SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Intermediate
Maturity
Government
Fund
NOVEMBER 30, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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DIRECTORS
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 & 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 02109-1803
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 have been anything but dull. Bond investors have
enjoyed the benefits of a strong economy with no inflation. Stock investors have
been treated to record-breaking performance by the Dow Jones Industrial Average,
but with record-breaking volatility. After two years of strong advances with
relatively minor swings, the stock market's recent sharp drops and enormous
rebounds have caused a fair share of investor concern.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The latest round came in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had stabilized, yet many markets remained edgy as investors sorted
out the Asian turmoil and its implications on economic growth, interest rates
and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY ROGER HAMILTON, PORTFOLIO MANAGER
John Hancock
Intermediate Maturity
Government Fund
Bond market gains ground nicely,
as inflation expectations fall
Recently, shareholders of John Hancock Limited Term Government Fund approved the
merger of their Fund into John Hancock Intermediate Maturity Government Fund.
The merger was effective after the close of business on December 5, 1997.
The U.S. bond market has been on a roll. Throughout the summer and fall months,
it continued to deliver strong returns to investors. Although the economy
remained healthy and near full employment, inflation stayed in check near 2%.
Even better, inflation expectations fell as investors watched the dollar
strengthen against other currencies, commodity prices weaken, and the Asian
currency and credit crisis spread. Nothing could be better for bond investors,
who dislike inflation because it erodes the value of their fixed-interest
payments.
Yields fell on both long-term and short-term bonds, despite brief hiccups
in August and November when economic data came in stronger than expected. Long
maturity bonds, which react the most to changes in inflation forecasts, had the
biggest gains. Yields on 30-year Treasuries fell as low as 6.03%, down from
"The U.S. bond market has been on a roll."
[2 1/2" x 3 1/4" photo of Roger Hamilton and Barry Evans. Caption reads: "Roger
Hamilton (right) and Barry Evans (seated), head of the Government Fixed-Income
department"]
3
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John Hancock Funds - Intermediate Maturity Government Fund
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PORTFOLIO DIVERSIFICATION
Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into three sections. Going from left to right:
Short-Term Investments & Other 17%; U.S. Treasury Bonds 54%; U.S. Government
Agency Bonds 29%.
As a percentage of net assets on November 30, 1997
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6.90% on May 31, 1997. Shorter-term yields also came down, but stalled when the
Federal Reserve didn't lower short-term interest rates. Yields on two-year
Treasuries fell only half of one percentage point, dropping to 5.70% from 6.20%.
As yields fell faster on long-term bonds, the yield curve -- a measure of the
difference between long- and short-term yields -- flattened.
In this environment, interest-sensitive U.S. Treasury bonds posted strong
returns. They also benefited from a shrinking deficit, which meant the
government had to issue less debt to meet its borrowing needs. At the same time,
demand for Treasuries grew as investors shifted out of more volatile foreign
markets. By contrast, bonds with a yield advantage over Treasuries -- including
mortgage bonds and U.S. government agencies -- had more modest gains.
Mortgage-backed securities in particular faltered in October as falling interest
rates increased prepayment risk -- the risk that homeowners would pay off their
existing mortgages and refinance at lower rates.
Going long with Treasuries and duration
A high stake in long-term Treasuries made the difference for John Hancock
Intermediate Maturity Fund. The Fund's Class A and Class B shares had total
returns of 5.85% and 5.45%, respectively, at net asset value, for the six months
ended November 30, 1997. By comparison, the average intermediate-term government
fund returned 5.52%, according to Lipper Analytical Services, Inc.1 During the
same period, the Lehman Brothers Intermediate Government Bond Index returned
4.87%. For longer-term performance information, please see pages six and seven.
Two major moves helped the Fund come out ahead. The first was in July when
we lengthened duration to 4.3 years, up from 3.8 years, by buying 30-year
Treasuries. Duration measures how sensitive a bond's price is to interest-rate
changes. The longer a bond's duration, the more its price will fall as rates
rise -- or rise as rates fall. Believing that interest rates were on their way
down and that the duration of our mortgage bonds would shorten, we extended to a
longer-than-average duration. In hindsight, we were a bit premature. Interest
rates rose briefly in early August, forcing us to lower the duration to 4.1
years. But by month end, we'd taken the duration back out to 4.3 years, where it
stayed throughout the rest of the period.
Our second big move was in October when we trimmed our mortgage stake to
29% of the Fund's assets (down from 50%) and moved into Treasuries and cash. We
sold higher coupon, fixed-rate mortgage bonds because they had the greatest
prepayment risk. That left us with 15-year bonds with 7.5% coupons (or stated
interest rates) issued by the Federal National Mortgage Association (FNMAs),
30-year bonds with 7% coupons issued by the Government National Mortgage
Association (GNMAs), and some adjustable-rate mortgages. With the pro-
"...interest-sensitive U.S. Treasury bonds posted strong returns."
4
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John Hancock Funds - Intermediate Maturity Government Fund
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FUND PERFORMANCE
For the six months ended November 30, 1997
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended November 30, 1997." The chart is
scaled in increments of 2% from bottom to top, with 8% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
5.85 % total return for John Hancock Intermediate Maturity Government Fund:
Class A. The second represents the 5.45% total return for John Hancock
Intermediate Maturity Government Fund: Class B. The third represents the 5.52%
total return for the Average intermediate-term government fund. Footnote below
reads: "Total returns for John Hancock Intermediate Maturity Government Fund are
at net asset value with all distributions reinvested. The average
intermediate-term government is tracked by Lipper Analytical Services, Inc. (1).
See the following two pages for historical performance information.]
Total returns for John Hancock Intermediate Maturity Government Fund are at net
asset value with all distributions reinvested. The average intermediate-term
government fund is tracked by Lipper Analytical Services, Inc. (1) See the
following two pages for historical performance information.
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ceeds, we focused on adding to our stake in Treasuries at both ends of the
maturity spectrum -- those with maturities over 10 years and those with
maturities of one year or less.
Favorable conditions ahead
We believe the most likely scenario ahead is that U.S. economic growth will be
more moderate and interest rates will go a little lower. But we wouldn't be
surprised to see higher interest rates for a short period sometime in the next
six months, especially if the crisis in Asia takes a long time to play out and
the U.S. economy stays strong. Eventually, however, the consensus seems to be
that the U.S. economy will slow down. A prolonged recession in Japan could
trigger more moderate growth here. We'll be tracking retail sales and corporate
buying, as reported by the National Association of Purchasing Managers survey,
for signs of weakness.
Slower economic growth would, of course, bode well for the U.S. bond
market. There are also other factors that suggest the bond market's good fortune
may continue. For example, we expect tax revenues to come in high again in 1998.
This would continue to shrink the government deficit and lower the need for new
Treasury issuance. In addition, lower inflation expectations seem to be here to
stay. Another plus is that the U.S. bond market looks pretty attractive compared
to those of other nations. Unlike some other markets, the United States has a
strong economy, low inflation and a stable democracy. In addition, yields here
are higher than those of some other Western industrialized nations. All these
factors point to continued strength in the U.S. bond market.
Given this outlook, we plan to keep the Fund's slightly
longer-than-average duration with a focus on longer-term Treasuries. We'll stay
with our light mortgage stake, as long as interest rates continue to fall and
prepayment risks continue to rise. However, if interest rates ratchet up, we'll
move quickly to shorten the Fund's duration and add to our mortgage stake. In
either event, we're optimistic about both the bond market's and the Fund's
prospects in the coming year.
"....lower inflation expectations seem to be here to stay."
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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.
5
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John Hancock Funds - Intermediate Maturity Government Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Intermediate Maturity Government Fund. Total
return measures the change in value of an investment from the beginning to the
end of a period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 3%.
Class B performance reflects a maximum contingent deferred sales charge (maximum
3% and declining to 0% over four years).
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
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CLASS A
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For the period ended September 30, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
--------- --------- -----------
Cumulative Total Returns 5.67% 23.26% 31.27%
Average Annual Total Returns (1) 5.67% 4.27% 4.85%
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CLASS B
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For the period ended September 30, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
--------- --------- -----------
Cumulative Total Returns 5.15% 22.94% 30.29%
Average Annual Total Returns (1) 5.15% 4.22% 4.71%
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YIELDS
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As of November 30, 1997
SEC 30-DAY
YIELD
------------
Intermediate Maturity Government Fund: Class A 5.35%
Intermediate Maturity Government Fund: Class B 4.77%
Notes to Performance
(1) The Adviser voluntarily reduced a portion of the management fee during the
period. Without the reduction of expenses, the average annual total return
for the one-year, five-year and since inception periods would have been
4.90%, 3.73% and 4.28% for Class A shares, respectively, and 4.38%, 3.68%
and 4.14% for Class B shares, respectively.
6
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John Hancock Funds - Intermediate Maturity Government Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
Intermediate Maturity Government Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Lipper Intermediate U.S. Government Index and the
Lehman Brothers Government Bond Index. The Lipper Intermediate U.S. Government
Index is an equally- weighted unmanaged index that measures the performance of
funds with at least 65% of their assets in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, with dollar-weighted
average maturities of five to ten years. The Lehman Brothers Government Bond
Index is an unmanaged index that measures the performance of U.S. Treasury bonds
and U.S. government agency bonds. Past performance is not indicative of future
results.
Intermediate Maturity Government Fund
Class A shares
[Line chart with the heading Intermediate Maturity Government Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the value
of the Lehman Government Bond Index and is equal to $15,123 as of of November
30, 1997. The second line represents the value of the Lipper Intermediate U.S.
Government Index and is equal to $14,129 as of of November 30, 1997. The third
line represents the value of the hypothetical $10,000 investment made in the
Intermediate Maturity Government Fund on December 31, 1991, before sales charge,
and is equal to $13,760 as of of November 30, 1997. The fourth line represents
the Intermediate Maturity Government Fund after sales charge and is equal to
$13,347 as of of November 30, 1997.]
Intermediate Maturity Government Fund
Class B shares
[Line chart with the heading Intermediate Maturity Government Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the value
of the Lehman Government Bond Index and is equal to $15,123 as of of November
30, 1997. The second line represents the value of the Lipper Intermediate U.S.
Government Index and is equal to $14,129 as of of November 30, 1997. The third
line represents the value of the hypothetical $10,000 investment made in the
Intermediate Maturity Government Fund on December 31, 1991, before sales charge,
and is equal to $13,231 as of of November 30, 1997.]
*No contingent deferred sales charge applicable.
7
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FINANCIAL STATEMENTS
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John Hancock Funds - Intermediate Maturity Government Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on November 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
November 30, 1997 (Unaudited)
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Assets:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $24,344,617) .................................... $24,536,953
Joint repurchase agreement (cost - $4,820,000) ........... 4,820,000
Corporate savings account ................................ 433
----------------
29,357,386
Receivable for shares sold ................................ 11,198
Interest receivable ....................................... 342,931
Receivable from John Hancock Advisers, Inc. ...............
and affiliates - Note B .................................. 21,005
Other assets .............................................. 10,202
----------------
Total Assets ................................ 29,742,722
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Liabilities:
Dividend payable .......................................... 18,385
Accounts payable and accrued expenses ..................... 99,005
----------------
Total Liabilities ........................... 117,390
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Net Assets:
Capital paid-in ........................................... 29,628,618
Accumulated net realized loss on investments .............. (201,483)
Net unrealized appreciation of investments ................ 192,791
Undistributed net investment income ....................... 5,406
----------------
Net Assets .................................. $29,625,332
===============================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding -
unlimited number of shares authorized
with no par value)
Class A - $21,501,894/2,219,057 .......................... $9.69
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Class B - $8,123,438/838,362 .............................. $9.69
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Maximum Offering Price Per Share*
Class A - ($9.69 x 103.09%) ............................... $9.99
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* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended November 30, 1997 (Unaudited)
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Investment Income:
Interest .................................................... $1,045,992
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Expenses:
Investment management fee - Note B ........................ 57,270
Distribution and service fee - Note B
Class A ................................................. 28,184
Class B ................................................. 30,439
Registration and filing fees .............................. 25,766
Custodian fee ............................................. 23,310
Transfer agent fee - Note B ............................... 17,687
Auditing fee .............................................. 10,390
Printing .................................................. 7,291
Financial services fee - Note B ........................... 2,557
Trustees' fees ............................................ 1,399
Miscellaneous ............................................. 464
Legal fees ................................................ 453
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Total Expenses ................................ 205,210
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Less Expense Reductions -
Note B ........................................ (74,999)
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Net Expenses .................................. 130,211
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Net Investment Income ......................... 915,781
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Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ....................... 572,416
Change in net unrealized appreciation/depreciation
of investments ............................................ 184,327
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Net Realized and Unrealized Gain
on Investments ................................ 756,743
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Net Increase in Net Assets
Resulting from Operations ..................... $1,672,524
===============================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
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John Hancock Funds - Intermediate Maturity Government Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED APRIL 1, 1997 TO NOVEMBER 30, 1997
MARCH 31, 1997 MAY 31, 1997(1) (UNAUDITED)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................ $2,253,515 $333,510 $915,781
Net realized gain (loss) on investments sold ......................... (759,398) (50,466) 572,416
Change in net unrealized appreciation/depreciation of investments .... (37,403) 334,487 184,327
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Net Increase in Net Assets Resulting from Operations ............... 1,456,714 617,531 1,672,524
------------- ------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6612, $0.1092, and $0.3169 per share, respectively) .. (1,787,778) (261,624) (741,886)
Class B - ($0.5968, $0.0973, and $0.2809 per share, respectively) .. (466,451) (68,448) (176,957)
Distributions from net realized gain on investments sold
Class A - ($0.0782, none and none per share, respectively) ......... (189,501) -- --
Class B - ($0.0782, none and none per share, respectively) ......... (58,760) -- --
------------- ------------- -------------
Total Distributions to Shareholders ............................... (2,502,490) (330,072) (918,843)
------------- ------------- -------------
From Fund Share Transactions - Net: * .................................. (7,687,534) 96,288 (334,232)
------------- ------------- -------------
Net Assets:
Beginning of period .................................................. 37,555,446 28,822,136 29,205,883
------------- ------------- -------------
End of period (distributions in excess of net investment income
of $6,462 and undistributed net investment income of $8,468
and $5,406, respectively) .......................................... $28,822,136 $29,205,883 $29,625,332
============= ============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED APRIL 1, 1997 TO NOVEMBER 30, 1997
MARCH 31, 1997 MAY 31, 1997(1) (UNAUDITED)
--------------------------- --------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold ............................. 387,191 $3,706,355 222,104 $2,089,262 535,064 $5,098,676
Shares issued to shareholders in
reinvestment of distributions ......... 77,547 741,124 10,430 98,314 27,329 263,562
----------- ----------- ----------- ----------- ----------- -----------
464,738 4,447,479 232,534 2,187,576 562,393 5,362,238
Less shares repurchased ................. (1,107,750) (10,635,603) (180,446) (1,700,404) (748,615) (7,205,221)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) ................. (643,012) ($6,188,124) 52,088 $487,172 (186,222) ($1,842,983)
=========== =========== =========== =========== =========== ===========
CLASS B
Shares sold ............................. 465,120 $4,452,149 187,610 $1,766,769 766,033 $7,378,461
Shares issued to shareholders in
reinvestment of distributions ......... 32,043 306,162 3,959 37,319 9,126 88,016
----------- ----------- ----------- ----------- ----------- -----------
497,163 4,758,311 191,569 1,804,088 775,159 7,466,477
Less shares repurchased ................. (654,247) (6,257,721) (233,349) (2,194,972) (618,722) (5,957,726)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) ................. (157,084) ($1,499,410) (41,780) ($390,884) 156,437 $1,508,751
=========== =========== =========== =========== =========== ===========
</TABLE>
(1) Effective May 31, 1997, the fiscal period end changed from March 31 to May
31.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, 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 three periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS
----------------------------
John Hancock Funds - Intermediate Maturity Government Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
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<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1993 1994 1995(1) 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $10.03 $10.05 $9.89 $9.79 $9.69
---------- ---------- ---------- ---------- ----------
Net Investment Income .................................. 0.58 0.41 0.49 0.62 0.67
Net Realized and Unrealized Gain (Loss)
on Investments ...................................... 0.02 (0.16) (0.11) (0.08) (0.25)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations .................. 0.60 0.25 0.38 0.54 0.42
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ................ (0.58) (0.41) (0.48) (0.64) (0.66)
Distributions from Net Realized Gain
on Investments Sold ................................ -- -- -- -- (0.08)
---------- ---------- ---------- ---------- ----------
Total Distributions ............................... (0.58) (0.41) (0.48) (0.64) (0.74)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ......................... $10.05 $9.89 $9.79 $9.69 $9.37
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value (2) ......... 6.08% 2.51% 3.98% 5.60% 4.56%
Total Adjusted Investment Return
at Net Asset Value (2,3) ............................ 5.53% 2.27% 3.43% 4.83% 4.19%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $33,273 $24,310 $12,950 $29,024 $22,043
Ratio of Expenses to Average Net Assets (4) ............ 0.50% 0.75% 0.80% 0.75% 0.75%
Ratio of Adjusted Expenses to Average Net Assets (4,5).. 1.05% 0.99% 1.35% 1.45% 1.12%
Ratio of Net Investment Income to Average Net Assets ... 5.47% 4.09% 4.91% 6.49% 6.99%
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) ........................... 4.92% 3.85% 4.36% 5.79% 6.62%
Fee Reduction Per Share (7) ............................ $0.06 $0.02 $0.05 $0.07 $0.04
Portfolio Turnover Rate ................................ 186% 244% 341% 423%(6) 427%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
APRIL 1, 1997 TO NOVEMBER30, 1997
MAY 31, 1997(8) (UNAUDITED)
------------------ --------------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $9.37 $9.46
---------- ----------
Net Investment Income .................................. 0.11(7) 0.32(7)
Net Realized and Unrealized Gain (Loss)
on Investments ...................................... 0.09 0.23
---------- ----------
Total from Investment Operations .................. 0.20 0.55
---------- ----------
Less Distributions:
Dividends from Net Investment Income ................ (0.11) (0.32)
Distributions from Net Realized Gain
on Investments Sold ................................ -- --
---------- ----------
Total Distributions ............................... (0.11) (0.32)
---------- ----------
Net Asset Value, End of Period ......................... $9.46 $9.69
========== ==========
Total Investment Return at Net Asset Value (2) ......... 2.13%(10) 5.85%(10)
Total Adjusted Investment Return
at Net Asset Value (2,3) ............................ 1.93%(10) 5.59%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $22,755 $21,502
Ratio of Expenses to Average Net Assets (4) ............ 0.75%(9) 0.75%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5).. 1.92%(9) 1.27%(9)
Ratio of Net Investment Income to Average Net Assets ... 7.07%(9) 6.56%(9)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) ........................... 5.90%(9) 6.04%(9)
Fee Reduction Per Share (7) ............................ $0.02 $0.02
Portfolio Turnover Rate ................................ 77% 263%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: the net investment income, net realized
and unrealized gains (losses), dividends and total investment return of the
Fund. It shows how the Fund's net asset value for a share has changed since the
end of the previous period. Additionally, important relationships between some
items presented in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
----------------------------
FINANCIAL STATEMENTS
----------------------------
John Hancock Funds - Intermediate Maturity Government Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1993 1994 1995(1) 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $10.03 $10.05 $9.89 $9.79 $9.69
---------- ---------- ---------- ---------- ----------
Net Investment Income .................................. 0.51 0.34 0.43 0.57 0.60
Net Realized and Unrealized Gain (Loss) on Investments.. 0.02 (0.16) (0.11) (0.10) (0.24)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations .................. 0.53 0.18 0.32 0.47 0.36
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ................ (0.51) (0.34) (0.42) (0.57) (0.60)
Distributions from Net Realized Gain
on Investments Sold ................................ -- -- -- -- (0.08)
---------- ---------- ---------- ---------- ----------
Total Distributions ............................... (0.51) (0.34) (0.42) (0.57) (0.68)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ......................... $10.05 $9.89 $9.79 $9.69 $9.37
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value (2) ......... 5.40% 1.85% 3.33% 4.92% 3.84%
Total Adjusted Investment Return
at Net Asset Value (2,3) ............................ 4.85% 1.61% 2.78% 4.15% 3.47%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $13,753 $11,626 $9,506 $8,532 $6,779
Ratio of Expenses to Average Net Assets (4) ............ 1.15% 1.40% 1.45% 1.40% 1.43%
Ratio of Adjusted Expenses to Average Net Assets (4,5) 1.70% 1.64% 2.00% 2.10% 1.80%
Ratio of Net Investment Income to Average Net Assets ... 4.82% 3.44% 4.26% 5.80% 6.30%
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) ........................... 4.27% 3.20% 3.71% 5.10% 5.93%
Fee Reduction Per Share (7) ............................ $0.06 $0.02 $0.05 $0.07 $0.04
Portfolio Turnover Rate ................................ 186% 244% 341% 423%(6) 427%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
APRIL 1, 1997 TO NOVEMBER30, 1997
MAY 31, 1997(8) (UNAUDITED)
------------------ --------------
<S> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $9.37 $9.46
---------- ----------
Net Investment Income .................................. 0.10(7) 0.28
Net Realized and Unrealized Gain (Loss) on Investments.. 0.09 0.23
---------- ----------
Total from Investment Operations .................. 0.19 0.51
---------- ----------
Less Distributions:
Dividends from Net Investment Income ................ (0.10) (0.28)
Distributions from Net Realized Gain
on Investments Sold ................................ -- --
---------- ----------
Total Distributions ............................... (0.10) (0.28)
---------- ----------
Net Asset Value, End of Period ......................... $9.46 $9.69
========== ==========
Total Investment Return at Net Asset Value (2) ......... 2.01%(10) 5.45%(10)
Total Adjusted Investment Return
at Net Asset Value (2,3) ............................ 1.81%(10) 5.19%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $6,451 $8,123
Ratio of Expenses to Average Net Assets (4) ............ 1.50%(9) 1.50%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) 2.67%(9) 2.02%(9)
Ratio of Net Investment Income to Average Net Assets ... 6.04%(9) 5.79%(9)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) ........................... 4.87%(9) 5.27%(9)
Fee Reduction Per Share (7) ............................ $0.02 $0.02
Portfolio Turnover Rate ................................ 77% 263%
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
(4) Beginning on December 31, 1991 (commencement of operations) through March
31, 1995, the expenses used in the ratios represented the expenses of the
Fund plus expenses incurred indirectly from the Adjustable U.S. Government
Fund (the "Portfolio"), the mutual fund in which the Fund invested all of
its assets. The expenses used in the ratios for the fiscal year ended
March 31, 1996 include the expenses of the Portfolio through September 22,
1995.
(5) Unreimbursed, without fee reduction.
(6) Portfolio turnover rate excludes merger activity.
(7) Based on average month end shares outstanding.
(8) Effective May 31, 1997, the fiscal period end changed from March 31 to May
31.
(9) Annualized.
(10) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
----------------------------
FINANCIAL STATEMENTS
----------------------------
John Hancock Funds - Intermediate Maturity Government Fund
Schedule of Investments
November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Intermediate Maturity Government Fund on November 30, 1997. It's divided into
two main categories: U.S. government and agencies and short-term investments.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
<TABLE>
<CAPTION>
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. (53.70%)
United States Treasury,
Bond ............................................ 11.125% 08-15-03 $2,000 $2,500,620
Bond ............................................ 12.000 08-15-13 3,910 5,720,799
Bond ............................................ 6.375 08-15-27 1,750 1,819,720
Bond ............................................ 6.125 11-15-27 500 505,625
Note ............................................ 9.125 05-15-99 1,300 1,359,917
Note ............................................ 7.875 08-15-01 1,000 1,065,940
Note ............................................ 6.625 03-31-02 1,500 1,542,180
Note ............................................ 5.750 10-31-02 1,400 1,394,092
------------
15,908,893
------------
Government - U.S. Agencies (29.12%)
Federal Home Loan Mortgage Corp.,
Adjustable Rate Mortgage ........................ 7.875# 05-01-17 52 53,095
Adjustable Rate Mortgage ........................ 7.750# 10-01-18 57 58,983
Federal National Mortgage Assn.,
15 Yr Pass thru Ctf ............................. 7.500 06-01-10 2,028 2,081,896
Adjustable Rate Mortgage ........................ 6.754# 03-01-14 to 45 44,704
06-01-14
Adjustable Rate Mortgage ........................ 7.500# 05-01-17 43 44,383
Adjustable Rate Mortgage ........................ 7.250# 03-01-27 40 40,427
Government National Mortgage Assn.,
30 Yr Pass thru Ctf ............................. 12.500 07-15-15 36 43,091
30 Yr Pass thru Ctf ............................. 12.000 02-15-14 24 27,602
30 Yr Pass thru Ctf ............................. 7.000 11-15-27 5,000 5,014,825
Adjustable Rate Mortgage ........................ 6.875# 10-20-23 1,188 1,219,054
------------
8,628,060
------------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $24,344,617) (82.82%) 24,536,953
------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
----------------------------
FINANCIAL STATEMENTS
----------------------------
John Hancock Funds - Intermediate Maturity Government Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- --------- --------- ---------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (16.27%)
Investment in a joint repurchase agreement
transaction with Swiss Bank Corp. - Dated 11-28-97,
Due 12-1-97 (secured by U.S. Treasury Note, 7.75%,
Due 12-31-99 and U.S. Treasury Bonds,
6.50% thru 11.25%, Due 2-15-15 thru 11-15-26)............... 5.670% $4,820 $4,820,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.950%......................................... 433
-----------
TOTAL SHORT-TERM INVESTMENTS (16.27%) 4,820,433
-------- -----------
TOTAL INVESTMENTS (99.09%) $29,357,386
======== ===========
</TABLE>
# Represents rate in effect on November 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.
13
<PAGE>
================================================================================
-----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------------
John Hancock Funds - Intermediate Maturity Government Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Bond Fund (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 Intermediate Maturity Government
Fund (the "Fund"), John Hancock Government Income Fund and John Hancock High
Yield Bond Fund. The other two series of the Trust are reported in separate
financial statements. The investment objective of the Fund is to achieve a high
level of current income consistent with preservation of capital and maintenance
of liquidity.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B. The shares of each class represent
an interest in the same portfolio of investments of the Fund and have equal
rights to voting, redemption, dividends and liquidation, except that certain
expenses, subject to the approval of the Trustees, may be applied differently to
each class of shares in accordance with current regulations of the Securities
and Exchange Commission. Shareholders of a class which bears distribution and
service expenses under the 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. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
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.
FEDERAL INCOME TAX 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 gains on
investments, to its shareholders. Therefore, no federal income or excise tax
provision is required. For federal income tax purposes the Fund has $7,980,391
of capital loss carryforward available, to the extent provided by regulations,
to offset future net realized capital gains. To the extent such carryforward is
used by the Fund, no capital gains distributions will be made. The carryforward
expires as follows: May 31, 1998 -- $653,763; May 31, 1999 -- $2,207,560; May
31, 2000 -- $23,234; May 31, 2001 -- $4,062,681; May 31, 2002 -- $427,159; May
31, 2004 -- $427,511 and May 31, 2005 -- $178,483. The Fund's tax year end is
May 31. Expired capital loss carryforwards are reclassified to capital paid-in
in the year of expiration.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, 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 the effect of expenses
that may be applied differently to each class.
EXPENSES The majority of the expenses of the Trust were directly identifiable to
an individual fund. Expenses which were not readily
14
<PAGE>
================================================================================
-----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------------
John Hancock Funds - Intermediate Maturity Government Fund
identifiable to a specific fund were 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.
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 appropriate net assets of each class and the specific expense
rate(s) applicable 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.
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. These agreements enable
the Fund to participate with other Funds managed by the Advisor in an unsecured
line of credit with banks which permit borrowings up to $600 million,
collectively. Interest is charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a
rate of 0.075% per annum based on the average daily unused portion of the line
of credit, is allocated among the participating Funds. The Fund had no borrowing
activity for the year ended November 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 at
an annual basis of 0.40% of the Fund's average daily net asset value.
The Adviser has temporarily agreed to limit fund expenses, including the
management fee, to 0.75% and 1.50% of the average net assets attributable to the
Class A and Class B shares, respectively. Effective December 24, 1996, the
limitation on Class B shares of the Fund increased to 1.50% from 1.40% of the
average daily net assets due to an increase in the 12b-1 distribution rate from
0.90% to 1.00% of the average daily net assets. Accordingly, for the period
ended November 30, 1997, the reduction in the Adviser's fee collectively with
any additional amounts not borne by the Fund by virtue of the expense limit
amounted to $74,999.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended November
30, 1997, net sales charges received with regard to sales of Class A shares
amounted to $21,245. Out of this amount, $2,372 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $11,141
was paid as sales commissions to unrelated broker-dealers and $7,732 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within four years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 3.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended November 30,
1997, contingent deferred sales charges amounted to $5,578.
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
15
<PAGE>
================================================================================
-----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------------
John Hancock Funds - Intermediate Maturity Government Fund
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 Board of Trustees approved a shareholder servicing agreement between
the Fund and 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 Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the 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 November 30, 1997 the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $454.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended November 30, 1997 aggregated $72,168,802
and $75,395,467, respectively.
The cost of investments owned at November 30, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $29,164,617. Gross
unrealized appreciation and depreciation of investments aggregated $339,045, and
$146,708, respectively, resulting in net unrealized depreciation of $192,337.
NOTE D -
SUBSEQUENT EVENT
On November 12, the shareholders of the John Hancock Limited-Term Government
Fund ("Limited-Term Government Fund") approved a vote on a proposed merger
between the Fund and the Limited-Term Government Fund. The merger provides for a
transfer of substantially all the assets and liabilities of Limited-Term
Government to the Fund on December 5, 1997. After the close of business on
December 5, 1997, the Limited-Term Government Fund will be terminated.
16
<PAGE>
================================================================================
--------------
NOTES
--------------
John Hancock Funds - Intermediate Maturity Government Fund
17
<PAGE>
================================================================================
--------------
NOTES
--------------
John Hancock Funds - Intermediate Maturity Government Fund
18
<PAGE>
================================================================================
--------------
NOTES
--------------
John Hancock Funds - Intermediate Maturity Government Fund
19
<PAGE>
================================================================================
-----------------
JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds -----------------
[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."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Intermediate Maturity Government Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
[A recycled logo in lower left hand corner with the caption "Printed on Recycled
Paper."]
550SA 11/97
1/98
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Government
Income Fund
NOVEMBER 30, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
================================================================================
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 & 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 02109-1803
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 have been anything but dull. Bond investors
have enjoyed the benefits of a strong economy with no inflation. Stock investors
have been treated to record-breaking performance by the Dow Jones Industrial
Average, but with record-breaking volatility. After two years of strong advances
with relatively minor swings, the stock market's recent sharp drops and enormous
rebounds have caused a fair share of investor concern.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The latest round came in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had stabilized, yet many markets remained edgy as investors sorted
out the Asian turmoil and its implications on economic growth, interest rates
and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BARRY EVANS, PORTFOLIO MANAGER
John Hancock Government
Income Fund
U.S. bond market rallies, led by long-maturity Treasuries
The U.S. bond market marched straight uphill during the summer and fall, fueled
in part by continued economic growth and low inflation. In addition, bonds once
again proved they love a crisis. This time, it was the currency and credit
crises in the Pacific Rim that caused investors to flee toward more stable
markets like the United States. The decline in Asian currencies along with
excess production capacity abroad also led to deflation -- or falling prices --
in countries outside the United States. All these factors eased inflation fears
here.
Longer-maturity bonds were the biggest beneficiaries. Their yields have a
built-in inflation premium, based on the market's expectations. As inflation
became less of a concern, yields on 30-year U.S. Treasuries tumbled from 6.90%
on May 31, 1997, to 6.04% six months later. By comparison, yields on two-year
Treasuries only moved from 6.20% to 5.70% during the same period. As rates on
long-term bonds fell more than those on short-term bonds, the yield curve -- a
measure of the difference in yields between long- and short-term bonds --
flattened.
Treasuries also outpaced other bond sectors, thanks to a shrinking
government deficit, diminished new issuance and increased demand.
Mortgage-backed securities did not fare quite as well, as fears grew that more
homeowners would prepay their existing mortgages and refinance at lower rates.
The Lehman Brothers Mortgage-Backed Securities Fixed-Rate Index returned only
5.63% between May 31 and November 30, 1997, well behind the 6.90% return for the
"The U.S. bond market marched straight uphill during the summer and fall..."
[A 2 1/4" x 3 1/2" photo of portfolio management team at bottom right. Caption
reads: "Barry Evans (seated) and management team members Roger Hamilton (center)
and Seth Robbins (right)".]
3
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION
[Pie chart with the heading `Portfolio Diversification" at top of left hand
column. The chart is divided into five sections. Going from top left to right:
Short-term Investments & Other 2; U.S. Treasury Bonds 42%; U.S. Government
Agency Bonds 45%; Multi-family Mortgage-backed Bonds 2%; Foreign Government
Bonds 9%. A footnote below states "As a percentage of net assets on November 30,
1997."]
As a percentage of net assets on November 30, 1997
- --------------------------------------------------------------------------------
Lehman Brothers Treasury Index. Foreign bonds also had a rough ride as investors
worried that the Pacific Rim crisis would set off selling in more liquid,
emerging markets.
Right places, right times
John Hancock Government Income Fund was able to take advantage of market trends.
For the six months ended November 30, 1997, the Fund's Class A and Class B
shares had total returns of 6.65% and 6.25%, respectively, at net asset value.
By comparison, the average general U.S. government fund returned 6.44%,
according to Lipper Analytical Services, Inc.1 For longer-term performance
information, please see pages six and seven.
The Fund benefited from having a sizable stake in 10-year and 30-year
Treasuries. During the period, Treasuries climbed to 42% of total assets, up
from 34% at the end of May. We bought mostly 30-year Treasuries and continued to
keep a below-average investment -- only about 10% of our assets -- in short-term
Treasuries. Our new purchases helped extend the Fund's duration to 5.43 years,
up from five years at the start of the period. Duration measures how sensitive a
bond's price is to changes in interest rates. The longer a bond's duration, the
more its price will rise as interest rates fall -- or fall as interest rates
rise. As interest rates dropped, the Fund's longer duration gave it more
opportunity for price gains.
We also sold U.S. dollar-denominated foreign government bonds, halving our
stake to 9% of assets. Our timing worked out well, as many of these bonds later
depreciated with the spread of the Pacific Rim crisis. Among the investments we
trimmed were bonds from Canada and selective emerging markets. At the end of
November, the Fund still owned some bonds issued by Hydro-Quebec, a Canadian
electric utility; the Province of Ontario; and a German state-owned bank. We
kept them because they provided added income with minimal risk.
In the mortgage area, we lightened up only slightly since our stake was
already less than average. To minimize prepayment risk, we sold a few higher
coupon mortgage bonds, mainly GNMAs with 8% coupons (or stated interest rates).
We continued, however, to own GNMAs with 7.5% coupons -- both because the
prepayment risks weren't quite as great and because we thought the added income
would help the Fund. We ended November with a 33% stake in mortgage-backed
securities, as well as a 12% investment in bonds issued by other U.S. government
agencies.
More good times ahead
We believe there's more steam left in the bond market's rally -- so much that we
wouldn't be surprised to see yields on 30-year Treasuries test their old low of
5.75%. Near term, however, we may see a brief pause in the market's climb and a
buying opportunity if interest rates rise. The kind
"The Fund benefited from having a sizable stake in 10-year and 30-year
Treasuries."
4
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the six months ended November 30, 1997
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended November 30, 1997." The chart
is scaled in increments of 2% from bottom to top, with 8% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first represents
the 6.65% total return for the John Hancock Government Income Fund: Class A. The
second represents the 6.25% total return for the John Hancock Government Income
Fund: Class B. The third represents the 6.44% total return for the average
general U.S. government fund. A footnote below reads: "Total returns for John
Hancock Government Income Fund are at net asset value with all distributions
reinvested. The average U.S. government income fund is tracked by Lipper
Analytical Services, Inc. (1) See the following two pages for historical
performance information."]
Total returns for John Hancock Government Income Fund are at net asset value
with all distributions reinvested. The average U.S. government income fund is
tracked by Lipper Analytical Services, Inc. (1) See the following two pages for
historical performance information.
- --------------------------------------------------------------------------------
of policy response we're seeing in Asia -- with intervention from the
International Monetary Fund and the central Japanese bank -- may encourage
investors to move out of safer havens like Treasuries and back into foreign
markets. This would, of course, hurt the U.S. bond market. But we don't expect
it to last for long, given how early the policy makers still are in the process
of unraveling Asia's extensive credit problems.
We believe the U.S. bond market's prospects remain strong for several
reasons. First, with inflation running around 2% and 30-year Treasury yields
around 6%, bonds offer investors an historically high 4% return after inflation.
Second, the Pacific Rim crisis -- as long as it lasts -- will act as a catalyst
in driving investors to safer havens like U.S. Treasuries. Third, there's
evidence that individual investors, after years of selling bonds, are starting
to buy again. We anticipate only two possible red flags. One would be the
settling of the Asian crisis, which could refocus investor attention on the
United States and inflation concerns here. The other would be the spread of the
Asian contagion to U.S. banks with significant business in the Far East.
Our strategy will be to ensure the Fund is in the best possible position
to take advantage of rallying bond prices. We'll do this by looking for
opportunities to add to our Treasury stake. But we'll probably keep duration
where it is. We'll also try to lower the Fund's prepayment risk by either
cutting our mortgage stake or shifting into bonds with lower coupons. If the
market plays out as we expect, bond investors have every reason to expect more
good times ahead.
"We believe there's more steam left in the bond market's rally..."
- --------------------------------------------------------------------------------
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.
5
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
- --------------------------------------------------------------------------------
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 measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include the maximum applicable sales
charge of 4.5%. Prior to May 15, 1995, the maximum applicable sale charge for
Class A shares was 4.75%.
Class B performance reflects a maximum contingent deferred sales charge (maximum
5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1997
SINCE
ONE INCEPTION
YEAR (9/30/94)
------ -----------
Cumulative Total Returns 4.64% 22.97%
Average Annual Total Returns 4.64% 7.14%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (2/23/88)
------ ------- -----------
Cumulative Total Returns 3.64% 25.96% 90.97%
Average Annual Total Returns 3.64% 4.72% 6.97%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1997
SEC 30-DAY
YIELD
------------
John Hancock Government Income Fund: Class A 5.39%
John Hancock Government Income Fund: Class B 4.88%
6
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
- --------------------------------------------------------------------------------
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 assuming all distributions were reinvested
for the period indicated. 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. Past performance is not indicative of future results.
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 Lehman
Brothers Treasury Composite Index and is equal to $13,225 as of November 30,
1997. The second 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 $13,118 as of November 30, 1997. The third line
represents the Government Income Fund, after sales charge and is equal to
$12,528 as of November 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 $22,171 as of November 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 $19,458 as of November 30, 1997.]
* No contingent deferred sales charge applicable.
7
<PAGE>
================================================================================
-------------------------
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 November 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
November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $421,503,983) ................................. $432,022,087
Foreign government bonds (cost - $43,893,872) .......... 44,173,048
Multi-family mortgage backed bonds
(cost - $9,290,676) ................................... 9,413,062
Joint repurchase agreement (cost - $9,864,000) ......... 9,864,000
--------------
495,472,197
Interest receivable .................................... 6,463,840
Receivable for variation margin - Note A ............... 3,125
Other assets ........................................... 145,950
--------------
Total Assets ............................... 502,085,112
-----------------------------------------------------------
Liabilities:
Payable for shares repurchased ......................... 329,330
Dividend payable ....................................... 409,413
Payable to John Hancock Advisers, Inc. .................
and affiliates - Note B ............................... 479,799
Accounts payable and accrued expenses .................. 163,544
--------------
Total Liabilities .......................... 1,382,086
-----------------------------------------------------------
Net Assets:
Capital paid-in ........................................ 513,136,469
Accumulated net realized loss on investments ........... (23,235,573)
Net unrealized appreciation of investments ............. 10,923,044
Distributions in excess of net investment income ....... (120,914)
--------------
Net Assets ................................. $500,703,026
===========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding -
unlimited number of shares authorized
with no par value)
Class A - $353,317,962/38,424,960 ...................... $9.20
=======================================================================
Class B - $147,385,064/16,028,806 ...................... $9.20
=======================================================================
Maximum Offering Price Per Share*
Class A - ($9.20 x104.71%) ............................. $9.63
=======================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest (net of foreign withholding taxes of $25,949) $20,572,259
--------------
Expenses:
Investment management fee - Note B ................... 1,621,680
Distribution and service fee - Note B
Class A ............................................ 449,170
Class B ............................................ 759,131
Transfer agent fee - Note B .......................... 415,891
Custodian fee ........................................ 71,537
Financial services fee - Note B ...................... 45,633
Trustees' fees ....................................... 29,886
Auditing fee ......................................... 22,299
Printing ............................................. 15,758
Registration and filing fees ......................... 14,776
Legal fees ........................................... 3,653
--------------
Total Expenses ............................. 3,449,414
----------------------------------------------------------
Net Investment Income ...................... 17,122,845
----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Future Contracts:
Net realized loss on investments sold ................ (677,573)
Net realized loss on financial futures contracts ..... (1,358,240)
Change in net unrealized appreciation/depreciation
of investments ..................................... 16,981,859
Change in net unrealized appreciation/depreciation
of financial futures contracts ..................... 217,968
--------------
Net Realized and Unrealized Gain
on Investments and Financial
Futures Contracts .......................... 15,164,014
----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .................. $32,286,859
==========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
-------------------------
FINANCIAL STATEMENTS
-------------------------
John Hancock Funds - Government Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED NOVEMBER 1, 1996 TO NOVEMBER 30, 1997
OCTOBER 31, 1996 MAY 31, 1997(1) (UNAUDITED)
---------------- --------------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................... $43,226,352 $21,630,521 $17,122,845
Net realized gain (loss) on investments sold and
financial futures contracts ........................................... (3,061,217) 1,636,094 (2,035,813)
Change in net unrealized appreciation/depreciation of
investments and financial futures contracts ........................... (14,982,333) (10,617,602) 17,199,827
------------- ------------ ------------
Net Increase in Net Assets Resulting from Operations .................. 25,182,802 12,649,013 32,286,859
------------- ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6475, $0.3686 and $0.3117 per share, respectively) ...... (30,301,964) (15,469,416) (12,480,571)
Class B - ($0.5817, $0.3301 and $0.2781 per share, respectively) ...... (12,924,388) (6,102,517) (4,706,857)
Distributions in excess of net investment income
Class A - ($0.0006, none and none per share, respectively) ............ (24,790) -- --
Class B - ($0.0003, none and none per share, respectively) ............ (6,308) -- --
------------- ------------ ------------
Total Distributions to Shareholders ................................. (43,257,450) (21,571,933) (17,187,428)
------------- ------------ ------------
From Fund Share Transactions - Net:* ...................................... (105,001,453) (52,375,680) (27,545,062)
------------- ------------ ------------
Net Assets:
Beginning of period ..................................................... 697,523,358 574,447,257 513,148,657
------------- ------------ ------------
End of period (including distributions in excess of net investment income
of $9,046, $56,331 and $120,914, respectively) ........................ $574,447,257 $513,148,657 $500,703,026
============= ============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED NOVEMBER 1, 1997 NOVEMBER 30, 1997
OCTOBER 31, 1996 TO MAY 31, 1997 (1) (UNAUDITED)
-------------------------- -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold .............................. 2,410,470 $21,862,541 917,678 $8,339,272 2,074,146 $18,992,535
Shares issued to shareholders
in reinvestment of distributions ...... 1,608,652 14,641,736 843,678 7,579,076 664,087 6,061,883
----------- ------------ ----------- ------------ ----------- ------------
4,019,122 36,504,277 1,761,356 15,918,348 2,738,233 25,054,418
Less shares repurchased .................. (10,824,321) (98,756,948) (5,149,479) (46,344,996) (4,616,478) (42,107,926)
----------- ------------ ----------- ------------ ----------- ------------
Net decrease ............................. (6,805,199) ($62,252,671) (3,388,123) ($30,426,648) (1,878,245) ($17,053,508)
=========== ============ =========== ============ =========== ============
CLASS B
Shares sold .............................. 1,969,851 $18,166,729 1,548,490 $13,820,117 1,046,657 $9,529,589
Shares issued to shareholders in
reinvestment of distributions ......... 734,239 6,692,313 361,894 3,251,553 270,377 2,468,464
----------- ------------ ----------- ------------ ----------- ------------
2,704,090 24,859,042 1,910,384 17,071,670 1,317,034 11,998,053
Less shares repurchased .................. (7,418,441) (67,607,824) (4,353,270) (39,020,702) (2,472,339) (22,489,607)
----------- ------------ ----------- ------------ ----------- ------------
Net decrease ............................. (4,714,351) ($42,748,782) (2,442,886) ($21,949,032) (1,155,305) ($10,491,554)
=========== ============ =========== ============ =========== ============
</TABLE>
(1) Effective May 31, 1997, the fiscal period end changed from October 31 to May
31.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, 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 three periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
-------------------------
FINANCIAL STATEMENTS
-------------------------
John Hancock Funds - Government Income Fund
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1994
(COMMENCEMENT OF YEAR ENDED OCTOBER 31,
OPERATIONS) TO ----------------------
OCTOBER 31, 1994 1995(1) 1996
---------------- ------- ----
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $8.85 $8.75 $9.32
-------- -------- --------
Net Investment Income .................................. 0.06 0.72 0.65(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts . (0.10) 0.57 (0.25)
-------- -------- --------
Total from Investment Operations ..................... (0.04) 1.29 0.40
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.06) (0.72) (0.65)
-------- -------- --------
Net Asset Value, End of Period ......................... $8.75 $9.32 $9.07
======== ======== ========
Total Investment Return at Net Asset Value (2,3) ....... (0.45%)(4) 15.32% 4.49%
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
Ratio of Expenses to Average Net Assets (2) ............ 0.12%(4) 1.19% 1.17%
Ratio of Net Investment Income to Average Net Assets (2) 0.71%(4) 7.38% 7.10%
Portfolio Turnover Rate ................................ 92% 102%(8) 106%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
NOVEMBER 1, 1996 NOVEMBER 30, 1997
TO MAY 31, 1997(7) (UNAUDITED)
------------------ -----------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $9.07 $8.93
-------- --------
Net Investment Income .................................. 0.37(5) 0.31(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts . (0.14) 0.27
-------- --------
Total from Investment Operations ..................... 0.23 0.58
-------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.37) (0.31)
-------- --------
Net Asset Value, End of Period ......................... $8.93 $9.20
======== ========
Total Investment Return at Net Asset Value (2,3) ....... 2.57%(4) 6.65%(4)
Total Adjusted Investment Return at Net Asset Value (3) -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $359,758 $353,318
Ratio of Expenses to Average Net Assets (2) ............ 1.13%(6) 1.13%(6)
Ratio of Net Investment Income to Average Net Assets (2) 7.06%(6) 6.92%(6)
Portfolio Turnover Rate ................................ 129% 53%
</TABLE>
The Financial Highlights summarize 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.
10
<PAGE>
================================================================================
-------------------------
FINANCIAL STATEMENTS
-------------------------
John Hancock Funds - Government Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------
1993 1994 1995(1) 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $9.83 $10.05 $8.75 $9.32
-------- -------- -------- --------
Net Investment Income .................................. 0.70 0.65 0.65 0.58(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts . 0.24 (1.28) 0.57 (0.24)
-------- -------- -------- --------
Total from Investment Operations ..................... 0.94 (0.63) 1.22 0.34
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.72) (0.65) (0.65) (0.58)
Distributions from Net Realized Gains on Investments
Sold and Financial Futures Contracts ................. -- (0.02) -- --
-------- -------- -------- --------
Total Distributions .................................. (0.72) (0.67) (0.65) (0.58)
-------- -------- -------- --------
Net Asset Value, End of Period ......................... $10.05 $8.75 $9.32 $9.08
======== ======== ======== ========
Total Investment Return at Net Asset Value (2,3) ....... 9.86% (6.42%) 14.49% 3.84%
Total Adjusted Investment Return at Net Asset Value (3) 9.85% (6.43%) 14.47% --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $293,413 $241,061 $226,954 $178,124
Ratio of Expenses to Average Net Assets (2) ............ 2.00% 1.93% 1.89% 1.90%
Ratio of Net Investment Income to Average Net Assets (2) 7.06% 6.98% 7.26% 6.37%
Portfolio Turnover Rate ................................ 138% 92% 102%(8) 106%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
NOVEMBER 1, 1996 NOVEMBER 30, 1997
TO MAY31, 1997(7) (UNAUDITED)
----------------- -----------
<S> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $9.08 $8.93
-------- --------
Net Investment Income .................................. 0.33(5) 0.28(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts . (0.15) 0.27
-------- --------
Total from Investment Operations ..................... 0.18 0.55
-------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.33) (0.28)
Distributions from Net Realized Gains on Investments
Sold and Financial Futures Contracts ................. -- --
-------- --------
Total Distributions .................................. (0.33) (0.28)
-------- --------
Net Asset Value, End of Period ......................... $8.93 $9.20
======== ========
Total Investment Return at Net Asset Value (2,3) ....... 2.02%(4) 6.25%(4)
Total Adjusted Investment Return at Net Asset Value (3) -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $153,390 $147,385
Ratio of Expenses to Average Net Assets (2) ............ 1.86%(6) 1.88%(6)
Ratio of Net Investment Income to Average Net Assets (2) 6.32%(6) 6.18%(6)
Portfolio Turnover Rate ................................ 129% 53%
</TABLE>
(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.
(7) Effective May 31, 1997, the fiscal period end changed from October 31 to
May 31.
(8) Portfolio turnover excludes merger activity.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
-------------------------
FINANCIAL STATEMENTS
-------------------------
John Hancock Funds - Government Income Fund
Schedule of Investments
November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Government Income Fund on November 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.
<TABLE>
<CAPTION>
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. (41.64%)
United States Treasury,
Bond * .............................................. 12.750% 11-15-10 $14,000 $19,908,420
Bond ................................................ 12.000 08-15-13 34,200 50,038,704
Bond ................................................ 8.125 08-15-19 38,000 46,995,360
Bond ................................................ 6.375 08-15-27 24,500 25,476,080
Bond ................................................ 6.125 11-15-27 7,000 7,078,750
Note ................................................ 15.750 11-15-01 14,340 19,278,337
Note ................................................ 10.750 02-15-03 22,000 26,723,180
Note ................................................ 11.875 11-15-03 5,000 6,482,800
Note ................................................ 10.750 08-15-05 5,000 6,469,550
-----------
208,451,181
-----------
Government - U.S. Agencies (44.65%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1094-K .................................... 7.000 06-15-21 2,300 2,309,338
CMO REMIC 1608-L .................................... 6.500 09-15-23 7,000 6,814,010
CMO REMIC 1634-PN ................................... 4.500 12-15-23 10,575 8,327,813
CMO REMIC 1667-PE ................................... 6.000 03-15-08 11,750 11,650,830
Federal Judiciary Office Building,
Zero Coupon Bond .................................... Zero 02-15-01 250 206,875
Federal National Mortgage Assn.,
10 Yr Pass Thru Ctf ................................. 9.150 04-10-98 8,000 8,097,520
30 Yr Pass Thru Ctf ................................. 8.500 09-01-24 to 11,945 12,542,120
10-01-24
CMO REMIC 1990-51-H ................................. 7.500 05-25-20 200 204,562
CMO REMIC 1990-58-J ................................. 7.000 05-25-20 3,700 3,719,647
CMO REMIC 1990-94-D ................................. 6.500 08-25-20 1,636 1,619,207
CMO REMIC 1991-56-M ................................. 6.750 06-25-21 4,000 4,017,480
Medium Term Note .................................... 9.400 08-10-98 9,240 9,455,107
Medium Term Note .................................... 9.550 03-10-99 7,450 7,780,557
Medium Term Note .................................... 11.875 05-19-00 6,800 7,712,696
Financing Corp.,
Bond ................................................ 9.400 02-08-18 4,000 5,371,240
Bond ................................................ 9.650 11-02-18 1,600 2,197,248
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf ................................. 6.500 03-20-23 10,566 10,843,244
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
-------------------------
FINANCIAL STATEMENTS
-------------------------
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Government - U.S. Agencies (continued)
30 Yr Pass Thru Ctf ....................................... 7.500% 05-15-23 to $82,639 $84,489,993
12-15-25
30 Yr Pass Thru Ctf ....................................... 8.000 09-15-23 to 23,049 23,897,488
08-15-24
30 Yr Pass Thru Ctf ....................................... 11.000 01-15-14 to 7,211 8,232,863
12-15-15
Small Business Administration,
Pass Thru Ctf Ser 97-E .................................... 7.300 05-01-17 3,944 4,081,068
-----------
223,570,906
-----------
TOTAL U.S.GOVERNMENT AND AGENCIES SECURITIES
(Cost $421,503,983) (86.29%) 432,022,087
-------- -----------
FOREIGN GOVERNMENT BONDS
U.S. Dollar-Denominated Foreign Government Bonds (8.82%)
Argentina, Republic of,
Global Bond.............................................. 9.750 09-19-27 389 356,731
Brazil, Republic of,
Bond Ser A .............................................. 6.8125# 01-01-01 5,613 5,304,049
Hydro-Quebec Corp.,
Deb Ser HK............................................... 9.375 04-15-30 5,440 7,082,282
Deb ..................................................... 9.400 02-01-21 5,000 6,359,450
Landeskreditbank Baden - Wuerttemberg,
Sub Note................................................. 7.625 02-01-23 8,650 9,672,084
Ontario, Province of,
30 Yr Deb................................................ 11.500 03-10-13 12,400 13,103,452
United Mexican States,
Bond..................................................... 11.375 09-15-16 1,000 1,135,000
Bond..................................................... 11.500 05-15-26 1,000 1,160,000
-----------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $43,893,872) (8.82%) 44,173,048
-------- -----------
MULTI-FAMILY MORTGAGE-BACKED BONDS (1.88%)
DLJ Mortgage Acceptance Corp.,
CMO 1993-M10-A2.......................................... 7.200 07-15-03 4,435 4,584,801
CMO 1993-MF7-A1.......................................... 7.400 06-18-03 4,643 4,828,261
-----------
TOTAL MULTI-FAMILY MORTGAGE-BACKED BONDS
(Cost $9,290,676) (1.88%) 9,413,062
-------- -----------
TOTAL LONG-TERM BONDS
(Cost $474,688,531) (96.99%) 485,608,197
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
-------------------------
FINANCIAL STATEMENTS
-------------------------
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ----------- ----------- -----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.97%)
Investment in a joint repurchase agreement transaction
with Swiss Bank Corp. Dated 11-28-97, Due 12-01-97
(Secured by U.S. Treasury Note, 7.75%, Due
12-31-99 and U.S. Treasury Bonds, 6.50% thru 11.25%,
Due 02-15-15 thru 11-15-26) Note A ............................ 5.670% $9,864 $9,864,000
------------
TOTAL SHORT-TERM INVESTMENTS (1.97%) 9,864,000
-------- ------------
TOTAL INVESTMENTS (98.96%) $495,472,197
======== ============
</TABLE>
* U.S. Treasury Bonds with a value of $170,644 owned by the fund were segregated
as margin deposits for future contracts at November 30, 1997.
# Represents rate in effect on November 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.
14
<PAGE>
================================================================================
--------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------
John Hancock Funds - Government Income Fund
(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: 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 $20,815,945 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:
May 31, 2002 -- $15,347,195, May 31, 2003 -- $1,419,401, May 31, 2004 --
$1,964,217 and May 31, 2005 -- $2,085,132. Expired capital loss carryforwards
are reclassified to capital paid-in in the year of expiration.
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 the effect of expenses
that may be applied differently to each class.
15
<PAGE>
================================================================================
--------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------
John Hancock Funds - Government Income Fund
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. These agreements enable
the Fund to participate with other Funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $600 million,
collectively. Interest is charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a
rate of 0.075% per annum based on the average daily unused portion of the line
of credit, is allocated among the participating Funds. The Fund had no borrowing
activity for the period ended November 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 November 30, 1997, open positions in financial futures contracts were
as follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
MAR 98 25 TREASURY BOND LONG $3,907
=======
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
16
<PAGE>
================================================================================
--------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------
John Hancock Funds - Government Income Fund
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 November
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 November
30, 1997, net sales charges received with regard to sales of Class A shares
amounted to $85,762. Out of this amount, $9,789 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $68,305
was paid as sales commissions to unrelated broker-dealers and $7,668 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
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 November 30,
1997, contingent deferred sales charges paid to JH Funds amounted to $137,409.
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.
17
<PAGE>
================================================================================
--------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------
John Hancock Funds - Government Income Fund
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 less than 0.02% 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 November 30, 1997, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $7,285.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended November 30, 1997, aggregated $263,522,783
and $292,494,360, respectively.
The cost of investments (including the joint repurchase agreement) owned
at November 30, 1997 for federal income tax purposes was $484,552,531. Gross
unrealized appreciation and depreciation of investments aggregated $17,113,286
and $6,193,620, respectively, resulting in net unrealized appreciation of
$10,919,666.
18
<PAGE>
--------------
NOTES
--------------
John Hancock Funds - Government Income Fund
19
<PAGE>
================================================================================
-----------------
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
-----------------
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
JOHN HANCOCK FUNDS
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
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Government Income Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
560SA 11/97
1/98
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
High Yield
Bond Fund
NOVEMBER 30, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
---------------------------------------
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 & 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 02109-1803
---------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 have been anything but dull. Bond investors
have enjoyed the benefits of a strong economy with no inflation. Stock investors
have been treated to record-breaking performance by the Dow Jones Industrial
Average, but with record-breaking volatility. After two years of strong advances
with relatively minor swings, the stock market's recent sharp drops and enormous
rebounds have caused a fair share of investor concern.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to first paragraph.]
The latest round came in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had stabilized, yet many markets remained edgy as investors sorted
out the Asian turmoil and its implications on economic growth, interest rates
and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY ARTHUR CALAVRITINOS, CFA, PORTFOLIO MANAGER
John Hancock High Yield
Bond Fund
Asian turmoil temporarily sidetracks an otherwise
strong six months for high-yield bonds
High-yield bonds turned in a solid performance over the last six months,
bolstered by a buoyant U.S. economy, record high demand and declining interest
rates. But at the end of October, these higher-yielding, lower-rated bonds ran
into some stiff headwinds that blew in from Asia on the heels of growing
currency and financial troubles there. As those markets dropped sharply,
financial markets worldwide felt the effects, when many fearful investors sold
higher-risk investments and moved into U.S. Treasuries. This "flight to quality"
caused downward pressure on high-yield bond prices as the spread, or difference
in yield, between high-yield bonds and Treasuries widened. Longer-term
Treasuries were the biggest beneficiaries of the tumult, with the 30-year
Treasury returning 14.45% for the six months ended November 30. By contrast,
Treasury bonds with 10-year maturities advanced by 8.90%, while the broad
high-yield bond market returned 7.52%, as measured by the Merrill Lynch
high-yield bond index.
Despite the weakness in the last month of the period, the high-yield bond
market, and John Hancock High Yield Bond Fund in particular, posted strong
returns. For the six months ended November 30, 1997, the Fund's Class A and
Class B shares returned 8.68% and 8.27%, respectively, at net asset value. That
compared favorably with the 7.47% return of the average high current yield fund,
according to Lipper
"High-yield bonds turned in a solid performance over the last six months..."
[A 2 1/4" x 3 1/2" photo fund management team at bottom right. Caption reads:
"Arthur Calavatrinos (right) and Fund management team members (l-r) Fred
Cavanaugh, Linda Carter and Jamie Kellogg."]
3
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
TOP FIVE SECURITIES
[Chart with heading "Top Five Securities" at top of left hand column. The chart
lists five holdings: 1) Northwest Airlines 3.6% 2) Gaylord Container 2.5%
3)Nextel Communications 2.4 % 4) Gulf States Steel 2.4% 5) US Airways Group
2.2%. A footnote below reads "As a percentage of net assets on November 30,
1997."]
- --------------------------------------------------------------------------------
Analytical Services, Inc.(1) Longer-term performance information can be found on
pages six and seven.
Performance and strategy review
During the last six months, our in-depth company analysis and careful credit
selection helped the Fund outperform its peers. These two linchpins of the
Fund's investment process led us to companies whose business prospects we
believe make them worth the extra credit risk of investing in companies rated
below investment grade. Specifically, the Fund was boosted by strong
performances from our telecommunications companies Nextel Communications and
McCaw International. McCaw's bond prices rose along with growing customer demand
in Brazil and spillover from the positive news surrounding sister company
Nextel.
Several of our holdings also benefited from mergers or bond calls. Sheffield
Steel's 12% coupon bonds rose by almost 13% over the last six months and their
bonds were called as the period ended at prices nicely higher than what we paid.
Americold's bonds also had strong price gains during the period when the company
merged with another warehouse refrigeration company. In addition to the price
gains, the bond carries a high coupon of 12 7/8%.
The Fund is permitted by its investment policy to invest in stocks on a
limited basis. During the period, several of our equity holdings contributed to
the Fund's performance. The stock of USX/Delhi Group, a natural gas pipeline
company, for example, rose by almost 40% after the company was sold to Koch
Industries. We also benefited from our stake in the Great Atlantic & Pacific Tea
Co. stock, which we bought as a value play when it was trading at inexpensive
levels, and have seen the price rise 12% in the period. The company recently
increased its dividend even after announcing disappointing earnings. We're also
encouraged by increased stock-buying activity by company insiders.
Airlines mixed; opportunities among laggards
We had mixed success with our airline stocks in the last six months. Our largest
holding, Northwest Airlines, which services the Far East, was hit by the Asian
contagion and its stock stayed essentially flat. US Airways Group, on the other
hand, performed well because of its domestic route restructuring and a highly
focused new management team. We also bought the stock of Galileo International,
which owns the second largest airline reservation system. The company is very
profitable and we like it because of its focus on the international side of the
business, where we believe there's more potential for growth.
Our biggest disappointments came from our bonds of Indonesian paper
companies Indah Kiat and Asia Pulp and Paper, which suffered from the
"Several of our holdings also benefited from mergers or bond calls."
[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 McCaw
International followed by an up arrow and the phrase "Growing customer demand in
Brazil." The second listing is USX/Delhi followed by an up arrow and the phrase
"Price gains after announced takeover." The third listing is India Kiat followed
by a down arrow and the phrase "Bond prices fall with Asian market turmoil."
Footnote below reads: "See "Schedule of Investments." Investment holdings are
subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the six months ended November 30, 1997
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended November 30, 1997." The chart
is scaled in increments of 2% from bottom to top, with 10% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first represents
the 8.68% total return for the John Hancock High Yield Bond Fund, Class A. The
second represents the 8.27% total return for John Hancock High Yield Bond Fund,
Class B. The third represents the 7.47% total return for the average high
current yield fund. A 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 following two pages for historical performance information."]
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, Inc.(1) See the following two pages for historical
performance information.
- --------------------------------------------------------------------------------
Southeast Asian currency turmoil. But we continue to believe that these
world-class companies will withstand the regional woes, given their strong
sources of U.S. dollar-based revenues.
Indeed, we believe that the latest regional upheaval has provided some
interesting opportunities to invest in solid companies in emerging markets at
very reasonable prices. As the period ended, we selectively added several bonds
from Brazil to the portfolio, including utility company Espirito Santo and
chemical company Trikem. These bonds, too, took a step back when investors
feared that Latin American countries would experience the same types of currency
devaluations that sparked Southeast Asia's crisis. But in our view, these are
companies with strong fundamentals that have unfairly been tarnished by the
emerging-market jitters. On top of their attractive yields, they also provide
strong potential for price gains when market fears dissipate.
Outlook
Going forward, we see reasons for both optimism and caution as we enter 1998,
and we're keeping our outlook guarded for high-yield bonds. On one hand, demand
continues to remain strong for high-yield bonds. The prospect of more tame
inflation and moderating economic growth should keep investors clamoring for
high-yield bonds' heftier income levels. On the other hand, the current economic
expansion is entering its eighth, and record-setting year. After the amount of
growth that we've seen in corporate profits, and with worldwide events possibly
contributing to a tempering of the economy, we could be in for some rockier road
ahead. Overall, we believe investors would be wise to temper their expectations
going forward.
In this fluid environment, we'll stay fully invested, not trying to time the
market's moves. Now, more than ever, we will continue to apply our rigorous
company analysis and selection criteria to make sure that we're not only finding
companies providing the best opportunities for the risks we're taking, but also
avoiding the others. As always, we intend to stay focused on providing
shareholders with high current income and the potential for price gains.
"...we're keeping our outlook guarded for high-yield bonds."
- --------------------------------------------------------------------------------
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.
See the Fund's prospectus for a detailed discussion of the risks of investing in
high-yield bonds.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
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 measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.5%. Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 4.75%.
Class B performance reflects a maximum contingent deferred sales charge (maximum
5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1997
SINCE
ONE INCEPTION
YEAR (6/30/93)
---- ---------
Cumulative Total Returns 16.44% 52.42%
Average Annual Total Returns 16.44% 10.41%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/26/87)
---- ----- ----------
Cumulative Total Returns 16.01% 72.93% 158.47%
Average Annual Total Returns 16.01% 11.58% 10.03%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1997
SEC 30-DAY
YIELD
----------
John Hancock High Yield Bond Fund: Class A 9.29%
John Hancock High Yield Bond Fund: Class B 8.97%
6
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
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, assuming all distributions
were reinvested for the period indicated. 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. Past performance is not indicative of future
results.
High Yield Bond Fund Fund
Class A shares
[Line chart with the heading High Yield Bond Fund 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 $15,855 as of November 30, 1997. The
second line represents the value of the Lehman Brothers High Yield Bond Index
and is equal to $15,201 as of November 30, 1997. The third line represents the
High Yield Bond Fund Fund, after sales charge, and is equal to $15,141 as of
November 30, 1997.]
High Yield Bond Fund 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 $27,268 as of November 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 $25,646 of November 30, 1997.]
*No contingent deferred sales charge applicable.
7
<PAGE>
==============================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 November 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
November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $565,959,580) ................................. $567,744,858
Common and preferred stocks
and warrants (cost - $144,864,651) ........................ 160,833,991
Joint repurchase agreement (cost - $3,828,000) .............. 3,828,000
Corporate savings account ................................... 243
------------
732,407,092
Receivable for investments sold .............................. 10,359,297
Receivable for shares sold ................................... 5,016,885
Interest receivable .......................................... 15,243,111
Dividends receivable ......................................... 39,967
Foreign tax receivable ....................................... 5,250
Receivable for forward foreign currency exchange
contracts sold - Note A ..................................... 91,046
Other assets ................................................. 33,499
------------
Total Assets ............................... 763,196,147
------------------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 14,831,979
Payable for shares repurchased ............................... 273,712
Dividend Payable ............................................. 1,113,940
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ..................................... 417,670
Accounts payable and accrued expenses ........................ 104,429
------------
Total Liabilities .......................... 16,741,730
------------------------------------------------------------
Net Assets:
Capital paid-in .............................................. 718,029,383
Accumulated net realized gain on investments,
financial futures contracts
and foreign currency transactions ........................... 10,263,508
Net unrealized appreciation of investments,
financial futures contracts
and foreign currency transactions ........................... 17,843,592
Undistributed net investment income .......................... 317,934
------------
Net Assets ................................. $746,454,417
============================================================
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)
Class A - $165,596,855/20,325,485 ............................ $8.15
==============================================================================
Class B - $580,857,562/71,294,901 ............................ $8.15
==============================================================================
Maximum Offering Price Per Share*
Class A - ($8.15 x 104.71%) .................................. $8.53
==============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ................................................... $30,582,096
Dividends
(net of foreign withholding taxes of $33,481) ............. 2,259,066
------------
32,841,162
------------
Expenses:
Investment management fee - Note B ........................ 1,639,423
Distribution and service fee - Note B
Class A ................................................. 173,907
Class B ................................................. 2,441,437
Transfer agent fee - Note B ............................... 289,145
Registration and filing fees .............................. 73,034
Custodian fee ............................................. 71,939
Financial services fee - Note B ........................... 55,891
Auditing fee .............................................. 14,456
Trustees' fees ............................................ 14,356
Printing .................................................. 10,135
Legal fees ................................................ 5,439
Miscellaneous ............................................. 4,761
------------
Total Expenses ........................... 4,793,923
-----------------------------------------------------------
Net Investment Income .................... 28,047,239
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions:
Net realized gain on investments sold ...................... 14,592,247
Net realized gain on financial futures contracts ........... 662,190
Net realized loss on foreign currency transactions ......... (132,347)
Change in net unrealized appreciation/depreciation
of investments ............................................ 1,628,195
Change in net unrealized appreciation/depreciation
of foreign currency transactions .......................... 87,603
------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions ............ 16,837,888
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................ $44,885,127
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED NOVEMBER 1, 1996 TO NOVEMBER 30, 1997
OCTOBER 31, 1996 MAY 31, 1997(1) (UNAUDITED)
---------------- --------------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................... $22,815,855 $21,437,615 $28,047,239
Net realized gain on investments sold, financial futures
contracts and foreign currency transactions ........................... 8,029,590 8,136,023 15,122,090
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions ......... 3,085,336 8,545,138 1,715,798
------------- ------------- -------------
Net Increase in Net Assets Resulting from Operations ................... 33,930,781 38,118,776 44,885,127
------------- ------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.7560, $0.4529 and $0.3943 per share, respectively) ....... (3,878,979) (4,535,707) (6,634,118)
Class B - ($0.7024, $0.4192 and $0.3635 per share, respectively) ....... (18,935,736) (16,798,872) (21,511,073)
------------- ------------- -------------
Total Distributions to Shareholders .................................. (22,814,715) (21,334,579) (28,145,191)
------------- ------------- -------------
From Fund Share Transactions - Net: * ..................................... 77,581,499 164,429,074 252,765,592
------------- ------------- -------------
Net Assets:
Beginning of period ..................................................... 207,038,053 295,735,618 476,948,889
------------- ------------- -------------
End of period (including distributions in excess of net investment
income of $51,675, undistributed net investment income of $415,886
and $317,934, respectively) ............................................ $295,735,618 $476,948,889 $746,454,417
============= ============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED NOVEMBER 1, 1996 TO NOVEMBER 30, 1997
OCTOBER 31, 1996 MAY 31, 1997(1) (UNAUDITED)
-------------------------- ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold .......................... 8,767,330 $65,045,830 9,294,156 $71,427,228 13,898,830 $113,649,260
Shares issued to shareholders in
reinvestment of distributions ...... 274,586 2,040,722 296,915 2,292,966 378,334 3,080,093
----------- ------------ ---------- ------------ ---------- ------------
9,041,916 67,086,552 9,591,071 73,720,194 14,277,164 116,729,353
Less shares repurchased .............. (5,722,882) (42,359,728) (4,147,415) (31,953,487) (6,388,408) (52,381,864)
----------- ------------ ---------- ------------ ---------- ------------
Net increase ......................... 3,319,034 $24,726,824 5,443,656 $41,766,707 7,888,756 $64,347,489
=========== ============ ========== ============ ========== ============
CLASS B
Shares sold .......................... 16,014,384 $119,134,111 22,945,002 $176,520,972 30,540,335 $248,777,496
Shares issued to shareholders in
reinvestment of distributions ...... 1,109,704 8,233,250 848,334 6,554,413 896,364 7,299,380
----------- ------------ ---------- ------------ ---------- ------------
17,124,088 127,367,361 23,793,336 183,075,385 31,436,699 256,076,876
Less shares repurchased .............. (10,029,960) (74,512,686) (7,837,914) (60,413,018) (8,278,731) (67,658,773)
----------- ------------ ---------- ------------ ---------- ------------
Net increase ......................... 7,094,128 $52,854,675 15,955,422 $122,662,367 23,157,968 $188,418,103
=========== ============ ========== ============ ========== ============
</TABLE>
(1) Effective May 31, 1997, the fiscal period end changed from October 31 to May
31.
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 three periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 30, 1993
(COMMENCEMENT OF YEAR ENDED OCTOBER 31, PERIOD FROM SIX MONTHS ENDED
OPERATIONS) TO ------------------------------- NOVEMBER 1, 1996 NOVEMBER 30, 1997
OCTOBER 31, 1993 1994 1995(1) 1996 TO MAY 31, 1997(6) (UNAUDITED)
---------------- ---- ------- ---- ------------------ -----------
<S> <C> <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 $7.87
------- ------- ------- ------- ------- -------
Net Investment Income .................... 0.33 0.80(2) 0.72 0.76(2) 0.45 0.39
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions ............................ 0.09 (0.83) (0.12) 0.35 0.32 0.28
------- ------- ------- ------- ------- -------
Total from Investment Operations ........ 0.42 (0.03) 0.60 1.11 0.77 0.67
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .... (0.29) (0.82) (0.73) (0.76) (0.45) (0.39)
Distributions from Net Realized
Gain on Investments Sold .............. -- (0.05) -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions ..................... (0.29) (0.87) (0.73) (0.76) (0.45) (0.39)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ........... $8.23 $7.33 $7.20 $7.55 $7.87 $8.15
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset
Value (3) .............................. 4.96%(4) (0.59%) 8.83% 16.06% 10.54%(4) 8.68%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) . $2,344 $11,696 $26,452 $52,792 $97,925 $165,597
Ratio of Expenses to Average Net Assets .. 0.91%(5) 1.16% 1.16% 1.10% 1.05%(5) 0.94%(5)
Ratio of Net Investment Income to
Average Net Assets ..................... 12.89%(5) 10.14% 10.23% 10.31% 10.19%(5) 9.51%(5)
Portfolio Turnover Rate .................. 204% 153% 98% 113% 78% 61%
Average Brokerage Commission Rate (7) .... -- -- -- -- $0.0583 $0.0626
</TABLE>
The Financial Highlights summarize 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.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
NOVEMBER 1, ENDED
YEAR ENDED OCTOBER 31, 1996 NOVEMBER 30,
----------------------------------------------------- TO MAY 31, 1997
1992 1993 1994 1995 1996 1997(6) (UNAUDITED)
---- ---- ---- ---- ---- ------- -----------
<S> <C> <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 $7.87
------- -------- -------- -------- -------- -------- --------
Net Investment Income ..................... 0.87 0.80 0.74(2) 0.67 0.70(2) 0.42 0.36
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions ............................. (0.04) 0.75 (0.83) (0.13) 0.35 0.32 0.28
------- -------- -------- -------- -------- -------- --------
Total from Investment Operations ......... 0.83 1.55 (0.09) 0.54 1.05 0.74 0.64
------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ..... (0.84) (0.75) (0.76) (0.67) (0.70) (0.42) (0.36)
Distributions from Net Realized Gain
on Investments Sold .................... -- -- (0.05) -- -- -- --
------- -------- -------- -------- -------- -------- --------
Total Distributions ...................... (0.84) (0.75) (0.81) (0.67) (0.70) (0.42) 0.36
------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............ $7.43 $8.23 $7.33 $7.20 $7.55 $7.87 $8.15
======= ======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset
Value (3) ............................... 11.56% 21.76% (1.33%) 7.97% 15.24% 10.06%(4) 8.27%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) . $98,560 $154,214 $160,739 $180,586 $242,944 $379,024 $580,858
Ratio of Expenses to Average Net Assets ... 2.25% 2.08% 1.91% 1.89% 1.82% 1.80%(5) 1.69%(5)
Ratio of Net Investment Income to Average
Net Assets ............................... 11.09% 10.07% 9.39% 9.42% 9.49% 9.45%(5) 8.78%(5)
Portfolio Turnover Rate ................... 206% 204% 153% 98% 113% 78% 61%
Average Brokerage Commission Rate (7) ..... -- -- -- -- -- $0.0583 $0.0626
</TABLE>
(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.
(6) Effective May 31, 1997, the fiscal period end changed from October 31 to May
31.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995, or later.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Schedule of Investments
November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by High
Yield Bond Fund on November 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.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
BONDS
Agricultural Operations (0.54%)
Iowa Select Farms L.P./ISF Finance Inc.,
Sr Sub Note 12-01-05 (R) ............................................. 10.750% B3 $4,000 $4,055,000
-----------
Automobile/Trucks (0.98%)
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 ..................................................... 12.500 B- 5,750 5,778,750
Key Plastics, Inc.,
Sr Note 11-15-99 ..................................................... 14.000 B2 1,365 1,525,388
-----------
7,304,138
-----------
Banks - Foreign (0.05%)
Sumitomo Bank International Finance N.V.,
Gtd Sub Note (Japan) 05-31-01# (R) .................................... 0.750 A2 50,000 399,608
-----------
Banks - United States (0.54%)
CSBI Capital Trust I,
Gtd Sec Bond Ser A 06-06-27 (R) ....................................... 11.750 B- 3,890 4,006,700
-----------
Building (1.44%)
Fortress Group, Inc.,
Sr Note 05-15-03 ..................................................... 13.750 B3 4,000 4,480,000
Koppers Industries, Inc.,
Sr Sub Note 12-01-07 (R) ............................................. 9.875 B- 2,000 2,030,000
The Presley Companies,
Gtd Sr Note 07-01-01 ................................................. 12.500 CCC 4,519 4,259,158
-----------
10,769,158
-----------
Business Services - Misc. (0.40%)
Comforce Operating, Inc.,
Sr Note 12-01-07 (R) ................................................. 12.000 B- 3,000 3,015,000
-----------
Chemicals (1.53%)
OPP Petroquimica S.A.,
Bond (Brazil) 10-29-04 (R) (Y) ........................................ 11.000 B+ 2,000 1,860,000
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) ........................................ 10.625 BB- 11,000 9,570,000
-----------
11,430,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Computers (0.33%)
Interact Systems, Inc.,
Unit (Sr Disc Note 08-01-03 & Warrant), Step Coupon
(14.00%, 08-01-00) (A) (R) ........................................... 14.000% B $6,000 $2,460,000
-----------
Containers (6.48%)
Gaylord Container Corp.,
Sr Sub Disc Deb 05-15-05 ............................................. 12.750 B- 17,500 18,856,250
MVE, Inc.,
Sr Sec Note 02-15-02 ................................................. 12.500 B 7,011 6,940,890
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 ............................................. 10.875 CCC+ 10,000 9,800,000
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Interest Cert) 04-01-02 .............. 12.250 B- 12,250 12,740,000
-----------
48,337,140
-----------
Electronics (0.88%)
Electronic Retailing Systems International, Inc.,
Sr Disc Note 02-01-04, Step Coupon (13.25%, 02-01-00) (A) ............. Zero B 1,000 690,000
Hyperion Telecommunications, Inc.,
Sr Sec Note 09-01-04 (R) ............................................. 12.250 B 1,000 1,065,000
Intertek Finance Plc,
Gtd Sr Sec Sub Note, Ser B (United Kingdom) 11-01-06 (Y) .............. 10.250 B 1,150 1,204,625
Teletrac, Inc.,
Unit (Sr Note & Warrant) 08-01-07 (r) ................................ 14.000 B- 3,500 3,622,500
-----------
6,582,125
-----------
Finance (1.66%)
Advance Agro Public Co.,
Sr Note (Thailand) 11-15-07 (R) (Y) ................................... 13.000 CCC+ 3,000 2,715,000
Pindo Deli Finance Mauritius Ltd.,
Gtd Note (Indonesia) 10-01-07 (R) (Y) ................................. 10.750 BB 1,500 1,387,500
Superior National Capital Trust I,
Gtd Trust Preferred Security 12-01-17 (R) ............................ 10.750 BB 1,000 1,000,000
Tjiwi Kimia Finance Mauritius Ltd.,
Sr Gtd Note (Indonesia) 08-01-04 (R) (Y) .............................. 10.000 BB 3,500 3,185,000
Mercury Finance Co.,
Commercial Paper, 10-01-00 ............................................ 7.000 B 4,746 4,128,764
-----------
12,416,264
-----------
Food (3.66%)
Americold Corp.,
Sr Sub Note 05-01-08 ................................................. 12.875 B- 2,000 2,460,000
SC International Services, Inc.,
Sr Sub Note 09-01-07 (R) ............................................. 9.250 B 4,000 4,100,000
Specialty Foods Acquisition Corp.,
Sr Sub Note Ser B 08-15-03 ........................................... 11.250 Caa3 16,000 15,440,000
Specialty Foods Corp.,
Sr Sec Disc Deb Ser B 08-15-05, Step Coupon (13.00%, 08-15-99) (A) ... Zero Ca 12,000 5,280,000
-----------
27,280,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Glass Products (1.01%)
Glasstech, Inc.,
Unit (Sr Note & Warrant) 07-01-04 (R) ................................ 12.750% B $2,000 $2,090,000
VICAP S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 (R) (Y) ................................. 11.375 B+ 5,000 5,425,000
-----------
7,515,000
-----------
Government - Foreign (0.52%)
Bonos Del Tesoro, Republic of Argentina,
Bond (Argentina) 12-13-98 (Y) ......................................... 8.000 B 1,000 984,000
City of Moscow,
Bond (Russia) 05-31-00 (Y) ............................................ 9.500 B 3,000 2,925,000
-----------
3,909,000
-----------
Insurance (1.19%)
SIG Capital Trust I,
Gtd Trust Preferred Security 08-15-27 (R) ............................ 9.500 BB+ 9,000 8,865,000
-----------
Leisure (10.93%)
Agrosy Gaming Co.,
1st Mtg Note 06-01-04 ................................................ 13.250 B+ 4,950 5,011,875
Argosy Gaming Co.,
Sub Note 06-01-01 .................................................... 12.000 B- 8,122 6,903,700
Casino America, Inc.,
Sr Sec Note 08-01-03 ................................................. 12.500 B 11,200 12,138,000
Casino Magic - Louisiana,
1st Mtg Ser B 08-15-03 ............................................... 13.000 B3 10,500 10,237,500
Coast Hotels & Casinos, Inc.,
1st Mtg Ser B 12-15-02 ............................................... 13.000 B 3,000 3,375,000
Fitzgeralds Gaming Corp.,
Unit (Sr Sec Note & Warrant) 12-31-02 ................................ 13.000 Caa2 3,500 3,465,000
GB Property Funding Corp.,
1st Mtg 01-15-04 ..................................................... 10.875 CCC+ 11,000 9,460,000
IHF Holdings, Inc.,
Sr Sub Disc Note Ser B 11-15-04, Step Coupon (15.00%, 11-15-99) (A) ... Zero Caa2 5,000 4,375,000
Showboat, Inc.,
Sr Sub Note 08-01-09 ................................................. 13.000 B 2,000 2,320,000
Trump Castle Funding, Inc.,
1st Mtg Note 11-15-03 ................................................ 11.750 Caa1 13,300 12,402,250
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Sec Note 06-15-05 ................................................. 15.500 B+ 8,520 9,883,200
Venetian Casino Resort LLC,
1st Mtg Note 11-15-04 (R) ............................................. 12.250 B+ 2,000 2,022,500
-----------
81,594,025
-----------
Manufacturing (2.25%)
Icon Health & Fitness, Inc.,
Sr Sub Note Ser B 07-15-02 ........................................... 13.000 CCC+ 2,000 2,250,000
International Semi-Tech Microelectronics, Inc.,
Sr Disc Note 08-15-03, Step Coupon (11.50%, 08-15-00) (Canada) (A)(Y) . Zero B+ 23,282 9,778,440
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Manufacturing (continued)
Scovill Fasteners, Inc.,
Sr Note 11-30-07 (R) ................................................. 11.250% B $3,000 $3,022,500
Tokheim Corp.,
Sr Sub Note Ser B 08-01-06 ........................................... 11.500 B3 1,500 1,710,000
-----------
16,760,940
-----------
Media (1.66%)
American Telecasting, Inc.,
Sr Disc Note 06-15-04, Step Coupon (14.50%, 06-15-99) (A) ............. Zero CCC+ 2,000 700,000
Digital Television Services LLC,
Gtd Sr Sub Note 08-01-07 (R) ......................................... 12.500 CCC 7,300 8,176,000
Radio One, Inc.,
Sr Sub Note Ser B 05-15-04, Step Coupon (12.00%, 05-15-00) (A) ....... 7.000 B 2,000 1,980,000
Scandinavian Broadcasting System S.A.,
Sub Deb (Luxembourg) 08-01-05 (Y) ..................................... 7.250 B 1,555 1,566,663
-----------
12,422,663
-----------
Metal (1.59%)
Bar Technologies,
Gtd Sr Sec Note 04-01-01 ............................................. 13.500 CCC 7,500 8,025,000
Echo Bay Mines Ltd.,
Jr Sub Deb (Canada) 04-01-27 (Y) ...................................... 11.000 BB- 1,000 800,000
Metallurg, Inc.,
Sr Note 12-01-07 (R) ................................................. 11.000 B- 3,000 3,003,750
-----------
11,828,750
-----------
Oil & Gas (1.24%)
HarCor Energy, Inc.,
Sr Sec Note Ser B 07-15-02 ............................................ 14.875 CCC 2,000 2,280,000
Key Energy Group, Inc.,
Conv Sub Note 09-15-04 (R) ........................................... 5.000 B 6,550 5,960,500
Panaco, Inc.,
Sr Note 10-01-04 (R) ................................................. 10.625 B- 1,000 1,000,000
-----------
9,240,500
-----------
Paper & Paper Products (5.47%)
APP Finance II Mauritius Ltd.,
Bond (Indonesia) 12-12-49 (Y) ......................................... 12.000 B 5,500 5,156,250
APP International Finance Co. B.V.,
Gtd Sec Note (Indonesia) 10-01-05 (Y) ................................. 11.750 BB 750 761,250
Aracruz Celulose S.A.,
Note (Brazil) 01-31-02 (Y) ............................................ 10.375 B 2,000 1,932,500
Bear Island Paper LLC,
Sr Sec Note 12-01-07 (R) ............................................. 10.000 B 2,500 2,525,000
Florida Coast Paper LLC,
1st Mtg Ser B 06-01-03 ............................................... 12.750 B- 4,000 4,280,000
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) ............................................ 12.625 BB- 615 679,575
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Paper & Paper Products (continued)
Indah Kiat Finance Mauritius Ltd.,
Gtd Sr Note (Indonesia) 07-01-07 (R) (Y) .............................. 10.000% Ba3 $7,000 $6,370,000
Indah Kiat International Finance Co.,
Gtd Sec Bond Ser C (Indonesia) 06-15-06 (Y) ........................... 12.500 BB 2,500 2,606,250
Repap New Brunswick,
Sr Note (Canada) 04-15-05 (Y) ......................................... 10.625 CC 17,000 16,490,000
-----------
40,800,825
-----------
Pollution Control (1.23%)
ICF Kaiser International, Inc.,
Sr Note Ser B 12-31-03 ............................................... 13.000 B 1,000 1,120,000
Sr Sub Note 12-31-03 ................................................ 13.000 B- 750 776,250
Unit (Sr Sub Note & Warrant) 12-31-03 ................................ 13.000 B- 7,000 7,280,000
-----------
9,176,250
-----------
Printing - Commercial (0.27%)
Sullivan Graphics, Inc.,
Sr Sub Note 08-01-05 ................................................. 12.750 Caa1 2,000 2,040,000
-----------
Retail (5.95%)
Barry's Jewelers, Inc.,
Sr Note 12-22-00 ..................................................... 11.000 D 6,000 3,600,000
Bruno's, Inc.,
Sr Sub Note 08-01-05 ................................................. 10.500 B- 1,000 350,000
Hills Stores Co.,
Sr Note Ser B 07-01-03 ............................................... 12.500 B- 6,517 5,083,260
Loehmann's Inc.,
Sr Note 05-15-03 ..................................................... 11.875 B 1,500 1,515,000
P & C Food Markets, Inc.,
Sr Note 10-15-01 ..................................................... 11.500 B 7,150 6,864,000
Pathmark Stores, Inc.,
Jr Sub Def Note 11-01-03, Step Coupon (10.75%,11-01-99) ............... Zero CCC+ 10,000 7,500,000
Sub Note 06-15-02 .................................................... 11.625 CCC+ 5,000 5,075,000
Penn Traffic Co.,
Sr Note 02-15-02 ..................................................... 10.250 B3 3,000 2,760,000
Sr Note 10-01-04 ..................................................... 10.375 B 6,505 5,789,450
Sr Note 04-15-06 ..................................................... 11.500 B 2,925 2,734,875
Supermercados Norte,
Bond (Argentina) 02-09-04 (R) (Y) ..................................... 10.875 B1 3,300 3,118,500
-----------
44,390,085
-----------
Revenue Bonds (0.62%)
Port of Walla Walla Public Corp.,
Solid Waste Recycling Rev Ser 1995 Ponderosa Fibres Proj 01-01-26 ..... 9.125 BB- 6,000 4,620,000
-----------
Steel (8.01%)
Algoma Steel, Inc.,
1st Mtg 07-15-05 ..................................................... 12.375 B 1,500 1,740,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Steel (continued)
Altos Hornos de Mexico, S.A.,
Bond Ser B (Mexico) 04-30-04 (Y) ...................................... 11.875% B1 $3,000 $3,187,500
Gulf States Steel, Inc. of Alabama,
1st Mtg 04-15-03 ..................................................... 13.500 B1 17,750 17,838,750
Haynes International, Inc.,
Sr Note 09-01-04 ..................................................... 11.625 B- 10,000 11,450,000
IVACO Inc.,
Sr Note (Canada) 09-15-05 (Y) ......................................... 11.500 B+ 2,321 2,535,693
NS Group, Inc.,
Sr Note 07-15-03 ..................................................... 13.500 B- 5,732 6,563,140
Republic Engineered Steels, Inc.,
1st Mtg 12-15-01 ..................................................... 9.875 CCC+ 7,650 7,344,000
Sheffield Steel Corp.,
Sr Note 11-01-01 ..................................................... 12.000 B- 5,150 5,459,000
1st Mtg 12-01-05 (R) + ................................................ 11.500 B- 3,125 3,125,000
Weirton Steel Corp.,
Sr Note 03-01-98 ..................................................... 11.500 B 580 580,000
-----------
59,823,083
-----------
Telecommunications (11.81%)
American Communications Services, Inc.,
Sr Note 07-15-07 (R) ................................................. 13.750 B 3,000 3,420,000
Barak I.T.C.,
Sr Sub Disc Note 11-15-07, Step Coupon (12.50%, 11-15-02)
(Israel) (A) (R) (Y) ................................................ Zero CCC 9,100 5,027,750
COLT Telecom Group Plc,
Unit (Sr Disc Note & Warrant), Step Coupon (12.00%, 12-15-01)
(United Kingdom) 12-15-06 (A) (Y) .................................... Zero B 4,500 3,431,250
Comunicacion Celular S.A.,
Bond, Step Coupon (13.125%, 11-15-00) (Colombia) 11-15-03 (A) (Y) ..... Zero B3 3,250 2,445,625
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) (R) ........ Zero B 2,950 1,767,087
Echostar DBS Corp.,
Gtd Sr Sec Note 07-01-02 (R) ......................................... 12.500 B- 5,000 5,318,750
Fonorola, Inc.,
Gtd Sr Sec Note (Canada) 08-15-02 (Y) ................................. 12.500 BB- 1,500 1,687,500
Globalstar L.P./Globalstar Capital Corp.,
Sr Note 02-15-04 ..................................................... 11.375 B 10,625 10,704,687
GST Equipment Funding Inc.,
Sr Sec Note 05-01-07 ................................................. 13.250 B 4,000 4,600,000
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 (Y) ......................................... 12.875 B- 2,000 1,940,000
Ionica Plc,
Sr Note (United Kingdom) 08-15-06 (Y) ................................. 13.500 B 2,000 1,860,000
Sr Disc Note 05-01-07, Step Coupon (15.00%, 05-01-02)
(United Kingdom) (A) (Y) ............................................. Zero B 2,000 760,000
Iridium LLC/Iridium Capital Corp.,
Gtd Sr Note Ser A 07-15-05 ............................................ 13.000 B- 1,000 1,028,619
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Telecommunications (continued)
McCaw International Ltd.,
Sr Disc Note 04-15-07, Step Coupon (13.00%, 04-15-02) (A) ............. Zero% CCC $7,050 $4,089,000
Unit (Sr Disc Note & Warrant), Step Coupon (13.00%, 04-15-02)
04-15-07 (A) (R) .................................................... Zero B- 3,000 1,762,500
Metronet Communications Corp.,
Unit (Sr Note & Warrant) (Canada) 08-15-07 (R) (Y) .................... 12.000 B3 5,250 5,932,500
Nextel Communications, Inc.,
Sr Disc Note 09-01-03, Step Coupon (11.50%, 09-01-98) (A) ............ Zero CCC 500 492,500
Sr Disc Note 08-15-04, Step Coupon (9.75%, 02-15-99) (A) ............. Zero CCC 1,500 1,293,750
Sr Disc Note 01-15-04, Step Coupon (10.125%, 01-15-99) (A) ........... Zero CCC 12,000 10,485,000
Paging Network Do Brasil,
Unit (Sr Note & Non-Voting Class B Member Int) (Brazil)
06-06-05 (R) (Y) .................................................... 13.500 B 2,550 2,218,500
Primus Telecommunications Group, Inc.,
Unit (Sr Note & Warrant) 08-01-04 .................................... 11.750 B- 6,750 7,188,750
WinStar Communications, Inc.,
Conv Sr Disc Note, Step Coupon (14.00%, 10-15-00) 10-15-05 (A) (R) ... Zero Caa3 8,000 8,400,000
Sr Sub Def Note 03-01-07 (R) ......................................... 15.000 B 2,000 2,330,000
-----------
88,183,768
-----------
Textile (1.36%)
Apparel Ventures, Inc.,
Sr Note Ser B 12-31-00 ............................................... 12.250 Caa3 3,350 3,283,000
Willcox & Gibbs Inc.,
Gtd Sr Note Ser B 12-15-03 ........................................... 12.250 B2 7,000 6,895,000
-----------
10,178,000
-----------
Tobacco (0.09%)
Liggett Group, Inc.,
Sr Note Ser B 02-01-99 ............................................... 11.500 B 1,000 670,000
-----------
Transport (1.32%)
MRS Logistica S.A.,
Bond Ser B (Brazil) 08-15-05 (R) (Y) .................................. 10.625 B 5,000 4,612,500
Navigator Gas Transport,
Unit (Bond & Warrant) (United Kingdom) 06-30-07 (R) (Y) ............... 12.000 B 3,000 3,300,000
World Airways, Inc.,
Conv Sub Deb 08-26-04 (R) ............................................ 8.000 B 2,000 1,930,000
-----------
9,842,500
-----------
Utilities (1.05%)
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A (Philippines) 11-15-05 (Y) .............................. 11.450 BB 2,000 2,060,000
Eskom,
Bond Ser E169 (South Africa) 10-01-98 # ............................... 15.000 B 19,140 3,949,336
Espirito Santo - Escelsa,
Sr Note (Brazil) 07-15-07 (R) (Y) ..................................... 10.000 BB- 2,000 1,820,000
-----------
7,829,336
-----------
TOTAL BONDS
(Cost $565,959,580) (76.06%) 567,744,858
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
NUMBER OF
SHARES MARKET
ISSUER, DESCRIPTION OR WARRANTS VALUE
- ------------------- ----------- -----
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
Abitibi-Consolidated Inc., Common Stock (Canada) (Y) .......... 525,000 $6,825,000
Aeroporti di Roma SpA, Common Stock (Italy) (Y) ** ............ 80,000 762,728
American Communications Services Inc., Preferred Stock (R) ... 500 488,750
American Telecasting, Inc., Warrant ** ........................ 2,000 200
Ampex Corp. (Class A), Common Stock ** ........................ 100,000 256,250
AVI Holdings, Inc., Warrant (R) ** ........................... 1,500 7,500
Barry's Jewelers, Inc., Common Stock ** ....................... 40,000 4,000
Bowater, Inc., Common Stock ................................... 200,000 8,975,000
Browne Bottling Co., Warrant ** ............................... 237 2
Burlington Motor Holdings Inc., Preferred Stock ............... 90 37,500
Burlington Motor Holdings Inc., Warrant ** .................... 95 --
Capstar Broadcasting Partners, Preferred Stock ................ 6,600 673,200
Comunicacion Celular S.A., Warrant (Colombia) (Y) ** .......... 32,500 195,000
Core Cap, Inc., Common Stock .................................. 67,000 1,340,000
Core Cap, Inc., Preferred Stock ............................... 67,000 1,675,000
Crown Packaging Holdings Ltd., Warrant (Canada) (Y) ** ........ 2,750 22,000
Decorative Home Accents, Inc., Common Stock ** ................ 1,000 10
DSM N.V., Common Stock (Netherlands) (Y) ** ................... 30,000 2,739,000
Electronic Retailing Systems International, Inc., Warrant ** .. 1,000 60,000
Farm Fresh Holdings Corp. (Class B), Common Stock ** .......... 1,000 10
Galileo International, Inc., Common Stock ..................... 325,000 8,714,063
Gaylord Container Corp. (Class A), Common Stock ** ............ 415,000 2,827,188
Globalstar Telecommunications, Warrant (R) ** ................ 10,625 1,275,000
Granite Broadcasting Corp., Preferred Stock ................... 67,160 6,900,690
Great Atlantic & Pacific Tea Co., Inc., Common Stock .......... 169,800 5,242,575
Haynes Holdings, Inc., Common Stock ** ........................ 67,938 1,239,868
ICF Kaiser International, Inc., Warrant ** .................... 7,000 3,500
Ithaca Industries, Inc., Common Stock ** ...................... 235,000 1,233,750
Kelley Oil & Gas Corp., Preferred Stock ....................... 125,000 2,812,500
Lady Luck Gaming Corp., Preferred Stock ** .................... 116,335 4,292,762
Lufthansa AG, Common Stock (Germany) (Y) ...................... 300,000 5,689,320
McCaw International Ltd., Warrant ** .......................... 7,050 8,812
Mercury Finance Co., Common Stock ** .......................... 1,025,000 768,750
Nextel Communications Inc., Preferred Stock (R) .............. 16,485 18,215,925
Nextlink Communications Inc., Warrant (R) ** ................. 30,000 --
Northwest Airlines Corp. (Class A), Common Stock ** ........... 645,000 26,767,500
Petroleum Heat & Power Company, Inc., Ser B, Preferred Stock .. 100,000 2,300,000
Renaissance Cosmetics, Warrant ** ............................. 4,000 80,000
SFX Broadcasting, Inc., Ser E, Preferred Stock ................ 110,000 12,870,000
Sheffield Steel Corp., Common Stock ** ........................ 500 2,000
Sterling Chemicals Holdings, Warrant ** ....................... 1,000 38,000
Stewart & Stevenson Services, Inc., Common Stock .............. 40,000 870,000
Stone Container Corp., Ser E, Preferred Stock ................. 200,000 3,487,500
Supermarkets General Holding Corp., Preferred Stock ........... 71,964 1,151,424
US Airways Group Inc., Common Stock ** ........................ 300,169 16,546,816
USX-Delhi Group, Common Stock ................................. 372,000 7,300,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
NUMBER OF
SHARES MARKET
ISSUER, DESCRIPTION OR WARRANTS VALUE
- ------------------- ----------- -----
<S> <C> <C>
AAAA
Wang Laboratories Inc., Ser B, Preferred Stock (R) ........... 100,000 $5,125,000
Weirton Steel Corp., Common Stock ** .......................... 100,000 293,750
Westshore Terminals Inc., Common Stock (Canada) # ............. 160,000 395,648
WorldCom, Inc., Common Stock ** ............................... 10,000 320,000
-----------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $144,864,651) (21.55%) 160,833,991
-------- -----------
<CAPTION>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.51%)
Investment in a joint repurchase agreement
transaction with Swiss Bank Corp. - Dated 11-28-97,
Due 12-1-97 (Secured by U.S. Treasury Note, 7.75%,
Due 12-31-99 and U.S. Treasury Bonds,
6.50% thru 11.25%, Due 2-15-15 thru 11-15-26) - Note A ... 5.670% $3,828 3,828,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ...................................... 243
------------
TOTAL SHORT-TERM INVESTMENTS (0.51%) 3,828,243
----- -----------
TOTAL INVESTMENTS (98.12%) $732,407,092
====== ============
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
# Par value of foreign bonds and common stocks is expressed in local currency,
as shown parenthetically in security description.
+ This security having an aggregate value of $3,125,000 or 0.42% of the Fund's
net assets, has been purchased on a when issued basis. The purchase price
and the interest rate of such securities are fixed at trade date, although
the Fund does not earn any interest on such securities until settlement
date. The Fund has instructed its Custodian Bank to segregate assets with a
current value at least equal to the amount of its when issued commitments.
Accordingly, the market value of $3,814,350 of Gaylord Container Corp.
12.75%, 05-15-05 has been segregated to the when issued commitments.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(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 $168,504,320 as of November 30, 1997.
(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) Direct placement securities are restricted to resale. They have been valued
in accordance with procedures approved by the Trustees after consideration
of restrictions as to resale, financial condition and prospects of the
issuer, general market conditions and pertinent information in accordance
with the Fund's By-Laws and the Investment Company Act of 1940, as amended.
The Fund has limited rights to registration under the Securities Act of 1933
with respect to these restricted securities.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Additional information on these securities is as follows:
<TABLE>
<CAPTION>
MARKET
VALUE AS A
PERCENTAGE MARKET
ACQUISITION ACQUISITION OF FUND'S VALUE AT
ISSUER, DESCRIPTION DATE COST NET ASSETS NOVEMBER 30, 1997
- ------------------- ----------- ----------- ---------- -----------------
<S> <C> <C> <C> <C>
Teletrac, Inc., Unit (Sr Note & Warrant)................ 07-31-97 $3,606,250 0.49% $3,622,500
</TABLE>
* 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.
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.
21
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Portfolio Concentration
November 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 November 30, 1997 assigned to country
categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ----------
Argentina............................................... 0.55%
Brazil.................................................. 2.95
Canada.................................................. 5.96
Colombia................................................ 0.35
Germany................................................. 0.76
Indonesia............................................... 2.61
Israel.................................................. 0.67
Italy................................................... 0.10
Japan................................................... 0.05
Luxembourg.............................................. 0.21
Mexico.................................................. 1.50
Netherlands............................................. 0.37
Philippines............................................. 0.28
Russia.................................................. 0.39
South Africa............................................ 0.53
Thailand................................................ 0.36
United Kingdom.......................................... 1.41
United States........................................... 79.07
-----
TOTAL INVESTMENTS 98.12%
=====
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
- -------------------- ----------
A....................................................... 0.05%
BB...................................................... 6.08
B....................................................... 47.99
CCC..................................................... 19.25
CC...................................................... 2.21
D....................................................... 0.48
-----
TOTAL BONDS 76.06%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - High Yield Bond Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is an 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 $45,858,582 of a
capital loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent such carryforward is
used by the Fund, no capital gains distribution will be made. The carry forward
expires May 31, 2003. The Fund's tax year end is May 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 is made aware of 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
23
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - High Yield Bond Fund
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 size of the fund.
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. These agreements enable
the Fund to participate with other Funds managed by the Advisor in an unsecured
line of credit with banks which permit borrowings up to $600 million,
collectively. Interest is charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a fee, at a rate of
0.075% per annum based on the average daily unused portion of the line of
credit, is allocated among the participating Funds. The Fund had no borrowing
activity for the year ended November 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 un realized
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 not offset by the currency amount of the underlying
transaction.
24
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - High Yield Bond Fund
Open foreign currency forward contracts at November 30, 1997, were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH APPRECIATION
- --------- ------------------- ----- ------------
SELLS
DEUTSCHE MARK 9,990,000 DEC 97 $67,342
ITALIAN LIRA 1,300,000,000 JAN 98 34,704
-------
$91,046
=======
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 November
30, 1997, net sales charges received with regard to sales of Class A shares
amounted to $1,888,955. Out of this amount, $215,171 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$1,473,934 was paid as sales commissions to unrelated broker-dealers and
$199,850 was paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), a related broker-dealer. The Adviser's
indirect parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the
indirect sole shareholder of Distributors.
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 November 30,
1997, contingent deferred sales charges paid to JH Funds amounted to $481,620.
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 less than 0.02% 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 November 30, 1997, the Fund's invest-
25
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - High Yield Bond Fund
ments to cover the deferred compensation liability had unrealized appreciation
of $1,867.
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 November 30, 1997, aggregated $532,042,919 and $267,726,215, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies during the period ended November 30, 1997, aggregated $95,808,203 and
$105,790,508, respectively.
The cost of investments owned at November 30, 1997 for federal income tax
purposes was $714,652,231. Gross unrealized appreciation and depreciation of
investments aggregated $41,610,832 and $23,856,214, respectively, resulting in
net unrealized appreciation of $17,754,618.
26
<PAGE>
=====================================NOTES======================================
John Hancock Funds - High Yield Bond Fund
27
<PAGE>
================================================================================
----------------
JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Managment Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds ----------------
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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
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- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Sovereign U.S. Government Income Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
570SA 11/97
1/98
