<PAGE> 1
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JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
LIMITED-
TERM
GOVERNMENT
FUND
ANNUAL REPORT
December 31, 1994
<PAGE> 2
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
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
INDEPENDENT AUDITORS
Ernst &Young llp
200 Clarendon Street
Boston, Massachusetts 02116
CHAIRMAN'S MESSAGE
A 1 1/4" x 1" photo of Edward J. Boudreau Jr.,
Chairman and Chief Executive Officer, flush right,
next to second paragraph.
DEAR FELLOW SHAREHOLDERS:
With 1995 upon us, New Year's resolutions abound. Dieting and saving money --
Americans' long-time favorites -- are sure to top the list once again. And
once again, they'll probably be the most difficult to keep. This year,
however, Congress may give savers an additional incentive to stick to their
guns.
Both the Republicans and Democrats want to revive Individual
Retirement Accounts (IRAs). In an effort to encourage savings, IRAs were made
available to all working Americans in 1981. Anyone with earned income could
contribute up to $2,000 annually. The contributions were fully
tax-deductible, and the earnings weren't taxed until withdrawal. IRAs became
the most successful savings program in the U.S., drawing in more than $250
billion and 13 million new participants by 1985.
Sweeping tax reforms in 1986, however, changed all that. As it stands
now, the full deduction only applies to individuals who earn less than
$25,000, married couples who earn less than $40,000 and people without
employer-sponsored retirement plans. The result of this congressional
tinkering: the number of IRA contributors declined dramatically, from 16.2
million in 1985 to 4.2 million in 1992.
Legislators are now taking a closer look at expanding the
accessibility of IRAs once again. Several proposals are on the table: (1) the
Republicans' "Contract with America" includes the American Dream Savings
Account, a type of IRA; (2) President Clinton has proposed expanding
eligibility by raising income limits; and (3) several congressional
representatives have introduced legislation to restore the universal
availability of a fully tax-deductible IRA.
We enthusiastically support restoring IRAs to their original luster.
Not only will they provide a tax break to middle-income Americans, but
they'll go a long way toward raising the nation's dangerously low personal
savings rate -- the lowest of any major industrialized country. There's an
increasing awareness that Social Security and pension plans will no longer
provide for the retirement needs of middle-income Americans. Increasing
IRA accessibility for more working individuals and families is one of
the most sensible ways to help Americans take responsibility for their
future financial needs. We urge you to support the expanded IRA by
contacting your congressional representative or senator.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY ANNE MCDONLEY, VICE PRESIDENT AND PORTFOLIO MANAGER
JOHN HANCOCK
LIMITED-TERM
GOVERNMENT FUND
Fund weathers storm as bond market
----------------------------------
continues to head south
-----------------------
"1994 WAS ONE OF THE BOND MARKET'S WORST YEARS EVER."
1994 was one of the bond market's worst years ever. To help slow economic
growth, the Federal Reserve raised short-term interest rates six times. As
the federal funds rate -- the rate banks charge each other for overnight loans
- -- went from 3.0% last February to 5.5% in November, bond prices plummeted.
Investors, especially those who borrowed money to bet on falling rates, faced
huge losses and began selling. That accelerated the market's downward spiral.
During the year, prices on 30-year Treasury bonds dropped 20.5% from their
high in January to their low in November, while yields rose as high as 8.25%.
There was no place to hide; all bonds were hit, including those in John
Hancock Limited-Term Government Fund. However, we were able to keep the net
asset value fairly stable by owning lower yielding, less volatile securities.
For the year ended December 31, 1994, the Fund's Class A and B shares returned
- -1.31% and -1.84%, respectively, at net asset value. Those returns beat the
average intermediate-term government bond fund's return of -3.72%, according to
Lipper Analytical Services1.
STAYING THE COURSE
To weather the market's volatility, we used a defensive strategy. After the
Fed first hiked rates last February, we immediately shortened the Fund's
duration -- a
A 2 3/8" x 2 3/8" photo of Anne McDonley at
bottom center. Caption reads: "Anne McDonley, Portfolio
Manager
ANNE MCDONLEY, PORTFOLIO MANAGER
3
<PAGE> 4
John Hancock Funds - Limited-Term Government Fund
- --------------------------------------------------------------------------------
Pie Chart with heading "PORTFOLIO DIVERSIFICATION"
at top of left hand column. The chart lists four
holdings: 1) Motorola 3.1% 2) McDonald's 2.9% 3)
Adaptec 2.6% 4) Polygram N.V. 2.3% 5) HBO & Co. 2.3%.
A footnote below reads: "As a percentage of net
assets on December 31, 1994."
- --------------------------------------------------------------------------------
"TO WEATHER THE MARKET'S VOLATILITY, WE USED A DEFENSIVE STRATEGY."
measure of share price volatility -- from 3.0 to 0.8. With a shorter
duration, the Fund was less susceptible to rising rates. We kept the duration
short as the Fed continued to raise rates four more times. Then, in September,
we decided to lengthen it slightly to 2.0 as the market began to anticipate
the Fed's moves and factor these expectations into bond prices. This meant we
could pick up some yield without taking on much added price risk.
To lengthen duration, we bought two-year Treasuries, which performed
fairly well. Their yields of almost 7.7% helped offset a small drop in price
and offered a slight advantage over U.S. government agencies. By the end of
1994, we had a 35% stake in Treasuries.
Within the mortgage sector, we continued to own both collateralized
mortgage obligations (CMOs) and GNMA one-year adjustable-rate mortgages
(ARMs). CMOs separate cash flows of mortgage pools into different classes
with various maturities and risk levels. We focused on the most conservative
CMOs, which have no more interest-rate risk than Treasuries and offer
slightly higher yields. We added a floating rate CMO -- an issue whose yield
rises with interest rates but has minimal prepayment risk (or the risk of
being paid off before its due date). This purchase brought our stake in CMOs
up to 32% by year-end. To buy the CMO, we sold some of our ARMs, leaving us
with 22% at year-end.
UNDERSTANDING DERIVATIVES
Derivatives have taken a pummeling in the press lately. These financial
instruments are based on -- or derived from -- other financial products, such
as stocks, bonds, currencies or interest rates. They range from exotic and
high risk to conservative and low risk. While it's true that some derivatives
have caused substantial losses, others have helped offset risk and added to
return.
A good example is mortgages -- something most Americans use to buy
homes. At one time, 30-year fixed-rate mortgages were the only type of home
financing available. Today, home buyers can choose from a wide array of
mortgages, including adjustable-rate and balloon-payment mortgages. All of
these new mortgages are derivatives, since they are derived from the original
30-year fixed-rate loan to create different characteristics such as shorter
maturities, floating interest rates or lower down payments. Most of us would
agree that adjustable-rate mortgages aren't bad; they just have different risk
characteristics than fixed-rate mortgages.
Technically, both ARMs and CMOs are derivatives. At John Hancock Limited-
Term
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 year ended December 31, 1994." The chart
is scaled in increments of 2% from bottom to top, with 0% at the top and -4%
at the bottom. Within the chart, there are three solid bars. The first
represents the -1.31% total return for John Hancock Limited-Term Government
Fund: Class A. The second represents the -1.84% total return for John Hancock
Limited-Term Government Fund: Class B. The third represents the -3.72% total
return of the average intermediate term government bond fund. The footnote
below states: "Total returns for John Hancock Limited-Term Government Fund are
at net asset value with all distributions reinvested. The average intermediate
term government bond fund is tracked by Lipper Analytical Services 1.
See following page for historical performance information."
- --------------------------------------------------------------------------------
Government Fund, however, we buy only the most conservative, low-risk types as
alternatives to traditional securities or hedges against risk. We don't buy
risky or speculative derivatives -- like inverse floaters, interest-only
securities or principal-only securities -- to enhance returns. What's more, we
use independent sources to help us quantify the volatility and risk associated
with the securities we do own. These sources confirm that our investments are
low risk and appropriate for the Fund.
MORE STORM WARNINGS AHEAD
Although the Fed raised rates repeatedly in 1994, we're not sure they're
through. The economy has not slowed down as quickly as expected. And although
recent economic statistics have shown no signs of inflation heating up, they
also offered no guarantee that it wouldn't six months down the road. Fear of
inflation is always bad news for the bond market.
On the positive side, the Fed has shown that it's committed to
fighting inflation. Have they tightened so much that we may be headed into a
recession in 1996? It's unlikely. Have they tightened enough to slow the
economy to a sustainable level that's non-inflationary? That's the current
debate at the Fed. Because of the economy's slow response, the Fed may decide
to raise rates again. That said, there could be continued turbulence ahead. By
mid-1995, however, we expect economic growth to stabilize and the bond market
to improve. Once that happens, we'll extend the Fund's duration to pick up
extra yield without taking on additional price risk.
"...WE EXPECT ECONOMIC GROWTH TO STABILIZE AND THE BOND MARKET TO IMPROVE."
- --------------------------------------------------------------------------------
1 Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance would
be lower.
5
<PAGE> 6
NOTES TO PERFORMANCE INFORMATION
John Hancock Funds - Limited-Term Government Fund
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data are supplied for the period ended December 31,
1994 with all distributions reinvested in shares. The average annualized
total returns for Class A shares for the 1-year, 5-year and 10-year periods
were (4.24%), 5.53%, and 7.65%, respectively, and reflect payment of the
maximum sales charge of 3.00%. Total return (not annualized) since inception
on January 3, 1994 for Class B shares was (4.78%) and reflects the applicable
contingent deferred sales charge (maximum contingent deferred sales charge
is 3% and declines to 0% over 4 years). SEC yields for the 30-day period
ending December 30, 1994 for Class A and Class B shares were 5.69% and 5.15%,
respectively. All performance data shown represents past performance and
should not be considered indicative of future performance. Returns and
principal values of Fund investments will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Different sales charges for Class A shares were in effect prior to May 1,
1993 and are not reflected in the above performance information. Performance
is affected by a 12b-1 plan, which commenced January 1, 1990 for Class A
shares and January 3, 1994 for Class B shares.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT OVER LIFE OF THE FUND
(OR MOST RECENT TEN YEARS)
LIMITED-TERM GOVERNMENT FUND: CLASS A
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 Intermediate-Term Government Bond Index and
is equal to $23,545* as of December 31, 1994. The second line represents the
value of the hypothetical $10,000 investment made in the Limited-Term
Government Fund on December 31, 1984, before sales charge, and is equal to
$21,555 as of December 31, 1994. The third line represents the Limited-Term
Government Fund after sales charge and is equal to $20,900 as of
December 31, 1994.
LIMITED-TERM GOVERNMENT FUND: CLASS B
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
(or most recent 10 years). Within the chart are three lines. The first line
represents the value of the Lehman Intermediate-Term Government Bond Index and
is equal to $9,825 as of December 31, 1994. The second 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 $9,816 as of December 31, 1994. The third line represents the
Limited-Term Government Fund after contingent deferred sales charge and is
equal to $9,522 as of December 31, 1994.
* The Lehman intermediate-Term Government Bond Index is an unmanaged index made
up of The Treasury Bond Index and the Agency Bond Index, which cover
intermediate issues.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- ---- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --
<S> <C>
ASSETS:
Investments at value - Note C:
United States government and agencies
obligations (cost - $216,970,521) ................. $209,623,257
Short-term notes (cost - $12,139,653)................ 12,139,653
Joint repurchase agreement (cost - $1,598,000)....... 1,598,000
Corporate savings account............................ 643
------------
223,361,553
Receivable for shares sold............................. 7,944
Interest receivable.................................... 2,921,352
------------
Total Assets................... 226,290,849
-----------------------------------------------------------------------
LIABILITIES:
Dividend payable....................................... 31,809
Payable for shares repurchased......................... 49,396
Payable to John Hancock Advisers, Inc.
and affiliates - Note B................................ 191,774
Accounts payable and accrued expenses.................. 61,053
------------
Total Liabilities.............. 334,032
-----------------------------------------------------------------------
NET ASSETS:
Capital paid-in........................................ 240,608,875
Accumulated net realized loss on investments........... (7,304,794)
Net unrealized depreciation of investments............. (7,347,264)
------------
Net Assets..................... $225,956,817
=======================================================================
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 - $218,845,980 \ 26,329,554 ................... $ 8.31
===============================================================================================
Class B - $7,110,837 \ 855,479......................... $ 8.31
===============================================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($8.31 x 103.09%)............................ $ 8.57
===============================================================================================
<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.
** Class B shares commenced operations on January 3, 1994.
*** All Class C shares were redeemed on March 23, 1994.
</TABLE>
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 DECEMBER 31, 1994. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED
AND EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES)
FOR THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
INVESTMENT INCOME:
Interest............................................... $ 14,588,171
------------
Expenses:
Investment management fee - Note B................... 1,506,527
Transfer agent fee - Note B
Class A.......................................... 986,491
Class B**........................................ 16,148
Class C***....................................... 3,126
Distribution/service fee - Note B
Class A.......................................... 739,868
Class B**........................................ 38,447
Registration and filing fees......................... 104,310
Custodian fee........................................ 60,731
Printing............................................. 30,304
Auditing fee......................................... 29,198
Trustees' fees....................................... 23,276
Miscellaneous........................................ 17,012
Legal fees........................................... 14,923
-----------
Total Expenses................. 3,570,361
-----------------------------------------------------------------------
Net Investment Income.......... 11,017,810
-----------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments sold ................. (7,179,722)
Change in net unrealized appreciation/depreciation
of investments......................................... (7,195,021)
-----------
Net Realized and Unrealized
Loss on Investments............ (14,374,743)
-----------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations...... $ (3,356,933)
========================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS: YEAR ENDED DECEMBER 31,
--------------------------------
FROM OPERATIONS: 1994 1993
------------ ------------
<S> <C> <C> <C>
Net investment income......................................................... $ 11,017,810 $ 14,029,607
Net realized gain (loss) on investments sold.................................. (7,179,722) 4,191,594
Change in net unrealized appreciation/depreciation of investments............. (7,195,021) (424,514)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations............. (3,356,933) 17,796,687
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.3774 and $0.4823 per share, respectively)..................... (10,836,379) (14,043,268)
Class B** - ($0.3014 and none per share, respectively)...................... (142,172) ---
Class C*** - ($0.0989 and none per share, respectively)..................... (39,259) ---
Distributions from net realized gain on investments sold
Class A - (none and $0.1013 per share, respectively)........................ --- (2,985,130)
Temporary overdistribution of accumulated net realized gain on investments
Class A - (none and $0.0041 per share, respectively)........................ --- (125,072)
------------ ------------
Total Distributions to Shareholders..................................... (11,017,810) (17,153,470)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*................................................. (26,061,860) 6,580,685
------------ ------------
NET ASSETS:
Beginning of period........................................................... 266,393,420 259,169,518
------------ ------------
End of period................................................................. $225,956,817 $266,393,420
============ ============
</TABLE>
<TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
CLASS A
<S> <C> <C> <C> <C>
Shares sold...................................................... 4,804,418 $41,596,490 7,262,945 $ 65,326,058
Shares issued to shareholders in reinvestment of distributions... 1,079,934 9,221,353 1,660,503 14,860,282
--------- ----------- --------- ------------
5,884,352 50,817,843 8,923,448 80,186,340
Less shares repurchased.......................................... (9,434,381) (80,784,639) (8,580,600) (77,105,655)
--------- ----------- --------- ------------
Net increase (decrease).......................................... (3,550,029) $(29,966,796) 342,848 $ 3,080,685
========= =========== ========= ============
CLASS B **
Shares sold...................................................... 1,089,459 $ 9,351,811
Shares issued to shareholders in reinvestment of distributions... 14,523 122,980
--------- -----------
1,103,982 9,474,791
Less shares repurchased.......................................... (248,503) (2,134,163)
--------- -----------
Net increase..................................................... 855,479 $ 7,340,628
========= ===========
CLASS C ***
Shares sold...................................................... --- --- 396,825 $ 3,500,000
Less shares repurchased.......................................... (396,825) $(3,435,692) --- ---
--------- ----------- --------- ------------
Net increase (decrease).......................................... (396,825) $(3,435,692) 396,825 $ 3,500,000
========= =========== ========= ============
<FN>
** Class B shares commenced operations on January 3, 1994.
*** Class C shares commenced operations on December 27, 1993. All shares were redeemed on March 23, 1994.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods indicated, investment returns, key ratios and supplemental data are as
follows:
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
CLASS A
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 8.80 $ 8.77 $ 8.97 $ 8.61 $ 8.73
-------- -------- -------- -------- --------
Net Investment Income..................................... 0.38(c) 0.48 0.54 0.67 0.74
Net Realized and Unrealized Gain (Loss) on Investments.... (0.49) 0.14 (0.18) 0.36 (0.11)
-------- -------- -------- -------- --------
Total from Investment Operations..................... (0.11) 0.62 0.36 1.03 0.63
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income...................... (0.38) (0.48) (0.54) (0.67) (0.75)
Distributions from Net Realized Gain on Investments Sold.. --- (0.11) (0.02) --- ---
-------- -------- -------- -------- --------
Total Distributions.................................. (0.38) (0.59) (0.56) (0.67) (0.75)
-------- -------- -------- -------- --------
Net Asset Value, End of Period............................ $ 8.31 $ 8.80 $ 8.77 $ 8.97 $ 8.61
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value................ (1.31)% 7.13% 4.19% 12.54% 7.75%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $218,846 $262,903 $259,170 $211,322 $176,329
Ratio of Expenses to Average Net Assets................... 1.41% 1.51% 1.55% 1.44% 1.53%
Ratio of Net Investment Income to Average Net Assets...... 4.39% 5.34% 6.13% 7.72% 8.56%
Portfolio Turnover Rate................................... 155% 175% 185% 134% 75%
CLASS B*
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 8.77(a)
--------
Net Investment Income..................................... 0.30(c)
Net Realized and Unrealized Loss on Investments........... (0.46)
--------
Total from Investment Operations..................... (0.16)
--------
Less Distributions:
Dividends from Net Investment Income...................... (0.30)
--------
Net Asset Value, End of Period............................ $ 8.31
========
Total Investment Return at Net Asset Value............. (1.84)%(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................ $ 7,111
Ratio of Expenses to Average Net Assets.................. 2.12%***
Ratio of Net Investment Income to Average Net Assets..... 3.70%***
Portfolio Turnover Rate.................................. 155%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
Financial Statements
John Hancock Funds - Limited-Term Government Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PERIOD ENDED PERIOD ENDED
MARCH 23, DECEMBER 31,
1994 1993
------------ -------------
<S> <C> <C>
CLASS C**
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................. $ 8.80 $ 8.82(a)
------- -------
Net Investment Income................................. 0.09(c) 0.01
Net Realized and Unrealized Loss on Investments....... ( 0.13) ( 0.03)
------- -------
Total from Investment Operations.................... ( 0.04) ( 0.02)
------- -------
Less Distributions:
Dividends from Net Investment Income.................. ( 0.10) ----
-------- -------
Net Asset Value, End of Period........................ $ 8.66 $ 8.80
======= =======
Total Investment Return at Net Asset Value............ ( 0.47%) ( 0.23%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)............. $ 3,436 $ 3,491
Ratio of Expenses to Average Net Assets............... 1.10%*** 1.08%***
Ratio of Net Investment Income to Average Net Assets.. 4.69%*** 5.42%***
Portfolio Turnover Rate............................... N/A N/A
<FN>
* Class B shares commenced investment operations on January 3, 1994.
** Class C shares commenced investment operations on December 27, 1993.
Net asset value and net assets at the end of the period reflect amounts prior
to the redemption of all shares on March 23, 1994.
*** On an annualized basis.
(a) Initial price to commence operations.
(b) Not annualized.
(c) On average month end shares outstanding.
N/A Not applicable.
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, 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.
10
<PAGE> 11
Financial Statements
John Hancock Funds - Limited-Term Government Fund
SCHEDULE OF INVESTMENTS
December 31, 1994
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
LIMITED-TERM GOVERNMENT FUND ON DECEMBER 31, 1994. 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Par Value
Interest Maturity (000's Market
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. (35.19%)
United States Treasury, Note..................................... 6.500% 08-15-97 $ 82,000* $ 79,514,580
------------
GOVERNMENTAL - U.S. AGENCIES (57.58%)
Federal Home Loan Mortgage Corp,
CMO REMIC 1142-H............................................... 7.950 12-15-20 10,000 9,489,062
CMO REMIC 1204-G............................................... 7.000 11-15-05 9,400* 8,974,062
GTD Ser 1419-F Var Rate #...................................... 5.675 11-15-97 19,764* 19,455,424
Federal National Mortgage Association,
ARM 3 Yr CMT#.................................................. 7.000 03-01-22 2,245 2,163,597
CMO REMIC Pass Thru Ctf 1991-159-C............................. 7.000 10-25-04 25,864* 24,691,623
GTD REMIC Pass Thru Ctf G 29-N................................. 8.500 06-25-07 10,000 9,856,250
NOTE........................................................... 7.300 07-10-02 8,000 7,574,960
Government National Mortgage Association,
30 Yr SF 1 Yr Adj Rate #....................................... 5.750 01-20-18 4,839 4,668,477
30 Yr SF 1 Yr Adj Rate #....................................... 6.000 11-20-22 5,801 5,650,505
30 Yr SF 1 Yr Adj Rate #....................................... 6.500 10-20-24 29,335 28,298,749
30 Yr SF 1 Yr Adj Rate #....................................... 7.000 07-20-22 to 9,485 9,285,968
08-20-22
------------
130,108,677
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $216,970,521) (92.77%) 209,623,257
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
Financial Statements
John Hancock Funds - Limited-Term Government Fund
<TABLE>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ---- ---- -------- -----
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.71%)
Investment in a joint repurchase transaction
agreement with Lehman Bros., Inc.,
Dated 12-30-94, Due 01-03-95 (secured by
U.S. Treasury Bonds, 9.25% due 02-15-16
and 8.125% due 08-15-21 and U.S. Treasury
Notes, 5.500% due 02-15-95 and 4.625%
due 08-15-95) Note A............................................. 5.850% 01-03-95 $1,598 $ 1,598,000
------------
SHORT-TERM NOTES (5.37%)
Federal Home Loan Bank........................................... 5.7500 01-03-95 1,000 999,521
Federal Home Loan Bank........................................... 5.7800 01-05-95 10,000 9,991,972
Federal Home Loan Mortgage Corp.................................. 5.7600 01-10-95 1,150 1,148,160
------------
12,139,653
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%............................................. 643
------------
TOTAL SHORT-TERM INVESTMENTS ( 6.08%) 13,738,296
------ ------------
TOTAL INVESTMENTS (98.85%) $223,361,553
====== ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio during the year ended December 31, 1994.
# Represents rate in effect on December 31, 1994.
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
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 multiple
classes of the Fund, designated as Class A, Class B and Class C. 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 in the current fiscal year during the period from January 1, 1994
through March 23, 1994. 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. Transfer
agent expenses and 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.
13
<PAGE> 14
Notes to Financial Statements
John Hancock Funds - Limited-Term Government Fund
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.
Note B --
MANAGEMENT FEE 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. Prior to January 1,
1995, JH Funds was known as John Hancock Broker Distribution Services, Inc.
For the period ended December 31, 1994, JH Funds received net sales charges of
$488,982 with regard to sales of Class A shares. Out of this amount, $58,370
was retained and used for printing prospectuses, advertising, sales
literature, and other purposes, and $68,178 was paid as sales commissions and
first year service fees to unrelated broker-dealers and $362,434 was paid as
sales commissions and first year service fees 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
December 31, 1994 contingent deferred sales charges received by JH Funds
amounted to $10,809.
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 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 Investor
Services Corp. ("Investor Services"), a wholly-owned subsidiary of The
Berkeley Financial Group. Prior to January 1, 1995, Investor Services was
known as John Hancock Fund Services, Inc. For the period ended December 31,
1994, the Fund paid Investor Services a monthly transfer agent fee
equivalent, on an annual basis, to 0.40% and 0.42% of the average daily net
asset value of Class A and Class B shares of the Fund, respectively, plus out
of pocket expenses incurred by Investor Services on behalf of the Fund for
proxy mailings. The transfer agent fee, on an annual basis, attributable to
14
<PAGE> 15
Notes to Financial Statements
John Hancock Funds - Limited-Term Government Fund
Class C shares when they were outstanding was 0.40% of their average
daily net asset value. Effective January 1, 1995, the Fund will pay transfer
agent fees based on transaction volume and the number of shareholder accounts.
Messrs. Edward J. Boudreau, Jr., Francis C. Cleary, Jr. (until
December 14, 1994), and Richard S. Scipione are directors and/or officers of
the Adviser and/or its affiliates, as well as Trustees of the Fund. The
compensation of unaffiliated Trustees is borne by the Fund.
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
year ended December 31, 1994, aggregated $283,367,219 and $311,133,825,
respectively.
The cost of investments owned at December 31, 1994 (including the
joint repurchase agreement) for federal tax purposes was $230,708,174. Gross
unrealized appreciation and depreciation of investments aggregated none and
$7,347,264 respectively, resulting in net unrealized depreciation of $7,347,264.
15
<PAGE> 16
John Hancock Funds - Limited-Term Government Fund
REPORT OF ERNST &YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Limited-Term Government Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Limited-Term Government Fund (the "Fund"), including the schedule of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
two years in the period then ended, and the financial highlights for each of
the five years in the period then ended. 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
December 31, 1994, by correspondence with the custodian. 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 John Hancock Limited-Term Government Fund at December 31, 1994,
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 financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 13, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the taxable distributions of the Fund for its fiscal year ended
December 31, 1994.
With respect to the Fund's ordinary taxable income for the fiscal year
ended December 31, 1994, none of the 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 35.13% at year end December 31, 1994.
The percentage of income derived from U.S. Treasury bonds, bills, and notes was
28.77%. 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) at year end was
22.12%. The percentage of income derived from obligations of other U.S.
government agencies (excluding securities issued by Federal National Mortgage
Association and Government National Mortgage Association) was 12.24%. For
specific information on exemption provisions in your state, consult your local
state tax office or your tax adviser.
16
<PAGE> 17
Notes
John Hancock Funds - Limited-Term Government Fund
17
<PAGE> 18
Notes
John Hancock Funds - Limited-Term Government Fund
18
<PAGE> 19
Notes
John Hancock Funds - Limited-Term Government Fund
19
<PAGE> 20
Back Cover
A 1/2" by 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."
101 Huntington Avenue Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
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 the caption
"Printed on Recycled Paper." JH 2200A 12/94
