John Hancock Funds
Intermediate
Maturity
Government
Fund
SEMI-ANNUAL REPORT
September 30, 1996
DIRECTORS
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
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
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
A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that
prospectuses are often overloaded with technical detail and are hard
for most investors to understand. Many industry observers agreed,
and rightly so.
So it is my pleasure to let you know that after being under
development for a year, John Hancock Funds has introduced new
simplified and consolidated prospectuses. The prospectuses feature
shorter, clearer language with a streamlined design, and they
incorporate several funds with similar investment objectives into
one document. They cover our income, growth, growth and income, tax-
free income, international/global and money market funds. We are
gratified at the favorable reviews that our new prospectuses have
received from shareholders, financial advisers, industry analysts
and the press. We believe they are a bold but sensible step forward.
And while they are easier to read, they still comply with all
federal and state guidelines.
We have taken the initiative to create a prospectus that
dramatically departs from the norm. Among its most innovative
features is a two-page spread highlighting each fund's goals and
investment strategy, the types of securities it buys, its portfolio
management and risk factors, all in plainer language. Fund expenses
and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other
features include a better presentation of fund services, a new
glossary of investment risks and a discussion about how funds are
organized, including a diagram showing the connection of the various
players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive
toward better mutual fund prospectuses. We hope you will agree
because in the end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY ROGER HAMILTON, PORTFOLIO MANAGER
John Hancock
Intermediate Maturity
Government Fund
Bond market battered back and forth by
strong employment and low inflation
After the past six months, it wouldn't be a surprise to hear bond
investors say they are confused. Barraged by mixed economic signals
for so long, they can hardly see straight. Strong employment numbers
have repeatedly raised inflation fears. And inflation is the bond
market's number one enemy because it erodes the buying power of
fixed-income earnings and hurts bond prices. Meanwhile, inflation
numbers have been low, suggesting that there's no cause for alarm --
and no need for the Federal Reserve to tamper with interest rates.
The result has been a choppy bond market that has moved up and down
within a certain range. During the spring and summer, for example,
yields on five-year Treasuries fluctuated, but stayed between 6.22%
and 6.84%. With little prospect for a significant decline in
interest rates or corresponding rise in bond prices, investors
searched for yield. They found it in corporate bonds and mortgage
securities, both of which were cheap compared to Treasuries.
"Mixed
economic
signals have
produced
choppy bond
results."
A 2" x 3 1/2" photo of portfolio management team. Caption reads: "Roger
Hamilton (right), portfolio manager and Barry Evans (seated), head of
the Government Fixed-Income department."
How we did
In this environment, John Hancock Intermediate Maturity Government
Fund did well. For the six months ended September 30, 1996, the
Fund's Class A and Class B shares had total returns of 2.03% and
1.69%, respectively, at net asset value. This compared to the
average intermediate-term government fund, which returned 1.78% over
the same period, according to Lipper Analytical Services.1 Please
see pages six and seven for longer-term performance information.
A pie chart with the heading "Portfolio Diversification" at top of left
hand column. The chart is divided into two sections. U.S. Treasury Bonds
& Other 40%; U.S. Government Agency Bonds 60%. A footnote states: "As a
percentage of net assets on September 30, 1996."
"The biggest
boost to
performance
came from
the Fund's
mortgage-
backed
securities..."
The biggest boost to performance came from the Fund's mortgage-
backed securities, which accounted for 60% of total investments on
September 30. This was up from 54% at the end of March. We did most
of our buying in April and May, when prices on mortgage bonds were
near the bottom. We bought mainly fixed-rate mortgages issued by the
Federal National Mortgage Association (FNMA) and Government National
Mortgage Association (GNMA). These bonds tend to do well when
interest rates are steady and there's less likelihood that
homeowners will prepay their mortgages early, forcing investors to
reinvest at lower rates.
We bought 15-year FNMAs partly because we expected supply to shrink.
With interest rates rising in 1995 and early 1996, we believed fewer
people would want 15-year mortgages -- choosing instead traditional
30-year mortgages or adjustable rate mortgages (ARMs). By the
summer, issuance of 15-year mortgage bonds had slowed considerably,
making the existing bonds more valuable. In addition, 15-year
mortgage bonds are a good investment for the Fund because they're
about as sensitive to interest-rate fluctuations as Treasuries with
four- or five-year maturities. At the end of September, 15-year
FNMAs accounted for about 31% of our total investments.
GNMAs with 30-year maturities were attractive because they had
underperformed mortgages issued by other agencies. Both FNMA and the
Federal Home Loan Mortgage Corporation (Freddie Mac) had been buying
back huge quantities of their own securities, which had pushed up
their prices relative to GNMAs. In addition, prepayments on GNMAs --
which had not been moving in sync with the other agencies -- had
temporarily hurt prices. The Fund had a 24% stake in GNMAs at the
end of September.
Biting the bullet
The Fund also benefited from intensifying its bullet strategy. A
bullet strategy focuses the Fund's investments on bonds with a
particular duration (a measure of how sensitive a bond's price is to
changes in interest rates). In an environment where interest rates
weren't moving much and there wasn't much opportunity for price
gain, a bullet strategy helped the Fund gain yield.
We concentrated the Fund's duration around 3.8 years, a fairly
neutral stance relative to the Fund's peers. To do this, we sold
ARMs with one-year durations and Treasuries with seven-year
durations. Although the ARMs had done well as prepayments declined,
we wanted the added yield from longer-term mortgage bonds. Our stake
in ARMs fell to 5% from 11% six months earlier, while our stake in
Treasuries dropped to 40% -- down from 45%. We replaced both with
mortgages with durations of around four years. This move boosted the
Fund's yield, while minimizing interest-rate risk.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote "For the six months ended September
30, 1996." The chart is scaled in increments of 1% from top to bottom
with 3% at the top and 0% at the bottom. Within the chart, there are
three solid bars. The first represents the 2.03% total return for John
Hancock Intermediate Maturity Government Fund: Class A. The second
represents the 1.69% total return for the John Hancock Intermediate
Maturity Government Fund: Class B. The third represents the 1.78% 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 intermediate-term government fund is tracked by Lipper Analytical
Services. See following two pages for historical performance
information."
Of course, hindsight is always 20/20. The Fund would have done even
better if we'd sold more Treasuries and had an even higher stake in
mortgage securities. We also missed some short-term trading
opportunities that occur when the market is moving back and forth
within a range. And while we changed duration slightly -- between
3.5 and 3.9 years -- it didn't really help (or hurt) the Fund's
return.
More of the same ahead
In the near term, we expect moderate economic growth to continue.
Inflation scares, which seem to flare up whenever there are strong
employment reports, will likely cause more market jitters. But
again, whatever volatility we see is unlikely to cause much impact.
Only a recession or sustained, high economic growth would cause the
market to break out of these narrow boundaries. We don't expect
either to happen anytime soon, which gives the Federal Reserve
little reason to hike interest rates. So, from today's vantage point,
the market's prospects over the next six months don't look much
different from the past six months.
Longer term, we're more optimistic. We believe the economic
expansion has to run out of gas eventually. It has been chugging
along for some six years now, which is about a year longer than
usual. When economic growth starts to sputter, we expect interest
rates to fall and bond prices to rise. So we'll continue watching
employment numbers, inflation and the purchasing managers' survey,
any of which could signal a pending slowdown.
If our outlook is on target, then the Fund is in a good position to
continue its competitive total return and yield. We don't expect to
make changes unless we see a change in the market's direction. If
the bond market begins to rally, we would take a more aggressive
stance by lowering our mortgage stake and lengthening duration. If
the market declines, we'd do just the opposite. In either case, we
believe an intermediate maturity fund like ours has the advantage of
being able to pick up a good part of a rally, while offering
investors less interest-rate risk than longer-maturity funds in a
market downturn.
"In the
near term,
we expect
moderate
economic
growth to
continue."
- --------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through
the end of the Fund's period discussed in this report. Of course,
the manager's views are subject to change as market and other
conditions warrant.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
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 September 30, 1996
ONE LIFE OF
YEAR FUND
----------- ------------
John Hancock Intermediate Maturity
Government Income Fund: Class A 0.83% 20.50%(1)
John Hancock Intermediate Maturity
Government Income Fund: Class B 0.23% 20.47%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
ONE LIFE OF
YEAR FUND
----------- ------------
John Hancock Intermediate Maturity
Government Income Fund: Class A (2) 0.83% 4.00%(1)
John Hancock Intermediate Maturity
Government Income Fund: Class B (2) 0.23% 4.00%(1)
YIELDS
As of September 30, 1996
SEC 30-DAY
YIELD
-------------
John Hancock Intermediate Maturity
Government Income Fund: Class A 6.35%
John Hancock Intermediate Maturity
Government Income Fund: Class B 5.89%
Notes to Performance
(1) Class A and Class B shares started on December 31, 1991.
(2) The Advisor voluntarily reduced a portion of the management fee
during the period. Without the reduction of expenses, the
average annual total return for the one-year and since inception
periods would have been 0.13% and 3.44% for class A shares,
respectively, and for class B shares (0.47%) and 3.44%,
respectively.
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
September 30, 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 Income 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 Lipper Intermediate U.S.
Government Index and is equal to $13,549 as of September 30, 1996. The
second line represents the Lehman Government Bond Index and is equal to
$12,848 as of September 30, 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 $12,423 as of September 30, 1996. The fourth line represents the
Intermediate Maturity Government Fund after sales charge and is equal to
$12,050 as of September 30, 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 Lipper Intermediate U.S.
Government Index and is equal to $13,549 as of September 30, 1996. The
second line represents the value of the Lehman Government Bond Index and
is equal to $12,848 as of September 30, 1996. The third line represents
the value of the hypothetical $10,000 investment made in the
Intermediate Maturity Government Fund on December 31, 1991, and is equal
to $12,047 as of September 30, 1996. The fourth line represents the
value of the Intermediate Maturity Government Fund after sales charge
and is equal to $12,047 as of September 30, 1996.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
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 September 30, 1996. You'll also find
the net asset value and the maximum offering price per share as of that date.
Statement of Assets and Liabilities
September 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
United States government and agencies securities
(cost - $32,722,654) $ 32,728,263
Joint repurchase agreement (cost - $29,000) 29,000
Corporate savings account 11,355
-------------
32,768,618
Receivable for investments sold 1,159
Interest receivable 268,598
Receivable for shares sold 234
Deferred organization expenses 2,386
Other assets 9,820
-------------
Total Assets 33,050,815
- -------------------------------------------------------------------------------
Liabilities:
Dividend payable 19,619
Payable for shares repurchased 9,560
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 21,231
Accounts payable and accrued expenses 26,241
-------------
Total Liabilities 76,651
- -------------------------------------------------------------------------------
Net Assets:
Capital paid-in 33,470,656
Accumulated net realized loss on investments ( 506,423)
Net unrealized appreciation of investments 5,824
Undistributed net investment income 4,107
-------------
Net Assets $ 32,974,164
===============================================================================
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 - $25,856,328/2,709,093 $9.54
===============================================================================
Class B - $7,117,836/745,829 $9.54
===============================================================================
Maximum Offering Price Per Share*
Class A - ($9.54 x 103.09%) $9.84
===============================================================================
* 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.
See notes to financial statements.
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<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
Six months ended September 30, 1996 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 1,373,267
-----------
Expenses:
Investment management fee - Note B 70,467
Distribution/service fee - Note B
Class A 34,203
Class B 35,419
Transfer agent fee - Note B 20,180
Custodian fee 19,453
Registration and filing fees 14,466
Printing 6,387
Auditing fee 5,293
Organization expense - Note A 4,866
Trustees' fees 1,711
Financial services fee - Note B 1,595
Miscellaneous 472
Advisory board fee 220
Legal fees 210
-----------
Total Expenses 214,942
- -------------------------------------------------------------------------------
Less expense reductions -
Note B ( 57,236)
- -------------------------------------------------------------------------------
Net Expenses 157,706
- -------------------------------------------------------------------------------
Net Investment Income 1,215,561
- -------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold ( 839,558)
Change in net unrealized appreciation/depreciation
of investments 294,444
-----------
Net Realized and Unrealized
Loss on Investments ( 545,114)
- -------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 670,447
===============================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30, 1996
1996 (UNAUDITED)
------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 2,005,181 $ 1,215,561
Net realized gain (loss) on investments sold 333,135 ( 839,558)
Change in net unrealized appreciation/depreciation of investments ( 577,061) 294,444
------------ ------------
Net Increase in Net Assets Resulting from Operations 1,761,255 670,447
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6385 and $0.3371 per share, respectively) ( 1,494,279) ( 963,343)
Class B - ($0.5746 and $0.3059 per share, respectively) ( 540,604) ( 251,291)
------------ ------------
Total Distributions to Shareholders ( 2,034,883) ( 1,214,634)
------------ ------------
From Fund Share Transactions - Net* 15,373,658 ( 4,037,095)
------------ ------------
Net Assets:
Beginning of period 22,455,416 37,555,446
------------ ------------
End of period (including undistributed
net investment income of $3,180 and $4,107, respectively) $ 37,555,446 $ 32,974,164
============ ============
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED SEPTEMBER 30, 1996
YEAR ENDED MARCH 31, 1996 (UNAUDITED)
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ---------
CLASS A
Shares sold 1,360,554 $ 13,397,732 135,549 $ 1,291,580
Shares issued in reorganization - Note D 2,305,865 22,643,129 -- --
Shares issued to shareholders in
reinvestment of distributions 54,240 535,013 33,085 315,637
--------- ------------ --------- ------------
3,720,659 36,575,874 168,634 1,607,217
Less shares repurchased (2,047,851) ( 20,195,985) ( 455,744) ( 4,353,448)
--------- ------------ --------- ------------
Net increase (decrease) 1,672,808 $ 16,379,889 ( 287,110) ($ 2,746,231)
========= ============ ========= ============
CLASS B
Shares sold 128,155 $ 1,251,224 143,126 $1,361,481
Shares issued in reorganization - Note D 77,218 758,254 -- --
Shares issued to shareholders in
reinvestment of distributions 33,456 329,875 15,303 145,954
--------- ------------ --------- ------------
238,829 2,339,353 158,429 1,507,435
Less shares repurchased ( 329,486) ( 3,345,584) ( 293,389) (2,798,299)
--------- ------------ --------- ------------
Net decrease ( 90,657) ($ 1,006,231) ( 134,960) ($ 1,290,864)
========= ============ ========= ============
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 amount of money shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar values.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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:
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30, 1996
1992(1) 1993 1994 1995(2) 1996 (UNAUDITED)
---------- -------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.00 $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69
------- ------- ------- ------- ------- --------
Net Investment Income 0.17 0.58 0.41 0.49 0.62 0.40(10)
Net Realized and Unrealized Gain (Loss)
on Investments 0.03 0.02 ( 0.16) ( 0.11) ( 0.08) ( 0.21)
------- ------- ------- ------- ------- --------
Total from Investment Operations 0.20 0.60 0.25 0.38 0.54 0.19
------- ------- ------- ------- ------- --------
Less Distributions:
Dividends from Net Investment Income ( 0.17) ( 0.58) ( 0.41) ( 0.48) ( 0.64) ( 0.34)
------- ------- ------- ------- ------- --------
Net Asset Value, End of Period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.96 $ 9.54
======= ======= ======= ======= ======== ========
Total Investment Return at Net Asset Value (3) 1.96%(4) 6.08% 2.51% 3.98% 5.60% 2.03%(4)
Total Adjusted Investment Return at
Net Asset Value (3)(5) 0.84%(4) 5.53% 2.27% 3.43% 4.83% 1.87%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $13,775 $33,273 $24,310 $12,950 $ 29,024 $ 25,856
Ratio of Expenses to Average Net Assets (6) 0.50%(7) 0.50% 0.75% 0.80% 0.75% 0.75%(7)
Ratio of Adjusted Expenses to Average
Net Assets (6)(8) 1.62%(7) 1.05% 0.99% 1.35% 1.45% 1.07%(7)
Ratio of Net Investment Income to
Average Net Assets 6.47%(7) 5.47% 4.09% 4.91% 6.49% 7.05%(7)
Ratio of Adjusted Net Investment Income to
Average Net Assets (8) 5.35%(7) 4.92% 3.85% 4.36% 5.79% 6.73%(7)
Portfolio Turnover Rate 1% 186% 244% 341% 423%(9) 115%
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.
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.00 $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69
------- ------- ------- ------- ------- -------
Net Investment Income 0.15 0.51 0.34 0.43 0.57 0.31(10)
Net Realized and Unrealized Gain (Loss)
on Investments 0.03 0.02 ( 0.16) ( 0.11) ( 0.10) ( 0.15)
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.18 0.53 0.18 0.32 0.47 0.16
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.15) ( 0.51) ( 0.34) ( 0.42) ( 0.57) ( 0.31)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.54
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (3) 1.80%(4) 5.40% 1.85% 3.33% 4.92% 1.69%(4)
Total Adjusted Investment Return at
Net Asset Value (3)(5) 0.68%(4) 4.85% 1.61% 2.78% 4.15% 1.53%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 1,630 $13,753 $11,626 $ 9,506 $ 8,532 $ 7,118
Ratio of Expenses to Average Net Assets (6) 1.15%(7) 1.15% 1.40% 1.45% 1.40% 1.40%(7)
Ratio of Adjusted Expenses to Average
Net Assets (6)(8) 2.27%(7) 1.70% 1.64% 2.00% 2.10% 1.72%(7)
Ratio of Net Investment Income to
Average Net Assets 5.85%(7) 4.82% 3.44% 4.26% 5.80% 6.39%(7)
Ratio of Adjusted Net Investment
Income to Average Net Assets (8) 4.73%(7) 4.27% 3.20% 3.71% 5.10% 6.07%(7)
Portfolio Turnover Rate 1% 186% 244% 341% 423%(9) 115%
(1) Class A and Class B shares commenced operations on December 31, 1991.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration fee reductions by the adviser during the
periods shown.
(6) 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. The expenses used in the ratios for the
fiscal year ended March 31, 1996 include the expenses of the Portfolio through September 22, 1995.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Portfolio turnover rate excludes merger activity.
(10) On average month end shares outstanding.
See notes to financial statements.
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<CAPTION>
Schedule of Investments
September 30, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Intermediate Maturity Government Fund on September
30, 1996. It's divided into two main categories: U.S. government and agencies securities and short-term investments. Short-
term investments, which represent the Fund's "cash" position, are listed last.
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (39.22%)
United States Treasury,
Bond 11.125% 08-15-03 $4,335 $ 5,400,456
Bond 12.000 08-15-13 1,700 2,390,625
Note 9.250 08-15-98 4,400 4,639,932
Note 6.500 08-31-01 500 500,470
------------
12,931,483
------------
Governmental - U.S. Agencies (60.04%)
Federal Home Loan Mortgage Corp,
Adjustable Rate Mortgage 7.250* 05-01-17 53 53,678
Adjustable Rate Mortgage 7.875* 10-01-18 58 59,673
Federal National Mortgage Association,
15 Yr Pass thru Ctf 7.500 06-01-10 9,979 10,049,416
to 07-01-11
Federal National Mortgage Association,
Adjustable Rate Mortgage 6.673* 03-01-14 46 46,058
to 06-01-14
Adjustable Rate Mortgage 6.875* 05-01-17 48 48,918
Adjustable Rate Mortgage 7.700* 05-01-17 213 218,910
Adjustable Rate Mortgage 7.936* 09-01-18 1,168 1,218,224
Adjustable Rate Mortgage 7.050* 03-01-27 41 40,652
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 12.000 02-15-14 24 27,905
30 Yr SF Pass thru Ctf 12.500 07-15-15 38 45,183
30 Yr SF Pass thru Ctf 7.500 05-15-24 1,984 1,969,310
30 Yr SF Pass thru Ctf 8.000 05-15-25 5,954 6,018,853
to 10-15-25 ------------
19,796,780
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $32,722,654) (99.26%) 32,728,263
----- ------------
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.09%)
Investment in a joint repurchase agreement
transaction with Toronto-Dominion Bank
Dated 09-30-96, Due 10-01-96 (secured by
U.S. Treasury Notes, 5.000% - 6.500%,
Due 02-28-98 thru 05-31-01, U.S. Treasury
Bond, 7.625%, Due 11-15-22) - Note A 5.800% 10-01-96 $ 29 $ 29,000
------------
Corporate Savings Account (0.03%)
Investors Bank & Trust Company Daily Interest
Savings Account Current Rate 4.75% 11,355
------------
TOTAL SHORT-TERM INVESTMENTS (0.12%) 40,335
------ ------------
TOTAL INVESTMENTS (99.38%) $ 32,768,618
====== ============
* Represents rate in effect on September 30, 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.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
(UNAUDITED)
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. 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 and 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 gains on investments, to its
shareholders. Therefore, no federal income or excise tax provision
is required. For federal income tax purposes, at December 31, 1995,
the Fund has approximately $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, 2000 - $3,826,207,
2001 - $3,826,207 and 2002 - $427,159. The Fund's tax year end is
December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST 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, if any, 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.
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 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.
ORGANIZATION EXPENSE Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged
to 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. Actual results could differ from these estimates.
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, including the management fee, to 0.75% and 1.40%
of the average net assets attributable to the Class A and Class B
shares, respectively. Accordingly, for the period ended September
30, 1996, the reduction in the Adviser's fee collectively with any
additional amounts not borne by the Fund by virtue of the expense
limit for the amounted to $57,236.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly-owned subsidiary of the Adviser. For the
period ended September 30, 1996, net sales charges received with
regard to sales of Class A shares amounted to $6,485. Out of this
amount, $3,100 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $2,480 was paid as
sales commissions to unrelated broker-dealers and $905 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 period ended
September 30, 1996, contingent deferred sales charges amounted to
$8,109.
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 and service costs. The Fund
has temporarily limited the distribution and service fees
attributable to Class B shares to 0.90% of average daily net assets.
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 Directors 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., 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. 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 September
30, 1996 the Fund's investments to cover the deferred compensation
liability had unrealized appreciation of $215.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-
term obligations, during the period ended September 30, 1996
aggregated $39,534,501 and $44,130,193, respectively.
The cost of investments owned at September 30, 1996 (excluding the
corporate savings account) for federal income tax purposes was
$32,751,654. Gross unrealized appreciation and depreciation of
investments aggregated $227,262, and $221,653, respectively,
resulting in net unrealized depreciation of $5,609.
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.
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.
John Hancock Funds - Intermediate Maturity Government Fund
SHAREHOLDER MEETING
On June 26, 1996, a special meeting of John Hancock Intermediate
Maturity Government Fund was held.
The Shareholders approved an Amended and Restated Declaration of
Trust. The shareholder votes were 1,643,788 FOR, 166,936 AGAINST and
112,056 ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------- ----------- --------------
Edward J. Boudreau, Jr. 2,102,903 24,725
James F. Carlin 2,102,903 24,725
William H. Cunningham 2,102,903 24,725
Charles F. Fretz 2,102,903 24,725
Harold R. Hiser, Jr. 2,102,903 24,725
Anne C. Hodsdon 2,091,737 35,891
Charles L. Ladner 2,102,903 24,725
Leo E. Linbeck, Jr. 2,102,903 24,725
Patricia P. McCarter 2,091,737 35,891
Steven R. Pruchansky 2,102,903 24,725
Richard S. Scipione 2,102,903 24,725
Norman H. Smith 2,102,903 24,725
John P. Toolan 2,102,903 24,725
NOTES
John Hancock Funds - Intermediate Maturity Government Fund
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