John Hancock Funds
Intermediate
Maturity
Government
Fund
ANNUAL REPORT
March 31, 1997
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 and Trust Company
89 South Street
Boston, Massachusetts 02111
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:
After two years of spectacular performance, the stock market has
recently given investors its starkest reminder in some time of one of
investing's basic tenets: markets move down, as well as up. It's
understandable if investors had lost sight of that fact. The bull
market that began six years ago has given investors annual double-
digit returns and more modest price declines than usual. And in the
two years encompassing 1995 and 1996, the S&P 500 Index gained more
than 50%. This Pollyanna environment has tracked along with a
sustained economic recovery, now entering its seventh year, that has
been marked by moderate growth, low interest rates and tame inflation.
But recently, many have begun to wonder if the bull market is running
out of steam. Since reaching new highs in early March, the Dow Jones
Industrial Average tumbled by more than 7% at the end of March and
wiped out nearly all the market had gained since the start of the
year. It was the worst decline that the market had seen since 1990. In
early April, the Dow was down by 9.8% for the year, within shouting
distance of a 10% correction.
As the market continues to fret over possible interest-rate hikes and
the potential for an inflation spike, investors should be prepared for
more volatility. It also makes sense to do something we've always
advocated: set realistic expectations. Keep in mind that the stock
market's historic yearly average has been about 10%, not the 20%-plus
annual average of the last two years or even the 16% annual average
over the last ten years. Remember that the kind of market volatility
we've seen lately is more like the way the market really works.
Fluctuations go with the territory. And market corrections can be
healthy, serving to bring inflated stock prices down to more
reasonable levels, thereby reducing some of the market's risk.
If you use this time of heightened volatility as an opportunity to
review your portfolio's asset allocations with your investment
professional, some long-term gain will come from the market's recent
short-term pain. Make sure that your investment strategies reflect
your individual time horizons, objectives and risk tolerance, and that
they are based upon your needs. 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
A 1 1/4" x 1" photo of edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
BY ROGER HAMILTON, PORTFOLIO MANAGER
John Hancock
Intermediate Maturity
Government Fund
Economy's continued strength disappoints bond market
The bond market's story unfolded in three chapters last year. It
opened in the spring with mixed economic signals making for a choppy
market. Then over the summer and into the fall, weaker economic
numbers quieted inflation concerns and bond prices rallied. Starting
in December, strong economic growth rekindled inflation worries,
causing bond prices to fall. Short-term yields moved up more than
long-term yields, as concern grew that the Federal Reserve would raise
interest rates. This caused the yield curve -- the difference between
long-term and short-term rates -- to flatten. By late March, yields on
five-year Treasuries had climbed to 6.74% -- up from 5.83% in
November. On March 25, the Fed raised short-term rates for the first
time since early 1995.
"With bond
prices making
little headway,
investors
searched for
yield."
A 2 1/4" 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."
With bond prices making little headway, investors searched for yield.
As a result, higher-yielding securities -- including both corporate
bonds and mortgage securities -- outpaced Treasuries. Mortgages, which
lagged corporates in 1995, also benefited from the small net change in
interest rates over the course of the year. This environment helped
lower prepayment risk -- the risk that homeowners would pay off their
mortgages early, forcing investors to reinvest at lower rates.
Pie chart with the heading "Portfolio Diversification" at the top of
left hand column. The chart is divided into two sections. Going from
left to right: U.S. Government Agency Bonds 51%; U.S. Treasury Bonds &
Other 49%. A footnote below states: "As a percentage of net assets on
March 31, 1997."
"The Fund
benefited
from focusing
on mortgage
securities."
Right places, right times
John Hancock Intermediate Maturity Government Fund's Class A and Class
B shares delivered total returns of 4.56% and 3.84%, respectively, at
net asset value, for the year ended March 31, 1997. By comparison, the
average intermediate-term government fund returned 3.87% over the same
period, according to Lipper Analytical Services.1 During the same
period, the Lehman Brothers Intermediate Government Bond Index
returned 4.75%. Please see pages six and seven for longer-term
performance information.
The Fund benefited from focusing on mortgage securities. We ended the
period with a 51% stake in mortgages, compared to 54% a year earlier.
But in the interim, we pushed mortgages up to 66% of the Fund's total
investments. About one third of this was in 15-year traditional
mortgages, which were in heavy demand at a time when issuance was
diminishing. These did so well that late in the period we decided to
take some profits. Our timing worked out well, as market volatility
increased in the weeks preceding the Fed's March meeting. This, in
turn, hurt the mortgage sector.
We also took advantage of the yield curve flattening by investing the
proceeds from our mortgage sales in Treasuries at either end of the
maturity spectrum. We did this because five-year Treasuries tend to do
worse than combinations of two- and 30-year issues when interest rates
go up. By the end of the period, about half the Fund's 46% stake in
Treasuries was in bonds with maturities of less than one year or more
than 10 years. Having more long- and short-term Treasuries moved the
Fund toward more of a barbell strategy. By comparison, six months
earlier we'd had a bullet strategy, focusing 80% of our Treasuries in
the one- to 10-year range.
Duration changes, second half
During the first part of the Fund's fiscal year, we treaded water with
duration shifts. Duration measures how sensitive bond prices are to
changes in interest rates. The longer a bond's duration, the more its
price will move down when interest rates move up (or up when rates
move down). But in the second half of the year, we made two duration
moves that gave us a slight edge. In October, we lengthened the Fund's
duration to 4.1 years from 3.8 years. We did this because we were
still seeing weak economic numbers and wanted to catch some of the
bond market's rally. In December, when we began seeing stronger
economic numbers, we shortened duration to 3.5 years. This helped
protect the Fund's net asset value. We later adjusted duration back up
to 3.8 years -- about where we began six months ago and what we've
averaged over the past year. This is a fairly neutral duration
relative to the Fund's peer group.
We plan to keep a neutral or shorter duration near term, but we expect
the Fund to have a longer duration in six months. Yields still seem to
have room to climb, but will most likely start falling a few months
before the Fed has made its last rate hike. That's what happened in
late 1994 and early 1995. Our goal will be to lengthen duration before
rates begin falling.
Bar chart with heading "Fund Performance" at top left hand column.
Under the heading is the footnote: "For the year ended March 31,
1997." The chart is scaled in increments of 1% with 5% at the top and
0% at the bottom. Within the chart there are three solid bars. The
first represents the 4.56% total return for John Hancock Intermediate
Maturity Government Fund: Class A. The second represents the 3.84%
total return for John Hancock Intermediate Maturity Government Fund:
Class B. The third represents the 3.87% total return for the Average
Intermediate term Government Fund. Footnote below reads: "The 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."
A look into the future
We believe the economy will remain strong longer than expected, due to
continued low unemployment. But at some point in the next six months,
economic growth should slow. We'll be watching several indicators to
determine what's ahead. A rise in the benefits component of the
employment cost index would confirm that compensation is rising. A
longer delivery time for vendors would point to continued economic
strength. By contrast, a sharp drop in the stock market or slackening
in retail sales would most likely signal a weakening economy. The Fed
will use measures like these to determine how many more rate increases
are necessary to slow the economy or keep a lid on inflation.
When economic growth finally shows hints of slowing, there should be
great buying opportunities in the bond market. Prices have already
been falling, even though real (after-inflation) yields are already
near historical highs. The key is whether inflation stays low (between
2% and 3%). We're optimistic that it will, given the global nature of
competition, the globalization of labor and raw materials inputs, the
decreasing cost of technology, and the increase in savings among baby
boomers.
Our goal, as always, is to provide Fund shareholders with a
competitive total return and yield. To do this near term, we'll be
adding to our mortgage stake. While mortgages are expensive from a
historical standpoint, we don't expect them to get much cheaper. Given
the tremendous inflows into securities markets worldwide, it seems
just a matter of time before investors return to mortgages in search
of higher yield. As that happens, we expect prices to rise.
"We believe
the economy
will remain
strong longer
than
expected..."
- ----------------------------------------------------------------------
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 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 LIFE OF
YEAR YEARS FUND
--------- ---------- ----------
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 LIFE OF
YEAR YEARS FUND
--------- ---------- ----------
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)
As of March 31, 1997
YIELDS
As of March 31, 1997 SEC 30-DAY
YIELD
----------
John Hancock Intermediate Maturity
Government Fund: Class A 6.13%
John Hancock Intermediate Maturity
Government Fund: Class B 5.56%
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.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in John
Hancock Intermediate Maturity Government Fund would be worth on March
31, 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 Government Bond Index. The Lipper
Intermediate U.S. Government Index is an equally weighted unmanaged
index that measures the performance of funds with at least 65% of
their assets in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities with dollar-weighted
average maturities of five to ten years. The Lehman Government Bond
Index is an unmanaged index that measures the performance of
U.S.Treasury bonds and U.S. Government Agency bonds.
Intermediate Maturity Government Fund
Class A shares
Line chart with the heading Intermediate Maturity Government Fund:
Class A, representing the growth of a hypothetical $10,000 investment
over the life of the fund. Within the chart are four lines.
The first line represents the value of the Lehman Government Bond
Index and is equal to $13,381 as of March 31, 1997. The second line
represents the value of the Lipper Intermediate Government Bond Index
and is equal to $13,103 as of March 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 $12,716 as of March 31, 1997.
The fourth line represents the Intermediate Maturity Government Fund
after sales charge and is equal to $12,234 as of March 31, 1997.
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 three lines.
The first line represents the value of the Lehman Intermediate
Government Bond Index and is equal to $13,831 as of March 31, 1997.
The second line represents the value of the Lipper Intermediate U.S.
Government Index and is equal to $13,103 as of March 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 $12,289 as of March 31,
1997.
*No contingent deferred sales charge applicable
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 March
31, 1997. You'll also find the net asset value and the maximum
offering price per share as of that date.
Statement of Assets and Liabilities
March 31, 1997
- ------------------------------------------------------------------
Assets:
Investments at value - Note C:
United States government and agencies obligations
(cost - $28,241,831) $ 27,915,593
Joint repurchase agreement (cost - $563,000) 563,000
Corporate savings account 588
------------
28,479,181
Receivable for investments sold 5,189,647
Interest receivable 297,167
Other assets 9,820
------------
Total Assets 33,975,815
- ------------------------------------------------------------------
Liabilities:
Payable for investments purchased 4,981,715
Dividend payable 17,444
Payable for shares repurchased 112,724
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 8,671
Accounts payable and accrued expenses 33,125
------------
Total Liabilities 5,153,679
- ------------------------------------------------------------------
Net Assets:
Capital paid-in 29,780,236
Accumulated net realized loss on investments (625,615)
Net unrealized depreciation of investments (326,023)
Distributions in excess of net investment income (6,462)
------------
Net Assets $ 28,822,136
==================================================================
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 - $22,042,987 / 2,353,191 $ 9.37
==================================================================
Class B - $6,779,149 / 723,705 $ 9.37
==================================================================
Maximum Offering Price Per Share*
Class A - ($9.37 x 103.09%) $9.66
==================================================================
* 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.
The Statement of Operations summarizes the Fund's investment income
earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
Statement of Operations
Year ended March 31, 1997
- ------------------------------------------------------------------
Investment Income:
Interest $ 2,552,330
-----------
Expenses:
Investment management fee - Note B 132,601
Distribution and service fee - Note B
Class A 64,288
Class B 68,775
Transfer agent fee - Note B 43,780
Custodian fee 40,119
Registration and filing fees 31,940
Auditing fee 13,736
Printing 9,158
Organization expense - Note A 7,252
Financial services fee - Note B 4,508
Trustees' fees 3,074
Miscellaneous 1,004
Advisory board fee 436
Legal fees 197
-----------
Total Expenses 420,868
- ------------------------------------------------------------------
Less Expenses Reductions -
Note B (122,053)
- ------------------------------------------------------------------
Net Expenses 298,815
- ------------------------------------------------------------------
Net Investment Income 2,253,515
- ------------------------------------------------------------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments sold (759,398)
Change in net unrealized appreciation/depreciation
of investments (37,403)
-----------
Net Realized and Unrealized
Loss on Investments (796,801)
- ------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 1,456,714
==================================================================
See notes to financial statements.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
1996 1997
------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 2,005,181 $ 2,253,515
Net realized gain (loss) on investments sold 333,135 (759,398)
Change in net unrealized appreciation/depreciation of investments (577,061) (37,403)
------------ ------------
Net Increase in Net Assets Resulting from Operations 1,761,255 1,456,714
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6385 and $0.6612 per share, respectively) (1,494,279) (1,787,778)
Class B - ($0.5746 and $0.5968 per share, respectively) (540,604) (466,451)
Dividends from net realized gain on investments sold
Class A - (none and $0.0782 per share, respectively) -- (189,501)
Class B - (none and $0.0782 per share, respectively) -- (58,760)
------------ ------------
Total Distributions to Shareholders (2,034,883) (2,502,490)
------------ ------------
From Fund Share Transactions - Net* 15,373,658 (7,687,534)
------------ ------------
Net Assets:
Beginning of period 22,455,416 37,555,446
------------ ------------
End of period (including undistributed net investment income and distributions
in excess of net investment income of $3,180 and $6,462, respectively) $ 37,555,446 $ 28,822,136
============ ============
* Analysis of Fund Share Transactions:
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------
1996 1997
------------------------------------ --------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
CLASS A
Shares sold 1,360,554 $ 13,397,732 387,191 $ 3,706,355
Shares issued in reorganization - Note D 2,305,865 22,643,129 -- --
Shares issued to shareholders in
reinvestment of distributions 54,240 535,013 77,547 741,124
---------- ------------ --------- ------------
3,720,659 36,575,874 464,738 4,447,479
Less shares repurchased (2,047,851) (20,195,985) (1,107,750) (10,635,603)
---------- ------------ --------- ------------
Net increase (decrease) 1,672,808 16,379,889 (643,012) (6,188,124)
========= ============ ========= ============
CLASS B
Shares sold 128,155 1,251,224 465,120 4,452,149
Shares issued in reorganization - Note D 77,218 758,254 -- --
Shares issued to shareholders in
reinvestment of distributions 33,456 329,875 32,043 306,162
---------- ------------ --------- ------------
238,829 2,339,353 497,163 4,758,311
Less shares repurchased (329,486) (3,345,584) (654,247) (6,257,721)
---------- ------------ --------- ------------
Net decrease (90,657) ($ 1,006,231) (157,084) ($ 1,499,410)
========= ============ ========= ============
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 value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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:
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------
1993 1994 1995(1) 1996 1997
------- ------- ------- ------- -------
<S> <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
------- ------- ------- ------- -------
Net Investment Income 0.58 0.41 0.49 0.62 0.67
Net Realized and Unrealized Gain (Loss) on Investments 0.02 (0.16) (0.11) (0.08) (0.25)
------- ------- ------- ------- -------
Total from Investment Operations 0.60 0.25 0.38 0.54 0.42
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.58) (0.41) (0.48) (0.64) (0.66)
Distributions from Net Realized Gain on Investments Sold -- -- -- -- (0.08)
------- ------- ------- ------- -------
Total Distributions (0.58) (0.41) (0.48) (0.64) (0.74)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) 6.08% 2.51% 3.98% 5.60% 4.56%
Total Adjusted Investment Return
at Net Asset Value (2,3) 5.53% 2.27% 3.43% 4.83% 4.19%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $33,273 $24,310 $12,950 $29,024 $22,043
Ratio of Expenses to Average Net Assets (4) 0.50% 0.75% 0.80% 0.75% 0.75%
Ratio of Adjusted Expenses to Average Net Assets (4,5) 1.05% 0.99% 1.35% 1.45% 1.12%
Ratio of Net Investment Income to Average Net Assets 5.47% 4.09% 4.91% 6.49% 6.99%
Ratio of Adjusted Net Investment Income to Average
Net Assets (5) 4.92% 3.85% 4.36% 5.79% 6.62%
Fee Reduction Per Share (7) $ 0.06 $ 0.02 $ 0.05 $ 0.07 $ 0.04
Portfolio Turnover Rate 186% 244% 341% 423%(6) 427%
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.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------
1993 1994 1995(1) 1996 1997
------- ------- ------- ------- -------
<S> <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
------- ------- ------- ------- -------
Net Investment Income 0.51 0.34 0.43 0.57 0.60
Net Realized and Unrealized Gain (Loss) on Investments 0.02 (0.16) (0.11) (0.10) (0.24)
------- ------- ------- ------- -------
Total from Investment Operations 0.53 0.18 0.32 0.47 0.36
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.51) (0.34) (0.42) (0.57) (0.60)
Distributions from Net Realized Gain on Investments Sold -- -- -- -- (0.08)
------- ------- ------- ------- -------
Total Distributions (0.51) (0.34) (0.42) (0.57) (0.68)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.05 $ 9.89 $ 9.79 $ 9.69 $ 9.37
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) 5.40% 1.85% 3.33% 4.92% 3.84%
Total Adjusted Investment Return at Net Asset Value (2,3) 4.85% 1.61% 2.78% 4.15% 3.47%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $13,753 $11,626 $ 9,506 $ 8,532 $ 6,779
Ratio of Expenses to Average Net Assets (4) 1.15% 1.40% 1.45% 1.40% 1.43%
Ratio of Adjusted Expenses to Average Net Assets (4,5) 1.70% 1.64% 2.00% 2.10% 1.80%
Ratio of Net Investment Income to Average Net Assets 4.82% 3.44% 4.26% 5.80% 6.30%
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) 4.27% 3.20% 3.71% 5.10% 5.93%
Fee Reduction Per Share (7) $ 0.06 $ 0.02 $ 0.05 $ 0.07 $ 0.04
Portfolio Turnover Rate 186% 244% 341% 423%(6) 427%
(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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
March 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Intermediate Maturity Government Fund on March 31,
1997. 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 OBLIGATIONS
Governmental - U.S. (46.00%)
United States Treasury,
Bond 11.125% 08/15/03 $2,000 $ 2,434,380
Bond 12.000 08/15/13 2,250 3,093,390
Bond 6.625 02/15/27 1,000 940,940
Note 8.500 05/15/97 2,000 2,006,880
Note 9.250 08/15/98 1,975 2,050,287
Note 7.875 08/15/01 1,000 1,041,720
Note 6.375 09/30/01 500 492,420
Note 6.625 03/31/02 500 496,955
Note 6.500 10/15/06 725 702,460
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13,259,432
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Governmental - U.S. Agencies (50.85%)
Federal Home Loan Mortgage Corp,
Adjustable Rate Mortgage 7.250* 05/01/17 52 53,483
Adjustable Rate Mortgage 7.750* 10/01/18 58 59,238
Federal National Mortgage Association,
15 Yr Pass thru Ctf 7.500 06/01/10 2,195 2,203,518
15 Yr Pass thru Ctf 7.000 10/01/11 2,932 2,881,911
Adjustable Rate Mortgage 6.685* 03/01/14 45 45,237
to 06-01-14
Adjustable Rate Mortgage 6.875* 05/01/17 46 46,742
Adjustable Rate Mortgage 7.453* 05/01/17 200 203,722
Adjustable Rate Mortgage 7.050* 03/01/27 40 40,329
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 12.000 02/15/14 24 27,318
30 Yr SF Pass thru Ctf 12.500 07/15/15 37 43,671
30 Yr SF Pass thru Ctf 7.500 05/15/24 1,913 1,884,013
30 Yr SF Pass thru Ctf 8.000 05/15/25 5,769 5,805,701
to 10-15-25
Adjustable Rate Mortgage 6.875* 10/20/23 1,335 1,361,278
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14,656,161
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TOTAL U.S. GOVERNMENT AND
AGENCIES OBLIGATIONS
(Cost $28,241,831) (96.85%) 27,915,593
----- -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.96%)
Investment in a joint repurchase agreement
transaction with Toronto-Dominion Bank -
Dated 03-31-97, Due 04-01-97
(secured by U.S. Treasury Notes, 4.75% thru 8.75%,
Due 10-15-97 thru 03-31-02, U.S. Treasury Bonds, 7.25%
thru 11.875%, Due 11-15-02 thru 08-15-20) - Note A 6.750% 04/01/97 $563 $563,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 588
-----------
TOTAL SHORT-TERM INVESTMENTS (1.96%) 563,588
----- -----------
TOTAL INVESTMENTS (98.81%) $28,479,181
===== ===========
* Represents rate in effect on March 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.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is a diversified, open-end
management investment company, registered under the Investment Company
Act of 1940. As of August 30, 1996, 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. 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 gain on investments, to its
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $13,214,712 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent that such
carryforward is used by the Fund, no capital gain distributions will
be made. The carryforward expires as follows: December 31, 1997 -
$5,412,804, December 31, 1998 - $653,763, December 31, 1999 -
$2,207,560, December 31, 2000 - $23,234, December 31, 2001 -
$4,062,681, December 31, 2002 - $427,159, December 31, 2004 -
$427,511. The Fund's tax year end is December 31. Expired capital loss
carryforwards are reclassified to capital paid-in, in the year of
expiration. Additionally, net capital losses of $10,863 attributable
to security transactions incurred after October 31, 1996 are treated
as arising on the first day (January 1, 1997) of the Fund's next
taxable year.
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 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, 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 March
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 $122,053.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the period
ended March 31, 1997, net sales charges received with regard to sales
of Class A shares amounted to $26,407. Out of this amount, $5,936 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $12,771 was paid as sales commissions
to unrelated broker-dealers and $7,700 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 March 31, 1997, contingent
deferred sales charges amounted to $8,965.
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 Rules of Fair Practice, curtailment of a portion of the
Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expense.
The Fund has an agreement with the Adviser to perform necessary tax
and financial management services for the Fund. The compensation for
the fiscal year was at an annual rate of 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 March 31, 1997 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 March 31, 1997 aggregated
$142,055,104 and $151,213,881, respectively.
The cost of investments owned at March 31, 1997 (excluding the
corporate savings account) for federal income tax purposes was
$28,976,916. Gross unrealized appreciation and depreciation of
investments aggregated $93,096, and $591,419, respectively, resulting
in net unrealized depreciation of $498,323.
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.
NOTE E --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the period ended March 31, 1997, the Fund has reclassified
amounts to reflect a decrease in accumulated net realized loss on
investments of $48,909, a decrease in accumulated net investment loss
of $8,928 and an increase in capital paid-in of $39,981. This
represents the cumulative amount necessary to report these balances on
a tax basis, excluding certain temporary differences, as of December
31, 1996. 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.
REPORT OF ERNST & YOUNG, 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 March 31, 1997, and the
related statement of operations for the year ended, the statement of
changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 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 March 31,
1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the indicated periods,
in conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
Boston, Massachusetts
May 9, 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 December 31, 1996
All of the dividends paid for the fiscal year are taxable as ordinary
income. None of the 1996 dividends qualify for the dividends received
deduction available to corporations.
U.S. Government Obligations: Income from these investments may be
exempt from certain state and local taxes. The percentage of assets
invested in U.S. Treasury bonds, bills, and notes was 34.10% at year
end. The percentage of income derived from U.S. Treasury bonds, bills,
and notes was 46.59%. The percentage of assets invested in obligations
of other U.S. government agencies (excluding securities issued by
Federal National Mortgage Association and Government National Mortgage
Association) was 7.77% at year end. The percentage of income derived
from these investments was 0.97% For specific information on exemption
provisions in your state, consult your local state tax office or your
tax adviser.
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.
NOTES
John Hancock Funds - Intermediate Maturity Government Fund
NOTES
John Hancock Funds - Intermediate Maturity Government Fund
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5500A 3/97
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