John Hancock Funds
Intermediate
Maturity
Government
Fund
ANNUAL REPORT
March 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles L. Ladner*
Anne C. Hodsdon
Charles F. Fretz*
Harold R. Hiser, Jr.*
Leo E. Linbeck*
Patricia P. McCarter*
Steven R. Pruchansky*
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
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President, and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South 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:
The stock market's record-breaking, whirlwind performance in 1995 will
be a tough act to follow in 1996. In fact, we've already seen greater
market volatility this year, particularly among last year's leaders --
technology stocks. That's to be expected after a year that saw market
indexes soar, including the Standard & Poor's 500-Stock Index's 37%
advance. While many of the same economic conditions that fostered the
stellar 1995 market are still in place -- slow economic growth, muted
inflation and decent corporate earnings -- it would be unrealistic to
expect the market to stage a repeat in 1996. The old saying "trees don't
grow to the sky" comes to mind. 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
BY ROGER HAMILTON FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Intermediate Maturity
Government Fund
After a strong 1995, bond market gets off
to rocky start in 1996
A 2 1/2" x 3 1/4" photo of Roger Hamilton and Barry Evans. Caption reads:
"Roger Hamilton (right) and Barry Evans (seated), head of the Government
Fixed-Income department"
It was
tough
sledding for bonds in
the first
quarter.
What began as the bond market's third best year on record in 1995 ended
with tough sledding in the first quarter of 1996. Slow economic growth,
low inflation, and hopes for a budget deal in Washington drove bond
prices higher throughout last year. The Federal Reserve's decision in
July and December to lower the federal funds rate -- the rate banks
charge each other for overnight loans -- further fueled investor
optimism.
But that optimism soured early in the new year when it looked like there
would be no budget accord, and bond prices took the first of many
tumbles. A surge in gold prices and signs that employee compensation
might be rising re-ignited inflation fears. Bond investors hate
inflation because it tends to raise interest rates and hurt bond prices.
Another cut in the federal funds rate late in January helped prices
recover somewhat, but investors remained concerned. It wasn't surprising
that the release of stronger-than-expected economic news in February and
early March sent bond prices plunging again. Prices came back, but not
to their previous levels.
A look at performance
For the year ended March 31, 1996, the Fund's Class A and Class B shares
had total returns of 5.60% and 4.92%, respectively, at net asset value.
The Fund beat the average adjustable-rate mortgage fund, which returned
3.56% over the same period, according to Lipper Analytical Services.1
But its sizable stake in adjustable rate mortgages (ARMs) caused the
Fund to lag the average intermediate-term government fund, the Fund's
new peer group, which returned 8.82% over the same period, according to
Lipper.
John Hancock Funds - Intermediate Maturity Government Fund
Pie chart with the heading "Portfolio Diversification" at top of left
hand column. The chart is divided into two sections. Going from left
to right: U.S. Government Agency Bonds 55%; U.S. Treasury Bonds & other 45%.
As a percentage of net assets on March 31, 1996
"...we began
restructuring
the
portfolio."
During much of the 12-month period that ended March 31, 1996, interest
rates were falling. As a result, Treasuries, which are more sensitive to
interest-rate changes, did better than either traditional mortgage
securities or ARMs. The 10-year Treasury, for example, returned 11.67%
for the 12-month period. By comparison, mortgage bonds -- as measured by
the Lehman Brothers Mortgage Index -- returned 10.49%. Prepayment fears
- -- the risk that homeowners will refinance their mortgages at lower
rates -- hurt all mortgage bonds, particularly ARMs. Following the
increase in interest rates in 1994, mortgage rates reset at over 8% a
year later. As that happened, many homeowners with ARMs locked in lower
rates by refinancing with a fixed, 30-year mortgage.
As rates fell, the Fund benefited from cutting its stake in ARMs and
increasing its focus on Treasuries.
Right place, right time
After last summer's vote to change the Fund's investment objective, we
began restructuring the portfolio. We started in September by
lengthening duration from about two years to 3.5 years. With a longer
duration, a bond's price will rise more as interest rates fall -- or
decline more as interest rates rise. The Fund's duration was longer than
the average ARM fund's duration -- a plus when rates were falling. At
the same time, it was shorter than the average intermediate government
fund's duration, which protected the Fund when interest rates went back
up in the first part of 1996. In March, we raised the Fund's duration to
3.75 years because rates on long-term bonds were much higher than they
had been.
We initially added duration by selling mortgage securities, especially
ARMs, and buying Treasuries. Having a high percentage of ARMs is not
typical for an intermediate government fund. Nor are they always as easy
to buy and sell as Treasuries or traditional mortgage bonds. So we
pruned ARMs from 42% of the Fund's investments at the end of September
to 11% at the end of March.
We swapped the ARMs primarily for Treasuries with four- to seven-year
maturities. This concentrated approach, known as a "bullet" strategy,
worked well because the yield curve -- the difference between short- and
long-term rates -- was steepening in anticipation of further Fed rate
cuts. By the end of December the Fund's stake in Treasuries had grown to
54%, more than double what it was at the end of September. At the same
time, our stake in fixed-rate mortgages had gone from 33% to 28%. In the
first quarter of 1996, as interest rates began rising, mortgage bonds
started looking more attractive. So we trimmed Treasuries back to 46% of
total investments by the end of March, and pushed our stake in
traditional mortgages back up to 44%.
Fund performance
For the year ended March 31, 1996
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended March 31, 1996.
" The chart is scaled in increments 5% from bottom to top, with 15% at
the top and 0% at the bottom. Within the chart, there are four solid
bars. The first represents the 5.60% total return for John Hancock
Intermediate Maturity Government Fund: Class A. The second represents
the 4.92% total return for John Hancock Intermediate Maturity Government
Fund: Class B. The third represents the 3.56% total return for the
average adjustable rate mortgage fund. The fourth represents the
8.82% total return for the average intermediate term government
fund. Footnote below reads: "Total returns for John Hancock
Intermediate Maturity Government Fund are at net asset value with
all distributions reinvested. The average adjustable-rate
mortgage fund and intermediate-term government fund are tracked by
Lipper Analytical Services (1). See following page for historical
performance information.
Total returns for John Hancock Intermediate Maturity Government Fund are
at net asset value with all distributions reinvested. The average
adjustable-rate mortgage fund and intermediate-term government fund are
tracked by Lipper Analytical Services.1 See following page for
historical performance information
Long-term optimism
We believe there are reasons to be optimistic about the bond market's
longer-term prospects.
Over the next year, we expect economic growth to
remain moderate and inflation to stay low, which would be positive for
the market. But in the near term, we may see more strong economic news.
The January blizzards, government shutdown, early tax refunds and
increases in mortgage refinancings could all cause a bounce in consumer
spending. Any sign of the economy picking up steam could scare the bond
market. We'll also keep a watch on political developments like the
election and budget accord.
In this environment, we believe the Fund is in a good position both to
take advantage of rallies and provide shelter in a down market. Already
the Fund has benefited from broader diversification, with an improvement
in both total return and 12-month yield. Going forward, we'll be looking
to add duration once it looks like interest rates are headed down. We
may also further trim our ARM stake, while boosting our investment in
fixed-rate mortgages.
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.
1 Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
"in the
near term,
we may see
more strong
economic
news."
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Intermediate Maturity
Government Fund. Total return is a performance measure that equals the
sum of all income and capital gains dividends, assuming reinvestment of
these distributions, and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 3%
for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 3% and declining to 0% over four
years) is included in Class B performance. Remember that all figures
represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and
share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
CUMULATIVE TOTAL RETURNS
For the period ended March 31, 1996
One Life of
Year Fund (1)
------------ -----------
John Hancock Intermediate Maturity
Government Fund: Class A 2.43% 18.08%
John Hancock Intermediate Maturity
Government Fund: Class B 1.90% 16.45%
AVERAGE ANNUAL TOTAL RETURNS
For the period ended March 31, 1996
One Life of
Year Fund (1)
------------ ------------
John Hancock Intermediate Maturity
Government Fund: Class A 2.43% 3.99%
John Hancock Intermediate Maturity
Government Fund: Class B 1.90% 3.65%
YIELDS
As of March 31, 1996
SEC 30-Day
Yield
------------
John Hancock Intermediate Maturity
Government Fund: Class A 5.69%
John Hancock Intermediate Maturity
Government Fund: Class B 5.21%
Notes to Performance
(1)Class A and Class B shares started on December 31, 1991.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in John
Hancock Intermediate Maturity Government Fund would be worth on March
31, 1996, assuming you invested on the day each class of shares started
and reinvested all distributions. For comparison, we've shown the same
$10,000 investment in both the Lipper Intermediate U.S. Government Index
and Lehman Government Bond Index. The Lipper Intermediate U.S.
Government Index is an equally weighted unmanaged index that measures
the performance of funds with at least 65% of their assets in securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities with dollar-weighted average maturities of five to ten
years. The Lehman Government Bond Index is an unmanaged index that
measures the performance of U.S. Treasury bonds and U.S. Government
Agency bonds.
Intermediate Maturity Government Fund
Class A shares
Line chart with the heading Intermediate Maturity Government Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are four lines.
The first line represents the value of the Lehman Government Bond Index
and is equal to $13,261 as of March 31, 1996. The second line represents
the value of the Lipper Intermediate U.S. Government Index and is equal
to $12,596 as of March 31, 1996. The third line represents the value of
the hypothetical $10,000 investment made in the Intermediate Maturity
Government Fund on December 31, 1991, before sales charge, and is equal
to $12,174 as of March 31, 1996. The fourth line represents the
Intermediate Maturity Government Fund after sales charge and is equal to
$11,808 as of March 31, 1996.
Intermediate Maturity Government Fund
Class B shares
Line chart with the heading Intermediate Maturity Government Fund:
Class B, representing the growth of a hypothetical $10,000 investment
over the life of the fund. Within the chart are four lines.
The first line represents the value of the Lehman Government Bond
Index and is equal to $13,261 as of March 31, 1996. The second line
represents the value of the Lipper Intermediate U.S. Government
Index and is equal to $12,596 as of March 31, 1996. The third line
represents the value of the hypothetical $10,000 investment made in
the Intermediate Maturity Government Fund on December 31, 1991, before
sales charge, and is equal to $11,845 as of March 31, 1996. The fourth
line represents the Intermediate Maturity Government Fund after sales
charge and is equal to $11,645 as of March 31, 1996.
<TABLE>
<CAPTION>
John Hancock Funds - Intermediate Maturity Government Fund
The Statement of Assets and Liabilities is the Fund's balance sheet
and shows the value ofwhat the Fund owns, is due and owes on
March 31, 1996. You'll also find the net asset value and the
maximum offering price per share as of that date.
The Statement of Operations summarizes the Fund's investment
income earned and expenses incurred in operating the Fund. It
also shows net gains (losses) for the period stated.
Statement of Assets and Liabilities
March 31, 1996
- -------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
United States government and agencies obligations
(cost - $38,133,102) $ 37,844,267
Joint repurchase agreement (cost - $448,000) 448,000
Corporate savings account 9,427
----------
38,301,694
Receivable for investments sold 1,371
Interest receivable 440,596
Deferred organization expenses - Note A 7,252
Other assets 9,762
----------
Total Assets 38,760,675
- ------------------------------------------------------------------
Liabilities:
Dividend payable 6,841
Payable for investments purchased 1,003,073
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 131,833
Accounts payable and accrued expenses 63,482
-----------
Total Liabilities 1,205,229
-----------
Net Assets:
Capital paid-in 37,507,751
Accumulated net realized gain on investments 333,135
Net unrealized depreciation of investments ($ 288,620)
Undistributed net investment income 3,180
-----------
Net Assets $ 37,555,446
-----------
Net Asset Value Per Share:
(Based on net assets and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $29,023,556/2,996,203 $ 9.69
==================================================================
Class B - $8,531,890/880,789 $ 9.69
==================================================================
Maximum Offering Price Per Share*
Class A - ($9.69 x 103.09%) $ 9.99
==================================================================
*On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment
income earned and expenses incurred in operating the Fund. It
also shows net gains (losses) for the period stated.
Statement of Operations
Year ended March 31, 1996
- ---------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $2,304,364
-----------
Expenses:
Investment management fee - Note B 137,927
Distribution/service fee - Note B
Class A 56,470
Class B 83,126
Custodian fee 69,757
Printing 61,864
Auditing fee 42,282
Transfer agent fee 36,030
Registration and filing fees 13,145
Organization expense - Note A 9,704
Advisory board fee 3,980
Miscellaneous 3,128
Trustees' fees 3,114
Legal fees 2,524
Financial services fee 415
-----------
Total Expenses 523,466
Less expenses reimbursable
by John Hancock Advisers, Inc. -
Note B ($224,283)
---------------------------------------------
Net Expenses 299,183
---------------------------------------------
Net Investment Income 2,005,181
---------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold 333,135
Change in net unrealized appreciation/depreciation
of investments ($577,061)
-----------
Net Realized and Unrealized
Loss on Investments ($243,926)
---------------------------------------------
Net Increase in Net Assets
Resulting from Operations $1,761,255
=============================================
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------
YEAR ENDED MARCH 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $2,005,181 $1,338,090
Net realized gain (loss)
on investments sold 333,135 ($520,533)
Change in net unrealized
appreciation/depreciation
of investments ($577,061) 111,364
----------- -----------
Net Increase in Net Assets Resulting
from Operations 1,761,255 928,921
----------- -----------
Distributions to shareholders:
Dividends from net investment income
Class A - ($0.6385 and $0.4823
per share, respectively) ($1,494,279) ($858,632)
Class B - ($0.5746 and $0.4220
per share, respectively) ($540,604) ($466,720)
----------- -----------
Total Distributions to Shareholders ($2,034,883) ($1,325,352)
----------- -----------
From Fund Share Transactions - Net* 15,373,658 ($13,084,232)
----------- -----------
Net Assets:
Beginning of period 22,455,416 35,936,079
----------- -----------
End of period
(including undistributed
net investment
income of $3,180 and $16,337,
respectively) $37,555,446 $22,455,416
=========== ===========
<CAPTION>
* Analysis of Fund Share Transactions: YEAR ENDED MARCH 31,
-------------------------------------------------------
1996 1995
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------- ---------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold 1,360,554 $ 13,397,732 402,099 $3,948,024
Shares issued in reorganization - Note D 2,305,865 22,643,129 -- --
Shares issued to shareholders
in reinvestment of distributions 54,240 535,013 53,589 522,853
----------- ----------- ----------- -----------
3,720,659 36,575,874 455,688 4,470,877
Less shares repurchased ($2,047,851) ($20,195,985) ($1,590,669) ($15,565,847)
----------- ----------- ----------- -----------
Net increase (decrease) 1,672,808 $16,379,889 ($1,134,981) ($11,094,970)
=========== =========== =========== ===========
CLASS B
Shares sold 128,155 $1,251,224 244,622 $2,378,527
Shares issued in reorganization -
Note D 77,218 758,254 -- --
Shares issued to shareholders
in reinvestment of distributions 33,456 329,875 30,065 293,677
----------- ----------- ----------- -----------
238,829 2,339,353 274,687 2,672,204
Less shares repurchased ($329,486) ($3,345,584) ($478,404) ($4,661,466)
----------- ----------- ----------- -----------
Net decrease ($90,657) ($1,006,231) ($203,717) ($1,989,262)
=========== =========== =========== ===========
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, any investment gains and
losses, distributions paid to shareholders, and any increase or decrease
in the amount of money shareholders invested in the Fund. The footnote
illustrates the number of Fund shares sold, reinvested and redeemed
during the last two periods, along with the corresponding dollar values.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
John Hancock Funds - Intermediate Maturity Government Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
the periods indicated, investment returns, key ratios and supplemental
data are as follows:
- -----------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 31, 1991
YEAR ENDED MARCH 31, (COMMENCEMENT
- ---------------------------------------------------------------------------------------------------- OF OPERATIONS) TO
1996 (e) 1995 (d) 1994 1993 MARCH 31, 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.79 $ 9.89 $ 10.05 $ 10.03 $ 10.00(b)
---------- ---------- ---------- ---------- ----------
Net Investment Income 0.62 0.49 0.41 0.58 0.17
Net Realized and Unrealized Gain (Loss)
on Investments ( 0.08) ( 0.11) ( 0.16) 0.02 0.03
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.54 0.38 0.25 0.60 0.20
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ( 0.64) ( 0.48) ( 0.41) ( 0.58) ( 0.17)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 9.69 $ 9.79 $ 9.89 $ 10.05 $ 10.03
========== ========== ========== ========== ==========
Total Investment Return
at Net Asset Value (f) 5.60% 3.98% 2.51% 6.08% 1.96%(c)
Total Adjusted Investment Return
at Net Asset Value (a)(f) 4.83% 3.43% 2.27% 5.53% 0.84%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 29,024 $12,950 $24,310 $33,273 $13,775
Ratio of Expenses to Average Net Assets 0.75% 0.80% 0.75% 0.50% 0.50%*
Ratio of Adjusted Expenses
to Average Net Assets (a) 1.45% 1.35% 0.99% 1.05% 1.62%*
Ratio of Net Investment Income
to Average Net Assets 6.49% 4.91% 4.09% 5.47% 6.47%*
Ratio of Adjusted Net Investment Income
to Average Net Assets (a) 5.79% 4.36% 3.85% 4.92% 5.35%*
Portfolio Turnover Rate 423%(g) 341% 244% 186% 1%
The Financial Highlights summarizes the impact of the following factors
on a single share for the period indicated: the net investment income,
net realized and unrealized gains (losses), dividends and total
investment return of the Fund. It shows how the Fund's net asset value
for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented
in the financial statements are expressed in ratio form.
<CAPTION>
Financial Highlights (continued)
- -----------------------------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 31, 1991
YEAR ENDED MARCH 31, (COMMENCEMENT
- ---------------------------------------------------------------------------------------------------- OF OPERATIONS) TO
1996 (e) 1995 (d) 1994 1993 MARCH 31, 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.79 $ 9.89 $ 10.05 $ 10.03 $ 10.00(b)
---------- ---------- ---------- ---------- ----------
Net Investment Income 0.57 0.43 0.34 0.51 0.15
Net Realized and Unrealized Gain
(Loss) on Investments ( 0.10) ( 0.11) ( 0.16) 0.02 0.03
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.47 0.32 0.18 0.53 0.18
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ( 0.57) ( 0.42) ( 0.34) ( 0.51) ( 0.15)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 9.69 $ 9.79 $ 9.89 $ 10.05 $ 10.03
========== ========== ========== ========== ==========
Total Investment Return
at Net Asset Value (f) 4.92% 3.33% 1.85% 5.40% 1.80%(c)
Total Adjusted Investment Return
at Net Asset Value (a)(f) 4.15% 2.78% 1.61% 4.85% 0.68%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $8,532 $9,506 $11,626 $13,753 $1,630
Ratio of Expenses to Average Net Assets 1.40% 1.45% 1.40% 1.15% 1.15%*
Ratio of Adjusted Expenses
to Average Net Assets (a) 2.10% 2.00% 1.64% 1.70% 2.27%*
Ratio of Net Investment Income
to Average Net Assets 5.80% 4.26% 3.44% 4.82% 5.85%*
Ratio of Adjusted Net Investment Income
to Average Net Assets (a) 5.10% 3.71% 3.20% 4.27% 4.73%*
Portfolio Turnover Rate 423%(g) 341% 244% 186% 1%
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(e) Beginning on December 31, 1991 (commencement of operations) through
March 31, 1995, the expenses used in the ratios represented the expenses
of the Fund plus expenses incurred indirectly from the Adjustable
U.S. Government Fund (the "Portfolio"), the mutual fund in which
the Fund invested all of its assets. On September 22, 1995, the Portfolio
collapsed into the Fund and the Fund changed its name to the John Hancock
Intermediate Government Fund. The expenses used in the ratios for
the fiscal year ended March 31, 1996 include the expenses of the Portfolio
through September 22, 1995.
(f) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(g) Portfolio turnover rate excludes merger activity.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
John Hancock Funds - Intermediate Maturity Government Fund
Schedule of Investments
March 31, 1996
- ----------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities
owned by Intermediate Maturity Government Fund on March 31, 1996.
It's divided into two main categories: U.S. government and agencies
obligations and short-term investments. Short-term investments,
which represent the Fund's "cash" position, are listed last.
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John Hancock Funds - Intermediate Maturity Government Fund
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS
Governmental -- U.S. (45.85%)
United States Treasury, Note, Due 05-15-00 8.875% $5,065 $ 5,580,212
United States Treasury, Note, Due 08-15-98 9.250 1,800 1,932,192
United States Treasury, Note, Due 04-15-96 9.375 1,000 1,001,250
United States Treasury, Bond, Due 08-15-03 11.125 5,335 6,814,609
United States Treasury, Bond, Due 08-15-13 12.000 1,310 1,891,103
-------------
17,219,366
-------------
Governmental -- U.S. Agencies (54.92%)
Federal Home Loan Mortgage Corp,
Adjustable Rate Mortgage
Due 05-01-17 7.375* 53 53,905
Due 05-01-16 7.625* 5 5,558
Due 10-01-18 7.875* 59 59,555
Federal National Mortgage Association,
Adjustable Rate Mortgage
Due 04-01-19 6.953* 44 44,059
Due 06-01-14 6.968* 24 24,332
Due 03-01-14 6.969* 34 35,102
Due 11-01-13 7.130* 83 83,381
Due 03-01-27 7.350* 41 40,688
Due 07-01-16 7.750* 46 46,321
Due 05-01-17 7.951* 229 257,073
Due 05-01-17 8.000* 50 50,811
Due 09-01-18 8.130* 1,348 1,395,100
Federal National Mortgage Association,
15 Yr Pass thru Ctf 09-01-10 to 12-01-10 7.000 5,227 5,217,864
Governmental -- U.S. Agencies (continued)
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 05-15-24 to 03-15-26 7.500% $8,097 $ 8,091,376
30 Yr SF Pass thru Ctf 05-15-15 11.500 8 9,398
30 Yr SF Pass thru Ctf 02-15-14 12.000 24 27,734
30 Yr SF Pass thru Ctf 07-15-15 12.500 65 75,948
GNMA II Due 07-20-25 7.000 5,028 5,106,696
-------------
20,624,901
-------------
TOTAL U.S. GOVERNMENT AND
AGENCIES OBLIGATIONS
(Cost $38,133,102) (100.77%) 37,844,267
------------------------- ---------- -------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.19%)
Investment in a joint repurchase agreement
transaction with Lehman Brothers Inc. --
Dated 03-29-96, Due 04-01-96
(secured by U.S. Treasury Bonds,
7.25% - 8.875%
Due 05-15-16 thru 02-15-25,
U.S. Treasury Note, 6.500%
Due 05-15-97) -Note A 5.450 448 448,000
-------------
Corporate Savings Account (0.03%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 9,427
-------------
TOTAL SHORT-TERM INVESTMENTS(1.22%) 457,427
-------------
TOTAL INVESTMENTS (101.99%) $38,301,694
=============
*Represents rate in effect on March 31, 1996.
The percentage shown for each investment category is the total value
of that category as a percentage of the net assets of the Fund.
</TABLE>
Notes to Financial Statements
John Hancock Funds - Intermediate Maturity Government Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Fund, (the "Trust") is a diversified, open-end
management investment company, registered under the Investment Company
Act of 1940. The Trust consists of one series portfolio, John Hancock
Intermediate Maturity Government Fund (the "Fund"). Prior to September
22, 1995, the Fund was known as John Hancock Adjustable U.S. Government
Trust and invested all of its assets in John Hancock Adjustable U.S.
Government Fund (the "Portfolio"), and owned 100% of the shares of the
Portfolio. After the close of business on September 22, 1995, the
Portfolio was collapsed into the Fund in a tax-free reorganization. All
assets and liabilities of the Portfolio, including its securities,
retaining their original cost, became assets and liabilities of the
Fund. Income and expenses of the Portfolio for the period from April 1,
1995 to September 22, 1995 have been combined with those of the Fund in
the Statement of Operations. Also after the close of business on
September 22, 1995, John Hancock U.S. Government Trust and John Hancock
Intermediate Government Trust, which were previously series portfolios
of the Trust, were merged into the Fund, in tax-free reorganizations.
Two other series portfolios of the Trust, John Hancock Investment
Quality Bond Fund and John Hancock Government Securities Trust, were
merged into other funds sponsored by John Hancock on September 15, 1995,
also as tax-free reorganizations. The investment objective of the Fund
is to achieve a high level of current income, consistent with
preservation of capital and maintenance of liquidity.
The Trustees have authorized the issuance of two classes of shares of
the Fund, designated as Class A and Class B. The shares of each class
represent an interest in the same portfolio of investments of the Fund
and have equal rights to voting, redemption, dividends, and liquidation,
except that certain expenses, subject to the approval of the Trustees,
may be applied differently to each class of shares in accordance with
current regulations of the Securities and Exchange Commission.
Shareholders of a class which bears distribution/service expenses under
the terms of a distribution plan have exclusive voting rights regarding
such distribution plan. Significant accounting policies of the Fund are
as follows:
VALUATION OF INVESTMENTS Securities in the Fund's Portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more repurchase agreements, whose underlying securities are obligations
of the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities from either the date of issue or the date of purchase over
the life of the security, as required by the Internal Revenue Code.
FEDERAL INCOME TAX The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investment, to its shareholders. Therefore, no federal
income tax provision is required. For federal income tax purposes, at
December 31, 1995, the Fund has $15,486,880 of capital loss
carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. If such carryforwards are used
by the Fund, no capital gain distributions will be made. The Fund's
carryforwards expire as follows: 1996 -- $3,014,883, 1997 -- $5,412,804,
1998 -- $653,763, 1999 -- $2,152,064, 2001 -- $3,826,207 and 2002 --
$427,159. The Fund's tax year end is December 31.
Notes to Financial Statements
John Hancock Funds - Intermediate Maturity Government Fund
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment
securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains 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 as
explained previously.
EXPENSES Prior to September 22, 1995, the majority of the expenses of
the Trust were directly identifiable to an individual fund. Expenses
which were not readily identifiable to a specific fund were 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. For the period September 25, 1995 through March 31, 1996, the
Fund was the only portfolio of the Trust and therefore was responsible
for all fund specific and trust level expenses.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are determined at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution/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.
ORGANIZATION EXPENSE Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to
the Fund's operations ratably over a five-year period that began with
the commencement of investment operations of the 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.
NOTE B --
MANAGEMENT FEE,
ADMINISTRATIVE SERVICES 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 at an annual basis of 0.40% of the Fund's average
daily net asset value. Prior to September 22, 1995, 0.40% represented
investment advisory fees paid by the Portfolio and indirectly by the
Fund through its investment in the Portfolio. The remaining 0.10% was
for administrative fees paid directly by the Fund.
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 temporarily agreed to limit fund expenses until December
31, 1996, from exceeding 0.75% and 1.40% of the average daily net asset
value attributable to the Class A and Class B shares, respectively.
Accordingly, the entire Adviser's fee amounting to $137,927 has been
waived and the Adviser has reimbursed the Fund for the remaining excess
expenses of $86,356.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the year ended
March 31, 1996, net sales charges received with regard to sales of Class
A shares amounted to $6,318. Out of this amount, $937 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $3,418 was paid as sales commissions to unrelated broker-
dealers and $1,963 was paid as sales commissions to sales personnel of
John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of
which are broker dealers. The Adviser's indirect parent, John Hancock
Mutual Life Insurance Company, is the indirect sole shareholder of
Distributors and John Hancock Freedom Securities Corporation and its
subsidiaries, which include Tucker Anthony and Sutro.
Class B shares which are redeemed within four years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 3.0% 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 related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the year ended March 31, 1996, contingent deferred
sales charges amounted to $34,262.
Notes to Financial Statements
John Hancock Funds -- Intermediate Maturity Government Fund
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution
Plan 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/service costs. The Fund has temporarily limited the
distribution and service fees attributable to the Class B plan to 0.90%
of average daily net assets. In each case, 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 Board of Trustees approved a shareholder servicing agreement between
the Fund and John Hancock Investors 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.
On March 26, 1996, the Board of Trustees approved retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary tax
and financial management services for the Fund. The compensation for
1996 is estimated to be at an annual rate of 0.01875% of the average net
assets of the Fund.
Mr. Edward J. Boudreau, Jr. and Ms. Anne C. Hodsdon 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. 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. At March 31, 1996, the Fund's
investments to cover the deferred compensation liability had unrealized
appreciation of $215.
The Fund has an independent advisory board composed of certain members
of the former Transamerica Board of Trustees who provide advice to the
current Trustees in order to facilitate a smooth management transition.
The Fund pays the advisory board and its counsel a fee.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended March 31, 1996 aggregated
$84,637,559 and $80,577,321, respectively.
The cost of investments owned at March 31, 1996 (excluding the corporate
savings account) for federal income tax purposes was $38,581,102. Gross
unrealized appreciation and depreciation of investments aggregated
$58,194, and $347,029, respectively, resulting in net unrealized
depreciation of $288,835.
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of John Hancock Intermediate
Government Trust, (JHIGT) approved a plan of reorganization between
JHIGT and the Fund providing for the transfer of substantially all of
the assets and liabilities of JHIGT to the Fund in exchange solely for
Class A shares and Class B shares of the Fund. The acquisition after the
close of business on September 22, 1995 was accounted for as a tax free
exchange of 672,093 Class A shares, and 48,918 Class B shares for the
net assets of JHIGT which amounted to $6,599,818 and $480,359 for Class
A and Class B shares, respectively, including $89,503 of unrealized
appreciation.
Also on September 8, 1995, the shareholders of John Hancock U.S.
Government Trust, (JHUSGT) approved a plan of reorganization between
JHUSGT and the Fund providing for the transfer of substantially all of
the assets and liabilities of JHUSGT to the Fund in exchange solely for
Class A shares and Class B shares of the Fund. The acquisition after the
close of business on September 22, 1995 was accounted for as a tax free
exchange of 1,633,772 Class A shares, and 28,300 Class B shares for the
net assets of JHUSGT which amounted to $16,043,311 and $277,895 for
Class A and Class B shares, respectively, including $362,315 of
unrealized appreciation.
Notes to Financial Statements
John Hancock Funds -- Intermediate Maturity Government Fund
After the close of business on September 22, 1995, and prior to the
acquisitions referred to above, the Portfolio collapsed into the Fund in
a tax-free reorganization resulting in increases in the Fund's
undistributed net income of $16,545, unrealized appreciation of
investments of $183,471, accumulated net realized loss on investments of
$203,823 and capital paid-in of $3,807.
NOTE E --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended March 31, 1996, the Fund has reclassified $991,632
from accumulated net realized loss on investments sold to capital paid-
in. This represents the amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of December 31,
1995, the Fund's tax year end. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no
impact on the net asset value of the Fund, are primarily attributable to
certain differences in the computation of distributable income and
capital gains under federal tax rules versus generally accepted
accounting principles.
John Hancock Funds - Intermediate Maturity Government Fund
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Bond Fund --
John Hancock Intermediate Maturity Government Fund
We have audited the accompanying statement of assets and liabilities of
John Hancock Intermediate Maturity Government Fund (the "Fund")
(formerly the John Hancock Adjustable U.S. Government Trust), the only
portfolio constituting John Hancock Bond Fund, (the "Trust"), including
the schedule of investments, as of March 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 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, 1996, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statements 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 Intermediate Maturity Government
Fund at March 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 indicated
periods, in conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
May 10, 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 tax year ended
December 31, 1995. All of the dividends paid for the fiscal year are
taxable as ordinary income. None of the 1995 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 1997. This will reflect the total of all distributions
which are taxable for calendar year 1996.
Additional Information
John Hancock Funds - Intermediate Maturity Government Fund
SHAREHOLDER MEETING
On September 8, 1995, a special meeting of shareholders of the Fund was
held to consider and act upon the following proposals as recommended by
the Fund's Board of Trustees:
The shareholders approved the Agreement and Plan of Liquidation and
Termination of Adjustable U.S. Government Fund, with the votes tabulated
as follows: 1,125,888 FOR, 131,893 AGAINST and 44,742 ABSTAINED.
The shareholders approved the terms of a new investment management
contract between the Bond Fund (the "Trust"), on behalf of the Fund, and
the Adviser, with the votes tabulated as follows: 1,209,371 FOR, 134,417
AGAINST and 48,849 ABSTAINED.
The shareholders approved an amendment to the Fund's fundamental
investment objective and its redesignation as non-fundamental, with the
votes tabulated as follows: 1,116,792 FOR, 138,518 AGAINST and 47,213
ABSTAINED.
The shareholders approved an amendment to the Fund's fundamental
investment restriction with respect to investments in illiquid
securities and its redesignation as non-fundamental, with the votes
tabulated as follows: 1,083,105 FOR, 164,530 AGAINST and 54,887
ABSTAINED.
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This report is for the information of shareholders of the John Hancock
Intermediate Maturity Government Fund. It may be used as sales
literature when preceded or accompanied by the current prospectus, which
details charges, investment objectives and operating policies.
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