<PAGE> 1
John Hancock Funds
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Limited-
Term
Government
Fund
SEMI-ANNUAL REPORT
June 30, 1995
<PAGE> 2
Chairman's Message
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Bayard Henry*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Lawrence J. Daly
Senior Vice President
Michael P. DiCarlo
Senior Vice President
Anthony A. Goodchild
Senior Vice President
James K. Ho
Senior Vice President
Barry H. Evans
Vice President
Anne M. McDonley
Vice President
John A. Morin
Vice President
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
DEAR FELLOW SHAREHOLDERS:
Educating shareholders has always been one of the most important
responsibilities of a mutual fund company. But that challenge has taken on new
significance in the past several years. Looking at the most recent statistics,
you can see why. According to the Investment Company Institute, the mutual fund
industry now manages more than $2.3 trillion for investors. More than half of
that money has come into mutual funds in just the last four years. Today, there
are more than 95 million mutual fund shareholder accounts. That's up from 12
million in 1980. These are people, like you, who are investing in mutual funds
to save for a home, to send their children to college or to build a nest egg
for a comfortable retirement. This explosive growth, coupled with the growing
complexity of the financial landscape, has made all of us in the mutual
fund industry work harder to inform our shareholders.
At John Hancock Funds, we strive to educate you about all aspects of
your fund: the performance, the strategies and the holdings. We want you to
fully understand what you own. We want you to have realistic expectations of
the potential rewards as well as the potential risks of your investment. These
shareholder reports - which we send you twice a year - are the best way to give
you the most in-depth and up-to-date information.
In the message that follows, the portfolio manager gives a candid
commentary on the market environment; the factors that affected performance;
the Fund's current investment strategies; and the outlook for the months ahead.
The ensuing financial statements provide a comprehensive look at the
fund's statistics and holdings.
We hope you find these shareholder reports a useful tool in evaluating
your investments. Of course, if you have any questions or need more
information, feel free to call one of our customer service representatives on
our toll-free line at 1-800-225-5291, from 8:00 a.m. to 8:00 p.m. eastern time,
Monday through Friday.
Sincerely,
/s/ EDWARD J. BOUDREAU
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.]
2
<PAGE> 3
BY BARRY H. EVANS, PORTFOLIO MANAGER
JOHN HANCOCK
LIMITED-TERM
GOVERNMENT FUND
Bond market rallies during first half
-------------------------------------
as interest rates fall steadily
-------------------------------
In January 1995, Barry H. Evans began managing John Hancock Limited-Term
Government Bond Fund. Mr. Evans, who joined John Hancock Funds in 1986, is vice
president and head of the company's government fixed-income department. He is
also part of the portfolio management team for John Hancock Government Income
Fund and manages The John Hancock Sovereign U.S. Government Income Fund
and the fixed-income portion of John Hancock Sovereign Balanced Fund.
What a difference a year makes. Last year rising rates hammered bond
prices to all-time lows. By contrast, 1995 has so far been extremely kind to
bond investors. With the economy showing signs of slowing, inflation fears have
eased and that has driven interest rates dramatically lower and bond prices
significantly higher. Rates on five-year Treasuries, for example, started the
year at 7.80% and fell to 5.97%.
All sectors of the bond market have benefited, but longer maturity
bonds were the biggest winners. Treasuries edged out mortgage bonds for the
first half of the year, with both returning around 11%. In the first quarter,
mortgages took the lead, as many investors showed their willingness to take on
a little more risk for the additional yield. But as rates continued to fall,
the tide shifted and many investors sought out the safety of Treasuries.
For the six months ended June 30, 1995, the Fund's Class A and B shares
returned 7.39% and 7.10%, respectively, at net asset value. By
- --------------------------------------------------------------------------------
"...1995 HAS SO FAR BEEN EXTREMELY KIND TO BOND INVESTORS."
- --------------------------------------------------------------------------------
[A 2 1/2" x 2 1/4" photo of Barry H. Evans at bottom center. Caption reads
"Barry H. Evans, Portfolio Manager".]
3
<PAGE> 4
John Hancock Funds - Limited-Term Government Fund
A pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into five sections. Going from top left to right:
Short-Term Investments 1%; Collateralized Mortgage Obligations 27%; U.S. Gov't
Agencies 21%; Adjustable-Rate Mortgage-Backed Securities 28%; U.S. Treasury
Bonds 23%. A footnote states "As a percentage of net assets on June 30, 1995."
- --------------------------------------------------------------------------------
"...WE MADE A COUPLE OF STRATEGIC CHANGES..."
- --------------------------------------------------------------------------------
comparison, the average short-term government bond fund returned 6.77% and the
average intermediate-term government fund returned 9.63%, according to
Lipper Analytical Services.1 Shortly after the period ended on June 30, 1995,
Lipper honored our request to move the Fund into the short-term government bond
category. Short-term government bond funds typically have average maturities of
three to five years compared to five to ten years for intermediate-term
government bond funds. We believe this new categorization more accurately
reflects the way we have managed the Fund for many years in our efforts to
protect shareholders' principal.
IMPROVING YIELD
Our goal has always been to provide an attractive yield with minimal price
volatility. Over the last six months, however, we made a couple of strategic
changes in how we did this. First, we focused on improving the Fund's income.
By selling some Treasuries with lower coupons (or stated interest rates) and
buying higher coupon Treasuries and government agency bonds, we were able to
raise the Fund's average coupon from 6.6% to 7.3%. As a result, the Fund was
earning more interest income from the bonds it holds. At the end of June, we
still held about 23% of our assets in Treasuries, but our stake in agency bonds
grew from 9% to 21%.
The second change was in our interest-rate exposure. At the end of last
year, the Fund's duration - a measure of how sensitive its share price is to
changes in interest rates - was 1.7 years. By early February, as it became more
apparent that rates were going to continue falling, we extended the duration
out to 2.5 years. That helped the Fund capture more price appreciation as rates
came down.
But in June, we decided to shorten back to what we call a neutral
position, around 2.0 years. By then, the market was already anticipating that
the Federal Reserve would probably lower rates at least half a percentage
point. This was reflected in bond prices, especially those with shorter
maturities. So there seemed little advantage in having a longer duration, which
entails more risk if interest rates should later rise.
MORTGAGES: A MIX OF CMOS AND ARMS
More than half our assets were in the mortgage sector - both collateralized
mortgage obligations (CMOs) and one-year adjustable rate mortgages (ARMs). CMOs
separate cash flows of mortgage pools into different classes with various
maturities and risk levels. Our focus was on the most conservative CMOs, which
have slightly more interest-rate risk than
4
<PAGE> 5
John Hancock Funds - Limited-Term Government Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote "For the six months ended June 30, 1995." The chart is
scaled in increments of 2% from left to right, with 0% at the left and
10% at the right. Within the chart, there are four solid bars. The first
represents the 7.39% total return for John Hancock Limited-Term Government
Fund: Class A. The second represents the 7.10% total return for John Hancock
Limited-Term Government Fund: Class B. The third represents the 6.77% total
return for average short-term government funds. The fourth represents the 9.63%
total return for the average intermediate-term government fund. A footnote
below reads: "Total return for John Hancock Limited-Term Government Fund are at
net asset value with all distributions reinvested. The average intermediate-
and short-term government funds are tracked by Lipper Analytical Services. See
following page for historical performance information."]
Treasuries but higher yields. Unfortunately, after a great first quarter, CMOs
performed poorly in the second quarter due to fears that many underlying
mortgages would be refinanced at lower rates. Plus, even conservative, low risk
CMOs - which are technically derivatives - suffered unfairly from bad press.
Since we still believe CMOs are good long-term investments for the Fund, we've
held onto our 27% stake.
Similarly, ARMs had a good run early on, but then stalled in May and
June. The ARMs hit their annual caps and adjusted up to the maximum amount when
rates were going up last year. Then, when rates came down this year, the ARMs
couldn't reset for a while. So investors got some extra interest. But once
adjustables started to reset back down, this advantage was gone.
NO RECESSION IN SIGHT
We've taken a neutral position with the Fund because it's not clear what's
ahead for the U.S. economy. By the end of June, we were already 48 months into
the economic cycle, which began in March 1991. On average, economic cycles have
lasted 46 months. However, we see no signs of an approaching recession -
nothing like the spurt in inflation, excess debt levels, or stock market
downturns that have preceded previous recessions. The one wild card is what we
call an exogenous shock - like an oil crisis or war - that could push a weak
economy into recession. So we'll be watching the economy carefully. But right
now, we see no signs of it falling apart.
Early in July, the Fed cut short-term interest rates by one-quarter of
a percentage point, from 6.00% to 5.75%. The question is how much lower will
they go? Lowering rates might give the bond rally legs. But it's too early to
tell, so we'll remain neutral. If we see signs of a recession or a shock to the
economy, we'll probably extend the Fund's duration to take advantage of further
rate decreases.
- --------------------------------------------------------------------------------
"...IT'S NOT CLEAR WHAT'S AHEAD FOR THE U.S. ECONOMY."
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------
[1]Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
5
<PAGE> 6
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average
annual total returns for John Hancock Limited-Term 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
share. Performance figures include the maximum applicable sales charge of 3%
for Class A shares. The effect of the maximum contingent deferred sales charge
for Class B shares (maximum 3% and declining to 0% over four years) is
included in Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the future.
Also, keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth more
or less than their original cost depending on when you sell them.
Note: Participant-directed defined-contribution plans with at least 100
eligible employees at inception of the Fund account may purchase Class A
shares without an initial sales charge as of March 15, 1995. If those shares
are redeemed, however, during the year following the calendar year end during
which they were purchased, a contingent deferred sales charge will be assessed.
<TABLE>
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30, 1995
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS(1) TEN YEARS
-------- -------- -----------
<S> <C> <C> <C>
Limited-Term Government Fund: Class A(2) 3.94% 35.77% 104.53%
Limited-Term Government Fund: Class B(2) 3.39% 3.13%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30, 1995
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS(1) TEN YEARS
-------- -------- -----------
<S> <C> <C> <C>
Limited-Term Government Fund: Class A(2) 3.94% 6.31% 7.42%
Limited-Term Government Fund: Class B(2) 3.39% 2.09%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
AS OF JUNE 30, 1995
<CAPTION>
SEC 30-DAY
YIELD
-----
<S> <C>
Limited-Term Government Fund: Class A 5.11%
Limited-Term Government Fund: Class B 4.72%
<FN>
NOTES TO PERFORMANCE
(1) Class B shares started on January 3, 1994.
(2) Performance is affected by a 12b-1 plan, which commenced on January 1, 1990
for Class A shares and January 3, 1994 for Class B shares. Different
sales charge schedules for Class A shares were in effect prior to May 1,
1993 and are not reflected in the above performance information.
</TABLE>
6
<PAGE> 7
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the Limited-Term
Government Fund would be worth on June 30, 1995, assuming you have been
invested for the past ten years or since the day each class of shares started
and have reinvested all distributions. For comparison, we've shown the same
$10,000 investment in the Lehman Brothers Intermediate- Term Government Fund
Index - an unmanaged index made up of the Treasury Bond Index and the Agency
Bond Index, which cover intermediate issues. The same $10,000 investment is
also shown in the Lehman Brothers One- to Three-Year Government Fund Index
which is a subindice composed of Agency and Treasury Securities with maturities
of one-to three-years.
Limited-Term Government Fund
Class A shares
[Line chart with the heading Limited-Term Government Fund: Class A, representing
the growth of a hypothetical $10,000 investment over the life of the fund
(or most recent 10 years). Within the chart are three lines.
The first line represents the value of the Lehman Brothers Intermediate-Term
Government Fund Index and is equal to $23,495 as of June 30, 1995. The
second line represents the value of the Lehman Brothers Short-Term Government
Fund Index and is equal to $21,382. The third line represents the hypothetical
$10,000 investment made in the Limited-Term Government Fund before sales charge
and is equal to $21,077 as of June 30, 1995. The fourth line represents the
value of the hypothetical $10,000 investment made in the Limited-Term
Government Fund on June 30, 1985, after sales charge, and is equal to $20,454
as of June 30, 1995.]
Limited-Term Government Fund
Class B shares
[Line chart with the heading Limited-Term 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 Brothers Short-Term
Government Fund Index and is equal to $10,714 as of June 30, 1995. The second
line represents the value of the Lehman Brothers Intermediate-Term Government
Fund Index and is equal to $10,712 as of June 30, 1995. The third line
represents the value of the hypothetical $10,000 investment made in the
Limited-Term Government Fund on January 3, 1994, before contingent deferred
sales charge, and is equal to $10,313 as of June 30, 1995. The fourth line
represents the Limited-Term Government Fund after contingent deferred sales
charge and is equal to $10,513 as of June 30, 1995.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term 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 JUNE 30, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
<S> <C>
ASSETS:
Investments at value - Note C:
United States government and agencies
securities (cost - $206,904,418) ...................... $210,778,673
Joint repurchase agreement (cost - $1,193,000)........... 1,193,000
Corporate savings account................................ 1,308
------------
211,972,981
Receivable for shares sold................................. 138,069
Interest receivable........................................ 3,108,210
------------
Total Assets......................... 215,219,260
--------------------------------------------------------
LIABILITIES:
Dividend payable........................................... 33,018
Payable to John Hancock Advisers, Inc.
and affiliates - Note B.................................. 189,997
Accounts payable and accrued expenses...................... 76,373
------------
Total Liabilities.................... 299,388
--------------------------------------------------------
NET ASSETS:
Capital paid-in............................................ 220,519,075
Accumulated net realized loss on investments............... (9,473,603)
Net unrealized appreciation of investments................. 3,874,255
Undistributed net investment income........................ 145
------------
Net Assets........................... $214,919,872
========================================================
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 - $206,281,656/23,799,168.......................... $ 8.67
==============================================================================
Class B - $8,638,216/996,720............................... $ 8.67
==============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($8.67 x 103.09%)................................ $ 8.94
==============================================================================
<FN>
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
</TABLE>
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.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended June 30, 1995 (Unaudited)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest................................................... $ 7,789,156
------------
Expenses:
Investment management fee - Note B....................... 646,439
Distribution/service fee - Note B
Class A................................................ 311,794
Class B................................................ 38,085
Transfer agent fee - Note B
Class A................................................ 379,839
Class B................................................ 7,629
Registration and filing fees............................. 49,371
Printing................................................. 29,205
Custodian fee............................................ 22,428
Auditing fee............................................. 19,023
Trustees' fees........................................... 11,508
Miscellaneous............................................ 7,842
Legal fees............................................... 2,034
----------
Total Expenses....................... 1,525,197
--------------------------------------------------------
Net Investment Income................ 6,263,959
--------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold...................... (2,168,809)
Change in net unrealized appreciation/depreciation
of investments........................................... 11,221,519
----------
Net Realized and Unrealized
Gain on Investments.................. 9,052,710
--------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations............ $15,316,669
========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995 YEAR ENDED
FROM OPERATIONS: (UNAUDITED) DECEMBER 31, 1994
---------------- ----------------
<S> <C> <C>
Net investment income...................................................................... $ 6,263,959 $ 11,017,810
Net realized loss on investments sold...................................................... (2,168,809) (7,179,722)
Change in net unrealized appreciation/depreciation of investments.......................... 11,221,519 (7,195,021)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations.......................... 15,316,669 (3,356,933)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.2492 and $0.3774 per share, respectively).................................. (6,060,705) (10,836,379)
Class B** - ($0.2264 and $0.3014 per share, respectively)................................ (203,109) (142,172)
Class C*** - (none and $0.0989 per share, respectively).................................. ..... (39,259)
------------ ------------
Total Distributions to Shareholders.................................................... (6,263,814) (11,017,810)
------------ ------------
FROM FUND SHARE TRANSACTIONS - NET* ......................................................... (20,089,800) (26,061,860)
------------ ------------
NET ASSETS:
Beginning of period........................................................................ 225,956,817 266,393,420
------------ ------------
End of period (including undistributed net income of $145 and none, respectively).......... $214,919,872 $225,956,817
============ ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
----------------------------- ------------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 1,347,138 $ 11,463,021 4,804,418 $ 41,596,490
Shares issued to shareholders in reinvestment of distributions... 608,637 5,193,842 1,079,934 9,221,353
---------- ------------ ---------- ------------
1,955,775 16,656,863 5,884,352 50,817,843
Less shares repurchased.......................................... (4,486,161) (37,966,280) (9,434,381) (80,784,639)
---------- ------------ ---------- ------------
Net decrease..................................................... (2,530,386) $(21,309,417) (3,550,029) $(29,966,796)
========== ============ ========== ============
CLASS B**
Shares sold...................................................... 1,731,893 $ 14,785,995 1,089,459 $ 9,351,811
Shares issued to shareholders in reinvestment of distributions... 18,929 161,632 14,523 122,980
---------- ------------ ---------- ------------
1,750,822 14,947,627 1,103,982 9,474,791
Less shares repurchased.......................................... (1,609,581) (13,728,010) (248,503) (2,134,163)
---------- ------------ ---------- ------------
Net increase..................................................... 141,241 $ 1,219,617 855,479 $ 7,340,628
========== ============ ========== ============
CLASS C***
Less shares repurchased.......................................... (396,825) $ (3,435,692)
---------- ------------
Net decrease..................................................... (396,825) $ (3,435,692)
========== ============
<FN>
** Class B shares commenced operations on January 3, 1994.
*** Class C shares were redeemed on March 23, 1994.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment
returns, key ratios and supplemental data are as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 --------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 8.31 $ 8.80 $ 8.77 $ 8.97 $ 8.61 $ 8.73
-------- -------- -------- -------- -------- --------
Net Investment Income..................................... 0.25 0.38(c) 0.48 0.54 0.67 0.74
Net Realized and Unrealized Gain (Loss) on Investments.... 0.36 (0.49) 0.14 (0.18) 0.36 (0.11)
-------- -------- -------- -------- -------- --------
Total from Investment Operations....................... 0.61 (0.11) 0.62 0.36 1.03 0.63
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income...................... (0.25) (0.38) (0.48) (0.54) (0.67) (0.75)
Distributions from Net Realized Gain on Investments Sold.. .... .... (0.11) (0.02) .... ....
-------- -------- -------- -------- -------- --------
Total Distributions.................................... (0.25) (0.38) (0.59) (0.56) (0.67) (0.75)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period............................ $ 8.67 $ 8.31 $ 8.80 $ 8.77 $ 8.97 $ 8.61
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value................ 7.39%(b) (1.31%) 7.13% 4.19% 12.54% 7.75%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $206,282 $218,846 $262,903 $259,170 $211,322 $176,329
Ratio of Expenses to Average Net Assets................... 1.40%** 1.41% 1.51% 1.55% 1.44% 1.53%
Ratio of Net Investment Income to Average Net Assets...... 5.83%** 4.39% 5.34% 6.13% 7.72% 8.56%
Portfolio Turnover Rate................................... 63% 155% 175% 185% 134% 75%
CLASS B*
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 8.31 $ 8.77(a)
-------- --------
Net Investment Income..................................... 0.23 0.30(c)
Net Realized and Unrealized Gain (Loss) on Investments.... 0.36 (0.46)
-------- --------
Total from Investment Operations....................... 0.59 (0.16)
-------- --------
Less Distributions:
Dividends from Net Investment Income...................... (0.23) (0.30)
-------- --------
Net Asset Value, End of Period............................ $ 8.67 $ 8.31
======== ========
Total Investment Return at Net Asset Value................ 7.10%(b) (1.84%)(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $ 8,638 $ 7,111
Ratio of Expenses to Average Net Assets................... 1.94%** 2.12%**
Ratio of Net Investment Income to Average Net Assets...... 5.33%** 3.70%**
Portfolio Turnover Rate................................... 63% 155%
<FN>
* Class B shares commenced operations on January 3, 1994.
** On an annualized basis.
(a) Initial price to commence operations.
(b) Not annualized.
(c) On average month end shares outstanding.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
<TABLE>
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED
BY THE LIMITED-TERM GOVERNMENT FUND ON JUNE 30, 1995. 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.
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ---- ---- -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. (23.06%)
United States Treasury,
*Note................................................................. 7.875% 01-15-98 $37,150 $ 38,868,188
*Note................................................................. 7.750 01-31-00 10,000 10,684,400
------------
49,552,588
------------
GOVERNMENTAL - U.S. AGENCIES (75.01%)
Federal Home Loan Bank,
*Bond.................................................................. 7.120 03-28-97 15,000 15,041,550
Federal Home Loan Mortgage Corp.,
CMO REMIC 1142-H...................................................... 7.950 12-15-20 10,000 10,428,100
CMO REMIC 1204-G...................................................... 7.000 11-15-05 9,400 9,470,500
GTD Ser 1419-F Var Rate # ............................................ 6.425 11-15-97 19,680 19,526,272
Federal National Mortgage Association,
Arm 3 Yr Cmt.......................................................... 8.000 03-01-22 1,963 2,015,847
CMO REMIC Pass Thru Ctf 1991-159-C.................................... 7.000 10-25-04 24,421 24,512,427
GTD REMIC Pass Thru Ctf G 29-N........................................ 8.500 06-25-07 10,000 10,331,250
Note.................................................................. 7.300 07-10-02 8,000 8,068,720
*Note.................................................................. 8.250 10-12-04 10,000 10,624,800
Government National Mortgage Association,
*CMO REMIC 2004-J...................................................... 8.500 06-20-11 12,300 12,592,125
30 Yr Sf 1 Yr Adj Rate # ............................................. 6.500 10-20-24 29,039 29,452,241
30 Yr Sf 1 Yr Adj Rate # ............................................. 7.000 07-20-22 to 9,002 9,162,253
08-20-22
------------
161,226,085
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $206,904,418) (98.07%) 210,778,673
------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.56%)
Investment in a joint repurchurse agreement transaction
with Lehman Bros., Inc., Dated 06-30-95, Due 07-03-95
(Secured by U.S. Treasury Bill, 5.45% due 12-28-95, and
U.S. Treasury Note, 6.875% due 12-28-95) - Note A................................ 6.180% $1,193 $ 1,193,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%............................................................... 1,308
------------
TOTAL SHORT-TERM INVESTMENTS (0.56%) 1,194,308
------ ------------
TOTAL INVESTMENTS (98.63%) $211,972,981
====== ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio for the six months ended June 30, 1995.
# Represents rate in effect on June 30, 1995.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Limited-Term Government Fund (the "Fund") is a diversified open-end
investment management company, registered under the Investment Company Act of
1940. The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B shares. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, 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 and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under the terms of a distribution plan
have exclusive voting rights regarding such distribution plan. Class C shares
were outstanding during the prior fiscal year from January 1, 1994 through March
23, 1994, but were abolished by the Trustees on May 1, 1995. 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.
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
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $7,304,794 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 December 31, 2002.
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. Dividends paid by the Fund
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class as explained previously.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
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.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
Under the present investment management contract, the Fund pays a monthly
fee to the Adviser, for a continuous investment program equivalent, on an annual
basis, to the sum of (a) 0.60% of the first $250,000,000 of the Fund's average
daily net asset value, (b) 0.55% of the next $250,000,000 and (c) 0.50% of the
Fund's average daily net asset value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most restrictive
state limit where the Fund is registered to sell shares of beneficial interest,
the fee payable to the Adviser will be reduced to the extent of such excess and
the Adviser will make additional arrangements necessary to eliminate any
remaining excess expenses. The current limits are 2.5% of the first $30,000,000
of the Fund's average daily net asset value, 2.0% of the next $70,000,000, and
1.5% of the remaining average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly-owned subsidiary of the Adviser. For the period ended
June 30, 1995, JH Funds received net sales charges of $113,967 with regard to
sales of Class A shares. Out of this amount, $12,518 was retained and used for
printing prospectuses, advertising, sales literature, and other purposes,
$20,696 was paid as sales commissions to unrelated broker-dealers, and $80,753
was paid as sales commissions to sales personnel of John Hancock Distributors,
Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and
Sutro & Co., Inc. ("Sutro"). The Adviser's indirect parent, John Hancock Mutual
Life Insurance Company, is the indirect sole shareholder of Distributors and
John Hancock Freedom Securities Corporation and its subsidiaries which include
Tucker Anthony and Sutro, all of which are broker-dealers.
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 June 30, 1995
contingent deferred sales charges received by JH Funds amounted to $11,171.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses at an annual rate not to exceed 0.30% 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 these 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 Investor
Services Corp. ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr and Richard S. Scipione are directors
and/or officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. Effective with the fees paid for 1995, the unaffiliated Trustees may
elect to defer for tax purposes their receipt of this compensation under the
John Hancock Group of Funds Deferred Compensation Plan. The Fund will make
investments into other John Hancock funds, as applicable, to cover its
liability with regard to the deferred compensation.
Investments to cover the Fund's deferred compensation liability will be
recorded on the Fund's books as an other asset. The deferred compensation
liability will be marked to market on a periodic basis and income earned by the
investment will be recorded on the Fund's books.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of obligations of the U.S.
government and its agencies, other than short-term securities, during the
period ended June 30, 1995, aggregated $157,427,759 and $165,311,674,
respectively.
The cost of investments owned at June 30, 1995 (excluding the corporate
savings account) for Federal income tax purposes was $208,097,418. Gross
unrealized appreciation and depreciation of investments aggregated $4,139,933
and $265,678, respectively, resulting in net unrealized appreciation of
$3,874,255.
15
<PAGE> 16
Bulk Rate
[LOGO] JOHN HANCOCK FUNDS U.S. Postage
A GLOBAL INVESTMENT MANAGEMENT FIRM PAID
101 Huntington Avenue Boston, MA 02199-7603 Brockton, MA
Permit No. 582
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm."
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Limited-Term 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.
A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."
JHD 220SA 6/95
