<PAGE> 1
JOHN HANCOCK FUNDS
- -------------------------------------------------------------------------------
LIMITED-
TERM
GOVERNMENT
FUND
ANNUAL REPORT
DECEMBER 31, 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
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
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of
the same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock
Funds, we never stop working to find ways to sustain and improve the quality of
information and the level of assistance we provide you. Our commitment to this
task is no less than John Hancock's loyalty was to his fledgling country when
he is said to have uttered, "if it does the public good, burn Boston." We won't
go that far, of course, but we share our namesake's dedication to putting the
public before all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do
not hesitate to call your Customer Service Representative at 1-800-225-5291 if
you have any questions or need information. We take pride in helping you with
the same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY BARRY EVANS, PORTFOLIO MANAGER
JOHN HANCOCK
LIMITED-TERM
GOVERNMENT FUND
FALLING INTEREST RATES AND SUBDUED INFLATION FUEL
THE BOND MARKET'S SPECTACULAR 1995 RALLY
[A 2 1/2" x 2" photo of Barry Evans centered at bottom of page. Caption reads:
"Barry Evans, Portfolio Manager."]
The year 1995 was one of the best on record for bond investors. It more than
made up for a dismal 1994, when bond funds lost an average of 3.28%. In fact,
it was the strongest year since 1991, when the Federal Reserve started slashing
interest rates to battle a recession.
Falling interest rates, moderate economic growth, tame inflation and
progress toward a balanced federal budget fueled the bond market's rally. As
long-term yields plunged from 7.84% to 5.94% throughout the year, the benchmark
30-year Treasury bond returned a stunning 32.20%.
All sectors of the bond market benefited from the rally, but some more than
others. U. S. Treasuries, for example, were 1995's big winners. Because they're
most sensitive to interest-rate changes, Treasuries tend to lead the pack in
strong up markets. And that's exactly what happened last year. Mortgage-backed
securities, on the other hand, didn't fare nearly as well as the rest of the
bond market. The main reason is that prepayment worries -- the risk that
homeowners will refinance their mortgages at lower rates -- kept mortgages from
gaining as much as other sectors of the bond market.
A LOOK AT PERFORMANCE
As long-time shareholders know, our goal is to provide an attractive yield
while
[CAPTION]
"THE YEAR 1995 WAS ONE OF THE BEST ON RECORD FOR BOND INVESTORS."
3
<PAGE> 4
John Hancock Funds - Limited-Term Government Fund
[Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into five sections. Going from left to right: U.S.
Treasuries 30%; Adjustable-Rate Mortgage Backed Securities 18%; Collateralized
Mortgage Obligations 20%; Short-Term Investments and Other 3%; and U.S. Gov't
Agencies 29%. A footnote below states "As a percentage of net assets on
December 31, 1995."]
minimizing price volatility. As a result, our investment strategy is more
conservative than that of most other short-term government bond funds. So in
down markets, this Fund tends to fall less than its peers. In fact, it usually
ends up near the top of the group as we saw in 1994. But in strong up markets,
the Fund tends to perform somewhere around the average, which is what happened
last year.
For the twelve months ended December 31, 1995, John Hancock Limited-Term
Government Fund's Class A and Class B shares had total returns of 11.23% and
10.60%, respectively, at net asset value. By comparison, the average short-term
government bond fund returned 11.25% for the same period, according to Lipper
Analytical Services.(1)
PORTFOLIO ADJUSTMENTS
We haven't made any major changes to our overall investment strategy since the
semi-annual report, only some minor adjustments along the way. We've kept our
duration at a neutral position of about two years. Duration is a measure of how
sensitive the Fund's share price is to interest-rate changes. The longer the
duration, the more sensitive the share price.
Clearly, having a longer duration last year would have boosted our
performance as rates came down. But given our strong emphasis on price
stability, extending our duration much beyond two years meant taking on too
much risk. The market was expecting the Federal Reserve to lower short-term
interest rates. A rate cut of at least one-half of a percentage point was
already priced into the bond market, especially the short end. So it didn't
make much sense for us to lengthen any further.
To keep our duration at two years, however, we did have to make some changes
in the portfolio holdings. With interest rates falling sharply in the later
stages of the year, the duration of our mortgage-backed securities got shorter
and shorter. That's because as lower rates prompt homeowners to refinance,
mortgage bonds can be called (or redeemed early) from investors. The result is
shorter duration mortgage bonds.
To make up for the lost duration on our mortgages, we bought more longer
maturity bonds. Not only did we extend from three-year to five-year maturities,
but we also established a small position in nine-year Treasuries. By year-end,
our Treasury stake stood at 30%, up from 23% six months ago.
NEAR-TERM VOLATILITY, SOLID LONG-TERM PROSPECTS
It's impossible to know what's ahead for bonds in 1996. But one thing is for
sure, they're not likely to repeat their spectacular gains this year. For bonds
to go up only half as much as they did in 1995, yields on the 30-year Treasury
bond
[CAPTION]
"WE HAVEN'T MADE ANY MAJOR CHANGES TO OUR OVERALL INVESTMENT STRATEGY..."
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, 1995." The chart
is scaled in increments of 5% from bottom to top, with 15% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 11.23% total return for John Hancock Limited-Term Government Fund: Class A.
The second represents the 10.60% return for John Hancock Limited-Term
Government Fund: Class B. The third represents the 11.25% return for the
average short-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 short-term government fund is
tracked by Lipper Analytical Services. See following page for historical
performance information."]
would have to drop below 5%. And that hasn't happened in more than three
decades.
Volatility may be the watchword for bonds in the near term. Right now, the
wrangling over the federal budget is putting downward pressure on bond prices.
Once the Republicans and the Clinton administration strike a budget deal,
however, prices are likely to bounce back. The next stumbling block will be the
U.S. Treasury auction in February, which is likely to send prices back down. In
our view, it will only be a temporary drop and, therefore, a good buying
opportunity. Finally, an inflation scare could also rattle the market, but a
scare is all it will be. Once again, we'd look for opportunities to buy on
weakness.
Despite the potential ups and downs, we're relatively optimistic about the
prospects for 1996. A sluggish economy, subdued inflation and relatively stable
interest rates should create an attractive backdrop for bonds. Unlike last
year, however, we're likely to see the bulk of returns coming from income,
rather than from price gains. And mortgage-backed securities are likely to be
one of this year's top performers, after trailing in 1995. Their yields are
almost one percentage point higher than those on Treasuries and that should
boost their performance. Furthermore, mortgage refinancings should taper off in
a more stable interest-rate environment. We're confident that John Hancock
Limited-Term Government Fund is well positioned for this type of market. Our
more conservative posture should help the Fund weather any near-term
volatility. What's more, our 47% stake in mortgage-backed securities should
serve as a cushion.
- --------------------------------------------------------------------------------
(1)Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is lower.
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
[CAPTION]
"DESPITE THE POTENTIAL UPS AND DOWNS, WE'RE RELATIVELY OPTIMISTIC..."
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average
annual total returns for the John Hancock Limited-Term Government Fund. Total
return is a performance measure that equals the sum of all dividends and
capital gains, assuming reinvestment of these distributions and the change in
the price of the Fund's average net assets. 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.
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. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
<S> <C> <C> <C>
Limited-Term Government Fund: Class A 7.89% 33.72% 93.70%
Limited-Term Government Fund: Class B 7.63% 6.58%(1) N/A
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
<S> <C> <C> <C>
Limited-Term Government Fund: Class A 7.89% 6.00% 6.83%
Limited-Term Government Fund: Class B 7.63% 3.26%(1) N/A
</TABLE>
YIELDS
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEC 30-DAY
YIELD
-----
<S> <C>
Limited-Term Government Fund: Class A 4.91%
Limited-Term Government Fund: Class B 4.37%
</TABLE>
NOTES TO PERFORMANCE
(1) Class B shares started on January 3, 1994.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Limited-Term Government Fund would be worth on December 31, 1995, assuming you
have been invested for the past ten years or since the day each class of shares
started and 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 subindex 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.
Within the chart are four lines.
The first line represents the value of the Lehman Brothers Intermediate-Term
Government Fund Index and is equal to $22,828 as of December 31, 1995. The
second line represents the value of the Lehman Brothers Short-Term Government
Fund Index and is equal to $20,992 as of December 31, 1995. The third line
represents the value of the hypothetical $10,000 investment made in the
Limited-Term Government Fund on December 31, 1985, before sales charge, and is
equal to $19,977 as of December 31, 1995. The fourth line represents the
Limited-Term Government Fund after sales charge and is equal to $19,370 as of
December 31, 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 four lines.
The first line represents the value of the Lehman Brothers Short-Term
Government Fund Index and is equal to $11,241 as of December 31, 1995. The
second line represents the value of the Lehman Brothers Intermediate-Term
Government Fund Index and is equal to $11,141 as of December 31, 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 $10,858 as of December 31, 1995. The fourth line
represents the Limited-Term Government Fund after contingent deferred sales
charge and is equal to $10,658 as of December 31, 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 DECEMBER 31, 1995. 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 FOR THE
PERIOD STATED.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<S> <C>
ASSETS:
Investments at value - Note C:
United States government and agencies
obligations (cost - $199,402,453) .................. $202,529,974
Joint repurchase agreement (cost - $4,465,000) 4,465,000
Corporate savings account............................. 12,074
------------
207,007,048
Receivable for shares sold............................. 50,786
Interest receivable.................................... 2,692,940
Other assets........................................... 5,006
------------
Total Assets......................... 209,755,780
---------------------------------------------------
LIABILITIES:
Dividend payable....................................... 32,235
Payable for shares repurchased......................... 1,864
Payable to John Hancock Advisers, Inc.
and affiliates - Note B............................... 171,965
Accounts payable and accrued expenses.................. 103,341
------------
Total Liabilities.................... 309,405
---------------------------------------------------
NET ASSETS:
Capital paid-in....................................... 213,604,894
Accumulated net realized loss on investments (7,286,040)
Net unrealized appreciation of investments 3,127,521
------------
Net Assets........................... $209,446,375
=======================================================================
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 - $198,680,898/22,763,676...................... $ 8.73
=====================================================================
Class B - $10,765,477/1,233,607........................ $ 8.73
=====================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($8.73 x 103.09%)............................ $ 9.00
=====================================================================
</TABLE>
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
STATEMENT OF OPERATIONS
Year ended December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................... $15,212,185
-----------
Expenses:
Investment management fee - Note B.................... 1,278,357
Transfer agent fee - Note B........................... 737,902
Distribution/service fee - Note B
Class A............................................. 614,102
Class B............................................. 84,401
Registration and filing fees.......................... 75,673
Printing.............................................. 44,054
Custodian fee......................................... 43,272
Auditing fee.......................................... 36,714
Trustees' fees........................................ 20,180
Miscellaneous......................................... 13,336
Legal fees............................................ 3,078
-----------
Total Expenses....................... 2,951,069
---------------------------------------------------
Net Investment Income. 12,261,116
---------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold ................. 18,754
Change in net unrealized appreciation/depreciation
of investments....................................... 10,474,785
-----------
Net Realized and Unrealized
Gain on Investments.................. 10,493,539
---------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $22,754,655
===================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
FROM OPERATIONS: 1995 1994
----------- -----------
<S> <C> <C>
Net investment income................................................................. $ 12,261,116 $ 11,017,810
Net realized gain (loss) on investments sold.......................................... 18,754 (7,179,722)
Change in net unrealized appreciation/depreciation of investments..................... 10,474,785 (7,195,021)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations...................... 22,754,655 (3,356,933)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.4956 and $0.3774 per share, respectively).............................. (11,820,582) (10,836,379)
Class B** - ($0.4463 and $0.3014 per share, respectively)............................ (440,534) (142,172)
Class C*** - (none and $0.0989 per share, respectively).............................. --- (39,259)
------------ ------------
Total Distributions to Shareholders................................................ (12,261,116) (11,017,810)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*..................................................... (27,003,981) (26,061,860)
------------ ------------
NET ASSETS:
Beginning of period................................................................... 225,956,817 266,393,420
------------ ------------
End of period......................................................................... $209,446,375 $225,956,817
=========== ============
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1994
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold....................................................... 5,589,248 $48,212,989 4,804,418 $ 41,596,490
Shares issued to shareholders in reinvestment of distributions 1,175,325 10,108,924 1,079,934 9,221,353
----------- ------------ ---------- ------------
6,764,573 58,321,913 5,884,352 50,817,843
Less shares repurchased........................................... (10,330,451) (88,597,139) (9,434,381) (80,784,639)
----------- ------------ ---------- ------------
Net decrease...................................................... (3,565,878) $(30,275,226) (3,550,029) $(29,966,796)
=========== ============ ========== ============
CLASS B **
Shares sold....................................................... 4,230,179 $ 36,444,892 1,089,459 $ 9,351,811
Shares issued to shareholders in reinvestment of distributions 39,700 341,783 14,523 122,980
----------- ------------ ---------- ------------
4,269,879 36,786,675 1,103,982 9,474,791
Less shares repurchased........................................... (3,891,751) (33,515,430) (248,503) (2,134,163)
----------- ------------ ---------- ------------
Net increase...................................................... 378,128 $ 3,271,245 855,479 $ 7,340,628
=========== ============ ========== ============
CLASS C ***
Shares repurchased................................................ (396,825) $ (3,435,692)
---------- ------------
Net decrease...................................................... (396,825) $ (3,435,692)
========== ============
</TABLE>
** Class B shares commenced operations on January 3, 1994.
*** All Class C shares were redeemed on March 23, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
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:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- -------- -------- --------
<S> <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
-------- -------- -------- -------- --------
Net Investment Income....................................... 0.50(a) 0.38(a) 0.48 0.54 0.67
Net Realized and Unrealized Gain (Loss) on Investments...... 0.42 (0.49) 0.14 (0.18) 0.36
-------- -------- -------- -------- --------
Total from Investment Operations........................... 0.92 (0.11) 0.62 0.36 1.03
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income........................ (0.50) (0.38) (0.48) (0.54) (0.67)
Distributions from Net Realized Gain on Investments Sold.... --- --- (0.11) (0.02) ---
-------- -------- -------- -------- --------
Total Distributions........................................ (0.50) (0.38) (0.59) (0.56) (0.67)
-------- -------- -------- -------- --------
Net Asset Value, End of Period.............................. $ 8.73 $ 8.31 $ 8.80 $ 8.77 $ 8.97
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (e).............. 11.23% (1.31%) 7.13% 4.19% 12.54%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................... $198,681 $218,846 $262,903 $259,170 $211,322
Ratio of Expenses to Average Net Assets..................... 1.36% 1.41% 1.51% 1.55% 1.44%
Ratio of Net Investment Income to Average Net Assets........ 5.76% 4.39% 5.34% 6.13% 7.72%
Portfolio Turnover Rate..................................... 105% 155% 175% 185% 134%
CLASS B (c)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................ $ 8.31 $ 8.77(b)
-------- --------
Net Investment Income....................................... 0.45(a) 0.30(a)
Net Realized and Unrealized Gain (Loss) on Investments...... 0.42 (0.46)
-------- --------
Total from Investment Operations........................... 0.87 (0.16)
-------- --------
Less Distributions:
Dividends from Net Investment Income........................ (0.45) (0.30)
-------- --------
Net Asset Value, End of Period.............................. $ 8.73 $ 8.31
======== ========
Total Investment Return at Net Asset Value (e).............. 10.60% (1.84%)(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................... $ 10,765 $ 7,111
Ratio of Expenses to Average Net Assets..................... 1.93% 2.12%*
Ratio of Net Investment Income to Average Net Assets........ 5.21% 3.70%*
Portfolio Turnover Rate..................................... 105% 155%
</TABLE>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) Initial price to commence operations.
(c) Class B shares commenced investment operations on January 3, 1994.
(d) Not annualized.
(e) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charge.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
SCHEDULE OF INVESTMENTS
December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
LIMITED-TERM GOVERNMENT FUND ON DECEMBER 31, 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.
<TABLE>
<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. (30.46%)
United States Treasury,
*Bond................................................................. 7.750% 01-31-00 $24,000 $ 26,070,000
*Note................................................................. 7.875 04-15-98 10,000 10,559,400
*Note................................................................. 8.000 08-15-99 17,500 19,014,800
*Note................................................................. 7.250 08-15-04 5,500 6,116,165
*Note................................................................. 5.875 11-15-05 2,000 2,045,000
------------
63,805,365
------------
GOVERNMENTAL - U.S. AGENCIES (66.24%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1204-G..................................................... 7.000 11-15-05 8,571 8,709,829
GTD Ser 1419-F Var Rate #............................................ 6.300 11-15-97 18,775 18,739,395
*15 Yr Gold Cert of Part.............................................. 8.500 06-01-06 to 9,116 9,515,133
07-01-07
Federal National Mortgage Association,
ARM 3 Yr CMT #....................................................... 8.000 03-01-22 1,496 1,555,915
CMO REMIC Pass Thru Ctf 1991-159-C................................... 7.000 10-25-04 20,782 21,139,534
GTD REMIC Pass Thru Ctf G 29-N....................................... 8.500 06-25-07 10,000 10,406,200
*Note................................................................. 7.400 07-01-04 8,000 8,796,240
*Note................................................................. 8.250 10-12-04 10,000 10,842,200
Government National Mortgage Association,
*CMO REMIC Pass Thru Ctf 1995-2-B..................................... 8.500 06-20-11 12,300 12,484,500
30 Yr SF 1 Yr Adj Rate #............................................. 6.500 10-20-24 27,499 28,070,112
30 Yr SF 1 Yr Adj Rate #............................................. 7.250 07-20-22 to 8,298 8,465,551
08-20-22
------------
138,724,609
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $199,402,453) (96.70%) 202,529,974
------ ------------
</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 (2.13%)
Investment in a joint repurchase agreement transaction
with SBC Capital Markets Inc., Dated 12-29-95, Due 01-02-96
(secured by U.S. Treasury Bonds, 7.500%, due 11-15-16,
and 10.375%, due 11-15-12 ) - Note A............................................ 5.900% $4,465 $ 4,465,000
------------
CORPORATE SAVINGS ACCOUNT (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.00%.............................................................. 12,074
------------
TOTAL SHORT-TERM INVESTMENTS (2.14%) 4,477,074
------ ------------
TOTAL INVESTMENTS (98.84%) $207,007,048
====== ============
</TABLE>
* Securities, other than short-term investments, newly added to the portfolio
during the year ended December 31, 1995.
# Represents rate in effect on December 31, 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.
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 investment objective of the Fund is to provide current income
and security of principal through investments primarily in securities of the
United States government and its agencies.
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 March 31, 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 $7,286,040 of capital
loss carryforwards available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforwards are used by the Fund,
no capital gain distributions will be made. The 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, which may differ from
generally accepted accounting principles. 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
December 31, 1995, net sales charges received with regard to sales of Class A
shares amounted to $205,284. Out of this amount, $24,825 was retained and used
for printing prospectuses, advertising, sales literature, and other purposes,
$38,725 was paid as sales commissions to unrelated broker-dealers, and $141,734
was paid as sales commissions to sales personnel of John Hancock Distributors,
Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and
Sutro & Co., Inc. ("Sutro"), all of which are broker dealers. The Adviser's
indirect parent, John Hancock Mutual Life Insurance Company, is the indirect
sole shareholder of Distributors and John Hancock Freedom Securities
Corporation and its subsidiaries which include Tucker Anthony and Sutro.
Class B shares which are redeemed within four years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 3.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended December 31,
1995 contingent deferred sales charges paid to JH Funds amounted to $24,021.
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 shares 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. For the period January 1, 1995 through September 30, 1995
Class A and Class B shares paid transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses. For the nine months
ended September 30, 1995 the transfer agent expense, calculated as a class
specific expense was $574,520 for Class A and $12,441 for Class B,
respectively. Effective October 1, 1995 the transfer agent expense is a fund
expense.
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.
The compensation of unaffiliated Trustees is borne by the Fund. Effective with
the fees paid for 1995, the unaffiliated Trustees may elect to defer for tax
purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Limited-Term Government Fund
Hancock funds, as applicable, to cover its liability with regard to the
deferred compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The deferred
compensation liability is marked to market on a periodic basis and income
earned by the investment is recorded on the Fund's books.
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 December 31, 1995, aggregated $249,281,432 and $266,868,254,
respectively.
The cost of investments owned at December 31, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $203,867,453. Gross
unrealized appreciation and depreciation of investments aggregated $3,155,052
and $27,531, respectively, resulting in net unrealized appreciation of
$3,127,521.
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, 1995, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, 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, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young, LLP
Boston, Massachusetts
February 9, 1996
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, 1995.
With respect to the Fund's ordinary taxable income for the fiscal year ended
December 31, 1995, 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 30.41% at year end December 31, 1995. The
percentage of income derived from U.S. Treasury bonds, bills and notes was
30.67%. 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
17.62%. The percentage of income derived from obligations of other U.S.
0government agencies (excluding securities issued by Federal National Mortgage
Association and Government National Mortgage Association) was 15.85%. 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
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
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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.
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Recycled Paper."]
