- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Intermediate
Maturity
Government
Fund
ANNUAL REPORT
May 31, 1997
<PAGE>
================================================================================
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
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the year. Stocks
began 1997 on the high wires, bolstered by a near-perfect "Goldilocks" economy
- -- not too hot, not too cold. In almost a straight shot, the Dow Jones
Industrial Average soared through the 7000 level for the first time in early
March. Just days later, stocks lost their footing and staged a month-long
free-fall in a nervous reaction to rising interest rates and data that showed
the economy was picking up steam. Stocks gave back all of their year's gain and
suffered their worst decline since 1990 during this period. No sooner had real
fears begun to beset investors than they were gone, erased in a euphoric rally
caused by strong earnings and no signs of inflation. By the end of May, the Dow
had risen by 14.6% and the broader Standard & Poor's 500 Stock Index by 15.4% --
levels not many thought the market would reach all year, let alone in five
months. Bondholders have not enjoyed the same bounty, as the bond market has
mostly stayed worried about the strength of the economy, the direction of
interest rates, and the Federal Reserve's next moves to pre-empt inflation.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more expensive
than it has been in decades. It's impossible to know what will happen next in
the markets. But whether it's another strong move forward or a retreat, we
recommend keeping a long-term perspective, rather than over-focusing on the
market's daily twists and turns. While the economic backdrop seems to remain
near perfect, the one thing we believe investors should be prepared for is more
market volatility. It also makes sense to do something we've always advocated:
set realistic expectations, since, as we've also seen this year, markets can
move down as fast as they go up.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After such a
strong advance in equities over the last two and a half years, it could be time
to rebalance your portfolio, if you haven't already, to maintain your desired
targets of diversification. As part of that process, make sure that your
investment strategies still reflect your individual time horizons, objectives
and risk tolerance. Despite turbulence, one thing remains constant. A
well-constructed plan and a cool head can be the best tools for reaching your
financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Roger Hamilton, Portfolio Manager
John Hancock
Intermediate Maturity
Government Fund
Economy keeps bond investors guessing;
--------------------------------------
search for yield continues
--------------------------
Recently John Hancock Intermediate Maturity Government Fund's fiscal year end
changed from March to May. What follows is a discussion of the Fund's
performance for the 12-month period ended May 31, 1997.
At certain times, the bond market has its limits. This past year was one of
those times. Prices moved up and down, in line with the latest economic trends.
But yields -- which move in the opposite direction of prices -- stayed within a
definite range. Last June, the economy was growing at a fast clip. Investors
expected the Federal Reserve to increase rates at its early July meeting. Yields
climbed, with the five-year Treasury hitting a ceiling of 6.85%, up from 6.63%
on May 31, 1996. When the Fed didn't raise rates, bond prices rallied briefly.
But indications of the economy's increasing strength soon caused a downturn. The
market again reversed course in mid-September, amid slower economic growth and
low inflation. Bond prices gained ground, with five-year Treasury yields
bottoming at 5.83% in late November.
- --------------------------------------------------------------------------------
"With...little chance of significant price gains, investors looked to yield..."
- --------------------------------------------------------------------------------
Bond yields started moving up again in December, as the economy picked up steam
[A 2 1/2" x 3 3/4" photo of Roger Hamilton and Barry Evans. Caption reads:
"Roger Hamilton (right), portfolio manager and Barry Evans (seated), head of the
Government Fixed-Income department"]
3
<PAGE>
================================================================================
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 three sections. Going from top clockwise:
Short-Term Investments 7%; U.S. Treasury Bonds 43%; U.S. Government Agency Bonds
50%.]
- --------------------------------------------------------------------------------
"... investors looked to yield to enhance their total return."
- --------------------------------------------------------------------------------
and investors anticipated a Fed rate hike. On March 25, 1997, the Fed finally
did raise rates one-quarter percentage point. Fueled by news of the economy's
blistering first quarter pace, yields continued climbing -- with the five-year
Treasury peaking again at 6.86% in mid-April. A mild spring, auto strikes and
floods in the Midwest eventually dampened second quarter consumer spending,
slowing the economy's growth. Yields fell, ending May at 6.50%.
Despite these gyrations, money flowed into the U.S. bond market from both
domestic and foreign investors. With interest rates staying within a range and
little chance of significant price gains, investors looked to yield to enhance
their total return. As a result, securities with a yield advantage over
Treasuries -- including both mortgage bonds and U.S. government agencies -- came
out ahead.
Mortgages boost performance
A high stake in mortgage bonds helped John Hancock Intermediate Maturity Fund's
Class A and Class B shares post a total return of 7.50% and 6.76%, respectively,
at net asset value, for the year ended May 31, 1997. By comparison, the average
intermediate-term government fund returned 6.94%, according to Lipper Analytical
Services, Inc. 1 During the same period, the Lehman Brothers Intermediate
Government Bond Index returned 7.12%. Please see pages six and seven for
longer-term performance information.
During the period, the Fund had between 50% and 66% of its assets in
mortgage-backed securities. We maintained this mortgage stake throughout the
summer, lightening up in the fall rally. Then in December, we began adding
again. Mortgages reached a high of 66% in March of 1997. Our heaviest
concentration was in 15-year, fixed-rate mortgage bonds issued by the Federal
National Mortgage Association (FNMAs). We bought them partly because shorter
maturity mortgage bonds are usually more stable than longer maturity ones when
rates are rising. Plus, demand in the 15-year sector was increasing as new
issuance was falling off -- a combination that pushed up prices nicely. Shortly
before the Fed's March meeting, we decided to take some profits, leaving us with
a 50% stake in mortgages. This helped us right before the Fed meeting when the
mortgage market was volatile. With hindsight, we would have done slightly better
by keeping our investment, since mortgages continued to outpace Treasuries.
We invested the proceeds from our mortgage sales in both ends of the
maturity spectrum -- short and 30-year Treasuries. We did this because we
expected short-term yields to rise more than long-term yields in anticipation of
a possible Fed rate hike. When rates increased in March, the Fund benefited.
However, we gave back some of our gains in May when the Fed decided not to raise
rates. We've continued to keep this same
4
<PAGE>
================================================================================
John Hancock Funds - Intermediate Maturity Government Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the 12 months ended May 31, 1997." The chart is
scaled in increments of 2% from bottom to top, with 8% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
7.50% total return for John Hancock Intermediate Maturity Government Fund: Class
A. The second represents the 6.76% total return for John Hancock Intermediate
Maturity Government Fund: Class B. The third represents the 6.94% 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 (1). See the following
two pages for historical performance information.]
structure, however, because we expect another rate hike during the summer
months. "The bond market today offers investors exceptional values." The Fund's
shorter-than-average duration also helped us early in 1997, as interest rates
climbed. Duration measures how sensitive a bond's price is to interest rate
changes. The longer a bond's duration, the more its price will fall as rates
rise -- or rise as rates fall. In October, as rates fell, we raised duration to
4.1 years. But in December, with signs of a stronger economy, we decided to
shorten duration to 3.5 years, which was below our peer group average. We raised
duration slightly in January to 3.8 years, where it remained the rest of the
period.
Optimistic outlook
We expect the economy to perk up soon, given the fact that unemployment is at a
24-year low, the stock market is strong and housing prices are rising. To
measure the economy's direction, we'll be watching retail sales, the benefits
component of the employment cost index and vendor delivery time. If these
increase faster than expected, we believe the Fed will raise rates at least once
- -- if not twice -- more. We'll keep the Fund in neutral -- with a 50% stake in
mortgages and 3.8 year duration -- until we're more certain about a Fed move. A
rate increase, however, would give us a chance to buy bonds at cheaper prices
and lengthen duration.
Eventually when the economy finally does slow and interest rates begin to
fall, bond prices could make some serious gains. The bond market today offers
investors exceptional values. Today's bond yields are much higher than
inflation, which is around 2% or 3%. In fact, it would be difficult for
inflation to get out of control, given limited growth in the labor force and
baby boomers' desire to increase savings. In addition, the United States is
getting its fiscal house in order. With spending under control and a shrinking
deficit, the government will need to issue fewer bonds. Less supply should in
turn help Treasury prices. Taken together, these factors could propel the bond
market into new territory.
- --------------------------------------------------------------------------------
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, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
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 five 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, 1997
One Five Most Recent
Year Years Ten Years
---------- ---------- ----------
John Hancock Intermediate Maturity
Government Fund: Class A 1.42% 21.10% 23.46%(1)
John Hancock Intermediate Maturity
Government Fund: Class B 0.84% 20.83% 23.00%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
One Five Most Recent
Year Years Ten Years
---------- ---------- ----------
John Hancock Intermediate Maturity
Government Fund: Class A(2) 1.42% 3.90% 4.10%(1)
John Hancock Intermediate Maturity
Government Fund: Class B(2) 0.84% 3.86% 4.02%(1)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of May 31, 1997
SEC 30-Day
Yield
----------
John Hancock Intermediate Maturity
Government Fund: Class A 6.09%
John Hancock Intermediate Maturity
Government Fund: Class B 5.52%
Notes to Performance
(1) Class A and Class B shares started on December 31, 1991.
(2) The Adviser 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, five-year and since inception periods would have been
0.72%, 3.35% and 3.53% for Class A shares, respectively, and for Class B
shares 0.14%, 3.31% and 3.45%, respectively.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
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 May 31, 1997, 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 Intermediate 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 Intermediate Government Bond Index is an unmanaged index
that measures the performance of U.S.Treasury bonds and U.S. Government Agency
bonds.
[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 Intermediate Government Bond Index and is equal to $14,151 as of
May 31, 1997. The second line represents the value of the Lipper Intermediate
U.S. Government Index and is equal to $13,384 as of May 31, 1997. 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 $12,999 as of March 31, 1996. The fourth line represents the
Intermediate Maturity Government Fund, after sales charge, and is equal to
$12,609 as of May 31, 1997.]
[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 three lines. The first line represents the value
of the Lehman Government Bond Index and is equal to $14,151 as of May 31, 1997.
The second line represents the value of the Lipper Intermediate U.S. Government
Index and is equal to $13,384 as of May 31, 1997. 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
$12,546 as of May 31, 1997.]
*No contingent deferred sales charge applicable.
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
U.S. government and agencies securities (cost -- $26,998,675) ................... $27,006,672
Joint repurchase agreement (cost - $2,904,000) .................................. 2,904,000
Corporate savings account ....................................................... 473
-----------
.................................................................................... 29,911,145
Receivable for investments sold ................................................... 977,082
Interest receivable ............................................................... 357,421
Receivable to John Hancock Advisers, Inc. and affiliates -- Note B ................ 19,475
Other assets ...................................................................... 10,104
-----------
Total Assets ............................................... 31,275,227
---------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ................................................. 2,032,327
Payable for shares repurchased .................................................... 2,005
Accounts payable and accrued expenses ............................................. 35,012
-----------
Total Liabilities .......................................... 2,069,344
---------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................................... 29,962,850
Accumulated net realized loss on investments ...................................... ( 773,899)
Net unrealized appreciation of investments ........................................ 8,464
Undistributed net investment income ............................................... 8,468
-----------
Net Assets ................................................. $29,205,883
===========================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding --
unlimited number of shares authorized with no par value, respectively)
Class A -- $22,754,663 / 2,405,279 .............................................. $ 9.46
================================================================================================
Class B -- $6,451,220 / 681,925 ................................................. $ 9.46
================================================================================================
Maximum Offering Price Per Share*
Class A -- ($9.46 x 103.09%) .................................................... $ 9.75
================================================================================================
</TABLE>
* 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.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on May 31, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1997
MARCH 31, 1997 TO MAY 31, 1997(1)
-------------- ------------------
<S> <C> <C>
Investment Income:
Interest ............................................................................... $2,552,330 $378,436
---------- --------
Expenses:
Investment management fee - Note B ................................................... 132,601 19,526
Distribution and service fee - Note B
Class A ............................................................................ 64,288 9,432
Class B ............................................................................ 68,775 11,086
Transfer agent fee - Note B .......................................................... 43,780 5,211
Custodian fee ........................................................................ 40,119 7,518
Registration and filing fees ......................................................... 31,940 21,796
Auditing fee ......................................................................... 13,736 20,000
Printing ............................................................................. 9,158 5,899
Organization expense - Note A ........................................................ 7,252 --
Financial services fee - Note B ...................................................... 4,508 915
Trustees' fees ....................................................................... 3,074 110
Miscellaneous ........................................................................ 1,004 517
Advisory board fee ................................................................... 436 --
Legal fees ........................................................................... 197 13
---------- --------
Total Expenses .................................................. 420,868 102,023
--------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ................................ ( 122,053) ( 57,097)
--------------------------------------------------------------------------------------------------
Net Expenses .................................................... 298,815 44,926
--------------------------------------------------------------------------------------------------
Net Investment Income ........................................... 2,253,515 333,510
--------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold .................................................. ( 759,398) ( 50,466)
Change in net unrealized appreciation/depreciation
of investments ....................................................................... ( 37,403) 334,487
---------- --------
Net Realized and Unrealized Gain (Loss) on Investments .......... ( 796,801) 284,021
--------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............ $1,456,714 $617,531
==================================================================================================
(1) Effective May 31, 1997, the fiscal period end changed from March 31 to May 31.
</TABLE>
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.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
------------------------------ APRIL 1, 1997 TO
1996 1997 MAY 31, 1997(1)
------------- ------------- ---------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................... $ 2,005,181 $ 2,253,515 $ 333,510
Net realized gain (loss) on investments sold ............................ 333,135 ( 759,398) ( 50,466)
Change in net unrealized appreciation/depreciation of investments ....... ( 577,061) ( 37,403) 334,487
----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations ................ 1,761,255 1,456,714 617,531
----------- ----------- -----------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6385, $0.6612, and $0.1092 per share, respectively) ..... ( 1,494,279) ( 1,787,778) ( 261,624)
Class B - ($0.5746, $0.5968, and $0.0973 per share, respectively) ..... ( 540,604) ( 466,451) ( 68,448)
Distributions from net realized gain on investments sold
Class A - (none, $0.0782, and none per share, respectively) ........... -- ( 189,501) --
Class B - (none, $0.0782, and none per share, respectively) ........... -- ( 58,760) --
----------- ----------- -----------
Total Distributions to Shareholders ................................. ( 2,034,883) ( 2,502,490) ( 330,072)
----------- ----------- -----------
From Fund Share Transactions - Net*: ...................................... 15,373,658 ( 7,687,534) 96,288
----------- ----------- -----------
Net Assets:
Beginning of period ..................................................... 22,455,416 37,555,446 28,822,136
----------- ----------- -----------
End of period (including undistributed net investment income of $3,180
and distributions in excess of net investment income of $6,462 and
undistributed net investment income of $8,468, respectively) .......... $37,555,446 $28,822,136 $29,205,883
=========== =========== ===========
*Analysis of Fund Share Transactions:
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
---------------------------------------------------- APRIL 1, 1997 TO
1996 1997 MAY 31, 1997(1)
------------------------ ----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold ...................................... 1,360,554 $13,397,732 387,191 $3,706,355 222,104 $2,089,262
Shares issued in reorgnization - Note D .......... 2,305,865 22,643,129 -- -- -- --
Shares issued to shareholders in reinvestment
of distributions ............................... 54,240 535,013 77,547 741,124 10,430 98,314
--------- ----------- --------- ---------- ------- ----------
................................................... 3,720,659 36,575,874 464,738 4,447,479 232,534 2,187,576
Less shares repurchased .......................... (2,047,851) ( 20,195,985) (1,107,750) (10,635,603) (180,446) ( 1,700,404)
--------- ----------- --------- ---------- ------- ----------
Net increase (decrease) .......................... 1,672,808 $16,379,889 ( 643,012) ($6,188,124) 52,088 $ 487,172
========= =========== ========= ========== ======= ==========
CLASS B
Shares sold ...................................... 128,155 $ 1,251,224 465,120 $4,452,149 187,610 $1,766,769
Shares issued in reorgnization - Note D .......... 77,218 758,254 -- -- -- --
Shares issued to shareholders in reinvestment
of distributions ............................... 33,456 329,875 32,043 306,162 3,959 37,319
--------- ----------- --------- ---------- ------- ----------
................................................... 238,829 2,339,353 497,163 4,758,311 191,569 1,804,088
Less shares repurchased .......................... ( 329,486) ( 3,345,584) ( 654,247) ( 6,257,721) (233,349) ( 2,194,972)
--------- ----------- --------- ---------- ------- ----------
Net decrease .................................... ( 90,657) ($ 1,006,231) ( 157,084) ($1,499,410) ( 41,780) ($ 390,884)
========= =========== ========= ========== ======= ==========
(1) Effective May 31, 1997, the fiscal period end changed from March 31 to May 31.
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last three periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
------------------------------------------------- APRIL 1, 1997 TO
1993 1994 1995(1) 1996 1997 MAY 31, 1997(8)
-------- -------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37
------- ------- ------- ------- ------- -------
Net Investment Income ........................................ 0.58 0.41 0.49 0.62 0.67 0.11(7)
Net Realized and Unrealized Gain (Loss) on Investments ....... 0.02 ( 0.16) ( 0.11) ( 0.08) ( 0.25) 0.09
------- ------- ------- ------- ------- -------
Total from Investment Operations ......................... 0.60 0.25 0.38 0.54 0.42 0.20
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ....................... ( 0.58) ( 0.41) ( 0.48) ( 0.64) ( 0.66) ( 0.11)
Distributions from Net Realized Gain on Investments Sold ... -- -- -- -- ( 0.08) --
------- ------- ------- ------- ------- -------
Total Distributions ...................................... ( 0.58) ( 0.41) ( 0.48) ( 0.64) ( 0.74) ( 0.11)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ............................... $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37 $ 9.46
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) ............... 6.08% 2.51% 3.98% 5.60% 4.56% 2.13%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) .... 5.53% 2.27% 3.43% 4.83% 4.19% 1.93%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $33,273 $24,310 $12,950 $29,024 $22,043 $22,755
Ratio of Expenses to Average Net Assets (4) .................. 0.50% 0.75% 0.80% 0.75% 0.75% 0.75%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) ....... 1.05% 0.99% 1.35% 1.45% 1.12% 1.92%(9)
Ratio of Net Investment Income to Average Net Assets ......... 5.47% 4.09% 4.91% 6.49% 6.99% 7.07%(9)
Ratio of Adjusted Net Investment Income to Average
Net Assets (5) ............................................. 4.92% 3.85% 4.36% 5.79% 6.62% 5.90%(9)
Fee Reduction Per Share (7) .................................. $ 0.06 $ 0.02 $ 0.05 $ 0.07 $ 0.04 $ 0.02
Portfolio Turnover Rate ...................................... 186% 244% 341% 423%(6) 427% 77%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each 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.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
------------------------------------------------- APRIL 1, 1997 TO
1993 1994 1995(1) 1996 1997 MAY 31, 1997(8)
-------- -------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.03 $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37
------- ------- ------- ------- ------- -------
Net Investment Income 0.51 0.34 0.43 0.57 0.60 0.10(7)
Net Realized and Unrealized Gain (Loss) on Investments 0.02 ( 0.16) ( 0.11) ( 0.10) ( 0.24) 0.09
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.53 0.18 0.32 0.47 0.36 0.19
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.51) ( 0.34) ( 0.42) ( 0.57) ( 0.60) ( 0.10)
Distributions from Net Realized Gain on Investments Sold -- -- -- -- ( 0.08) --
------- ------- ------- ------- ------- -------
Total Distributions ( 0.51) ( 0.34) ( 0.42) ( 0.57) ( 0.68) ( 0.10)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37 $ 9.46
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) 5.40% 1.85% 3.33% 4.92% 3.84% 2.01%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) 4.85% 1.61% 2.78% 4.15% 3.47% 1.81%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $13,753 $11,626 $ 9,506 $ 8,532 $ 6,779 $ 6,451
Ratio of Expenses to Average Net Assets (4) 1.15% 1.40% 1.45% 1.40% 1.43% 1.50%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) 1.70% 1.64% 2.00% 2.10% 1.80% 2.67%(9)
Ratio of Net Investment Income to Average Net Assets 4.82% 3.44% 4.26% 5.80% 6.30% 6.04%(9)
Ratio of Adjusted Net Investment Income to Average
Net Assets (5) 4.27% 3.20% 3.71% 5.10% 5.93% 4.87%(9)
Fee Reduction Per Share (7) $ 0.06 $ 0.02 $ 0.05 $ 0.07 $ 0.04 $ 0.02
Portfolio Turnover Rate 186% 244% 341% 423%(6) 427% 77%
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) An estimated total return calculation that does not take into consideration fee reductions by
the Adviser during the periods shown.
(4) 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.
(5) Unreimbursed, without fee reduction.
(6) Portfolio turnover rate excludes merger activity.
(7) Based on average month end shares outstanding.
(8) Effective May 31, 1997, the fiscal period end changed from March 31 to May 31.
(9) Annualized.
(10) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
Schedule of Investments
May 31, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Intermediate Maturity Government Fund on May 31, 1997. It's divided into two
main categories: U.S. government and agencies and short-term investments.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ---- ---- -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (42.74%)
United States Treasury,
Bond .................................... 11.125% 08-15-03 $2,000 $ 2,457,500
Bond .................................... 12.000 08-15-13 2,250 3,142,958
Bond .................................... 6.625 02-15-27 750 722,580
Note .................................... 9.250 08-15-98 1,975 2,048,450
Note .................................... 9.125 05-15-99 1,000 1,052,810
Note .................................... 7.875 08-15-01 1,000 1,050,470
Note .................................... 6.625 03-31-02 2,000 2,008,740
------------
12,483,508
------------
Governmental - U.S. Agencies (49.73%)
Federal Home Loan Mortgage Corp,
Adjustable Rate Mortgage ................ 7.250# 05-01-17 52 53,605
Adjustable Rate Mortgage ................ 7.750# 10-01-18 58 59,480
Federal National Mortgage Association,
15 Yr Pass thru Ctf ..................... 7.500 06-01-10 2,168 2,196,831
15 Yr Pass thru Ctf ..................... 7.000 10-01-11 2,902 2,885,177
Adjustable Rate Mortgage ................ 6.671# 03-01-14 to 45 45,099
06-01-14
Adjustable Rate Mortgage ................ 6.875# 05-01-13 45 46,136
Adjustable Rate Mortgage ................ 7.256# 05-01-17 197 194,130
Adjustable Rate Mortgage ................ 7.250# 03-01-27 40 40,479
Government National Mortgage Association,
30 Yr Pass thru Ctf ..................... 12.000 02-15-14 24 27,241
30 Yr Pass thru Ctf ..................... 12.500 07-15-15 37 43,344
30 Yr Pass thru Ctf ..................... 7.500 05-15-24 1,882 1,884,070
30 Yr Pass thru Ctf ..................... 8.000 05-15-25 to 5,602 5,710,858
10-15-25
Adjustable Rate Mortgage .................... 6.875# 10-20-23 1,304 1,336,714
------------
14,523,164
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $26,998,675) (92.47%) 27,006,672
------ ------------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.94%)
Investment in a joint repurchase agreement
transaction with Swiss Bank Corp. -
Dated 05-30-97, Due 06-02-97
(secured by U.S. Treasury Notes, 6.375%, Due 05-15-99,
U.S. Treasury Bonds, 6.250% - 11.250%, Due 11-15-08
thru 08-15-23) - Note A 5.560% $2,904 $ 2,904,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 473
------------
TOTAL SHORT-TERM INVESTMENTS ( 9.94%) 2,904,473
------- ------------
TOTAL INVESTMENTS (102.41%) $ 29,911,145
======= ============
</TABLE>
# Represents rate in effect on May 31, 1997.
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.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series: John Hancock Intermediate Maturity Government Fund (the
"Fund"), John Hancock Government Income Fund and John Hancock High Yield Bond
Fund. The other two series of the Trust are reported in separate financial
statements. On June 25, 1996 the Trustees voted to approve a change in the
fiscal period from March 31 to May 31. This change is effective May 31, 1997.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 multiple 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 to that 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 TAXES 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 the Fund has $7,980,391
of capital loss carryforward available, to the extent provided by regulations,
to offset future net realized capital gains. To the extent such carryforward is
used by the Fund, no capital gains distributions will be made. The carryforward
expires as follows: May 31, 1998 - $653,763, May 31, 1999 - $2,207,560, May 31,
2000 - $23,234, May 31, 2001 - $4,062,681, May 31, 2002 - $427,159, May 31, 2004
- - $427,511, May 31, 2005 - $178,483. The Fund's tax year end is May 31. Expired
capital loss carryforwards are reclassified to capital paid-in in the year of
expiration.
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.
EXPENSES 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
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended May 31, 1997.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent at
an annual basis of 0.40% of the Fund's average daily net asset value.
The Adviser has temporarily agreed to limit fund expenses, including the
management fee, to 0.75% and 1.50% of the average net assets attributable to the
Class A and Class B shares, respectively. Effective December 24, 1996, the
limitation on Class B shares of the Fund increased to 1.50% from 1.40% of the
average daily net assets due to an increase in the 12b-1 distribution rate from
0.90% to 1.00% of the average daily net assets. Accordingly, for the period
ended May 31, 1997, the reduction in the Adviser's fee collectively with any
additional amounts not borne by the Fund by virtue of the expense limit amounted
to $57,097.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended May 31,
1997, net sales charges received with regard to sales of Class A shares amounted
to $7,357. Out of this amount, $557 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $2,073 was paid
as sales commissions to unrelated broker-dealers and $4,727 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 ("JHMLICo"), is the indirect
sole shareholder of Distributors and was the indirect sole shareholder until
November 29, 1996 of 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 May 31, 1997,
contingent deferred sales charges amounted to $6,128.
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. 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
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
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 Signature Services, Inc. ("Signature Services"), an
indirect subsidiary of JHMLICo. The Fund pays transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
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 trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At May 31, 1997 the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $467.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended May 31, 1997 aggregated $21,912,539 and
$23,106,734, respectively.
The cost of investments owned at May 31, 1997 (including the joint repurchase
agreement) for federal income tax purposes was $30,070,579. Gross unrealized
appreciation and depreciation of investments aggregated $260,992, and $420,899,
respectively, resulting in net unrealized depreciation of $159,907.
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 (the Adjustable U.S. Government
Fund, the mutual fund in which the Funds invested all of their assets) 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.
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Intermediate Maturity Government Fund
NOTE E --
RECLASSIFICATION OF ACCOUNTS
During the period ended May 31, 1997, the Fund has reclassified amounts to
reflect an increase in accumulated net realized loss on investments of $97,818,
an increase in undistributed net investment income of $11,492 and an increase in
capital paid-in of $86,326. This represents the cumulative amount necessary to
report these balances on a tax basis, excluding certain temporary differences,
as of May 31, 1997. 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.
18
<PAGE>
================================================================================
John Hancock Funds - Intermediate Maturity Government Fund
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Bond Trust
John Hancock Intermediate Maturity Government Fund
We have audited the accompanying statement of assets and liabilities of the John
Hancock Intermediate Maturity Government Fund (the "Fund"), one of the
portfolios constituting John Hancock Bond Trust, including the schedule of
investments, as of May 31, 1997, and the related statement of operations for the
period from April 1, 1997 to May 31, 1997 and for the year ended March 31, 1997,
the statement of changes in net assets and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997, by correspondence with the custodian and brokers, and other auditing
procedures when replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
John Hancock Intermediate Maturity Government Fund portfolio of John Hancock
Bond Trust at May 31, 1997, the results of its operations for the period from
April 1, 1997 to May 31, 1997 and the year ended March 31, 1997, and the changes
in its net assets and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 11, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the dividends of the Fund paid during its taxable year ended May 31,
1997.
All of the dividends paid for the fiscal year are taxable as ordinary income.
None of the dividends qualify for the dividends received deduction available to
corporations.
Shareholders will be mailed a 1997 U.S. Treasury Department Form 1099-DIV in
January 1998. This will reflect the total of all distributions which are taxable
for calendar year 1997.
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
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.
[RECYCLE LOGO] Printed on Recycled Paper 5500A 5/97
7/97
