<PAGE> 1
John Hancock Funds
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
GOVERNMENT
INCOME
FUND
ANNUAL REPORT
October 31, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles L. Ladner*
Leo E. Linbeck*
Patricia P. McCarter*
Steven R. Pruchansky*
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President 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 02116-5072
CHAIRMAN'S MESSAGE
[A 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief Executive Officer,
flush right, next to first paragraph.]
DEAR FELLOW SHAREHOLDERS:
Investors around the world have been watching Wall Street in awe for the better
part of 1995. Through October, the Standard & Poor's 500-Stock Index, a
widely-used barometer of stock performance, had grown by more than 25%.
Investors who stayed in the market after a disappointing 1994 have been
rewarded.
On another street, Pennsylvania Avenue, one of the hot topics many people
are watching is Medicare reform. While there's no clear-cut solution on the
horizon, today's Medicare debate should serve as another wake-up call to all
Americans about the need to have a financial plan and to save for retirement.
Whether or not the government changes the way health-care benefits are allotted
to senior citizens, the message is clear: your future security and well-being
lies in your own hands -- not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them will
perhaps scare you or make you think that the task of saving for retirement is
just too daunting. But take heart. We don't believe that and neither do many
financial experts.
Yet retirement planning is not to be taken lightly. To live the way you
want to -- the way you deserve to after all those years of hard work -- you need
to plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial adviser
about establishing your retirement planning roadmap, if you haven't already. And
educate yourself by reading some of the many articles about how to save for
retirement. Take control of your future by saving today. That way, when it comes
time for retirement, you shouldn't have to think about any street but Easy
Street.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY BARRY H. EVANS FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
GOVERNMENT INCOME FUND
DECLINING INTEREST RATES PROLONG BOND MARKET RALLY DURING 1995;
TAME INFLATION BODES WELL FOR BOND MARKET IN 1996 AND BEYOND
In late summer 1995, shareholders of the John Hancock Government Securities Fund
approved the merger of their fund with the John Hancock Government Income Fund.
The merger was effective September 15, 1995.
Bond investors who struggled through a miserable 1994 have been rewarded
handsomely so far in 1995. Spurred by evidence of a "soft landing" for the
economy -- slower growth, muted inflation and no signs of recession -- the bond
market rallied throughout the Fund's fiscal year as interest rates fell and bond
prices rose.
[A 2 1/4" x 3" photo of Barry Evans at bottom right. Caption reads: "Barry H.
Evans, Portfolio Manager."]
THE BEST OF TIMES
The rally began late in 1994 amid signs that the Federal Reserve's efforts to
slow down the economy, which had been growing at breakneck speed throughout the
year, were starting to work. After the yield on the benchmark 30-year Treasury
peaked at 8.16% last November, rates began to fall, slowly at first and then
more dramatically in February and March. Since January, the 30-year Treasury
rose by more than 20% in price. In the second half of the Fund's period, more
news of an economic slowdown -- to an average growth rate of 2.5%, down from
more than 5% in late 1994 -- caused interest rates to fall further. As a result,
investors began to anticipate that the Fed would reverse course from its seven
rate hikes in 1994 and early 1995 and lower short-term rates to prevent
sluggishness from turning into
[CAPTION]
"BOND INVESTORS... HAVE BEEN REWARDED HANDSOMELY SO FAR IN 1995."
3
<PAGE> 4
John Hancock Funds - Government Income Fund
[Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into four sections. Going from top left to right:
U.S. Government Agencies 40%, Short-Term Investments & Other 3%, U.S. Treasury
Bonds 50%, Foreign Government Bonds 7%. Footnote below reads: "As a percentage
of net assets on October 31, 1995."]
recession. The Fed did just that in early July, although the market had
anticipated it and so bond prices didn't move much. In the last few months of
the Fund's fiscal period, there was some volatility in the bond market as
investors struggled to measure the success of the Fed's "soft landing" scenario.
There were also brief worries in late summer that the economy was heating up.
But inflation stayed in check and overall the environment for bonds was good.
For the year ended October 31, 1995, John Hancock Government Income Fund's
Class A and B shares posted total returns of 15.32% and 14.49%, respectively, at
net asset value. By comparison, the average general U.S. government fund
returned 14.70%, according to Lipper Analytical Services.(1)
MORE TREASURIES, LONGER
DURATION HELP PERFORMANCE
At the beginning of the year, we moved to reposition the Fund to benefit from
the falling interest-rate environment, both in income and total return. We
increased the Fund's stake in U.S. Treasury securities, from 35% a year ago to
50% at the end of October 1995. We mostly bought Treasuries with maturities of
longer than 10 years and they were some of the Fund's best performers.
Interest-rate sensitive Treasuries tend to appreciate more in rising markets
than other government agency obligations.
A key to the Fund's performance was its longer-than-average duration of
about 5.7 years for most of the period. Duration is a measure of how much a
fund's share price will rise and fall with changes in interest rates. When rates
are falling and bond prices are rising, it pays to be more aggressive and have a
longer duration.
We kept approximately 41% of the Fund invested in mortgages, although we
made some adjustments to enhance the Fund's earnings. Mortgages offer a
generally higher level of income than Treasuries, but can suffer more when rates
fall, since borrowers tend to pay off their mortgages early to refinance at a
lower rate. We replaced lower coupon mortgage-backed securities -- at around
6%-6.5% -- with higher coupon issues at around 8%. And we significantly reduced
the Fund's stake in collateralized mortgage obligations, or CMOs, from 23% of
the Fund's holdings to 5%. A CMO is a customized piece of a larger pool of
mortgage securities that separates cash flows into different classes by length
of maturity. At John Hancock Government Income Fund, we focus on the more
conservative CMOs. These mortgage investments were one of the Fund's better
performers during the period, providing a predictable flow of income without
much price volatility. We pared back these holdings late in the period to lock
in profits before further rate
[CAPTION]
"...WE MOVED TO REPOSITION THE FUND TO BENEFIT FROM
THE FALLING INTEREST-RATE ENVIRONMENT."
4
<PAGE> 5
John Hancock Funds - Government Income Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended October 31, 1995." The chart is
scaled in increments of 8% from bottom to top, with 16% at the top and 0% at the
bottom. Within the chart there are three solid bars. The first represents the
15.32% total return for the John Hancock Government Income Fund, Class A. The
second represents the 14.49% total return for John Hancock Government Income
Fund, Class B. The third represents the 14.70% total return for the average
general U.S. government fund. A footnote below reads: "Total returns for John
Hancock Government Income Fund are at net asset value with all distributions
reinvested. The average small-company growth fund is tracked by Lipper
Analytical Services. (1) See following page for historical performance
information.]
declines could increase mortgage prepayments and impair the CMOs' return
potential.
LONG-TERM OPTIMISM, SHORT-TERM CAUTION
The long-term prospects for the bond market remain bright. The economy is
growing, but not too fast. Inflation remains tame. Capital spending, which has
been the engine driving the latest economic expansion, seems to be slowing and
global economies are weak. What's more, consumers -- saddled with high levels of
personal debt and not much growth in income -- aren't spending enough money to
spur the economy.
Having said that, we think there could be some volatility in the near term.
We're watching Washington to see what kind of a budget deficit plan gets
approved and whether the Fed will reduce short-term rates in response. After all
the budget talk dies down, there might be an inflation scare in early 1996 as
investors focus on recent signs of growth in the leading indicators and higher
export levels. And because there's been so much good news all year, the market
is more susceptible right now to any piece of bad news.
So we're taking a more cautious approach for now. In the last three months,
we moved the Fund's duration back to a more neutral five-year stance, which also
allowed us to lock in profits. We'll keep duration closer to average right now
and if there's a spike in commodity prices or economic growth, we'll buy more
mortgages to increase yield. The Fund's ability to invest up to 20% of its
assets in a broader range of mortgage investments, such as high-quality
asset-backed securities and dollar-denominated foreign government bonds, should
also give the Fund a greater ability to boost its yield and diversify its risk
in the process. But prudence doesn't mean we're changing our long-term view. In
fact, we see any market corrections or inflation scares as temporary buying
opportunities in an overall environment of declining interest rates. This
environment should bode well for bond investors in 1996 and beyond.
[CAPTION]
"THE LONG-TERM PROSPECTS FOR THE BOND MARKET REMAIN BRIGHT."
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is lower.
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Government Income 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 shares, expressed as a percentage of the Fund's average net assets.
Performance figures include the maximum applicable sales charge of 4.50% for
Class A shares. (Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 4.75%.) The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six years) is
included in Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the future.
Also, keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
CUMMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
LIFE
ONE FIVE OF
YEAR YEARS FUND
---- ----- ----
<S> <C> <C> <C>
John Hancock Government Income
Fund: Class A 8.07%(1) N/A N/A
John Hancock Government Income
Fund: Class B 7.51% 44.97% 69.36%(2)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
LIFE
ONE FIVE OF
YEAR YEARS FUND
---- ----- ----
<S> <C> <C> <C>
John Hancock Government Income
Fund: Class A 8.07%(1) N/A N/A
John Hancock Government Income
Fund: Class B 7.51% 7.71% 7.18%(2)
</TABLE>
YIELDS
AS OF OCTOBER 31, 1995
<TABLE>
<CAPTION>
SEC 30-DAY
YIELD
----------
<S> <C>
John Hancock Government Income Fund: Class A 5.36%
John Hancock Government Income Fund: Class B 4.91%
</TABLE>
NOTES TO PERFORMANCE
(1) Class A shares started on September 30, 1994.
(2) Class B shares started on February 23, 1988.
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
Government Income Fund would be worth on October 31, 1995, assuming you had
invested on 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 Treasury Composite Index -- an unmanaged index of fixed-income
securities that are similar, but not identical, to the bonds in the Fund's
portfolio.
[Government Income Fund
Class A shares
Line chart with the heading Government Income Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Government Income Fund on September 30, 1994, before sales charge, and is
equal to $11,399 as of October 31, 1995. The second line represents the value of
the Lehman Brothers Treasury Composite Index and is equal to $11,368 as of
October 31, 1995. The third line represents the Government Income Fund after
sales charge and is equal to $10,883 as of October 31, 1995.
Government Income Fund
Class B shares*
Line chart with the heading Government Income Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Lehman Brothers Treasury Composite
Index and is equal to $19,522 as of October 31, 1995. The second line represents
the value of the hypothetical $10,000 investment made in the Government Income
Fund on February 23, 1988, before contingent deferred sales charge, and is equal
to $17,143 as of October 31, 995.
*No contingent deferred sales charge applicable.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Government Income 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 OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $603,825,785) ...................................... $625,777,653
Foreign government bonds (cost - $50,166,236) ................ 47,443,518
Multi-family mortgage backed bonds
(cost - $9,790,279) ........................................ 9,832,500
Joint repurchase agreement ($97,000) ......................... 97,000
Corporate savings account .................................... 105,421
------------
683,256,092
Receivable for shares sold .................................... 103,183
Receivable for investments sold ............................... 18,642,062
Interest receivable ........................................... 12,206,152
Receivable for variation margin - Note A ...................... 10,031
Other assets .................................................. 115,586
------------
Total Assets ................................ 714,333,106
-----------------------------------------------------------
LIABILITIES:
Dividend payable .............................................. 129,004
Payable for shares repurchased ................................ 361,030
Payable for investments purchased ............................. 15,785,402
Payable to John Hancock Advisers, Inc. and
affiliates - Note B .......................................... 434,850
Accounts payable and accrued expenses ......................... 99,462
------------
Total Liabilities ........................... 16,809,748
-----------------------------------------------------------
NET ASSETS:
Capital paid-in ............................................... 697,686,152
Accumulated net realized loss on investments and
financial futures contracts .................................. (19,491,372)
Net unrealized appreciation of investments and
financial futures contracts .................................. 19,323,152
Undistributed net investment income ........................... 5,426
------------
Net Assets .................................. $697,523,358
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net assets and shares of beneficial
interest outstanding - $1,000,000,000 shares
authorized with $0.01 par value, respectively)
Class A - $470,569,527/50,496,527 ............................ $ 9.32
=============================================================================
Class B - $226,953,831/24,341,348 ............................. $ 9.32
=============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($9.32 x 104.71%) ................................... $ 9.76
=============================================================================
</TABLE>
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
THE STATEMENT OF 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>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest ...................................................... $ 26,331,033
------------
Expenses:
Investment management fee - Note B ........................... 1,869,527
Distribution/service fee - Note B
Class A .................................................... 147,525
Class B .................................................... 2,292,294
Transfer agent fee ........................................... 484,392
Custodian fee ................................................ 76,872
Auditing fee ................................................. 65,587
Printing ..................................................... 44,872
Trustees' fees ............................................... 30,993
Advisory board fee ........................................... 25,219
Legal fees ................................................... 23,474
Registration and filing fees ................................. 23,362
Miscellaneous ................................................ 21,275
------------
Total Expenses .............................. 5,105,392
-----------------------------------------------------------
Net Investment Income ....................... 21,225,641
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold ......................... (7,005,257)
Net realized gain on financial futures contracts .............. 236,316
Change in net unrealized appreciation/depreciation
of investments ............................................... 49,821,652
Change in net unrealized appreciation/depreciation
of financial futures contracts ............................... (518,532)
------------
Net Realized and Unrealized
Gain on Investments ......................... 42,534,179
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................... $ 63,759,820
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................................................................ $ 21,225,641 $ 18,739,100
Net realized loss on investments sold............................................................ (6,768,941) (12,072,264)
Change in net unrealized appreciation/depreciation of investments................................ 49,303,120 (24,904,672)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations................................. 63,759,820 (18,237,836)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.7182 and $0.0600 per share, respectively)......................................... (4,353,217) (1,228)
Class B - ($0.6528 and $0.6500 per share, respectively)......................................... (16,866,998) (18,621,004)
Distributions from net realized gain on investments sold and financial futures contracts
Class B - (none and $0.0200 per share, respectively)............................................ ...... (730,403)
------------ ------------
Total Distributions to Shareholders............................................................. (21,220,215) (19,352,635)
------------ ------------
FROM FUND SHARE TRANSACTIONS-- NET*................................................................ 413,699,323 (14,538,382)
------------ ------------
NET ASSETS:
Beginning of period.............................................................................. 241,284,430 293,413,283
------------ ------------
End of period (including undistributed net investment income of $5,426 and none, respectively)... $697,523,358 $241,284,430
============ ============
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1995 1994
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS A** ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold..................................................... 316,821 $ 2,814,999 25,409 $ 223,359
Shares issued in reorganization - Note D........................ 51,435,148 464,795,225 ...... ......
Shares issued to shareholders in reinvestment of distributions.. 217,963 2,023,104 69 606
---------- ------------ ------------ ------------
51,969,932 469,633,328 25,478 223,965
Less shares repurchased......................................... (1,498,883) (13,909,339) ...... ......
---------- ------------ ------------ ------------
Net increase.................................................... 50,471,049 $455,723,989 25,478 $ 223,965
========== ============ ============ ============
CLASS B
Shares sold..................................................... 2,414,651 $ 21,569,979 4,611,686 $ 43,702,215
Shares issued in reorganization - Note D........................ 243,005 2,166,726 ...... ......
Shares issued to shareholders in reinvestment of distributions.. 973,020 8,764,619 1,061,434 9,872,309
---------- ------------ ------------ ------------
3,630,676 32,501,324 5,673,120 53,574,524
Less shares repurchased......................................... (6,837,005) (74,525,990) (7,326,339) (68,336,871)
---------- ------------ ------------ ------------
Net decrease.................................................... (3,206,329) $(42,024,666) (1,653,219) $(14,762,347)
========== ============ ============ ============
</TABLE>
** Class A shares commenced operations on September 30, 1994.
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES AND ANY INCREASE OR
DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES
THE NUMBER OF FUND SHARES SOLD AND REDEEMED DURING THE LAST TWO PERIODS, ALONG
WITH THE CORRESPONDING DOLLAR VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Government Income 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>
FOR THE PERIOD
SEPTEMBER 30, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
OCTOBER 31, 1995(a) OCTOBER 31, 1994
------------------- ------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................ $ 8.75 $ 8.85
-------- ------
Net Investment Income....................................... 0.72 0.06
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts................ 0.57 (0.10)
-------- ------
Total from Investment Operations........................... 1.29 (0.04)
-------- ------
Less Distributions:
Dividends from Net Investment Income........................ (0.72) (0.06)
-------- ------
Net Asset Value, End of Period.............................. $ 9.32 $ 8.75
======== ======
Total Investment Return at Net Asset Value (b)(c)........... 15.32% (0.45%)**
Total Adjusted Investment Return at Net Asset Value (c)..... 15.28% (0.46%)**
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................... $470,569 $ 223
Ratio of Expenses to Average Net Assets (b)................. 1.19% 0.12%*
Ratio of Net Investment Income to Average Net Assets (b).... 7.38% 0.71%*
Portfolio Turnover Rate..................................... 102% 92%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DISTRIBUTIONS, 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 - Government Income Fund
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1995(a) 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.......................... $ 8.75 $ 10.05 $ 9.83 $ 9.79 $ 9.37
-------- --------- -------- -------- --------
Net Investment Income......................................... 0.65 0.65 0.70 0.80 0.89
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts.................. 0.57 (1.28) 0.24 0.03 0.40
-------- -------- -------- -------- --------
Total from Investment Operations............................. 1.22 (0.63) 0.94 0.83 1.29
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income.......................... (0.65) (0.65) (0.72) (0.79) (0.87)
Distributions from Net Realized Gains on Investments
Sold and Financial Futures Contracts......................... ...... (0.02) ...... ...... ......
-------- -------- -------- -------- --------
Total Distributions.......................................... (0.65) (0.67) (0.72) (0.79) (0.87)
-------- -------- -------- -------- --------
Net Asset Value, End of Period................................ $ 9.32 $ 8.75 $ 10.05 $ 9.83 $ 9.79
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (b)(c)............. 14.49% (6.42%) 9.86% 8.81% 14.38%
Total Adjusted Investment Return at Net Asset Value (c)....... 14.47% (6.43%) 9.85% 8.66% ......
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)..................... $226,954 $241,061 $293,413 $225,540 $129,014
Ratio of Expenses to Average Net Assets (b)................... 1.89% 1.93% 2.00% 2.00% 2.00%
Ratio of Net Investment Income to Average Net Assets (b)...... 7.26% 6.98% 7.06% 8.03% 9.09%
Portfolio Turnover Rate....................................... 102% 92% 138% 112% 162%
</TABLE>
*Annualized
**Not annualized
(a) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(b) Excluding interest expense, which equalled 0.04% for Class A for the year
ended October 31, 1995 and 0.02%, 0.01%, 0.01% and 0.15% for Class B
for the years ended October 31, 1995, 1994, 1993 and 1992, respectively.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
GOVERNMENT INCOME FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO FOUR MAIN
CATEGORIES: U.S. GOVERNMENT AND AGENCIES SECURITIES, FOREIGN GOVERNMENT BONDS,
MULTI-FAMILY MORTGAGE BACKED BONDS AND SHORT-TERM INVESTMENTS. SHORT-TERM
INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE LISTED LAST.
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
GOVERNMENTAL - U.S. (50.06%)
Financing Corp.,
Bond.................................. 9.400% 02-08-18 $ 4,000 $ 5,201,880
Bond.................................. 9.650 11-02-18 1,600 2,134,000
Tennessee Valley Authority,
Pwr Bond 1994 Ser A................... 7.850 06-15-44 13,500 13,927,680
United States Treasury,
Bond.................................. 15.750 11-15-01 44,340 66,309,140
Bond.................................. 11.625 11-15-02* 23,500 31,122,695
Bond.................................. 11.875 11-15-03* 6,000 8,216,220
Bond**................................ 11.625 11-15-04* 21,150 29,259,756
Bond.................................. 12.750 11-15-10* 7,250 10,797,933
Bond.................................. 12.000 08-15-13* 48,700 73,057,792
Bond.................................. 9.250 02-15-16* 8,000 10,584,960
Bond.................................. 8.875 08-15-17* 3,500 4,498,060
Bond.................................. 8.125 08-15-19* 5,000 6,018,750
Bond.................................. 7.500 11-15-24* 3,000 3,427,500
Bond.................................. 7.625 02-15-25* 6,000 6,965,640
Note.................................. 9.375 04-15-96* 64,700 65,771,432
Note.................................. 6.500 08-15-05* 11,500 11,909,630
------------
349,203,068
------------
GOVERNMENTAL - U.S. AGENCIES (39.65%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1094-K...................... 7.000 06-15-21 2,300 2,306,463
CMO REMIC 1218-G...................... 4.500 05-15-14 2,000 1,857,500
CMO REMIC 1408-H...................... 6.500 10-15-19 4,754 4,651,848
CMO REMIC 1634-PN..................... 4.500 12-15-23* 10,575 7,841,997
CMO REMIC 1667-PE..................... 6.000 03-15-08* 11,750 11,474,580
Federal Judiciary Office Building,
Zero Coupon Bond...................... 0.000 02-15-01 250 180,325
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
GOVERNMENTAL - U.S. AGENCIES (CONTINUED)
Federal National Mortgage Association,
30 Yr SF Pass Thru Ctf.................................. 8.000% 11-01-24 to* $10,449 $ 10,712,994
05-01-25
30 Yr SF Pass Thru Ctf.................................. 8.500 09-01-24 to 18,042 18,700,954
10-01-24
30 Yr SF Pass Thru Ctf.................................. 11.875 05-19-00* 6,800 8,348,020
GTD REMIC Pass Thru Ctf X-225C-TK....................... 6.500 12-25-23* 5,032 4,756,800
GTD REMIC Pass Thru Ctf 1990-51-H....................... 7.500 05-25-20 200 205,062
GTD REMIC Pass Thru Ctf 1990-58-J....................... 7.000 05-25-20 3,700 3,675,691
GTD REMIC Pass Thru Ctf 1990-94-D....................... 6.500 08-25-20 1,660 1,623,165
GTD REMIC Pass Thru Ctf 1991-56-M....................... 6.750 06-25-21 4,000 3,943,720
GTD REMIC Pass Thru Ctf 1992-210-H...................... 6.500 03-25-19* 10,000 9,821,800
GTD REMIC Pass Thru Ctf 1994-36-N....................... 6.500 03-25-24* 18,645 17,380,496
GTD REMIC Pass Thru Ctf 1994-48-E....................... 6.000 11-25-08* 3,685 3,535,278
GTD REMIC Pass Thru Ctf 1994-51-PV...................... 6.000 03-25-04* 20,926 18,663,272
GTD REMIC Pass Thru Ctf 1994-72-K....................... 6.000 04-25-24 6,389 5,697,835
Government National Mortgage Association,
30 Yr SF Pass Thru Ctf.................................. 7.000 08-15-23* 15,162 15,068,047
30 Yr SF Pass Thru Ctf.................................. 7.500 05-15-23 to* 75,193 76,245,566
09-01-25
30 Yr SF Pass Thru Ctf.................................. 8.000 07-15-23 to* 32,977 33,964,191
08-15-24
30 Yr SF Pass Thru Ctf.................................. 8.500 02-15-25* 3,036 3,164,311
30 Yr SF Pass Thru Ctf.................................. 11.000 01-15-14 to* 11,348 12,754,670
12-15-15 ------------
276,574,585
------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $603,825,785) (89.71%) 625,777,653
------ ------------
FOREIGN GOVERNMENT BONDS
U.S. DOLLAR DENOMINATED FOREIGN GOVERNMENT BONDS (6.80%)
Brazil, Republic of,
Bond DISC ZL............................................ 6.812# 04-15-24* 5,000 2,975,000
British Columbia Hydro and Power Auth.
Bond Ser FG............................................. 15.000 04-15-11 3,900 4,250,103
Bond Ser FJ............................................. 15.500 11-15-11 1,700 1,964,299
Hydro-Quebec Corp.,
Deb Ser IF.............................................. 7.375 02-01-03* 5,500 5,689,255
Deb Ser HK.............................................. 9.375 04-15-30 2,000 2,401,060
Deb Ser HS.............................................. 9.400 02-01-21* 5,000 5,986,350
Deb Ser FU.............................................. 11.750 02-01-12 270 384,218
International Bank for Reconstruction and Development,
Thirty Year Bond Ser 1987............................... 9.250 07-15-17* 4,000 5,072,640
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
U.S. DOLLAR DENOMINATED FOREIGN GOVERNMENT BONDS (CONTINUED)
Landeskreditbank Baden-Wuerttemberg
Sub Notes........................................................... 7.625% 02-01-23* $ 7,050 $ 7,640,085
Ontario, Province of,
30 Year Deb......................................................... 15.125 05-01-11 1,345 1,477,738
30 Year Deb......................................................... 17.000 11-05-11 5,000 5,835,250
Saskatchewan, Province of,
30 Year Deb......................................................... 9.375 12-15-20* 3,000 3,767,520
------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $50,166,236) (6.80%) 47,443,518
------ ------------
MULTI-FAMILY MORTGAGE BACKED BONDS (1.41%)
DLJ Mortgage Acceptance Corp.,
CMO REMIC 1993-M10-A2............................................... 7.200 07-15-03 4,732 4,849,791
4,849,791
CMO REMIC 1993-MF7-A1............................................... 7.400 06-18-03 4,833 4,982,709
------------
TOTAL MULTI-FAMILY MORTGAGE BACKED BONDS
(Cost $9,790,279) (1.41%) 9,832,500
------- ------------
TOTAL LONG TERM BONDS
(Cost $663,782,300) (97.92%) 683,053,671
------- ------------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.01%)
Investment in a joint repurchase agreement transaction with
SBC Capital Markets Inc., Dated 10-31-95, Due 11-01-95
(secured by U. S. Treasury Bond, 8.750% Due 05-15-17 and
U.S. Treasury Note, 5.750% Due 09-30-97) Note A................... 5.89 11-01-95 97 97,000
CORPORATE SAVINGS ACCOUNT (0.02%)
Investors Bank & Trust Company
Daily Interest Savings
Account Current Rate 3.00%........................................ 105,421
------------
TOTAL SHORT-TERM INVESTMENTS (0.03%) 202,421
------- ------------
TOTAL INVESTMENTS (97.95%) $683,256,092
======= ============
</TABLE>
* Securities, other than short-term investments, newly added to the portfolio
during the year ended October 31, 1995.
** U.S. Treasury Bonds with a value of $182,614 owned by the Fund were
designated as margin deposits for futures contracts at October 31, 1995.
# Represents rate in effect on October 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.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940, as amended. The Corporation consists of six series portfolios: John
Hancock Government Income Fund (collectively the "Fund"), John Hancock Emerging
Growth Fund, John Hancock High Yield Tax Free Fund, John Hancock High Yield Bond
Fund, John Hancock Money Market Fund and John Hancock Global Resources Fund
(collectively the "Funds"). The Board of Directors may authorize the creation of
additional Funds from time to time to satisfy various investment objectives.
Effective December 22, 1994 (see Note B), the Corporation and Funds changed
names by replacing the word Transamerica with John Hancock.
The Board of Directors have authorized the issuance of two classes of
shares 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 Board of Directors, 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 A Shares are subject to an initial sales charge of up
to 4.50% and a 12b-1 distribution plan. Class B Shares are subject to a
contingent deferred sales charge and a separate 12b-1 distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Board of Directors. 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., 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 for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $15,347,195 of a capital
loss carryforward 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 distribution will be made. The carryforward expires 12/31/2002.
The Fund's tax year end is December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for effect of expenses that
may be applied differently to each class as explained previously.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
EXPENSES The majority of the expenses of the Corporation are directly
identifiable to an individual Fund. Expenses which are not readily identifiable
to a specific Fund are allocated in such a manner as deemed equitable, taking
into consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
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 appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S.dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities resulting
from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
The Fund may also purchase and sell forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under which
it intends to take delivery of the foreign currency. Such contracts normally
involve no market risk other than that offset by the currency amount of the
underlying transaction.
At October 31, 1995, there were no open forward foreign currency exchange
contracts.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract will be valued at the official settlement price of the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker will be made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund will recognize a gain or loss.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
opening, or realizing the benefits of closing out, futures positions because of
position limits or limits on daily price fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At October 31, 1995, open positions in financial futures contracts were as
follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
- ---------- ------------- -------- --------------
<S> <C> <C> <C>
DEC 95 69 Treasury Bond LONG $51,781
=======
</TABLE>
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, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, John Hancock Advisers, Inc. (the "Adviser"), a wholly
owned subsidiary of The Berkeley Financial Group, became the investment adviser
for the Fund with approval of the Board of Directors and shareholders of the
Fund. The Fund's former investment manager was Transamerica Fund Management
Company ("TFMC").
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.650% of the first $200,000,000 of the Fund's average daily net asset value,
0.625% of the next $300,000,000 and 0.600% of the Fund's average daily net asset
value in excess of $500,000,000. This fee structure is consistent with the
former agreement with TFMC. For the period ended October 31, 1995, the advisory
fee earned by the Adviser and TFMC amounted to $1,612,806 and $256,721,
respectively, resulting in a total fee of $1,869,527.
The Adviser and TFMC, for their respective periods, provided administrative
services to the Fund pursuant to an administrative service agreement through
January 16, 1995 on which day the agreement was terminated.
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.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a wholly-owned
subsidiary of the Adviser, became the principal underwriter of the Fund. Prior
to this date, Transamerica Fund Distributors, Inc. ("TFD") served as the
principal underwriter and distributor of the Fund. For the period ended October
31, 1995, JH Funds and TFD received net sales charges of $35,314 with regard to
sales of Class A shares. Out of this amount, $6,442 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $27,090
was paid as commissions to unrelated broker dealers and $1,782 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc
("Distributors"), Tucker Anthony Incorporated ("Tucker Anthony") and Sutro &
Co., ("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 six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% 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, formerly TFD, 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
October 31, 1995, contingent deferred sales charges amounted to $308,083.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments for distribution
and service expenses at an annual rate not to exceed 0.25% of Class A average
daily net assets and 1.00% of Class B average daily net assets to reimburse JH
Funds for its distribution/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. This fee structure and plan is similar to the
former arrangement with TFD.
The Board of Directors approved a shareholder servicing agreement between
the Fund and John Hancock Investor Services Corporation ("Investor Services"), a
wholly owned subsidiary of The Berkeley Financial Group, for the period between
December 22, 1994 and May 12, 1995, inclusive under which Investor Services
processed telephone transactions on behalf of the Fund. As of May 15, 1995, the
Fund entered into a full service transfer agent agreement with Investor
Services. Prior to this date The Shareholder Services Group was the transfer
agent. The Fund will pay Investor Services a fee based on transaction volume and
number of shareholder accounts.
A partner with Baker & Botts was an officer of the Corporation until
December 22, 1994. During the period ended October 31, 1995, legal fees paid to
Baker & Botts amounted to $2,864.
Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates as well as Director of the Fund. The compensation of unaffiliated
Directors is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Directors may elect to defer their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The Fund will
make investments into other John Hancock Funds, as applicable, to cover its
liability for the deferred compensation. Investments to cover the Fund's
deferred compensation liability will be recorded on the Fund's books as an other
asset. The deferred compensation liability will be marked to market on a
periodic basis and income earned by the investment will be recorded on the
Fund's books.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Board of Directors in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended October 31, 1995 aggregated $757,830,084
and $343,733,984, respectively.
The cost of investments (excluding the corporate savings account) owned at
October 31, 1995 for Federal income tax purposes was $663,879,300. Gross
unrealized appreciation and depreciation of investments aggregated $27,506,612
and $8,235,241, respectively, resulting in net unrealized appreciation of
$19,271,371.
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of John Hancock Government Securities
Trust (JHGST) approved a plan of reorganization between JHGST and the Fund
providing for the transfer of substantially all of the assets and liabilities of
JHGST to the Fund in exchange solely for Class A shares and Class B shares of
the Fund. The acquisition was accounted for as a tax free exchange of 51,435,148
Class A shares, and 243,005 Class B shares of John Hancock Government Income
Fund for the net assets of JHGST, which amounted to $477,611,353 and $2,257,707
for Class A and Class B shares, respectively, including $12,907,109 of
unrealized appreciation, after the close of business at September 15, 1995.
18
<PAGE> 19
John Hancock Funds - Government Income Fund
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
John Hancock Series, Inc. --
John Hancock Government Income Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Government Income Fund (the
"Fund"), (formerly the Transamerica Government Income Fund), one of the
portfolios constituting John Hancock Series, Inc. (the "Corporation") (formerly
Transamerica Series, Inc.), as of October 31, 1995, and the related statement of
operations for the year then ended, the statements 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
October 31, 1995, by correspondence with the custodian and brokers, or other
appropriate auditing procedures when replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
John Hancock Government Income Fund portfolio of John Hancock Series, Inc. at
October 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
December 15, 1995
19
<PAGE> 20
ADDITIONAL INFORMATION
John Hancock Funds - Government Income Fund
On December 16, 1994, a special meeting of John Hancock (formerly Transamerica)
Series, Inc. (the "Corporation") in respect of John Hancock (formerly
Transamerica) Government Income Fund (the "Fund") was held involving the
election of directors and certain other matters concerning the Fund.
Specifically, shareholder's first approved a new investment management
agreement between the Trust on behalf of the Fund and John Hancock Advisers,
Inc. on substantially similar terms of the prior investment management
agreement, to take effect on December 22, 1994, the date of the consummation of
Transamerica Fund Management Company by The Berkeley Financial Group. The
shareholder votes tallied were 15,124,354 FOR, 150,196 AGAINST and 881,257
ABSTAINING.
The shareholders next approved new Plans of Distribution for each Class A
and Class B shares of the Fund, also effective on December 22, 1994, and also on
substantially the same terms as the prior Plans of Distribution. The Class A
shareholder votes tallied were 22,521 FOR, 0 AGAINST and 0 ABSTAINING. The Class
B shareholder votes tallied were 14,923,421 FOR, 198,460 AGAINST and 1,015,793
ABSTAINING.
The shareholders also voted to ratify the selection of Ernst & Young, LLP
as independent auditors for the Fund for the fiscal year ending April 30, 1995,
and the votes tallied were 15,603,163 FOR, 45,420 AGAINST and 640,244
ABSTAINING.
Lastly, the following directors were elected to serve until their
respective successors shall become duly elected and qualified, with the votes
tabulated as indicated:
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHOLD
- ---------------- --- --------
<S> <C> <C>
Edward J. Boudreau, Jr............................. 13,583,397 2,688,529
James F. Carlin.................................... 13,604,279 2,667,648
William H. Cunningham.............................. 13,603,910 2,668,017
Charles L. Ladner.................................. 13,600,854 2,671,073
Leo E. Linbeck, Jr................................. 13,596,624 2,675,303
Patricia P. McCarter............................... 13,593,811 2,678,116
Steven R. Pruchansky............................... 13,590,167 2,681,760
Norman H. Smith.................................... 13,605,443 2,666,483
John P. Toolan..................................... 13,604,891 2,667,036
</TABLE>
20
<PAGE> 21
NOTES
John Hancock Funds - Government Income Fund
21
<PAGE> 22
NOTES
John Hancock Funds - Government Income Fund
22
<PAGE> 23
NOTES
John Hancock Funds - Government Income Fund
23
<PAGE> 24
[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
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Government Income Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
JHD 5600A 10/95
12/95
