then ended, and the
statement of changes in net assets 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 March
31, 1998, by correspondence with the custodian and brokers, and other auditing
procedures where replies from brokers were not received. 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 the John Hancock Money Market Fund portfolio of John
Hancock Current Interest at March 31, 1998, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for each of the indicated periods, in conformity with generally
accepted accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts May 1, 1998
TAX INFRMATION
NOTICE (UNAUDITED) For federal income tax purposes, the following information is
furnished with respect to the dividends of the Fund during the fiscal year ended
March 31, 1998. All of the dividends paid for the fiscal year are taxable as
ordinary income. None of the 1998 dividends qualify for the dividends received
deduction available to corporations. Shareholders will be mailed a 1998 U.S.
Treasury Department Form 1099-DIV in January of 1999. This will reflect the
total of all distributions which are taxable for calendar year 1998.
<PAGE>
[LOGO] JOHN HANCOCK FUNDS -------------
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-------------
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operating policies.
Printed on recycled paper 4400A 3/98
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