John Hancock Funds
Government
Income
Fund
SEMI-ANNUAL REPORT
April 30, 1997
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has
given investors its starkest reminder in a while of one of investing's
basic tenets: markets move down as well as up. It's understandable if
investors had lost sight of that fact. The bull market that began six
years ago has given investors annual double-digit returns and more
modest price declines than usual. And in the two years encompassing 1995
and 1996, the S&P 500 Index gained more than 50%. This Pollyanna
environment has tracked along with a sustained economic recovery, now in
its seventh year, that has been marked by moderate growth, low interest
rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average
tumbled by more than 7% at the end of March and wiped out nearly all it
had gained since the start of the year. It was the worst decline that
the market had seen since 1990. In early April, the Dow was down by
9.8%, within shouting distance of a 10% correction. By the end of the
month, it had bounced back into record territory again.
As the market continues to fret over interest rates and inflation,
investors should be prepared for more volatility. It also makes sense to
do something we've always advocated: set realistic expectations. Keep in
mind that the stock market's historic yearly average has been about 10%,
not the 20%-plus annual average of the last two years or even the 16%
annual average over the last 10 years. Remember that the kind of market
volatility we've seen lately is more like the way the market really
works. Fluctuations go with the territory. And market corrections can be
healthy, serving to bring inflated stock prices down to more reasonable
levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make
sure that your investment strategies reflect your individual time
horizons, objectives and risk tolerance, and that they are based upon
your needs. Despite turbulence, one thing remains constant. A well-
constructed plan and a cool head can be the best tools for reaching your
financial goals.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
BY BARRY EVANS, PORTFOLIO MANAGER
John Hancock
Government Income Fund
Economy gallops ahead, leaving bond investors in the dust
Good economic news spells bad news for the bond market -- and vice
versa. Last fall, bonds got off to a strong start, as indications of
slower economic growth eased inflation worries. Bond investors rejoiced,
delighted that inflation would not erode the value of their fixed
interest payments. Bond prices rose, and yields fell with the bellwether
30-year Treasury bottoming at 6.35% in late November. By December,
however, it was clear that the economy was no longer slowing. In the
first quarter of the new year, output of goods and services grew at a
blistering 5.6% annualized rate. Consumer spending grew at an even
faster pace. As inflation worries mounted, bond prices drifted lower and
yields rose. In late March, the Federal Reserve raised short-term
interest rates one-quarter percentage point. The yield on the 30-year
Treasury continued to climb, peaking in mid-April at 7.17%. Bond returns
for the six months through April were modest at best.
Despite these challenges, John Hancock Government Income Fund delivered
both an above-average yield and total return. For the six months ended
April 30, 1997, the Fund's Class A and B shares had total returns of
1.60% and 1.12%, respectively, at net asset value. These compared to the
average general U.S. government fund's return of 1.11%, according to
Lipper Analytical Services, Inc.1 Please see pages six and seven for
longer-term performance information.
As interest rates were rising, the Fund benefited from shortening its
duration. Duration measures how sensitive a bond's price is to changes
in interest rates. The shorter a bond's duration, the less its price
will fall as interest rates rise (or rise as rates fall). We started the
period with a duration of 5.3 years and ended at 4.8 years.
A 2 1/4" x 3 3/4" photo of the portfolio management team. Caption reads:
"Barry H. Evans (seated) and management team members Roger Hamilton
(center) and Seth Robbins (right)."
"Bond returns
for the
six months
through April
were modest
at best."
Pie chart with heading "Portfolio Diversification" at top of left hand
column. The pie is divided into four sections. From top clockwise:
Short-Term Investments & Other 2%; U.S. Treasury Bonds 39%; U.S.
Government Agencies 43%; and Foreign Government Bonds 16%. A footnote
below reads: "As a percentage of net assets on April 30, 1997."
"Our primary
focus was
mortgages
..."
Going on the defensive
The best performers for the period were defensive securities like
mortgage bonds. These bonds offer higher yields than Treasuries to
compensate investors for taking on additional risks. When rates are
rising, this added income also helps offset bond price losses. The
Lehman Brothers Mortgage Index, for example, gained 2.64% for the
period, well ahead of the 1.25% return for the Lehman Brothers Treasury
Index. Fortunately, for most of the past six months, the Fund had
roughly 65%-70% of its assets in higher-yielding securities -- including
mortgage bonds and foreign government bonds -- with the balance in
Treasuries and short-term investments.
Our primary focus was mortgages, which accounted for as much as 47% of
the Fund's investments. One area we especially liked was current coupon
GNMAs -- those with rates similar to prevailing interest rates. This
helped us take advantage of yields, while limiting our prepayment risk
early in the period when rates were falling. (This is the risk that
homeowners will pay off their mortgages early and refinance at a lower
rate.) When prepayments happen, investors holding the original mortgages
often have to reinvest at a lower rate. We also owned collateralized
mortgage obligations (CMOs), which separate the cash flows of mortgage
pools into different classes with various maturities. Here our focus was
on planned amortization classes -- or PACs -- a type of CMO with a low
probability of prepayment. Early in 1996, PACs had lagged traditional
mortgages, making them cheap and ripe for gains. We owned both very
short-maturity PACs and 20-year PACs -- all of which did well for the
period.
In April, we sold some of our mortgage-backed securities and bought more
Treasuries. We did this because prices on mortgage bonds had risen, and
their yield premiums over Treasuries were near historic lows. We were
also concerned about taking on added risk. When you buy a mortgage bond,
there's an underlying assumption about when it will be prepaid. When
prepayments stop -- as they did when rates began rising -- that
assumption changes and the bond's maturity lengthens. So a mortgage bond
with a seven-year maturity may become more like a 10-year bond. This
entails greater risk, since prices on longer maturity bonds are more
sensitive to interest-rate changes. All these factors lead us to prune
mortgages back to 39% of our investments.
We continued to have about a 15% stake in dollar-denominated, government
bonds issued by some Canadian provinces and emerging markets. The
Canadian bonds turned in a decent performance, aided by continued
economic growth and the government's efforts to get their budget
situation under control. In the emerging market area, we focused on
government bonds from Argentina and Brazil. They offer higher yields
than U.S. government bonds and the potential for long-term price gains
as their economies strengthen and political conditions stabilize.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the six months ended April 30,
1997." The chart is scaled in increments of 1% from top to bottom, with
2% on the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 1.60% total return for John Hancock
Government Income Fund: Class A. The second represents the 1.12% total
return for John Hancock Government Income Fund: Class B. The third
represents the 1.11% total return for the Average general U.S.
government fund. Footnote below reads: "Total returns for John Hancock
Government Income Fund are at net asset value with all distributions
reinvested. The Average general U.S. government fund is tracked by
Lipper Analytical Services.(1) See the following two pages for
historical performance information."
Unwinding the barbell
For most of the period, the Fund was in a barbell. This meant that it
had heavy concentrations in short- and long-maturity bonds with not that
much in intermediate-maturity bonds. This strategy worked well when
rates were rising. But once the Fed raised rates, it seemed time to move
on. We decided to unwind the barbell by selling some of our cash and 30-
year Treasuries and buying intermediate (five- and 10-year) Treasuries.
This put us in a better position to shift toward a bullet structure --
with a heavy concentration in one area -- once the Fed stops raising
rates. A bullet works best when interest rates are stable or heading
down.
We believe the Fed will most likely raise rates one or two more times in
the coming months. But we think that only a short period of increasing
rates will be needed to slow the economy. In the meantime, we expect
bond yields to bounce around in a narrow range. Once a rate hike is out
of the way, we'll most likely add to our mortgage stake in the hopes
that we can pick up some extra yield. We're encouraged that inflation
seems to be staying under wraps even as the economy continues to grow.
This bodes well for the bond market longer term.
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.
1 Figures from Lipper Analytical Services, Inc. include reinvested
dividends and do not take into account sales charges. Actual load-
adjusted performance is lower.
"We're
encouraged
that inflation
seems to be
staying under
wraps..."
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 net asset per share. 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.
CUMULATIVE TOTAL RETURNS
For the period ended March 31, 1997
ONE FIVE LIFE OF
YEAR YEARS FUND
--------- --------- ----------
John Hancock Government Income
Fund: Class A (0.38%) N/A 14.74%(1)
John Hancock Government Income
Fund: Class B (1.56%) 28.98% 78.91%(2)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended March 31, 1997
ONE FIVE LIFE OF
YEAR YEARS FUND
--------- --------- ----------
John Hancock Government Income
Fund: Class A (0.38%) N/A 5.65%(1)
John Hancock Government Income
Fund: Class B (1.56%) 5.22% 6.60%(2)
YIELDS
For the period ended April 30, 1997
SEC
30-DAY
YIELD
----------
John Hancock Government Income
Fund: Class A 5.92%
John Hancock Government Income
Fund: Class B 5.45%
Notes to Performance
(1) Class A shares commenced on September 30, 1994.
(2) Class B shares commenced on February 23, 1988.
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 April 30, 1997,
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 $12,186 as of April 30, 1997. The
second line represents the value of the Lehman Brothers Treasury
Composite Index and is equal to $12,027 as of April 30, 1997. The third
line represents the Government Income Fund, after sales charge and is
equal to $11,638 as of April 30, 1997.
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 $20,766 as of April 30, 1997. The second
line represents the value of the hypothetical $10,000 investment made in
the Government Income Fund on February 23, 1988, and is equal to $18,129
as of April 30, 1997.
* No contingent-deferred sales charge applicable.
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 April 30,
1997. 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
April 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
U.S. government and agencies securities
(cost -- $428,834,394) $422,060,604
Foreign government bonds (cost -- $82,747,017) 81,745,637
Multi-family mortgage backed bonds
(cost -- $9,457,394) 9,258,811
Joint repurchase agreement (cost -- $100,000) 100,000
Corporate savings account 16,825
- ------------------------------------------------------------------------------------
513,181,877
Interest receivable 9,577,529
Other assets 165,547
- ------------------------------------------------------------------------------------
Total Assets 522,924,953
- ------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 3,244,708
Payable for shares repurchased 441,229
Payable for variation margin -- Note A 145,938
Dividend payable 36,119
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B 452,087
Accounts payable and accrued expenses 152,602
- ------------------------------------------------------------------------------------
Total Liabilities 4,472,683
- ------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 547,375,426
Accumulated net realized loss on investments
and financial futures contracts ( 20,914,504)
Net unrealized depreciation of investments and
financial futures contracts ( 7,997,068)
Distributions in excess of net investment income ( 11,584)
- ------------------------------------------------------------------------------------
Net Assets $518,452,270
====================================================================================
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 -- $363,699,531 / 40,862,888 $ 8.90
====================================================================================
Class B -- $154,752,739 / 17,387,000 $ 8.90
====================================================================================
Maximum Offering Price Per Share*
Class A - ($8.90 x 104.71%) $ 9.32
====================================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or
more and on group sales the offering price is reduced.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income
earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $22,214,452
- ------------------------------------------------------------------------------------
Expenses:
Investment management fee -- Note B 1,722,419
Distribution and service fee -- Note B
Class A 472,123
Class B 824,228
Transfer agent fee -- Note B 444,374
Custodian fee 72,239
Financial services fee -- Note B 51,114
Trustees' fees 42,859
Registration and filing fees 42,001
Auditing fee 27,520
Miscellaneous 6,162
Printing 4,706
Legal fees 269
- ------------------------------------------------------------------------------------
Total Expenses 3,710,014
- ------------------------------------------------------------------------------------
Net Investment Income 18,504,438
- ------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized gain on investments sold 1,642,836
Net realized gain on financial futures contracts 278,514
Change in net unrealized appreciation/depreciation
of investments ( 12,235,232)
Change in net unrealized appreciation/depreciation
of financial futures contracts ( 102,655)
- ------------------------------------------------------------------------------------
Net Realized and Unrealized
Loss on Investments ( 10,416,537)
- ------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 8,087,901
====================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- --------------
<S> <C> <C>
Increase in Net Assets:
From Operations:
Net investment income $ 43,226,352 $ 18,504,438
Net realized gain (loss) on investments sold and financial futures contracts ( 3,061,217) 1,921,350
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ( 14,982,333) ( 12,337,887)
------------ ------------
Net Increase in Net Assets Resulting from Operations 25,182,802 8,087,901
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- ($0.6475 and $0.3138 per share, respectively) ( 30,301,964) ( 13,248,662)
Class B -- ($0.5817 and $0.2808 per share, respectively) ( 12,924,388) ( 5,255,776)
Distributions in excess of net investment income
Class A -- ($0.0006 and $0.0001 per share, respectively) ( 24,790) ( 2,460)
Class B -- ($0.0003 and $0.0001 per share, respectively) ( 6,308) ( 78)
------------ ------------
Total Distributions to Shareholders ( 43,257,450) ( 18,506,976)
------------ ------------
From Fund Share Transactions -- Net* ( 105,001,453) ( 45,575,912)
------------ ------------
Net Assets:
Beginning of period 697,523,358 574,447,257
------------ ------------
End of period (including distributions in excess of net investment
of $9,046 and $11,584, respectively) $574,447,257 $518,452,270
============ ============
<CAPTION>
* Analysis of Fund Share Transactions: SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
-------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 2,410,470 $21,862,541 837,119 $ 7,604,687
Shares issued to shareholders in reinvestment
of distributions 1,608,652 14,641,736 725,872 6,530,508
---------- ----------- --------- -----------
4,019,122 36,504,277 1,562,991 14,135,195
Less shares repurchased (10,824,321) (98,756,948) (4,391,431) ( 39,572,956)
---------- ----------- --------- -----------
Net decrease ( 6,805,199) ($62,252,671) (2,828,440) ($25,437,761)
========== =========== ========= ===========
CLASS B
Shares sold 1,969,851 $18,166,729 1,300,666 $11,615,930
Shares issued to shareholders in reinvestment
of distributions 734,239 6,692,313 313,474 2,820,496
---------- ----------- --------- -----------
2,704,090 24,859,042 1,614,140 14,436,426
Less shares repurchased ( 7,418,441) ( 67,607,824) (3,854,137) ( 34,574,577)
---------- ----------- --------- -----------
Net decrease ( 4,714,351) ($42,748,782) (2,239,997) ($20,138,151)
========== =========== ========= ===========
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 and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money shareholders invested in the Fund. The footnote
illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the
corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns,
key ratios and supplemental data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1994
(COMMENCEMENT OF YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
OPERATIONS) TO ---------------------------- APRIL 30, 1997
OCTOBER 31, 1994 1995(1) 1996 (UNAUDITED)
---------------- ------- ------- --------------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.85 $ 8.75 $ 9.32 $ 9.07
--------- --------- --------- ---------
Net Investment Income 0.06 0.72 0.65(5) 0.31(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts ( 0.10) 0.57 ( 0.25) ( 0.17)
--------- --------- --------- ---------
Total from Investment Operations ( 0.04) 1.29 0.40 0.14
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ( 0.06) ( 0.72) ( 0.65) ( 0.31)
--------- --------- --------- ---------
Net Asset Value, End of Period $ 8.75 $ 9.32 $ 9.07 $ 8.90
========= ========= ========= =========
Total Investment Return at Net Asset Value (2,3) ( 0.45%)(4) 15.32% 4.49% 1.60%(4)
Total Adjusted Investment Return at
Net Asset Value (3) ( 0.46%)(4) 15.28% -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 223 $470,569 $396,323 $363,700
Ratio of Expenses to Average Net Assets (2) 0.12%(4) 1.19% 1.17% 1.14%(6)
Ratio of Net Investment Income to Average
Net Assets (2) 0.71%(4) 7.38% 7.10% 7.02%(6)
Portfolio Turnover Rate 92% 102% 106% 112%
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net
investment income, gains (losses), dividends and total investment return of the Fund. It shows how the Fund's net asset value
for a share has changed since the end of the previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
------------------------------------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995(1) 1996 (UNAUDITED)
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value,
Beginning of Period $ 9.79 $ 9.83 $ 10.05 $ 8.75 $ 9.32 $ 9.08
--------- --------- --------- --------- --------- --------
Net Investment Income 0.80 0.70 0.65 0.65 0.58(5) 0.28(5)
Net Realized and Unrealized
Gain (Loss) on Investments,
Options and Financial
Futures Contracts 0.03 0.24 ( 1.28) 0.57 ( 0.24) ( 0.18)
--------- --------- --------- --------- --------- --------
Total from Investment Operations 0.83 0.94 ( 0.63) 1.22 0.34 0.10
--------- --------- --------- --------- --------- --------
Less Distributions:
Dividends from Net
Investment Income ( 0.79) ( 0.72) ( 0.65) ( 0.65) ( 0.58) ( 0.28)
Distributions from Net Realized
Gains on Investments
Sold and Financial
Futures Contracts -- -- ( 0.02) -- -- --
--------- --------- --------- --------- --------- --------
Total Distributions ( 0.79) ( 0.72) ( 0.67) ( 0.65) ( 0.58) ( 0.28)
--------- --------- --------- --------- --------- --------
Net Asset Value, End of Period $ 9.83 $ 10.05 $ 8.75 $ 9.32 $ 9.08 $ 8.90
========= ========= ========= ========= ========= ========
Total Investment Return at
Net Asset Value (2,3) 8.81% 9.86% ( 6.42%) 14.49% 3.84% 1.12%(4)
Total Adjusted Investment Return
at Net Asset Value (3) 8.66% 9.85% ( 6.43%) 14.47% -- --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $225,540 $293,413 $241,061 $226,954 $178,124 $154,753
Ratio of Expenses to
Average Net Assets (2) 2.00% 2.00% 1.93% 1.89% 1.90% 1.87%(6)
Ratio of Net Investment Income
to Average Net Assets (2) 8.03% 7.06% 6.98% 7.26% 6.37% 6.28%(6)
Portfolio Turnover Rate 112% 138% 92% 102% 106% 112%
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(2) Excluding interest expense, which equalled 0.04% for Class A for the year ended October 31, 1995 and 0.15%, 0.01%, 0.01%
and 0.02% for Class B for the years ended October 31, 1992, 1993, 1994 and 1995, respectively.
(3) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) On average month-end shares outstanding.
(6) Annualized.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
April 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Government Income Fund on April 30, 1997.
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 (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Government -- U.S. (38.52%)
United States Treasury,
Bond 15.750% 11-15-01 $34,340 $ 46,466,141
Bond 11.875 11-15-03 17,550 22,337,816
Bond * 12.750 11-15-10 14,000 19,293,680
Bond 12.000 08-15-13 33,700 46,958,928
Bond 8.125 08-15-19 35,000 39,161,850
Bond 6.750 08-15-26 5,500 5,322,130
Bond 6.625 02-15-27 5,000 4,797,650
Note 8.625 08-15-97 3,300 3,329,403
Note 9.250 08-15-98 5,000 5,192,200
Note 8.000 05-15-01 6,500 6,835,140
-------------
199,694,938
-------------
Government -- U.S. Agencies (42.89%)
Federal Home Loan Bank,
Bond 6.250# 06-11-99 1,000 1,000,930
Federal Home Loan Mortgage Corp.,
Global Bond 6.800 05-14-99 5,000 5,000,000
CMO Remic 1094-K 7.000 06-15-21 2,300 2,252,551
CMO Remic 1608-L 6.500 09-15-23 7,000 6,464,010
CMO Remic 1634-PN 4.500 12-15-23 10,575 7,742,804
CMO Remic 1667-PE 6.000 03-15-08 11,750 11,254,268
Federal Judiciary Office Building,
Zero Coupon Bond Zero 02-15-01 250 195,118
Federal National Mortgage Assn.,
10 Yr Pass Thru Ctf 9.150 04-10-98 10,000 10,239,100
30 Yr Pass Thru Ctf 8.500 09-01-24 to 13,382 13,837,589
10-01-24
CMO Remic 1990-51-H 7.500 05-25-20 200 199,562
CMO Remic 1990-58-J 7.000 05-25-20 3,700 3,583,191
CMO Remic 1990-94-D 6.500 08-25-20 1,660 1,588,404
CMO Remic 1991-56-M 6.750 06-25-21 4,000 3,841,240
Medium Term Note 11.875 05-19-00 6,800 7,779,608
Financing Corp.,
Bond 9.400 02-08-18 4,000 4,906,240
Bond 9.650 11-02-18 1,600 2,005,248
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 6.500% 03-20-23 11,716 11,997,888
30 Yr Pass Thru Ctf 7.500 05-15-23 to 93,551 93,115,179
12-15-25
30 Yr Pass Thru Ctf 8.000 09-15-23 to 25,416 25,871,813
08-15-24
30 Yr Pass Thru Ctf 11.000 01-15-14 to 8,489 9,490,923
12-15-15
-------------
222,365,666
-------------
Total U.S. Government and Agencies Securities
(Cost $428,834,394) ( 81.41%) 422,060,604
-------- -------------
FOREIGN GOVERNMENT BONDS
U.S. Dollar Denominated Foreign Government Bonds (15.76%)
Argentina, Republic of,
Bond Ser FRB 6.750# 03-31-05 5,335 4,901,531
Global Bond 11.375 01-30-17 3,000 3,187,500
Brazil, Republic of,
Bond Ser A 6.500# 01-01-01 8,831 8,659,453
Colombia, Republic of,
Bond 7.625 02-15-07 7,250 6,860,312
Hydro-Quebec Corp.,
Deb Ser HK 9.375 04-15-30 5,440 6,373,667
Deb Ser GV 10.700 10-15-07 5,000 5,102,050
Deb 9.400 02-01-21 5,000 5,819,400
International Bank for
Reconstruction & Development,
Bond 7.625 01-19-23 5,700 5,867,409
Landeskreditbank Baden - Wuerttemberg,
Sub Note 7.625 02-01-23 13,650 13,964,769
Ontario Province of,
30 Yr Deb 11.500 03-10-13 12,400 13,424,116
30 Yr Deb 15.250 08-31-12 6,985 7,585,430
-------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $82,747,017) ( 15.76%) 81,745,637
-------- -------------
MULTI-FAMILY MORTGAGE BACKED BONDS (1.79%)
DLJ Mortgage Acceptance Corp.,
CMO 1993-M10-A2 7.200 07-15-03 4,523 4,523,220
CMO 1993-MF7-A1 7.400 06-18-03 4,700 4,735,591
-------------
TOTAL MULTI-FAMILY MORTGAGE BACKED BONDS
(Cost $9,457,953) ( 1.79%) 9,258,811
-------- -------------
TOTAL LONG-TERM BONDS
(Cost $521,039,364) ( 98.96%) 513,065,052
-------- -------------
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ----------- -------------- -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.02%)
Investment in joint repurchase agreement
transaction with Aubrey G. Lanston & Co. -
Dated 4-30-97, Due 5-01-97 (Secured by
U.S. Treasury Bills, 5.37% thru 5.78% Due 8-21-97 thru
3-05-98, U.S. Treasury Bonds, 7.125% thru 11.25%
Due 2-15-15 thru 2-15-23, U.S. Treasury Notes,
5.125% thru 7.75%, Due 8-31-98 thru 5-15-05) -- Note A 5.375% $ 100 $ 100,000
-------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account Current Rate 4.95% 16,825
-------------
TOTAL SHORT-TERM INVESTMENTS ( 0.02%) 116,825
-------- -------------
TOTAL INVESTMENTS ( 98.98%) $ 513,181,877
======== =============
* U.S. Treasury Bonds with a value of $975,709 owned by the Fund were designated as margin deposits for future
contracts at April 30, 1997.
# Represents rates effective on April 30, 1997
The percentage shown for each investment category is the total value of that category as a percentage of the net
assets of the Fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is a diversified, open-end
management investment company, registered under the Investment Company
Act of 1940, as amended. The Trust consists of three series portfolios:
John Hancock Government Income Fund (the "Fund"), John Hancock High
Yield Bond Fund and John Hancock Intermediate Maturity Government Fund.
The other two series of the Trust are reported in separate financial
statements. The investment objective of the Fund is to earn a high level
of current income consistent with preservation of capital by investing
primarily in securities that are issued or guaranteed as to principal
and interest by the U.S. government, its agencies or instrumentalities
("U.S. government securities").
The Trustees have authorized the issuance of multiple 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, redemptions, 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 and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc., 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 $16,766,596 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. If such carryforward is used
by the Fund, no capital gains distribution will be made. The
carryforwards expire as follows: $15,347,195, December 31, 2002 and
$1,419,401, December 31, 2003. The Fund's tax year end is December 31.
DIVIDENDS, INTEREST AND DISTRIBUTIONS 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.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
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.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are determined at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution and service fees, if any, are
calculated daily at the class level based on the appropriated net assets
of each class and the specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust 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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund had no borrowing activity for the period ended
April 30, 1997.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates
and other market conditions. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures
contract, it is 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 is valued at the
official settlement price of the board of trade or U.S. commodities
exchange on which it trades. Subsequent payments, known as "variation
margin," to and from the broker are 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," are recorded by
the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes 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 opening or
realizing the benefits of closing out futures positions because of
position limits or limits on daily price fluctuation 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 April 30, 1997, open positions in financial futures contracts were as
follows:
Unrealized
Expiration Open Contracts Position Depreciation
- ---------- ------------------ -------- --------------
JUN 97 70 Treasury Bond SHORT ($ 938)
JUN 97 325 Treasury Bond SHORT ( 25,313)
-------
($26,250)
=======
OPTIONS Listed options will be valued at the last quoted sales price on
the exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid"
prices obtained from two independent brokers. Written put or call over-
the-counter options will be valued at the average of the "asked" prices
obtained from two independent brokers. Upon the writing of a call or put
option, an amount equal to the premium received by the Fund will be
included in the Statement of Assets and Liabilities as an asset and
corresponding liability. The amount of the liability will be
subsequently marked to market to reflect the current market value of the
written option.
The Fund may use option contracts to manage its exposure to the bond
market. Writing puts and buying calls will tend to increase the Fund's
exposure to the underlying instrument and buying puts and writing calls
will tend to decrease the Fund's exposure to the underlying instrument,
or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the
face (or "notional") amount of each contract at value will reflect the
maximum exposure of the Fund in these contracts, but the actual exposure
will be limited to the change in value of the contract over the period
the contract remains open.
Risks may also arise if counterparties do not perform under the
contract's terms ("credit risk"), or if the Fund is unable to offset a
contract with a counterparty on a timely basis ("liquidity risk").
Exchange-traded options have minimal credit risk as the exchanges act as
counterparties to each transaction, and only present liquidity risk in
highly unusual market conditions. To minimize credit and liquidity risks
in over-the-counter option contracts, the Fund will continuously monitor
the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's
period-end Statement of Assets and Liabilities.
There were no written option transactions for the period ended April 30,
1997.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, 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.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
April 30, 1997, net sales charges received with regard to sales of Class
A shares amounted to $94,430. Out of this amount, $10,582 was retained
and used for printing prospectuses, advertising, sales literature and
other purposes, $68,860 was paid as sales commissions to unrelated
broker-dealers and $14,988 was paid as sales commissions to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker
Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc.
("Sutro"), all of which are broker-dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the
indirect sole shareholder of Distributors and was the indirect
shareholder until November 29, 1996 of John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within 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 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 April 30, 1997, contingent-deferred
sales charges paid to JH Funds amounted to $245,438.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution
Plan with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.25% of Class A average daily net assets and 1.00%
of Class B average daily net assets to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the
period was at an annual rate of 0.01875% of the average net assets of
each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. 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. The unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At April 30, 1997, the Fund's
investments to cover the deferred compensation liability had unrealized
appreciation of $3,495.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1997, aggregated
$592,997,308 and $603,608,719, respectively.
The cost of investments (excluding the corporate savings account) owned
at April 30, 1997 for federal income tax purposes was $521,139,364.
Gross unrealized appreciation and depreciation of investments aggregated
$6,363,784 and $14,338,096, respectively, resulting in net unrealized
depreciation of $7,974,312.
NOTES
John Hancock Funds - Government Income Fund
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
Internet: www.jhancock.com/funds
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
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 the caption
"Printed on Recycled Paper." 560SA 4/97
6/97
June 26, 1997
U.S. Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: John Hancock Bond Trust
Government Income Fund
High Yield Bond Fund
File Nos. 811-3006; 2-66906
Gentlemen:
Pursuant to Form N-30D of the General Rules and Regulations of the
Investment
Company Act of 1940, we are sending Report to Shareholders for the above
captioned Funds dated April 30, 1997.
Sincerely,
/s/ MARILYN LUTZER
Marilyn Lutzer
John Hancock Funds
High Yield
Bond
Fund
SEMI-ANNUAL REPORT
April 30, 1997
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has
given investors its starkest reminder in a while of one of investing's
basic tenets: markets move down as well as up. It's understandable if
investors had lost sight of that fact. The bull market that began six
years ago has given investors annual double-digit returns and more
modest price declines than usual. And in the two years encompassing 1995
and 1996, the S&P 500 Index gained more than 50%. This Pollyanna
environment has tracked along with a sustained economic recovery, now in
its seventh year, that has been marked by moderate growth, low interest
rates and tame inflation.
Page 2
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average
tumbled by more than 7% at the end of March and wiped out nearly all it
had gained since the start of the year. It was the worst decline that
the market had seen since 1990. In early April, the Dow was down by
9.8%, within shouting distance of a 10% correction. By the end of the
month, it had bounced back into record territory again.
As the market continues to fret over interest rates and inflation,
investors should be prepared for more volatility. It also makes sense to
do something we've always advocated: set realistic expectations. Keep in
mind that the stock market's historic yearly average has been about 10%,
not the 20%-plus annual average of the last two years or even the 16%
annual average over the last 10 years. Remember that the kind of market
volatility we've seen lately is more like the way the market really
works. Fluctuations go with the territory. And market corrections can be
healthy, serving to bring inflated stock prices down to more reasonable
levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make
sure that your investment strategies reflect your individual time
horizons, objectives and risk tolerance, and that they are based upon
your needs. Despite turbulence, one thing remains constant. A well-
constructed plan and a cool head can be the best tools for reaching your
financial goals.
Sincerely,
/S/EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY ARTHUR CALAVRITINOS, CFA, PORTFOLIO MANAGER
John Hancock
High Yield Bond Fund
High-yield bonds outperform Treasuries as interest rates rise
Arthur Calavritinos (right) and Fund management team members (l - r)
Fred Cavanaugh, Linda Carter and Jamie Kellogg
The bond market traveled a rough road during the last six months, as
signs of a strengthening economy sent bond prices down and interest
rates up in anticipation of an inflation outbreak that has yet to occur.
Some high-yield bonds felt the effects of the interest-rate upswing more
than others. In particular, bonds rated BB, which have the highest of
the below-investment-grade credit ratings, saw their yields come very
close to those of Treasury bonds during the period and their prices fell
in tandem with Treasuries during the downturn. On the other hand, other
lower-quality high-yield bonds, including single Bs which are the Fund's
main focus, were more cushioned by their higher yields, and their prices
held in better. As a group, high-yield bonds nicely outperformed
Treasuries, which had a hard time even breaking even over the last six
months. Between October 31, 1996 and April 30, 1997, Treasury bonds with
10 year maturities gained 0.38%, while the broad high yield market
returned 5.07%, as measured by the Merrill Lynch high-yield bond index.
"The bond
market
traveled a
rough road
during the
last six
months..."
The favorable economic environment also served the high-yield bond
market well. Companies have generally been able to pay their lenders,
keeping defaults to a minimum, and some high-yield bond prices have been
boosted by corporate mergers and consolidations. What's more, there is
still a healthy level of capital sustaining the high-yield bond market.
Banks are more willing to lend to high-yield companies, and investors
continue to seek higher yields in a relatively low interest rate
environment. That has helped reduce the refinancing risks that high-
yield companies -- those with credit ratings considered below investment
grade with higher risks of default -- used to face earlier in the 1990s
when their debt matured and they sought replacement loans.
Chart with heading "Top Five Securities" at top of left hand column. The
chart lists five holdings: 1) Gaylord Container 3.8% 2) Gulf States
Steel 3.5% 3) Northwest Airlines 3.3% 4) NS Group 3.1% 5) Hills Stores
2.9%. A footnote below reads: "As a percentage of net assets on April
30, 1997."
"The biggest
contributors
to performance
were
our airline
stocks..."
Performance review
For the six months ended April 30, 1997, John Hancock High Yield Bond
Fund posted total returns for Class A and Class B shares of 6.99% and
6.59%, respectively, at net asset value. By comparison, the average high
current yield bond fund returned 4.69% for the same period, according to
Lipper Analytical Services, Inc.1 Please see pages six and seven for
longer term performance information.
We attribute the Fund's outperformance to several factors. One is our
strategy of focusing on companies with a credit rating of single-B,
because these companies are often less sensitive to changes in interest
rates than are the higher-rated BB below-investment-grade bonds. While
single-B's credit ratings are lower, and therefore their risk somewhat
higher than the BB's, we'd prefer to apply our resources to fundamental
company analysis to be comfortable with the business risk we are taking
with single B's. At the same time, we're also reducing our exposure to
interest-rate risk. But our attention to single-B bonds is not to the
exclusion of the rest of the high-yield universe. Indeed, the Fund's
Trustees recently agreed to expand from 10% to 30% the maximum amount of
the Fund's assets that can be invested in bonds rated CC/Ca by the major
rating agencies, or their unrated equivalent. This gives the Fund
greater flexibility to find high-yield opportunities, while still
applying the same in-depth analysis to find credits whose business
prospects we believe make them worth the extra risk. Our focus on
"special situation" companies during the period also paid off.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left column is "Investment"; the header for the right column is
"Recent performance .... and what's behind the numbers." The first
listing is US Airways followed by an up arrow and the phrase "Rising
earnings and preferred stock payoff boost results." The second listing
is Nextel Communications followed by an up arrow and the phrase "New
telephone technology proves effective." The third listing is Barry's
Jewelers followed by a down arrow followed by the phrase "Lax controls
prompt management change." Footnote below reads: "See "Schedule of
Investments." Investment holdings are subject to change."
Airlines fly
The biggest contributors to performance were our airline stocks which,
as we've said before, we own because of our extensive knowledge of the
airline industry honed over eight years of buying the airlines' high-
yield bonds. Because their fortunes have improved, the airlines don't
issue many high-yield bonds now. But we're taking advantage of the
Fund's ability to selectively own stock and sticking with airline stocks
because of the industry's compelling fundamentals. Northwest Airlines
rebounded strongly (17%) during the period on favorable earnings
reports. Strong demand and tight capacity continue to fuel results. Our
US Airways (formerly USAir) convertible preferred stock was another
winner. When we bought it, the airline was in arrears for 11 consecutive
contractual quarterly dividend payments to its preferred stockholders.
But our analysis of the company and its new management convinced us that
the airline was a turnaround candidate. Within a month, US Airways had
posted such strong earnings that it made up all 11 quarterly payments in
one distribution. On top of that, the stock price has risen
substantially.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the six months ended April 30,
1997." The chart is scaled in increments of 2% from top to bottom, with
8% at the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 6.99% total return for John Hancock
High Yield Bond Fund: Class A. The second represents the 6.59% total
return for John Hancock High Yield Bond Fund: Class B. The third
represents the 4.69% total return for the average high current yield
fund. Footnote below reads: "Total returns for John Hancock High Yield
Bond Fund are at net asset value with all distributions reinvested. The
average high current yield fund is tracked by Lipper Analytical
Services.(1) See the following two pages for historical performance
information."
Many of our bonds in the cyclical sectors, including several of our
steel companies, continued to earn their keep. Their prices remained
stable when other bond prices fell. At the same time the bonds have
attractive yields, such as our 13.5% Gulf States Steel bonds. We also
did well with our Algoma Steel bonds, which we sold for a profit during
the period.
Humvees drag
There were also several thorns among the roses. AM General, the makers
of the Humvee military vehicle, suffered from a temporary slowdown in
orders from foreign governments. An even bigger disappointment was our
Barry's Jewelers bonds, which we bought as a play on the rebounding
California economy and based on expectations from a new management team.
But lax inventory, computer and credit controls caused a disappointing
holiday season and resulted in another change in management.
A word about yield
During the period, several of our highest yielding bonds among our top
holdings were called away from the Fund, which caused a drop in the
Fund's yield. The two that were redeemed by their issuers were both
bonds issued in the mid- 1980s that had very attractive yields (14.50%
and 12.75%) and solid credit stories. Their risk/reward characteristics
are difficult, if not impossible, to duplicate today. Even if we could
find bonds with similar yields, the underlying assets and earnings
quality just wouldn't be there, and we're not ready to take that level
of risk. There is only one other bond of significant weighting in the
portfolio that is subject to being called in the near future.
"We remain
as cautious
as we
were six
months ago
about the
short-term
prospects..."
A look ahead
We remain as cautious as we were six months ago about the short-term
prospects for high-yield bonds. It's getting even harder to find special
situations that offer solid credits with good yields at attractive
prices, since the strong demand has pushed prices up. In this
environment, we'll increase the size of some of our current positions,
but we'll also diversify more, spreading the risk by taking smaller
positions in more companies. Longer-term, however, the strong
supply/demand fundamentals still favor the high-yield bond market.
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.
1 Figures from Lipper Analytical Services, Inc. include reinvested
dividends and do not take into account sales charges. Actual load-
adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock High Yield Bond 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 net asset value per share.
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.
CUMULATIVE TOTAL RETURNS
For the period ended March 31, 1997
One Five LIFE OF
Year Years FUND
----- ----- -------
John Hancock High Yield Bond Fund:
Class A(1) 8.63% N/A 33.05%
John Hancock High Yield Bond Fund:
Class B(2) 7.90% 60.97% 126.41%
AVERAGE ANNUAL TOTAL RETURNS
For the period ended March 31, 1997
One Five LIFE OF
Year Years FUND
----- ----- -------
John Hancock High Yield Bond Fund:
Class A(1) 8.63% N/A 7.91%
John Hancock High Yield Bond Fund:
Class B(2) 7.90% 9.99% 9.05%
YIELDS
As of April 30, 1997
SEC 30-DAY
YIELD
----------
John Hancock High Yield Bond Fund:
Class A 9.92%
John Hancock High Yield Bond Fund:
Class B 9.63%
Notes to Performance
(1) Class A shares commenced on June 30, 1993.
(2) Class B shares commenced on October 26, 1987.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock High Yield Bond Fund would be worth on April 30, 1997, 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 High Yield Bond Index -- an unmanaged
index of fixed-income securities that are similar, but not identical, to
the bonds in the Fund's portfolio.
High Yield Bond Fund
Class A shares
Line chart with the heading High Yield Bond 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 High Yield Bond
Fund on June 30, 1993, before sales charge, and is equal to $14,118 as
of April 30, 1997. The second line represents the value of the Lehman
Brothers High Yield Bond Index and is equal to $13,791 as of April 30,
1997. The third line represents the High Yield Bond Fund, after sales
charge, and is equal to $13,483 as of April 30, 1997.
High Yield Bond Fund
Class B shares
Line chart with the heading High Yield Bond Fund 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 High Yield Bond Index and is
equal to $24,740 as of April 30, 1997. The second line represents the
value of the hypothetical $10,000 investment made in the High Yield Bond
Fund on October 26, 1987, before sales charge, and is equal to $22,937
of April 30, 1997.
Footnote reads:
* No contingent-deferred sales charge applicable.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond 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 April 30, 1997. You'll also find the net asset value
and the maximum offering price per share as of that date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Bonds (cost -- $360,549,819) $363,499,827
Common stocks, preferred stocks and warrants
(cost - $66,472,293) 70,491,760
Joint repurchase agreement (cost -- $3,953,000) 3,953,000
Corporate savings account 152,558
------------
438,097,145
Receivable for shares sold 2,164,168
Receivable for investments sold 2,729,833
Receivable for forward foreign currency exchange
contracts sold -- Note A 10,389
Interest receivable 10,842,554
Dividend receivable 82,302
Other assets 82,758
------------
Total Assets 454,009,149
- -------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 11,821,547
Payable for shares repurchased 564,065
Payable to John Hancock Advisers, Inc. and affiliates --
Note B 260,842
Accounts payable and accrued expenses 116,349
------------
Total Liabilities 12,762,803
- ------------------------------------------------------------------------------
Net Assets:
Capital paid-in 440,992,907
Accumulated net realized loss on investments
and foreign currency transactions ( 7,086,483)
Net unrealized appreciation of investments
and foreign currency transactions 7,383,795
Distributions in excess of net investment income ( 43,873)
------------
Net Assets $441,246,346
===============================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding -- 125,000,000 shares
authorized with $0.01 per share par value, respectively)
Class A -- $89,210,915/11,612,369 $ 7.68
===============================================================================
Class B -- $352,035,431/45,823,601 $ 7.68
===============================================================================
Maximum Offering Price Per Share*
Class A -- ($7.68 x 104.71%) $ 8.04
===============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or
more and on group sales the offering price is reduced.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for the
period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $19,673,826
Dividends (net of foreign withholding taxes of $3,416) 1,062,022
------------
20,735,848
------------
Expenses:
Investment management fee -- Note B 995,804
Distribution and service fee -- Note B
Class A 91,934
Class B 1,484,402
Transfer agent fee -- Note B 223,038
Registration and filing fees 98,097
Custodian fee 40,647
Financial services fee -- Note B 34,728
Trustees' fees 21,803
Auditing fee 20,487
Printing 11,274
Legal fees 3,202
Miscellaneous 2,056
------------
Total Expenses 3,027,472
- ---------------------------------------------------------------------------------
Net Investment Income 17,708,376
- ---------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 5,684,931
Net realized gain on foreign currency transactions 342,566
Change in net unrealized appreciation/depreciation
of investments ( 677,569)
Change in net unrealized appreciation/depreciation
of foreign currency transactions 75,370
------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions 5,425,298
- ---------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $23,133,674
=================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 22,815,855 $ 17,708,376
Net realized gain on investments sold and foreign currency transactions 8,029,590 6,027,497
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions 3,085,336 ( 602,199)
-------------- --------------
Net Increase in Net Assets Resulting from Operations 33,930,781 23,133,674
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income:
Class A -- ($0.7560 and $0.3866 per share, respectively) ( 3,878,979) ( 3,745,599)
Class B -- ($0.7024 and $0.3579 per share, respectively) ( 18,935,736) ( 13,954,975)
-------------- --------------
Total Distributions to Shareholders ( 22,814,715) ( 17,700,574)
-------------- --------------
From Fund Share Transactions -- Net*: 77,581,499 140,077,628
-------------- --------------
Net Assets:
Beginning of period 207,038,053 295,735,618
-------------- --------------
End of period (including distributions in excess of net investment income
of $51,675 and $43,873, respectively) $295,735,618 $441,246,346
============== ==============
<CAPTION>
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 8,767,330 $ 65,045,830 7,339,912 $ 56,308,489
Shares issued to shareholders in reinvestment
of distributions 274,586 2,040,722 248,359 1,910,476
------------ ------------ ------------ ------------
9,041,916 67,086,552 7,588,271 58,218,965
------------ ------------ ------------ ------------
Less shares repurchased ( 5,722,882) ( 42,359,728) ( 2,968,975) ( 22,850,487)
------------ ------------ ------------ ------------
Net increase 3,319,034 $ 24,726,824 4,619,296 $ 35,368,478
============ ============ ============ ============
CLASS B
Shares sold 16,014,384 $119,134,111 19,528,062 $149,968,263
Shares issued to shareholders in reinvestment
of distributions 1,109,704 8,233,250 719,797 5,537,721
------------ ------------ ------------ ------------
17,124,088 127,367,361 20,247,859 155,505,984
------------ ------------ ------------ ------------
Less shares repurchased (10,029,960) ( 74,512,686) ( 6,605,769) ( 50,796,834)
------------ ------------ ------------ ------------
Net increase 7,094,128 $ 52,854,675 13,642,090 $104,709,150
============ ============ ============ ============
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 and foreign currency
gains and losses, distributions paid to shareholders and any increase or decrease in money shareholders
invested in the Fund. The footnote illustrates the number of Fund shares sold, reinvested and repurchased
during the last two periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment
returns, key ratios and supplemental data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FROM JUNE 30, 1993 YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ---------------------------------- APRIL 30, 1997
TO OCTOBER 31, 1993 1994 1995(1) 1996 (UNAUDITED)
---------------------------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.10 $ 8.23 $ 7.33 $ 7.20 $ 7.55
-------- ------- ------- ------- -------
Net Investment Income 0.33 0.80(2) 0.72 0.76(2) 0.39(2)
Net Realized and Unrealized Gain (Loss)
on Investments and
Foreign Currency Transactions 0.09 ( 0.83) ( 0.12) 0.35 0.13
-------- ------- ------- ------- -------
Total from Investment Operations 0.42 ( 0.03) 0.60 1.11 0.52
-------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.29) ( 0.82) ( 0.73) ( 0.76) ( 0.39)
Distributions from Net Realized Gain on
Investments Sold -- ( 0.05) -- -- --
-------- ------- ------- ------- -------
Total Distributions ( 0.29) ( 0.87) ( 0.73) ( 0.76) ( 0.39)
-------- ------- ------- ------- -------
Net Asset Value, End of Period $ 8.23 $ 7.33 $ 7.20 $ 7.55 $ 7.68
======== ======= ======= ======= =======
Total Investment Return at Net Asset Value(3) 4.96%(4) ( 0.59%) 8.83% 16.06% 6.99%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 2,344 $11,696 $26,452 $52,792 $89,211
Ratio of Expenses to Average Net Assets 0.91%(5) 1.16% 1.16% 1.10% 1.04%(5)
Ratio of Net Investment Income to Average
Net Assets 12.89%(5) 10.14% 10.23% 10.31% 10.19%(5)
Portfolio Turnover Rate 204% 153% 98% 113% 61%
The Financial Highlights summarizes the impact of the following factors on a single share for each period
indicated: net investment income, gains (losses), dividends and total investment return of the Fund. It shows
how the Fund's net asset value for a share has changed since the end of the previous period. Additionally, important relationships
between some items presented in the financial statements are expressed in ratio form.
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
----------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995(1) 1996 (UNAUDITED)
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 7.44 $ 7.43 $ 8.23 $ 7.33 $ 7.20 $ 7.55
------- ------- ------- ------- ------- --------
Net Investment Income 0.87 0.80 0.74(2) 0.67 0.70(2) 0.36(2)
Net Realized and Unrealized Gain (Loss) on
Investments and
Foreign Currency Transactions ( 0.04) 0.75 ( 0.83) ( 0.13) 0.35 0.13
------- ------- ------- ------- ------- --------
Total from Investment Operations 0.83 1.55 ( 0.09) 0.54 1.05 0.49
------- ------- ------- ------- ------- --------
Less Distributions:
Dividends from Net Investment Income ( 0.84) ( 0.75) ( 0.76) ( 0.67) ( 0.70) ( 0.36)
Distributions from Net Realized Gain on Investments
Sold -- -- ( 0.05) -- -- --
------- ------- ------- ------- ------- --------
Total Distributions ( 0.84) ( 0.75) ( 0.81) ( 0.67) ( 0.70) ( 0.36)
------- ------- ------- ------- ------- --------
Net Asset Value, End of Period $ 7.43 $ 8.23 $ 7.33 $ 7.20 $ 7.55 $ 7.68
======= ======= ======= ======= ======= ========
Total Investment Return at Net Asset Value(3) 11.56% 21.76% ( 1.33%) 7.97% 15.24% 6.59%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $98,560 $154,214 $160,739 $180,586 $242,944 $352,035
Ratio of Expenses to Average Net Assets 2.25% 2.08% 1.91% 1.89% 1.82% 1.78%(5)
Ratio of Net Investment Income to Average Net Assets 11.09% 10.07% 9.39% 9.42% 9.49% 9.41%(5)
Portfolio Turnover Rate 206% 204% 153% 98% 113% 61%
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) Annualized.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
April 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the High Yield Bond Fund on April 30, 1997. It's divided
into three main categories: bonds, common and preferred stocks and warrants, and short-term investments. The bonds are further
broken down by industry groups. Under each industry group is a list of the bonds owned by the Fund. Short-term investments, which
represent the Fund's "cash" position, are listed last.
PAR VALUE
INTEREST S&P (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------ --------- ------
<S> <C> <C> <C> <C>
BONDS
Advertising (1.35%)
Jordan Industries, Inc., Sr Sub Deb 04-01-09, Step Coupon (11.75%,
4-01-02) (A) (R) Zero% B $ 11,259 $ 5,967,113
-------------
Banks -- Foreign (0.09%)
Sumitomo Bank International Finance N.V., Gtd Sub Note 05-31-01
(Japan) # (R) 0.750 A2 50,000 419,523
-------------
Building (0.71%)
Fortress Group, Inc., Sr Note 05-15-03 13.750 B3 3,000 3,150,000
-------------
Chemicals (0.79%)
Key Plastics, Inc., Sr Note 11-15-99 14.000 B+ 1,365 1,521,975
OPP Petroquimica S.A., Bond 10-29-04 (Brazil) (R) (Y) 11.000 B 2,000 1,985,000
-------------
3,506,975
-------------
Computers (0.45%)
Computervision Corp., Sr Sub Note 08-15-99 11.375 B- 2,000 1,977,500
-------------
Containers (4.62%)
AMTROL Inc., Sr Sub Note 12-31-06 10.625 B- 1,875 1,921,875
Gaylord Container Corp., Sr Sub Disc Deb 05-15-05 12.750 B- 13,500 14,512,500
Owens-Illinois, Inc.,
Sr Deb 12-01-03 11.000 BB 2,000 2,222,500
Sr Sub Note 04-01-99 10.250 BB- 1,700 1,706,375
-------------
20,363,250
-------------
Diversified Operations (0.76%)
Reeves Industries, Inc., Sr Note 07-15-02 11.000 B- 4,000 3,360,000
-------------
Electronics (0.15%)
Electronic Retailing Systems International, Inc., Unit
(Sr Disc Note 02-01-04 & Warr.) 13.250 B 1,000 675,000
-------------
Energy (0.45%)
Panda Global Energy Co., Sr Note 04-15-04 (R) 12.500 B- 2,100 1,995,000
-------------
Financial (4.58%)
Intertek Finance PLC, Sr Sub Note 11-01-06 (United Kingdom) (R) (Y) 10.250% B2 1,150 1,181,625
Trump Atlantic City Associates, Co Gtd 05-01-06 11.250 BB- 7,000 6,807,500
Trump Castle Funding, Inc., Mtg 11-15-03 11.750 CAA 3,000 2,572,500
Trump Holdings & Funding Corp., Sr Note 06-15-05 15.500 B+ 8,520 9,627,600
-------------
20,189,225
-------------
Foods (5.22%)
Americold Corp., Sr Sub Note 05-01-08 12.875 B- 2,000 2,080,000
CFP Holdings Inc., Sr Note 01-15-04 (R) 11.625 B+ 6,500 6,597,500
Del Monte Corp., Sr Sub Note 04-15-07 (R) 12.250 B- 500 510,000
International Home Foods, Inc., Co Gtd 11-01-06 10.375 B- 2,000 2,040,000
Specialty Foods Acquisition Corp., Sr Sub Note Ser B 08-15-03 11.250 B- 8,000 7,120,000
TLC Beatrice International Holdings Inc., Sr Note 10-01-05 11.500 BB- 2,000 2,190,000
White Rose Foods, Inc., Sr Note Ser B 11-01-98 Zero B- 3,000 2,490,000
-------------
23,027,500
-------------
Governmental -- Foreign (0.70%)
Italy, Republic of, Privatization Exchangeable Note 06-28-01 (Italy) (Y) 5.000 AA3 1,000 980,000
United Mexican States, Bond 09-15-16 (Mexico) (Y) 11.375 BB 2,000 2,115,000
-------------
3,095,000
-------------
Government -- U.S. (1.67%)
United States Treasury, Note 08-15-97 8.625 AAA 7,300 7,365,043
-------------
Leisure & Recreation (7.69%)
Argosy Gaming Co., Sub Note 06-01-01 12.000 B- 250 177,500
Casino America, Inc., Sr Sec Note 08-01-03 12.500 B 11,200 11,284,000
Casino Magic Corp. -- Louisiana, 1st Mtg 08-15-03 (R) 13.000 B- 5,500 4,565,000
Coast Hotels & Casinos, Inc., 1st Mtg Ser B 12-15-02 13.000 B 3,000 3,285,000
GB Property Funding Corp., 1st Mtg 01-15-04 10.875 B 10,000 8,400,000
IHF Holdings Inc., Sr Disc Note Ser B 11-15-04, Step Coupon
(15.00%, 11-15-99) (A) Zero CCC+ 1,500 1,230,000
Lady Luck Gaming Corp., 1st Mtg 03-01-01 11.875 B- 2,750 2,750,000
Showboat, Inc., Sr Sub Note 08-01-09 13.000 B 2,000 2,260,000
-------------
33,951,500
-------------
Machinery (0.91%)
Willcox & Gibbs, Inc., Sr Note 12-15-03 (R) 12.250 B+ 4,000 4,010,000
-------------
Manufacturing (1.32%)
Geberit International, S.A., Sr Sub Note 04-15-07 (Luxembourg) # (R) (Y) 10.125 B+ 100 59,773
J.B. Poindexter & Co., Inc., Sr Note 05-15-04 12.500 B- 5,750 5,750,000
-------------
5,809,773
-------------
Media (3.90%)
American Telecasting, Inc., Sr Disc Note Ser B 08-15-05,
Step Coupon (14.50%, 08-01-00) (A) Zero% CCC+ 2,000 630,000
Australis Media Ltd., Unit (Sr Sub Disc Note 05-15-03 & Warr.),
Step Coupon (15.75%, 05-15-00), (Australia) (A) (Y) Zero B 3,000 1,740,000
Intermedia Capital Partners, Sr Note 08-01-06 11.250 B 1,000 1,027,500
Marcus Cable Company, L.P., Sr Disc Note 12-15-05,
Step Coupon (14.25%, 06-15-00) (A) Zero B 12,000 8,550,000
Scandinavian Broadcasting System S.A., Sub Deb 08-01-05 (Luxembourg) (Y) 7.250 B 555 496,725
TCI Satellite Entertainment, Inc., Sr Sub Note 02-15-07 (R) 10.875 B 5,000 4,750,000
-------------
17,194,225
-------------
Medical Products (0.24%)
Quest Diagnostics, Inc., Sr Sub Note 12-15-06 10.750 B+ 1,000 1,052,500
-------------
Oil & Gas (2.10%)
Kelly Oil & Gas Partners Ltd.,
Sub Note 12-15-99 7.875 B- 4,550 4,186,000
Deb 04-01-00 8.500 B- 1,500 1,410,000
Maxus Energy Corp., Deb 11-15-15 11.500 BB- 2,000 2,100,000
Tokheim Corp., Sr Sub Note Ser B 08-01-06 11.500 B3 1,500 1,590,000
-------------
9,286,000
-------------
Paper (2.88%)
APP Finance II Mauritius Ltd., Bond 12-29-49 (Indonesia) (R) (Y) 12.000 B+ 2,000 1,872,500
APP International Finance Co. B.V., Gtd Sec Note 10-01-05
(Indonesia) (R) (Y) 11.750 BB 750 781,875
Florida Coast Paper LLC, 1st Mtg Ser B 06-01-03 12.750 B 4,000 3,840,000
Grupo Industrial Durango, S.A., Note 08-01-03 (Mexico) (Y) 12.625 BB- 615 662,662
Indah Kiat International Finance Co., Co Gtd Ser C 06-15-06
(Indonesia) (Y) 12.500 BB 2,500 2,728,125
Repap New Brunswick, Sr Note 04-15-05 (Canada) (Y) 10.625 CC 3,000 2,820,000
-------------
12,705,162
-------------
Pollution Control (1.91%)
ICF Kaiser International, Inc.,
Sr Note Ser B 12-31-03 13.000 B 1,000 1,031,250
Sr Sub Note 12-31-03 13.000 B- 750 712,500
Unit (Sr Sub Note & Warr.) 12-31-03 13.000 B- 7,000 6,667,500
-------------
8,411,250
-------------
Printing (0.47%)
Sullivan Graphics, Inc., Sr Sub Note 08-01-05 12.750 CAA 2,000 2,080,000
-------------
Protection (0.64%)
Mosler, Inc., Sr Note Ser A 04-15-03 11.000 CCC- 3,000 2,805,000
-------------
Retail (10.44%)
Barry's Jewelers, Inc., Sr Note 12-22-00 11.000 B3 6,000 4,620,000
Big 5 Holdings, Sr Sub Note Ser B 09-15-02 13.625 B- 7,940 8,416,400
Central Tractor Farm & Country, Inc. Sr Note 04-01-07 10.625 B+ 1,500 1,522,500
Duane Reade Corp., Sr Note 09-15-02 12.000 B- 636 661,440
Hills Stores Co., Sr Note Ser B 07-01-03 12.500 B2 14,250 12,682,500
International Semi-Tech Microelectronics Inc.,
Sr Disc Note 08-15-03, Step Coupon (11.50%, 08-15-00) (Canada) (A) (Y) Zero B+ 17,282 9,591,510
Lechters, Inc., Sub Note 09-27-01 5.000 B 500 320,000
Pueblo Xtra International, Inc., Sr Note Ser B 08-01-03 (R) 9.500 B 1,750 1,610,000
Remington Arms Company, Inc., Sr Sub Note 12-01-03 (R) 10.000 B 4,000 3,120,000
Star Markets Company, Inc., Sr Sub Note 11-01-04 13.000 CCC+ 2,000 2,240,000
Supermercados Norte, Bond 02-09-04 (Argentina) (R) (Y) 10.875 B1 1,300 1,293,500
-------------
46,077,850
-------------
Steel (13.57%)
Algoma Steel, Inc., 1st Mtg 07-15-05 12.375 B 1,500 1,661,250
Altos Hornos de Mexico S.A., Bond 04-30-04 (Mexico) (R) (Y) + 11.875 B1 1,000 996,080
Gulf States Steel, Inc. of Alabama, 1st Mtg 04-15-03 13.500 B 16,250 15,356,250
Haynes International, Inc., Sr Note 09-01-04 11.625 B- 10,000 10,650,000
IVACO, Inc., Sr Note 09-15-05 (Canada) (Y) 11.500 B+ 3,188 3,363,340
NS Group, Inc.,
Sr Note 07-15-03 13.500 B- 3,000 3,300,000
Unit (Sr Sec Note 07-15-03 & Warr.) 13.500 B- 9,000 10,215,000
Republic Engineered Steels, Inc., 1st Mtg 12-15-01 9.875 CCC+ 12,000 10,800,000
Sheffield Steel Corp., Sr Note 11-01-01 12.000 B3 3,150 2,961,000
Weirton Steel Corp., Sr Note 03-01-98 11.500 B 580 582,900
-------------
59,885,820
-------------
Telecommunications (11.18%)
Comunicacion Celular S.A.,
Bond 11-15-03, Step Coupon (13.125%, 11-15-00), (Colombia) (A) (Y) Zero B+ 3,250 2,258,750
EchoStar Satellite Broadcasting Corp.,
Sr Disc Note 03-15-04, Step Coupon (13.125%, 3-15-00) (A) Zero B- 12,445 9,209,300
Fonorola, Inc., Gtd Sr Sec Note 08-15-02 (Canada) (Y) 12.500 B+ 1,500 1,620,000
Globalstar L.P. Capital, Unit (Sr Note 02-15-04 & Warr.) (R) 11.375 B 10,125 9,973,125
IMPSAT Corp., Gtd Sr Sec Note 07-15-03 12.125 BB- 835 870,488
Innova S de R.L., Sr Note 04-01-07 (Mexico) (R) (Y) 12.875 B- 2,000 1,960,000
McCaw International Ltd.,
Unit (Sr Disc Note 04-15-07 & Warr.), Step Coupon (13.000%, 4-15-02) (A) Zero B 5,750 2,788,750
Mobile Telecommunication Technologies Corp., Sr Note 12-15-02 13.500 B- 2,500 2,475,000
Nextel Communications, Inc.,
Sr Disc Note 09-01-03, Step Coupon (11.500%, 9-01-98) (A) Zero CCC- 2,000 1,650,000
Sr Disc Note 08-15-04, Step Coupon (9.750%, 2-15-99) (A) Zero CCC- 14,900 10,839,750
Paging Network, Inc., Sr Sub Note 10-15-08 10.000 B 4,050 3,604,500
Primeco, Inc., Sr Sub Note 03-01-05 12.750 B 667,000 750,375
Shared Technologies Fairchild, Inc.,
Sr Sub Disc Note 03-01-06, Step Coupon (12.25%, 3-01-99) (A) Zero CAA 1,600 1,316,000
-------------
49,316,038
-------------
Textiles (0.44%)
Apparel Ventures, Inc., Sr Note Ser B 12-31-00 12.250 B- 2,350 1,927,000
-------------
Tobacco (0.12%)
Liggett Group, Inc., Sr Note Ser B 02-01-99 11.500 B 1,000 550,000
-------------
Transportation (1.60%)
AM General Corp., Sr Note Ser B 05-01-02 12.875 B 5,500 5,005,000
Greyhound Lines, Inc., Sr Note 04-15-07 (R) 11.500 B 2,000 2,035,000
-------------
7,040,000
-------------
Utilities (1.43%)
CE Casecnan Water & Energy Co., Inc., Sr Note Ser A 11-15-05
(Philippines) (Y) 11.450 BB 2,000 2,162,500
Long Island Lighting Co., Deb 07-15-19 8.900 BB+ 4,000 4,144,080
-------------
6,306,580
-------------
TOTAL BONDS
(COST $360,549,819) ( 82.38%) 363,499,827
-------- -------------
<CAPTION>
NUMBER OF SHARES MARKET
ISSUER, DESCRIPTION UNITS OR WARRANTS VALUE
- ------------------- ----------------- ------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
American Telecasting, Warrants** 2,000 $ 7,000
AVI Holdings Inc., Warrants (R) ** 1,500 7,500
Ampex Corp., Common Stock (Class A)** 100,000 562,500
Barry's Jewelers, Inc., Common Stock** 40,000 27,500
Bowater Inc., Common Stock 100,820 4,360,465
Browne Bottling Co., Warrants ** 237 2
Burlington Motor Holdings Inc., Warrants** 95 --
Burlington Motor Holdings Inc., Pref Stock 90 37,500
Cablevision Systems Corp., Ser M Pref Stock 21,127 1,938,402
Chancellor Broadcasting, Ser A Pref Stock 20,612 2,226,096
CHC Helicopter Corp., Warrants (Canada) (Y)** 16,000 8,000
Comunicacion Celular SA, Warrants (Colombia) (Y)** 32,500 243,750
Continental Air Finance Trust, Pref Stock (R) 45,500 3,287,375
Crown Packaging Holdings Ltd., Common Stock (Canada) (Y)** 2,750 22,000
Decorative Home Accents, Common Stock** 1,000 10
Farm Fresh Holdings Corp., Common Stock (Class B)** 1,000 9,750
Gaylord Container Corp., Common Stock (Class A)** 400,000 2,225,000
Great Atlantic & Pacific Tea Company Inc., Common Stock 150,000 3,731,250
Haynes Holdings, Inc., Common Stock** 67,938 798,272
ICF Kaiser International, Inc., Warrants** 7,000 3,500
Ithaca Industries, Inc., Common Stock** 235,000 1,880,000
Lady Luck Gaming Corp., Common Stock** 66,335 2,122,720
Mercury Finance Co., Common Stock** 200,000 325,000
Nextlink Communications, Unit (Pref Stock & Warr.) (R) 30,000 1,410,000
Northwest Airlines Corp., Common Stock (Class A)** 370,000 14,430,000
Qantas Airways Ltd., Common Stock American Depositary Shares (ADS) (Australia) # (R) (Y) 32,200 670,742
Qualcomm Financial Trust, Pref Stock (R) 60,000 2,640,000
Renaissance Cosmetics, Warrants** 4,000 200,000
SFX Broadcasting, Inc., Ser E Pref Stock 90,000 8,921,250
Sheffield Steel Corp., Warrants** 500 1,500
Sterling Chemicals Holdings, Warrants** 1,000 35,000
Swissair Schweizerische Luftverkehr AG Reg Shares, (Switzerland) # ** 3,400 2,976,712
USX-Delhi Group, Common Stock 305,000 3,850,625
US Airways Group, Inc., Ser B Pref Stock 71,700 5,969,025
Wang Laboratories Inc., Ser B Conv Pref Stock (R) 100,000 4,550,000
Weirton Steel Corp., Common Stock** 100,000 262,500
Western Pacific Airlines, Inc., Common Stock** 10,000 63,750
Westshore Terminals Inc., Common Stock (Canada) # (Y) 160,000 687,064
------------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $66,472,293) (15.98%) 70,491,760
------ ------------
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ------ --------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.90%)
Investment in a joint repurchase agreement transaction
with Aubrey G. Lanston & Co. -- Dated 04-30-97, Due 05-01-97
(secured by U.S. Treasury Bills, 5.37% thru 5.78%, Due 08-21-97 thru
03-05-98, U.S. Treasury Bonds, 7.125% thru 11.25%, Due 02-15-15 thru 02-15-23,
U.S. Treasury Notes, 5.125% thru 7.75%, Due 08-31-98 thru 05-15-05) -- Note A 5.375% $ 3,953 $ 3,953,000
------------
Corporate Savings Account (0.03%)
Investors Bank & Trust Company, Daily Interest Savings Account, Current Rate 4.95% 152,558
------------
TOTAL SHORT TERM INVESTMENTS ( 0.93%) 4,105,558
-------- ------------
TOTAL INVESTMENTS ( 99.29%) $438,097,145
======== ============
NOTES TO SCHEDULE OF INVESTMENTS
(A) Cash interest will be paid on this obligation at the stated rate beginning on the stated date.
(Y) Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer;
however, security is U.S. dollar denominated.
(R) These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may
be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities
amounted to $68,248,231 as of April 30, 1997.
# Par value of foreign bonds and common stocks is expressed in local currency, as shown parenthetically in
security description.
* Credit Ratings are rated by Moody's Investor Services or John Hancock Advisers, Inc. where Standard and Poors
ratings are not available.
** Non-income producing security.
+ A portion of this security having an aggregate value of $996,080 or 0.23% of the Fund's net assets has been
purchased on a where required basis. The Fund has instructed its Custodian Bank to segregate assets with a current
value at least equal to its unfunded commitment. Accordingly, the market value of $1,836,216 of United States Treasury
8.625%, 08/15/97 has been segregated to cover the unfunded commitment. The sale of this security has certain restrictions.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Portfolio Concentration
April 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------------
The High Yield Bond Fund invests primarily in securities issued in the United States of America. The
performance of this Fund is closely tied to the economic and financial conditions of the countries
within which it invests. The concentration of investments by industry category for individual
securities held by the Fund is shown in the Schedule of Investments.
In addition, concentration of investments can be aggregated by various countries. The table below
shows the percentages of the Fund's investments at April 30, 1997 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ---------------------
<S> <C>
Argentina 0.29%
Australia 0.55
Brazil 0.45
Canada 4.10
Colombia 0.57
Indonesia 1.22
Italy 0.22
Japan 0.10
Luxembourg 0.13
Mexico 1.30
Philippines 0.49
Switzerland 0.67
United Kingdom 0.27
United States 88.93
------
TOTAL INVESTMENTS 99.29%
======
Additionally, the concentration of investments can be aggregated by the quality rating for each debt
security.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION NET ASSETS
- -------------------- ---------------------
AAA 1.67%
AA 0.22
A 0.10
BB 6.46
B 65.10
CAA 1.35
CCC 6.84
CC 0.64
------
TOTAL BONDS 82.38%
======
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is a diversified, open-end
management investment company, registered under the Investment Company
Act of 1940. The Trust consists of three series: John Hancock High Yield
Bond Fund (the "Fund"), John Hancock Intermediate Maturity Government
Fund and John Hancock Government Income Fund (collectively, the
"Funds"). The other two series of the Trust are reported in separate
financial statements. The investment objective of the Fund is to
maximize current income without assuming undue risk by investing in a
diversified portfolio consisting primarily of lower-rated, high
yielding, debt securities.
The Trustees have authorized the issuance of multiple 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, redemptions, 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 and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Board of Trustees. Short-term
debt investments maturing within 60 days are valued at amortized cost
which approximates market value. All portfolio transactions initially
expressed in terms of foreign currencies have been translated into U.S.
dollars as described in "Foreign Currency Translation" below.
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. 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 $20,457,110 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. If such carryforward is used
by the Fund, no capital gains distributions will be made. The
carryforward expires as follows: December 31, 2002 - $9,184,252 and
December 31, 2003 - $11,272,858. The Fund's tax year end is December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Fund identifies the
dividend. 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 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.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution and service fees if any, are calculated
daily at the class level based on the appropriate net assets of each
class and the specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust 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 funds.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities from either the date of issue or date of purchase over the
life of the security, as required by the Internal Revenue Code.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund had no borrowing activity for the period ended
April 30, 1997.
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
or losses arise from changes in the value of assets and liabilities
other than investments in securities at fiscal year end, 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.
These contracts involve market or credit risk in excess of the
unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. 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.
Open foreign currency forward buy contracts at April 30, 1997, were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT MONTH APPRECIATION
- ---------- ------------------------ ---------- ------------
SELLS
Swiss Franc 4,400,000 Jul 97 $10 ,117
Deutsche Mark 103,000 Jul 97 272
--------
$10,389
========
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.625% of the
first $75,000,000 of the Fund's average daily net asset value,
(b) 0.5625% of the next $75,000,000 and (c) 0.50% of the Fund's average
daily net asset value in excess of $150,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
April 30, 1997, net sales charges received with regard to sales of Class
A shares amounted to $805,267. Out of this amount, $96,955 was retained
and used for printing prospectuses, advertising, sales literature and
other purposes, $581,449 was paid as sales commissions to unrelated
broker-dealers and $126,863 was paid as sales commissions to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker
Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc.
("Sutro"), all of which are broker-dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the
indirect sole shareholder of Distributors and was the indirect
shareholder until November 29, 1996 of John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within 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 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 April 30, 1997, contingent-deferred
sales charges paid to JH Funds amounted to $316,292.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution
Plan with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.25% of Class A average daily net assets and 1.00%
of Class B average daily net assets to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the
period was at an annual rate of 0.01875% of the average net assets of
each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At April 30, 1997, the Fund's
investments to cover the deferred compensation liability had unrealized
appreciation of $793.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended April 30, 1997, aggregated $365,032,968 and
$220,413,894, respectively.
The cost of investments owned at April 30, 1997 for federal income tax
purposes was $430,975,112. Gross unrealized appreciation and
depreciation of investments aggregated $17,547,636 and $10,578,161,
respectively, resulting in net unrealized appreciation of $6,969,475.
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
Internet: www.jhancock.com/funds
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
High Yield Bond Fund. It may be used as sales literature when preceded
or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
A recycled logo in lower left hand corner with the caption
"Printed on Recycled Paper." 570SA 4/97
6/97
