SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Government
Income Fund
NOVEMBER 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
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
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. In 1998, the market gave us several stark examples of this
phenomenon. From the new highs set in mid-July, the major indices plunged by 19%
through the end of August. It was the worst such fall since 1990. Seeking safety
in a world of global economic uncertainties, investors everywhere converged on
U.S. Treasury bonds and pushed their yields to historic lows.
Then in early October, the stock market began a remarkable rebound that was
sparked by the Federal Reserve's moves to lower interest rates. The Dow Jones
Industrial Average reached a new high and ended November actually up by 17%
year-to-date.
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[A 1" x 1 1/4" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Investors have been understandably shaken by these dramatic twists and turns,
but we are pleased to report that most individual investors did not panic, and
we hope that means they've taken our words to heart. Over the long term, markets
do not move up or down in a straight line. That's why after watching the market
charge ahead almost uninterrupted for so many years, we have been striking a
more cautionary stance in this space over the last several months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the divergence in performance of
stocks and high-quality bonds earlier this year is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY BARRY H. EVANS, CFA, AND DAWN BAILLIE, PORTFOLIO MANAGERS
John Hancock
Government Income Fund
Investors' flight to quality drives rally in Treasury bonds
Recently, shareholders of John Hancock Sovereign U.S. Government Income Fund
approved the merger of their fund into John Hancock Government Income Fund. This
change became effective on December 4, 1998.
During the summer, signs of a growing global financial crisis and a slowing
domestic economy sent investors running for cover. As the U.S. stock market
began to unravel in July, many shed higher-risk assets in favor of
higher-quality securities, including U.S. Treasuries. This shift quickly caused
stress in financial markets worldwide. The Federal Reserve responded by cutting
short-term interest rates three times during the fall. In anticipation of these
rate cuts, bond yields dropped dramatically. As interest rates started coming
down, investors began moving out of money market funds and short-term
certificates of deposit back into higher-risk assets. By late October,
small-company stocks, high-yield bonds and emerging-market securities were on
the rebound, aided by 33 other rate cuts by foreign central banks. Bond yields
began edging up, staying within a narrow range throughout November.
While interest rates were dropping, Treasury bonds, which are the most
sensitive to changes in interest rates, fared the best. Yields fell fastest and
furthest -- nearly a full percentage point -- on five-year Treasuries, before
bottoming in October. But 30-year Treasuries turned in the best total returns,
climbing 12.79% during the six months ended November 30, 1998. By con-
"...signs of a growing global financial crisis and a slowing domestic
economy..."
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[A 31/2" x 21/2" photo of fund management team members under second column.
(l-r): "Barry Evans, Dawn Baillie and Jeff Given."]
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3
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John Hancock Funds - Government Income Fund
"...a lighter-than-average mortgage stake and a sensitivity to falling interest
rates."
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[Pie Chart at the top left hand column with the heading "Portfolio
Diversification". The chart is divided into four sections (from top to left):
Short-Term Investments & Other 2%, Foreign Governments 5%, U.S. Treasuries 34%
and U.S. Government Agencies 59%. A note below the chart reads "As a percentage
of net assets on November 30, 1998."]
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trast, the Lehman Brothers Mortgage-Backed Securities Fixed-Rate Index returned
only 3.51% as investors avoided spread products -- namely mortgage bonds and
other bonds issued by U.S. government agencies that offer a slight yield
advantage over Treasuries. Investors feared that lower interest rates would
cause homeowners to prepay their mortgages and refinance at lower rates. This,
along with a glut of new mortgage bonds, depressed prices.
Performance review
In this environment, John Hancock Government Income Fund benefited from a
lighter-than-average mortgage stake and a sensitivity to falling interest rates.
Between May 31, 1998, and November 30, 1998, the Fund's Class A and Class B
shares had total returns of 5.53% and 5.15%, respectively, at net asset value.
By comparison, the average general U.S. government income fund returned 4.95%,
according to Lipper Analytical Services, Inc.(1) Keep in mind that your net
asset value will be different from the Fund's performance if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. For longer-term performance information, please see pages six and
seven.
Our focus initially was on trimming our investment in spread products. We
started June with a 33% stake in mortgage bonds, which gave the Fund a slight
yield advantage during a time when bond prices were moving little. But as the
summer progressed and bond investors began anticipating falling interest rates,
we started selling off mortgage bonds with higher prepayment risk, including
both GNMAs and FNMAs with 7.5% coupons. By the early fall, we had pared our
mortgage investment to about 23% of the Fund's assets. During the summer, we
also started to lighten up our stake in foreign government bonds. Following the
devaluation of the Russian ruble, we cut back aggressively, selling investments
like those in Germany that were susceptible to global liquidity problems. With
hindsight, we would have done better by getting out even earlier. By the end of
November, we had only a 5% stake in foreign government bonds. Finally, we cut
back on bonds issued by U.S. government agencies by not replacing ones that were
called or matured.
We took the proceeds from these sales and used them to build our investment
in Treasuries, which rose at one point to 51% of the Fund's assets. Our focus
was on 10-year Treasuries, which performed almost as well as the 30-year sector
without carrying quite as much risk. We also lengthened the Fund's duration from
5.4 years to 5.7 years. 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
tumbled, the Fund's longer duration meant greater price gains.
4
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John Hancock Funds - Government Income Fund
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[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended November 30, 1998".
The chart is scaled in increments of 1% with 0% at the bottom and 6% at the top.
The first bar represents the 5.53% total return for John Hancock Government
Income Fund Class A. The second bar represents the 5.15% total return for John
Hancock Government Income Fund Class B and the third bar represents 4.95% total
return for Average general U.S. government income fund. A note below the chart
reads "Total returns for John Hancock Government Income Fund are at net asset
value with all distributions reinvested. The average general U.S. government
income fund is tracked by Lipper Analytical Services, Inc. See the following two
pages for historical performance information.
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Preparing for the future
By the fall, mortgage spreads -- the difference in yield between mortgages and
Treasuries -- were near the widest levels they had been in a decade. With the
expectation that mortgages would soon begin to outpace Treasuries, we began
slowly rebuilding our mortgage stake. We bought GNMAs with 6% coupons because
they were easily traded and had less prepayment risk. We also kept a 10%
investment in short-term and long-term collateralized mortgage obligations
(CMOs), which had held up nicely. CMOs separate the cash flows of mortgage pools
into various classes with different maturities. By the end of November,
mortgages were back up to 38% of the Fund's net assets and Treasuries ended at
34%. As we increased our mortgage investment, we shortened duration slightly to
5.4 years -- about average for our peer group.
We made these changes with the expectation that future economic growth would
be moderate to slightly slower with little likelihood of either deflation or
inflation becoming a problem. If so, interest rates will hold steady or drop
slightly, but probably not below the lows we saw in October. The positive news
for financial markets is that investors are already looking beyond current
weaker industrial production numbers and lower equity earnings. And while the
global financial crisis may not be over, the worst could be behind us. To see if
we're right, we'll track several indicators. One is the employment cost index,
where rising wages could signal a jump in inflation. Another is Brazil and the
extent to which Latin American economies show signs of strain. Escalation of
problems there could further hinder economic growth here. Finally, we'll be
watching to see if there's a crisis in the U.S. farm sector. Global competition
and the stronger dollar are already making it harder for U.S. farmers to sell
their produce at competitive prices. If problems in this sector affect other
areas of the economy, they could cause a further slowdown in economic growth.
While we don't anticipate major threats from any of these areas, we'll make
whatever changes we need to respond to shifting market and economic conditions.
"...expectation that future economic growth would be moderate to slightly
slower..."
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This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' 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 - Government Income 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 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.
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CLASS A
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For the period ended September 30, 1998
SINCE
ONE INCEPTION
YEAR (9/30/94)
---- ---------
Cumulative Total Returns 6.97% 37.69%
Average Annual Total Returns 6.97% 8.32%
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CLASS B
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For the period ended September 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns 6.19% 30.46% 110.01%
Average Annual Total Returns 6.19% 5.46% 7.70%
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YIELDS
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As of November 30, 1998
SEC 30-DAY
YIELD
-----
John Hancock Government Income Fund: Class A 4.48%
John Hancock Government Income Fund: Class B 3.99%
6
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John Hancock Funds - Government Income 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
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 Government 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.
The Adviser has chosen to replace the Lehman Brothers Treasury Composite Index
with the Lehman Brothers Government Bond Index to more closely represent the
investment strategy of the Fund.
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Line chart with the heading John Hancock 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 Lehman
Brothers Government Bond Index and is equal to $14,453 as of November 30, 1998.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock Government Income Fund on September 30, 1994, before sales
charge, and is equal to $14,383 as of November 30, 1998. The third line
represents the same hypothetical investment made in the John Hancock Government
Income Fund, after sales charge, and is equal to $13,732 as of November 30,
1998.
Line chart with the heading John Hancock 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 Lehman
Brothers Government Bond Index and is equal to $25,164 as of November 30, 1998.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock Intermediate Government Income Fund on May 31, 1998, before
sales charge, and is equal to $21,424 as of November 30, 1998.
*No contingent deferred sales charge applicable.
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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, 1998. 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, 1998 (Unaudited)
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Assets:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $448,345,739) .................................... $461,070,658
Foreign government bonds (cost - $22,014,018) ............. 23,766,369
Multi-family mortgage-backed bonds
(cost - $9,014,383) ...................................... 9,172,735
Joint repurchase agreement (cost - $57,436,000) ........... 57,436,000
------------
551,445,762
Receivable for investments sold ............................ 1,113,206
Receivable for variation margin - Note A ................... 5,938
Interest receivable ........................................ 4,826,877
Other assets ............................................... 164,031
------------
Total Assets ...................... 557,555,814
-----------------------------------------------------
Liabilities:
Payable for investments purchased .......................... 59,015,980
Payable for shares repurchased ............................. 219,969
Dividend payable ........................................... 121,934
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 471,982
Accounts payable and accrued expenses ...................... 100,651
------------
Total Liabilities ................. 59,930,516
-----------------------------------------------------
Net Assets:
Capital paid-in ............................................ 496,965,421
Accumulated net realized loss on investments
and financial futures contracts ........................... (14,078,553)
Net unrealized appreciation of investments
and financial futures contracts ........................... 14,834,955
Distributions in excess of net investment income ........... (96,525)
------------
Net Assets ........................ $497,625,298
=====================================================
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 - $349,101,874/36,905,709 .......................... $9.46
==============================================================================
Class B - $148,523,424/15,701,326 .......................... $9.46
==============================================================================
Maximum Offering Price Per Share*
Class A - ($9.46 x 104.71%) ................................ $9.91
==============================================================================
* 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, 1998 (Unaudited)
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Investment Income:
Interest ..................................................... $17,405,467
-----------
Expenses:
Investment management fee - Note B .......................... 1,510,575
Distribution and service fee - Note B
Class A .................................................... 429,653
Class B .................................................... 640,177
Transfer agent fee - Note B ................................. 359,353
Custodian fee ............................................... 53,169
Financial services fee - Note B ............................. 35,474
Auditing fee ................................................ 20,297
Registration and filing fees ................................ 16,776
Trustees' fees .............................................. 14,858
Printing .................................................... 13,246
Legal fees .................................................. 2,905
Miscellaneous ............................................... 1,296
-----------
Total Expenses ...................... 3,097,779
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Net Investment Income ............... 14,307,688
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Realized and Unrealized Gain (Loss) on Investments,
Options and Financial Futures Contracts:
Net realized gain on investments sold ........................ 2,611,644
Net realized gain on financial futures contracts ............. 2,821,102
Change in net unrealized appreciation/depreciation
of investments .............................................. 4,609,014
Change in net unrealized appreciation/depreciation
of financial futures contracts .............................. 209,339
-----------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts ......... 10,251,099
------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........... $24,558,787
======================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ......................................................... $32,587,661 $14,307,688
Net realized gain on investments and financial futures contracts .............. 1,684,188 5,432,746
Change in net unrealized appreciation/depreciation of investments and financial
futures contracts ........................................................... 16,293,385 4,818,353
------------ ------------
Net Increase in Net Assets Resulting from Operations ...................... 50,565,234 24,558,787
------------ ------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.6201 and $0.2925 per share, respectively) ................... (23,933,295) (10,695,275)
Class B - ($0.5522 and $0.2585 per share, respectively) ................... (8,694,560) (3,613,279)
------------ ------------
Total Distributions to Shareholders ....................................... (32,627,855) (14,308,554)
------------ ------------
From Fund Share Transactions - Net:* .............................................. (73,683,952) 29,972,981
------------ ------------
Net Assets:
Beginning of period ........................................................... 513,148,657 457,402,084
------------ ------------
End of period (including distributions in excess of net investment income of
$95,659 and $96,525, respectively) .......................................... $457,402,084 $497,625,298
============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........................ 3,514,206 $32,316,797 6,606,638 $62,097,539
Shares reinvested .................. 1,297,997 11,906,095 587,649 5,515,534
------------ ------------ ------------ ------------
4,812,203 44,222,892 7,194,287 67,613,073
Less shares repurchased ............ (8,394,226) (77,025,351) (7,009,760) (65,755,703)
------------ ------------ ------------ ------------
Net increase (decrease) ............ (3,582,023) ($32,802,459) 184,527 $1,857,370
============ ============ ============ ============
CLASS B
Shares sold ........................ 1,846,293 $16,924,452 6,676,642 $63,021,057
Shares reinvested .................. 505,095 4,632,894 195,588 1,837,012
------------ ------------ ------------ ------------
2,351,388 21,557,346 6,872,230 64,858,069
Less shares repurchased ............ (6,793,426) (62,438,839) (3,912,977) (36,742,458)
------------ ------------ ------------ ------------
Net increase (decrease) ............ (4,442,038) ($40,881,493) 2,959,253 $28,115,611
============ ============ ============ ============
</TABLE>
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 two 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:
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<TABLE>
<CAPTION>
FOR THE PERIOD SIX MONTHS
SEPTEMBER 30, 1994 ENDED
(COMMENCEMENT OF YEAR ENDED OCTOBER 31, PERIOD FROM NOVEMBER 30,
OPERATIONS) TO ---------------------- NOVEMBER 1, 1996 YEAR ENDED 1998
OCTOBER 31, 1994 1995(1) 1996 TO MAY 31, 1997(7) MAY 31, 1998 (UNAUDITED)
------------------ -------- -------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........... $8.85 $8.75 $9.32 $9.07 $8.93 $9.25
----- -------- -------- -------- -------- --------
Net Investment Income .......................... 0.06 0.72 0.65(5) 0.37(5) 0.62(5) 0.29(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures
Contracts .................................... (0.10) 0.57 (0.25) (0.14) 0.32 0.21
----- -------- -------- -------- -------- --------
Total from Investment Operations ............. (0.04) 1.29 0.40 0.23 0.94 0.50
----- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ........... (0.06) (0.72) (0.65) (0.37) (0.62) (0.29)
----- -------- -------- -------- -------- --------
Net Asset Value, End of Period ................. $8.75 $9.32 $9.07 $8.93 $9.25 $9.46
===== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (2,3) (0.45%)(4) 15.32% 4.49% 2.57%(4) 10.82% 5.53%(4)
Total Adjusted Investment Return at Net Asset
Value (3) .................................... (0.46%)(4) 15.28% -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....... $223 $470,569 $396,323 $359,758 $339,572 $349,102
Ratio of Expenses to Average Net Assets (2) .... 0.12%(4) 1.19% 1.17% 1.13%(6) 1.10%(6) 1.10%(6)
Ratio of Net Investment Income to Average Net
Assets (2) ................................... 0.71%(4) 7.38% 7.10% 7.06%(6) 6.79%(6) 6.22%(6)
Portfolio Turnover Rate ........................ 92% 102%(8) 106% 129% 106% 107%
</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 (continued)
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<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 Gain 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 YEAR ENDED NOVEMBER 30, 1998
TO MAY 31, 1997(7) MAY 31, 1998 (UNAUDITED)
------------------ ------------ -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $9.08 $8.93 $9.25
-------- -------- --------
Net Investment Income .................................. 0.33(5) 0.55(5) 0.26(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts . (0.15) 0.32 0.21
-------- -------- --------
Total from Investment Operations ..................... 0.18 0.87 0.47
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.33) (0.55) (0.26)
Distributions from Net Realized Gain on Investments
Sold and Financial Futures Contracts ................. -- -- --
-------- -------- --------
Total Distributions .................................. (0.33) (0.55) (0.26)
-------- -------- --------
Net Asset Value, End of Period ......................... $8.93 $9.25 $9.46
======== ======== ========
Total Investment Return at Net Asset Value (2,3) ....... 2.02%(4) 10.01% 5.15%(4)
Total Adjusted Investment Return at Net Asset Value (3) -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $153,390 $117,830 $148,523
Ratio of Expenses to Average Net Assets (2) ............ 1.86%(6) 1.85% 1.83%(6)
Ratio of Net Investment Income to Average Net Assets (2) 6.32%(6) 6.05% 5.49%(6)
Portfolio Turnover Rate ................................ 129% 106% 107%
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Excluding interest expense, which equalled 0.01% and 0.04% for Class A for
the years ended October 31, 1994 and 1995, respectively, and 0.01%, 0.01%
and 0.02% for Class B for the years ended October 31, 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) Based on the average of the shares outstanding at the end of each month.
(6) Annualized.
(7) Effective May 31, 1997, the fiscal year 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Government Income Fund on November 30, 1998. 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. (33.66%)
United States Treasury,
Bond ............................... 15.750% 11-15-01 $14,340 $18,700,220
Bond ............................... 11.875 11-15-03 5,000 6,550,800
Bond ............................... 10.750 08-15-05 12,600 16,858,422
Bond ............................... 12.750 11-15-10 14,000 20,400,660
Bond ............................... 12.000 08-15-13 26,200 40,090,192
Bond ............................... 8.125 08-15-19 37,200 50,045,532
Bond ............................... 5.250 11-15-28 4,700 4,830,707
Note ............................... 8.500 02-15-00 4,500 4,699,665
Note ............................... 5.625 05-15-08 5,000 5,318,750
------------
167,494,948
------------
Government - U.S. Agencies (59.00%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1094-K ................... 7.000 06-15-21 1,928 1,972,494
CMO REMIC 1608-L ................... 6.500 09-15-23 7,000 7,155,260
CMO REMIC 1634-PN .................. 4.500 12-15-23 10,575 9,110,997
CMO REMIC 1667-PE .................. 6.000 03-15-08 11,750 11,849,052
Deb ................................ 8.190 10-06-04 10,500 10,724,805
Federal Judiciary Office Building,
Bond ............................... Zero 02-15-01 250 224,063
Federal National Mortgage Assn.,
10 Yr Pass Thru Ctf Ser SM-2004-K .. 8.400 10-25-04 11,600 11,895,452
15 Yr Pass Thru Ctf + .............. 6.000 03-01-12 6,600 6,608,250
30 Yr Pass Thru Ctf ................ 8.500 09-01-24 to 7,358 7,700,126
10-01-24
30 Yr Pass Thru Ctf ................ 6.500 07-01-28 19,593 19,721,554
CMO REMIC 1990-51-H ................ 7.500 05-25-20 155 161,330
CMO REMIC 1990-58-J ................ 7.000 05-25-20 3,700 3,814,441
CMO REMIC 1990-94-D ................ 6.500 08-25-20 1,078 1,088,764
CMO REMIC 1991-56-M ................ 6.750 06-25-21 3,426 3,476,654
Medium Term Note ................... 11.875 05-19-00 6,800 7,444,912
Note ............................... 9.550 03-10-99 7,450 7,532,621
Financing Corp.,
Bond ............................... 10.700 10-06-17 2,000 3,164,060
Bond ............................... 9.400 02-08-18 4,000 5,744,360
Bond ............................... 9.650 11-02-18 1,600 2,360,992
</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)
Government National Mortgage Assn.,
30 Yr Adjustable Rate Mortgage ..................... 6.500%# 03-20-23 $8,046 $8,141,255
30 Yr Pass Thru Ctf + .............................. 6.000 10-01-28 50,000 49,531,000
30 Yr Pass Thru Ctf ................................ 6.000 11-15-28 19,800 19,620,612
30 Yr Pass Thru Ctf ................................ 6.500 05-15-28 to 23,686 23,929,713
07-15-28
30 Yr Pass Thru Ctf ................................ 7.000 01-15-28 to 18,959 19,409,287
05-15-28
30 Yr Pass Thru Ctf ................................ 7.500 06-15-23 to 14,163 14,628,697
05-15-24
30 Yr Pass Thru Ctf ................................ 8.000 09-15-23 4,378 4,565,688
30 Yr Pass Thru Ctf ................................ 11.000 01-15-14 to 5,257 5,831,877
12-15-15
Small Business Administration,
Pass Thru Ctf Ser 97-E ............................. 7.300 05-01-17 3,747 3,978,004
Tennessee Valley Authority,
Note Ser D ......................................... 8.250 04-15-42 17,519 22,189,390
------------
293,575,710
------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $448,345,739) (92.66%) 461,070,658
------- ------------
FOREIGN GOVERNMENT BONDS
U.S. Dollar-Denominated Foreign Government Bonds (4.78%)
Argentina, Republic of,
Global Bond Ser XW + ............................... 11.000 12-04-05 3,000 3,135,000
Hydro-Quebec,
Deb Ser HK ......................................... 9.375 04-15-30 5,440 7,331,869
Gtd Bond ........................................... 9.400 02-01-21 10,000 13,299,500
------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $22,014,018) (4.78%) 23,766,369
------- ------------
MULTI-FAMILY MORTGAGE-BACKED BONDS (1.84%)
DLJ Mortgage Acceptance Corp.,
CMO REMIC 1993-M10-A2 .............................. 7.200 07-15-03 4,274 4,428,782
CMO REMIC 1993-MF7-A1 .............................. 7.400 06-18-03 4,534 4,743,953
------------
TOTAL MULTI-FAMILY MORTGAGE-BACKED BONDS
(Cost $9,014,383) (1.84%) 9,172,735
------- ------------
</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 (11.54%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities USA, Inc. -
Dated 11-30-98, due 12-01-98 (Secured by
U.S. Treasury Bills, 4.49% thru 4.54%, due 10-14-99
thru 11-12-99, U.S. Treasury Bonds, 8.125% thru
12.00% due 08-15-13 thru 08-15-19, and U.S. Treasury
Notes, 5.25% thru 8.75%, due 07-31-99 thru 05-15-08) - Note A .... 5.370% $57,436 $57,436,000
------------
TOTAL SHORT-TERM INVESTMENTS (11.54%) 57,436,000
-------- ------------
TOTAL INVESTMENTS (110.82%) 551,445,762
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (10.82%) (53,820,464)
-------- ------------
TOTAL NET ASSETS (100.00%) $497,625,298
======== ============
</TABLE>
+ These securities having an aggregate value of $59,274,250, or 11.91% of the
Fund's net assets, have 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 $62,593,024 of U.S. Treasury
Bonds, 8.125% thru 12.00%, due 11-15-03 thru 08-15-19, has been segregated
to cover the when-issued commitments.
# Represents rate in effect on November 30, 1998.
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. Effective December 8, 1998,
the Board of Trustees has authorized the issuance of Class C shares in 1999. 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. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in joint repurchase agreement transactions. 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 $18,749,417 of capital
loss carryforwards available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent such carryforwards are used by
the Fund, no capital gains distribution will be made. The carryforwards expire
as follows: May 31, 2002 -- $13,280,667, May 31, 2004 -- $1,419,401, May 31,
2005 -- $1,964,217 and May 31, 2006 -- $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.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Government Income Fund
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 funds.
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 unsecured
lines of credit with banks which permit borrowings up to $800 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
rates ranging from 0.070% to 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, 1998.
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, 1998, open positions in financial futures contracts were as
follows:
UNREALIZED
APPRECIATION/
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
- ---------- -------------- -------- --------------
MAR 99 400 TREASURY NOTE SHORT ($215,300)
MAR 99 210 TREASURY NOTE LONG 407,045
---------
$191,745
=========
At November 30, 1998, the Fund has deposited in a segregated account $540,000
par value of U.S. Treasury Note, 15.750%, 11-15-01, and $126,000 par value of
U.S. Treasury Bond, 12.750%, 11-15-10, to cover margin requirements on open
financial futures contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Over-the-counter options are valued
at the mean between the last bid and asked prices. Upon the writing of a call or
put option, an amount equal to the
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Government Income Fund
premium received by the Fund will be included in the Statement of Assets and
Liabilities as an asset and corresponding liability. The amount of the liability
will be subsequently marked to market to reflect the current market value of the
written option.
The Fund may use option contracts to manage its exposure to the bond market.
Writing puts and buying calls will tend to increase the Fund's exposure to the
underlying instrument and buying puts and writing calls will tend to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended November 30,
1998.
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, on
an annual basis, to the sum of (a) 0.65% of the first $200,000,000 of the Fund's
average daily net asset value, (b) 0.625% of the next $300,000,000 and (c) 0.60%
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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $82,132. Out of this amount, $1,941 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $57,414
was paid as sales commissions to unrelated broker-dealers and $22,777 was paid
as sales commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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,
1998, contingent deferred sales charges paid to JH Funds amounted to $160,559.
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.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Government Income Fund
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 Fund. 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, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $7,588.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended November 30, 1998, aggregated $534,636,916
and $498,047,765, respectively.
The cost of investments (including the joint repurchase agreement) owned at
November 30, 1998 for federal income tax purposes was $537,116,234. Gross
unrealized appreciation and depreciation of investments aggregated $21,076,190
and $6,746,662, respectively, resulting in net unrealized appreciation of
$14,329,528.
NOTE D -
REORGANIZATION
On November 11, 1998, the shareholders of John Hancock Sovereign U.S. Government
Income Fund ("Sovereign U.S. Government Income Fund") approved a proposed merger
between the Fund and the Sovereign U.S. Government Income Fund. The merger
provided for a transfer of substantially all the assets and liabilities of
Sovereign U.S. Government Income Fund to the Fund on December 4, 1998. After the
transaction and as of the close of business on December 4, 1998, the Sovereign
U.S. Government Income Fund was terminated.
18
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Government Income Fund
19
<PAGE>
================================================================================
----------------
[LOGO] 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 ----------------
- --------------------------------------------------------------------------------
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.
[Recycle Logo] Printed on Recycled Paper 560SA 11/98
1/99
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
High Yield
Bond Fund
NOVEMBER 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
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:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. In 1998, the market gave us several stark examples of this
phenomenon. From the new highs set in mid-July, the major indices plunged by 19%
through the end of August. It was the worst such fall since 1990. Seeking safety
in a world of global economic uncertainties, investors everywhere converged on
U.S. Treasury bonds and pushed their yields to historic lows.
Then in early October, the stock market began a remarkable rebound that was
sparked by the Federal Reserve's moves to lower interest rates. The Dow Jones
Industrial Average reached a new high and ended November actually up by 17%
year-to-date.
- --------------------------------------------------------------------------------
[A 1" x 1 1/4" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Investors have been understandably shaken by these dramatic twists and turns,
but we are pleased to report that most individual investors did not panic, and
we hope that means they've taken our words to heart. Over the long term, markets
do not move up or down in a straight line. That's why after watching the market
charge ahead almost uninterrupted for so many years, we have been striking a
more cautionary stance in this space over the last several months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the divergence in performance of
stocks and high-quality bonds earlier this year is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY ARTHUR N. CALAVRITINOS, CFA, FREDERICK L. CAVANAUGH, JR. AND
JANET L. CLAY, CFA, PORTFOLIO MANAGERS
John Hancock
High Yield Bond Fund
High-yield bonds hit by global economic turmoil
High-yield bonds suffered steep losses during the last six months in response to
growing global financial turmoil. The latest spark was the currency and economic
collapse in Russia that ignited in August. In a global flight from financial
risk, investors headed for the exits of all but the highest-quality securities,
causing safe-haven U.S. Treasury bonds to surge. Adding fuel to the fire, many
large institutional investors, including some prominent hedge funds who had
bought Russian and other emerging-market debt with borrowed dollars, were forced
to sell securities to meet lenders' demands for more collateral. Stocks and
bonds of all stripes -- except Treasuries -- felt the effect of August and
September's market meltdown to varying degrees: the better the quality, the less
the impact. Given their lower credit ratings and greater risk level, high-yield
bonds suffered more than investment-grade issues. With Asia's troubles prompting
fears of economic slowdowns and lower corporate profit growth worldwide,
cyclical companies, those whose earnings are more affected by changes in the
economy -- like paper, steel and energy concerns -- were hit particularly hard.
Bonds issued by emerging-market countries fared by far the worst.
In October, however, the U.S. stock market began a dramatic comeback,
regaining all its lost ground and reaching new highs after three rate
"Bonds issued by emerging-market countries fared by far the worst."
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo of fund management team members under second column.
(l-r): "Arthur Calavritinos, Fred Cavanaugh, Lee Crockett, Carolee Bongiovi and
Janet Clay."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
"Our investments in emerging-market debt and industrial cyclical companies...
held us back..."
- --------------------------------------------------------------------------------
[Pie Chart at the top left hand column with the heading "Portfolio
Diversification". The chart is divided into six sections (from top to left):
Preferred Stock 6%, Emerging-Market Foreign Bonds 7%, Common Stock 9%, Other
Foreign Bonds 9%, Short-Term Investments & Other 10 and U.S. Corporate Bonds
59%. A note below the chart reads "As a percentage of net assets on November 30,
1998."]
- --------------------------------------------------------------------------------
cuts by the Federal Reserve Board calmed markets worldwide and eased the credit
crunch. High-yield bonds, which often perform more like stocks than bonds, also
rebounded as liquidity started to come back to the market.
Performance review
The last six months presented a stark example of why high-yield bond investing
is at the aggressive end of the fixed-income spectrum and carries a higher level
of risk than other parts of the bond market. While it was a difficult period for
all high-yield bond funds, it was particularly so for John Hancock High Yield
Bond Fund, which lagged its peers -- a reversal of the last two years' strong
outperformance. For the six months ended November 30, 1998, the Fund's Class A,
Class B and Class C shares posted total returns of -15.85%, -16.19% and -16.20%,
respectively, at net asset value. That compared to the -4.36% return of the
average high current yield fund, according to Lipper Analytical Services,
Inc.(1) Keep in mind that your net asset value return will be different from the
Fund's performance if you were not invested in the Fund for the entire period
and did not reinvest all distributions. Longer-term performance information can
be found on pages six and seven.
Our investments in emerging-market debt and industrial cyclical companies --
both their stocks and bonds -- held us back, as did our focus on lower-quality
high-yield bonds rated B and CCC+. Owning lower-quality debt and stocks (to a
limited degree, as allowed by our prospectus) has served us well in the past,
but these more aggressive strategies caused our relative performance to lag in
this more uncertain environment. In addition, a handful of our holdings suffered
after reporting disappointing earnings results, including one of our top
holdings, Northwest Airlines, which was hurt by the effects of the airline
pilots' strike.
Cyclicals stay; telecommunications grows
We made several defensive moves in response to the turmoil. We opportunistically
pared some of our lesser-quality emerging-market issues, cutting our stake from
a high of 13% early in the period to the current 7% of net assets. The Fund's
cash position also rose to a higher- than-average level. Otherwise, we held on
to our core holdings and kept a long-term perspective, maintaining our
buy-and-hold management approach. Using in-depth fundamental research and
searching the broad high-yield bond universe, we choose companies selling at
attractive prices whose long-term prospects we believe are good and improving
and worth the risk premium we pay to own them.
Such has been the case with our paper and steel holdings, where mergers and
acquisitions
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Takefuji
followed by an up arrow with the phrase "Japanese lender has strong earnings
growth." The second listing is Northwest Airlines followed by a down arrow with
the phrase "Hit by major pilots' strike." The third listing is NSM Steel
followed by a down arrow with the phrase "Operational problems and weak demand
from Asia." A note below the table reads "See `Schedule of Investments.'
Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended November 30, 1998".
The chart is scaled in increments of 5% with -20% at the bottom and 0% at the
top. The first bar represents the -15.85% total return for John Hancock High
Yield Bond Fund Class A. The second bar represents the -16.19% total return for
John Hancock High Yield Bond Fund Class B. The third bar represents -16.20%
total return for John Hancock High Yield Bond Fund Class C and the fourth bar
represents the total return for Average high current yield fund. A note below
the chart 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, Inc. See the following two pages
for historical performance information.
- --------------------------------------------------------------------------------
are changing the face of these industries. While these names hurt us recently,
we believe their fundamentals and future prospects remain solid, given the
catalyst of consolidation. One example is long-standing Fund holding Stone
Container, which performed well during the period following its merger with
Jefferson Smurfit. As for steel, after a sharp drop in commodities prices, we
added to our stake in Weirton Steel because we believe the market overreacted to
the news. Despite the current steel glut, demand remains. We also believe that
Weirton's business prospects are not as susceptible as other steel companies' to
the vagaries of commodities prices because it is the U.S. leader in producing
tin plate, which is used by the food industry, a less cyclical group.
Over the last six months, we also upped our stake in telecommunications
companies, our largest industry sector at 14% of the Fund. We added companies
that deal with transmitting data or supporting data transmission, as the
Internet has reflected a proven, growing market for the service. We have also
invested in Europe, where telecommunications is a high-growth area and where
many very high-quality companies fall within the high-yield bond category.
Outlook
We're guardedly optimistic about the prospects for high-yield bonds in 1999.
After a sell-off that has brought prices down to levels not seen in almost 10
years, high-yield bonds represent a compelling buying opportunity. Investors
clamoring for yield in a falling interest-rate environment had already begun to
recognize this as the period ended, but we believe there's more room to advance.
The Fed's calming moves should also keep the economy growing, albeit at a slower
rate, and we may even see some signs of growth in Asia in 1999. That's not to
say that we won't see more high-yield companies missing their earnings targets.
Investors should also use the last six months as a reminder that the high-yield
bond sector remains volatile and that investing in it requires a higher level of
risk tolerance and a recognition that there could be sharp fluctuations along
the way. As always, we will continue to look for companies we can buy at
attractive prices and hold on to in pursuit of both high current income and
price appreciation.
"We're guardedly optimistic about the prospects for high-yield bonds in 1999."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
(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). Class C
performance includes a contingent deferred sales charge of 1% declining to 0%
after one year.
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, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (6/30/93)
---- ----- ---------
Cumulative Total Returns (16.94%) 28.86% 32.19%
Average Annual Total Returns (16.94%) 5.20% 5.45%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (17.60%) 28.29% 105.19%
Average Annual Total Returns (17.60%) 5.11% 7.45%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
INCEPTION
(5/1/98)
--------
Cumulative Total Returns (21.08%)
Average Annual Total Returns (21.08%)(1)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1998
SEC 30-DAY
YIELD
-----
John Hancock High Yield Bond Fund: Class A 11.77%
John Hancock High Yield Bond Fund: Class B 11.58%
John Hancock High Yield Bond Fund: Class C 11.51%
Notes to Performance
(1) Not annualized.
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.
Assuming all distributions were invested for the period indicated, a $10,000
investment in the Fund's Class C shares at inception on May 1, 1998, would be
worth $8,245 without sales charge and $8,162 with maximum sales charge as of
November 30, 1998. For comparison, the same $10,000 investment in the Lehman
Brothers High Yield Bond Index would be worth $9,572. Past performance is not
indicative of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock High Yield Bond Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the Lehman
Brothers High Yield Bond Index and is equal to $15,496 as of November 30, 1998.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock High Yield Bond Fund, before sales charge, on June 30, 1993,
and is equal to $14,334 as of November 30, 1998. The third line represents the
same hypothetical investment made in the John Hancock High Yield Bond Fund,
after sales charge, and is equal to $13,689 as of November 30, 1998.
Line chart with the heading John Hancock High Yield Bond 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 Lehman
Brothers High Yield Bond Index and is equal to $26,413 as of November 30, 1998.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock High Yield Bond Fund on May 31, 1998, before sales charge,
and is equal to $21,887 as of November 30, 1998.
*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, 1998. 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $1,020,332,346) ............................. $850,392,986
Common and preferred stocks and warrants
(cost - $172,976,287) ................................... 155,132,489
Joint repurchase agreement (cost - $23,168,000) ........... 23,168,000
Corporate savings account ................................. 522
--------------
1,028,693,997
Foreign currency, at value (cost - $290,981 ) ............... 242,671
Receivable for investments sold ............................. 869,125
Receivable for shares sold .................................. 7,883,997
Interest receivable ......................................... 26,347,984
Dividends receivable ........................................ 20,698
Receivable for forward foreign currency exchange
contracts sold - Note A ................................... 151,451
Other assets ................................................ 52,475
--------------
Total Assets ........................ 1,064,262,398
-----------------------------------------------------
Liabilities:
Payable for investments purchased ........................... 9,342,394
Payable for shares repurchased .............................. 560,848
Dividend payable ............................................ 315,227
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 599,868
Accounts payable and accrued expenses ....................... 7,561
--------------
Total Liabilities ................... 10,825,898
-----------------------------------------------------
Net Assets:
Capital paid-in ............................................. 1,249,622,098
Accumulated net realized loss on investments, financial
futures contracts and foreign currency transactions ....... (9,062,604)
Net unrealized depreciation of investments, financial
futures contracts and foreign currency transactions ....... (187,653,519)
Undistributed net investment income ......................... 530,525
--------------
Net Assets .......................... $1,053,436,500
=====================================================
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 - $267,167,307/40,658,351 ........................... $6.57
=============================================================================
Class B - $767,247,496/116,762,107 .......................... $6.57
=============================================================================
Class C - $19,021,697/2,894,781 ............................. $6.57
=============================================================================
Maximum Offering Price Per Share*
Class A - ($6.57 x 104.71%) ................................. $6.88
=============================================================================
* 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest .................................................... $55,581,335
Dividends (net of foreign withholding taxes of $88,256) ..... 4,175,300
-------------
59,756,635
-------------
Expenses:
Investment management fee - Note B ........................ 2,604,438
Distribution and service fee - Note B
Class A ................................................. 313,143
Class B ................................................. 3,768,846
Class C ................................................. 46,449
Transfer agent fee - Note B ............................... 556,827
Registration and filing fees .............................. 136,306
Custodian fee ............................................. 101,966
Financial services fee - Note B ........................... 75,927
Trustees' fees ............................................ 30,153
Printing .................................................. 22,420
Auditing fee .............................................. 18,502
Legal fees ................................................ 9,975
Miscellaneous ............................................. 8,800
-------------
Total Expenses ...................... 7,693,752
-----------------------------------------------------
Net Investment Income ............... 52,062,883
-----------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and
Foreign Currency Transactions:
Net realized loss on investments sold ....................... (25,908,368)
Net realized loss on financial futures contracts ............ (859,446)
Net realized loss on foreign currency transactions .......... (1,328,264)
Change in net unrealized appreciation/depreciation
of investments ............................................ (203,446,647)
Change in net unrealized appreciation/depreciation
of financial futures contracts ............................ 5,000
Change in net unrealized appreciation/depreciation
of foreign currency transactions .......................... 264,372
-------------
Net Realized and Unrealized
Loss on Investments, Financial
Futures Contracts and Foreign
Currency Transactions ............... (231,273,353)
-----------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ........... ($179,210,470)
=====================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ....................................................... $67,564,884 $52,062,883
Net realized gain (loss) on investments sold, financial futures contracts and
foreign currency transactions ............................................. 38,263,835 (28,096,078)
Change in net unrealized appreciation/depreciation of investments, financial
futures contracts and foreign currency transactions ....................... (604,038) (203,177,275)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations ............. 105,224,681 (179,210,470)
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.7764 and $0.3916 per share, respectively) ................... (16,953,911) (13,626,503)
Class B - ($0.7146 and $0.3632 per share, respectively) ................... (50,686,687) (38,059,127)
Class C - ($0.0559 and $0.3632 per share, respectively) ................... (9,346) (475,071)
Distributions from net realized gain on investments sold
Class A - ($0.1196 and none per share, respectively) ...................... (2,604,121) --
Class B - ($0.1196 and none per share, respectively) ...................... (8,869,961) --
-------------- --------------
Total Distributions to Shareholders ....................................... (79,124,026) (52,160,701)
-------------- --------------
From Fund Share Transactions - Net:* .......................................... 571,592,436 210,165,691
-------------- --------------
Net Assets:
Beginning of period ......................................................... 476,948,889 1,074,641,980
-------------- --------------
End of period (including undistributed net investment income of
$628,343 and $530,525, respectively) ...................................... $1,074,641,980 $1,053,436,500
============== ==============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................................. 31,229,630 $257,394,198 17,831,240 $124,460,147
Shares issued to shareholders in reinvestment of distributions 1,211,071 9,931,813 899,874 6,284,790
------------ ------------ ------------ ------------
32,440,701 267,326,011 18,731,114 130,744,937
Less shares repurchased ...................................... (11,797,149) (97,377,925) (11,153,044) (80,577,336)
------------ ------------ ------------ ------------
Net increase ................................................. 20,643,552 $169,948,086 7,578,070 $50,167,601
============ ============ ============ ============
CLASS B
Shares sold .................................................. 61,535,597 $505,917,005 34,908,271 $247,910,489
Shares issued to shareholders in reinvestment of distributions 2,683,654 21,976,417 1,810,860 12,537,916
------------ ------------ ------------ ------------
64,219,251 527,893,422 36,719,131 260,448,405
Less shares repurchased ...................................... (15,737,486) (129,495,166) (16,575,722) (117,835,167)
------------ ------------ ------------ ------------
Net increase ................................................. 48,481,765 $398,398,256 20,143,409 $142,613,238
============ ============ ============ ============
CLASS C
Shares sold .................................................. 386,561 $3,244,400 2,820,795 $19,455,575
Shares issued to shareholders in reinvestment of distributions 442 3,652 33,186 223,352
------------ ------------ ------------ ------------
387,003 3,248,052 2,853,981 19,678,927
Less shares repurchased ...................................... (235) (1,958) (345,968) (2,294,075)
------------ ------------ ------------ ------------
Net increase ................................................. 386,768 $3,246,094 2,508,013 $17,384,852
============ ============ ============ ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
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,
OPERATIONS) TO ----------------------------------
OCTOBER 31, 1993 1994 1995(1) 1996
------------------ -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $8.10 $8.23 $7.33 $7.20
-------- -------- -------- --------
Net Investment Income ....................................... 0.33 0.80(2) 0.72 0.76(2)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and
Foreign Currency Transactions ............................. 0.09 (0.83) (0.12) 0.35
-------- -------- -------- --------
Total from Investment Operations .......................... 0.42 (0.03) 0.60 1.11
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.29) (0.82) (0.73) (0.76)
Distributions from Net Realized Gain on Investments Sold .. -- (0.05) -- --
-------- -------- -------- --------
Total Distributions ....................................... (0.29) (0.87) (0.73) (0.76)
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $8.23 $7.33 $7.20 $7.55
======== ======== ======== ========
Total Investment Return at Net Asset Value (3) .............. 4.96%(4) (0.59%) 8.83% 16.06%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $2,344 $11,696 $26,452 $52,792
Ratio of Expenses to Average Net Assets ..................... 0.91%(5) 1.16% 1.16% 1.10%
Ratio of Net Investment Income to Average Net Assets ........ 12.89%(5) 10.14% 10.23% 10.31%
Portfolio Turnover Rate ..................................... 204% 153% 98% 113%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
NOVEMBER 1, 1996 YEAR ENDED NOVEMBER 30, 1998
TO MAY 31, 1997(6) MAY 31, 1998 (UNAUDITED)
----------------- ------------ -----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $7.55 $7.87 $8.26
-------- -------- --------
Net Investment Income ....................................... 0.45 0.78(2) 0.39(2)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and
Foreign Currency Transactions ............................. 0.32 0.51 (1.69)
-------- -------- --------
Total from Investment Operations .......................... 0.77 1.29 (1.30)
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.45) (0.78) (0.39)
Distributions from Net Realized Gain on Investments Sold .. -- (0.12) --
-------- -------- --------
Total Distributions ....................................... (0.45) (0.90) (0.39)
-------- -------- --------
Net Asset Value, End of Period .............................. $7.87 $8.26 $6.57
======== ======== ========
Total Investment Return at Net Asset Value (3) .............. 10.54%(4) 17.03% (15.85%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $97,925 $273,277 $267,167
Ratio of Expenses to Average Net Assets ..................... 1.05%(5) 0.97% 0.95%(5)
Ratio of Net Investment Income to Average Net Assets ........ 10.19%(5) 9.33% 10.84%(5)
Portfolio Turnover Rate ..................................... 78% 100% 25%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<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 ........................ $7.43 $8.23 $7.33 $7.20
-------- -------- -------- --------
Net Investment Income ....................................... 0.80 0.74(2) 0.67 0.70(2)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and
Foreign Currency Transactions ............................. 0.75 (0.83) (0.13) 0.35
-------- -------- -------- --------
Total from Investment Operations .......................... 1.55 (0.09) 0.54 1.05
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.75) (0.76) (0.67) (0.70)
Distributions from Net Realized Gain on Investments Sold .. -- (0.05) -- --
-------- -------- -------- --------
Total Distributions ....................................... (0.75) (0.81) (0.67) (0.70)
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $8.23 $7.33 $7.20 $7.55
======== ======== ======== ========
Total Investment Return at Net Asset Value(3) ............... 21.76% (1.33%) 7.97% 15.24%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $154,214 $160,739 $180,586 $242,944
Ratio of Expenses to Average Net Assets ..................... 2.08% 1.91% 1.89% 1.82%
Ratio of Net Investment Income to Average Net Assets ........ 10.07% 9.39% 9.42% 9.49%
Portfolio Turnover Rate ..................................... 204% 153% 98% 113%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
NOVEMBER 1, 1996 YEAR ENDED NOVEMBER 30, 1998
TO MAY 31, 1997(6) MAY 31, 1998 (UNAUDITED)
------------------ ------------ -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $7.55 $7.87 $8.26
-------- -------- --------
Net Investment Income ....................................... 0.42 0.71(2) 0.36(2)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and
Foreign Currency Transactions ............................. 0.32 0.51 (1.69)
-------- -------- --------
Total from Investment Operations .......................... 0.74 1.22 (1.33)
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.42) (0.71) (0.36)
Distributions from Net Realized Gain on Investments Sold .. -- (0.12) --
-------- -------- --------
Total Distributions ....................................... (0.42) (0.83) (0.36)
-------- -------- --------
Net Asset Value, End of Period .............................. $7.87 $8.26 $6.57
======== ======== ========
Total Investment Return at Net Asset Value(3) ............... 10.06%(4) 16.16% (16.19%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $379,024 $798,170 $767,247
Ratio of Expenses to Average Net Assets ..................... 1.80%(5) 1.72% 1.70%(5)
Ratio of Net Investment Income to Average Net Assets ........ 9.45%(5) 8.62% 10.09%(5)
Portfolio Turnover Rate ..................................... 78% 100% 25%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
---------------- -----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $8.45 $8.26
------- -------
Net Investment Income(2) ....................................................... 0.06 0.36
Net Realized and Unrealized Loss on Investments, Financial Futures Contracts and
Foreign Currency Transactions ................................................ (0.19) (1.69)
------- -------
Total from Investment Operations ............................................. (0.13) (1.33)
------- -------
Less Distributions:
Dividends from Net Investment Income ......................................... (0.06) (0.36)
------- -------
Net Asset Value, End of Period ................................................. $8.26 $6.57
======= =======
Total Investment Return at Net Asset Value(3) .................................. (1.59%)(4) (16.20%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................................... $3,195 $19,022
Ratio of Expenses to Average Net Assets ........................................ 1.72%(5) 1.70%(5)
Ratio of Net Investment Income to Average Net Assets ........................... 6.70%(5) 10.09%(5)
Portfolio Turnover Rate ........................................................ 100% 25%
</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.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Schedule of Investments
November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by High
Yield Bond Fund on November 30, 1998. 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 (0.40%)
Iowa Select Farms L.P./ISF Finance, Inc.,
Sr Sub Note 12-01-05 (R) ................................................ 10.750% B3 $4,990 $4,241,500
-----------
Automobile/Trucks (1.19%)
Harvard Industries, Inc.,
Sr Note 07-15-04 ........................................................ 12.000 B+ 1,500 345,000
Sr Note 08-01-05 ........................................................ 11.125 B+ 6,885 1,583,550
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 ........................................................ 12.500 B- 9,725 9,141,500
Key Plastics, Inc.,
Sr Note 11-15-99 ........................................................ 14.000 B2 1,365 1,443,488
-----------
12,513,538
-----------
Banks - Foreign (1.27%)
Fuji JGB Inv LLC,
Bond Ser A (Japan) 12-31-49 (R) (Y) *** ................................. 9.870 BB+ 17,865 12,862,800
Sumitomo Bank International Finance N.V.,
Gtd Sub Note (Japan) 05-31-01 (R) (Y) # ................................. 0.750 BBB+ 50,000 458,604
-----------
13,321,404
-----------
Banks - United States (0.39%)
CSBI Capital Trust I,
Gtd Trust Sub Cap Inc Sec Ser A 06-06-27 ................................ 11.750 B- 3,890 4,084,500
-----------
Building (1.35%)
American Architectural Products Corp.,
Gtd Sr Note 12-01-07 .................................................... 11.750 B 4,000 3,440,000
Fortress Group, Inc.,
Sr Note 05-15-03 ........................................................ 13.750 B3 4,000 3,920,000
Nortek, Inc.,
Sr Note 08-01-08 (R) .................................................... 8.875 B+ 1,550 1,581,000
The Presley Companies,
Gtd Sr Note 07-01-01 .................................................... 12.500 CCC 5,994 5,244,750
-----------
14,185,750
-----------
Business Services - Misc. (0.91%)
Coinstar, Inc.,
Sr Disc Note, Step Coupon (13.00%, 10-01-99) 10-01-06 ................... Zero Caa1 3,950 3,318,000
</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>
Business Services - Misc. (continued)
COMFORCE Operating, Inc.,
Sr Note Ser B 12-01-07 .................................................. 12.000% B- $3,000 $3,060,000
MSX International, Inc.,
Gtd Sr Sub Note 01-15-08 ................................................ 11.375 B- 3,500 3,150,000
-----------
9,528,000
-----------
Chemicals (0.85%)
American Pacific Corp.,
Sr Note 03-01-05 ........................................................ 9.250 BB- 1,650 1,666,500
OPP Petroquimica S.A.,
Bond (Brazil) 10-29-04 (R) (Y) .......................................... 11.000 B+ 2,000 1,250,000
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) .......................................... 10.625 BB- 12,000 6,000,000
-----------
8,916,500
-----------
Computers (1.72%)
ENTEX Information Services, Inc.,
Sr Sub Note 08-01-06 (R) ................................................ 12.500 B- 2,475 1,485,000
Exodus Communications, Inc.,
Sr Note 07-01-08 (R) .................................................... 11.250 B- 4,476 4,431,240
Interact Systems, Inc.,
Sr Disc Note, Step Coupon 08-01-03 ...................................... 14.000 CCC 6,000 2,400,000
PSINet, Inc.,
Sr Note 11-01-08 (R) .................................................... 11.500 B- 4,975 5,273,500
Sr Note Ser B 02-15-05 .................................................. 10.000 B- 2,720 2,720,000
Verio, Inc.,
Sr Note 12-01-08 (R) .................................................... 11.250 B- 1,750 1,806,875
-----------
18,116,615
-----------
Consumer Products Misc. (0.87%)
Diamond Brands Operating Corp.,
Gtd Sr Sub Note 04-15-08 ................................................ 10.125 CCC+ 4,150 3,859,500
Sr Sub Note 04-15-08 (R) ................................................ 10.125 CCC+ 850 790,500
Indesco International, Inc.,
Sr Sub Note 04-15-08 .................................................... 9.750 B- 4,900 4,557,000
-----------
9,207,000
-----------
Containers (4.32%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07 .................................................. 9.375 B- 4,975 4,676,500
Sr Sub Note Ser B 02-15-08 .............................................. 9.875 CCC+ 15,300 11,934,000
MVE, Inc.,
Sr Sec Note 02-15-02 .................................................... 12.500 B 7,011 7,011,000
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 ................................................ 10.875 CCC+ 8,980 8,531,000
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Interest Cert) 04-01-02 ................. 12.250 B- 13,200 13,299,000
-----------
45,451,500
-----------
</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>
Cosmetics & Personal Care (0.62%)
Carson, Inc.,
Gtd Sr Sub Note Ser B 11-01-07 .......................................... 10.375% B3 $4,435 $2,439,250
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 .................................................... 11.000 B+ 3,175 2,222,500
Styling Technology Corp.,
Sr Sub Note 07-01-08 (R) ................................................ 10.875 B- 1,990 1,870,600
-----------
6,532,350
-----------
Electronics (0.63%)
Electronic Retailing Systems International, Inc.,
Sr Disc Note, Step Coupon (13.25%, 02-01-00) 02-01-04 (A) ............... Zero CCC 1,000 360,000
Spin Cycle, Inc.,
Unit (Sr Disc Note & Warrants), Step Coupon (12.75%, 05-01-01)
05-01-05 (A) (R) ...................................................... Zero CCC+ 3,850 1,809,500
Zilog, Inc.,
Gtd Sr Sec Note Ser B 03-01-05 .......................................... 9.500 B- 5,925 4,503,000
-----------
6,672,500
-----------
Energy (1.58%)
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) ................................................ 9.625 B 16,300 16,626,000
-----------
Finance (0.39%)
Nationwide Credit, Inc.,
Sr Note 01-15-08 (R) .................................................... 10.250 B- 4,000 3,360,000
Norse CBO, Ltd.,
Jr Sub Note 08-13-10 (r) ................................................ Zero B- 750 750,000
-----------
4,110,000
-----------
Food (2.38%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 (R) ................................................ 11.875 B 2,450 2,548,000
Grupo Azucarero Mexico, S.A. de C.V.,
Sr Note (Mexico) 01-15-05 (Y) ........................................... 11.500 B+ 4,500 1,665,000
Mastellone Hermanos S.A.,
Sr Note (Argentina) 04-01-08 (Y) ........................................ 11.750 B+ 12,925 10,986,250
RAB Holdings, Inc.,
Sr Note 05-01-08 (R) .................................................... 13.000 CCC+ 1,380 1,242,000
Specialty Foods Acquisition Corp.,
Sr Sub Note Ser B 08-15-03 .............................................. 11.250 CCC 16,700 8,016,000
Specialty Foods Corp.,
Sr Sec Disc Deb Ser B, Step Coupon (13.00%, 08-15-99) 08-15-05 (A) ...... Zero Ca 6,000 600,000
-----------
25,057,250
-----------
Glass Products (0.43%)
Vicap S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 (R) (Y) ................................... 11.375 B+ 5,000 4,500,000
-----------
Government - Foreign (0.24%)
Government of Jamaica,
Note (Jamaica) 06-10-05 (R) (Y) ......................................... 10.875 Ba3 2,975 2,558,500
-----------
</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>
Government - U.S. (7.45%)
United States Treasury,
Note 05-15-99 ........................................................... 9.125% AAA $77,000 $78,527,680
-----------
Insurance (0.39%)
SIG Capital Trust I,
Gtd Trust Preferred Security 08-15-27 ................................... 9.500 BB+ 5,000 4,062,500
-----------
Leisure (8.19%)
Agrosy Gaming Co.,
1st Mtg Note 06-01-04 ................................................... 13.250 B+ 7,100 7,952,000
Casino America, Inc.,
Sr Sec Note 08-01-03 .................................................... 12.500 B+ 8,700 9,613,500
Casino Magic - Louisiana,
1st Mtg Note Ser B 08-15-03 ............................................. 13.000 B- 6,500 7,166,250
Claridge Hotel & Casino Corp.,
1st Mtg Note 02-01-02 ................................................... 11.750 CCC 7,736 6,498,240
Clearview Cinema Group, Inc.,
Sr Note 06-01-08 (R) .................................................... 10.875 B 1,240 1,469,400
Empress Entertainment, Inc.,
Sr Sub Note 07-01-06 .................................................... 8.125 B+ 3,925 3,944,625
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Ser B Note 12-15-04 .......................................... 12.250 B- 9,450 5,433,750
Production Resource Group LLC,
Sr Sub Note 01-15-08 .................................................... 11.500 B- 3,000 2,940,000
SC International Services, Inc.,
Gtd Sr Sub Note Ser B 09-01-07 .......................................... 9.250 B 8,600 8,643,000
SFX Entertainment, Inc.,
Gtd Sr Sub Note 02-01-08 ................................................ 9.125 B- 3,900 3,909,750
Sr Sub Note 12-01-08 (R) ................................................ 9.125 B- 3,500 3,517,500
Six Flags Entertainment Corp.,
Gtd Sr Note 04-01-06 .................................................... 8.875 B- 2,900 3,016,000
Six Flags Theme Parks/Premier Parks, Inc.,
Sr Sub Note Ser A, Step Coupon (12.25%, 06-15-00) 06-15-05 (A) .......... Zero B- 3,000 3,315,000
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Sec Note 06-15-05 .................................................... 15.500 B- 8,630 9,190,950
Venetian Casino Resort LLC/Las Vegas Sands, Inc.,
1st Mtg Note 11-15-04 ................................................... 12.250 B- 5,460 5,132,400
William Hill Finance Plc,
Sr Sub Note (United Kingdom) 04-30-08 # ................................. 10.625 B- 2,984 4,528,339
-----------
86,270,704
-----------
Machinery (0.33%)
Glasstech, Inc.,
Sr Note Ser B 07-01-04 .................................................. 12.750 B+ 4,475 3,490,500
-----------
Manufacturing (1.32%)
AP Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 03-15-03) 03-15-08 (A) ............... Zero B- 1,800 954,000
</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>
Manufacturing (continued)
Coyne International Enterprises Corp.,
Sr Sub Note 06-01-08 (R) ................................................ 11.250% B- $3,935 $3,905,488
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 (R) ................................................ 10.000 B- 5,000 4,400,000
Icon Health & Fitness, Inc.,
Sr Sub Note Ser B 07-15-02 .............................................. 13.000 CCC+ 6,610 3,189,325
IHF Holdings, Inc.,
Sr Sub Disc Note Ser B, Step Coupon (15.00%, 11-15-99) 11-15-04 (A) ..... Zero CCC 7,425 742,500
International Semi-Tech Microelectronics, Inc.,
Sr Disc Note, Step Coupon (11.50%, 08-15-00) (Canada) 08-15-03 (A) (Y) .. Zero B- 9,282 696,150
-----------
13,887,463
-----------
Media (3.44%)
Alabama River Newsprint Co.,
Note 04-30-00 (r) ....................................................... Zero BB 5,353 4,014,916
CD Radio, Inc.,
Sr Disc Note, Step Coupon (15.00%, 12-01-02) 12-01-07 (A) ............... Zero CCC+ 2,990 1,794,000
Citadel Broadcasting Co.,
Sr Sub Note 11-15-08 (R) ................................................ 9.250 B- 1,925 1,997,187
Cumulus Media, Inc.,
Gtd Sr Sub Note 07-01-08 ................................................ 10.375 CCC+ 2,650 2,835,500
Digital Television Services LLC,
Gtd Sr Sub Note 08-01-07 ................................................ 12.500 CCC 11,095 12,010,338
EchoStar Communications Corp.,
Sr Disc Note, Step Coupon (12.875%, 06-01-99) 06-01-04 (A) .............. Zero B- 1,975 1,999,688
Radio One, Inc.,
Sr Sub Note Ser B, Step Coupon (12.00%, 05-15-00) 05-15-04 (A) *** ...... 7.000 CCC+ 3,000 2,970,000
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon (12.875%, 07-01-03) (United Kingdom)
07-01-08 (A) (Y) ...................................................... Zero B- 3,730 3,507,002
Sr Note (United Kingdom) 07-01-08 (R) (Y) ............................... 10.500 B- 1,170 1,210,950
Scandinavian Broadcasting System S.A.,
Sub Deb (Luxembourg) 08-01-05 (Y) ....................................... 7.250 B 1,555 1,543,337
Supercanal Holdings S.A./Supercanal S.A.,
Sr Note (Argentina) 05-15-05 (R) (Y) .................................... 11.500 B 3,976 2,385,600
-----------
36,268,518
-----------
Medical (0.46%)
Integrated Health Services, Inc.,
Sr Sub Note 01-15-08 .................................................... 9.250 B- 4,925 4,801,875
-----------
Metal (4.08%)
Bar Technologies,
Sr Sec Note 04-01-01 .................................................... 13.500 CCC 7,500 8,025,000
Doe Run Resources Corp.,
Sr Note 03-15-03 *** .................................................... 11.696 B+ 4,975 3,582,000
Sr Note Ser B 03-15-05 .................................................. 11.250 B+ 6,990 4,962,900
Echo Bay Mines Ltd.,
Jr Sub Deb (Canada) 04-01-27 (Y) ........................................ 11.000 C 2,000 1,100,000
</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>
Metal (continued)
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 11-15-06 ........................................................ 7.500% CCC+ $9,925 $6,649,750
Haynes International, Inc.,
Sr Note 09-01-04 ........................................................ 11.625 B- 10,000 9,550,000
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon (12.75%, 07-15-03) 07-15-08 (A) (R) ........... Zero CCC+ 6,960 2,436,000
Metallurg, Inc.,
Sr Note 12-01-07 ........................................................ 11.000 B3 4,270 3,117,100
TVX Gold, Inc.,
Conv Sub Note (Canada) 03-28-02 (Y) ..................................... 5.000 B- 5,150 3,605,000
-----------
43,027,750
-----------
Oil & Gas (5.34%)
Gothic Energy Corp.,
Sr Disc Note, Step Coupon (14.125%, 05-01-02) 05-01-06 (A) .............. Zero CCC- 4,990 1,746,500
Gothic Production Corp.,
Sr Sec Note Ser B 05-01-05 .............................................. 11.125 B- 3,200 2,624,000
Great Lakes Acquisition Corp.,
Sr Disc Deb, Step Coupon (13.125%, 05-15-03) 05-15-09 (A) ............... Zero B- 9,300 4,464,000
Grey Wolf, Inc.,
Gtd Sr Note 07-01-07 .................................................... 8.875 B+ 6,925 5,609,250
Gtd Sr Note Ser C 07-01-07 .............................................. 8.875 B+ 1,975 1,599,750
Key Energy Group, Inc.,
Note 09-14-99 (r) ....................................................... 11.910 B- 7,300 7,154,000
Conv Sub Note 09-15-04 (R) .............................................. 5.000 B 26,300 15,780,000
Conv Sub Note 09-15-04 .................................................. 5.000 B 10,249 6,149,400
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 .............................................. 10.500 B- 3,990 3,730,650
Ocean Rig Norway A.S.,
Gtd Sr Sec Note (Norway) 06-01-08 (Y) ................................... 10.250 B- 3,949 3,514,610
PANACO, Inc.,
Gtd Sr Sub Note Ser B 10-01-04 .......................................... 10.625 B- 2,990 2,302,300
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A) (R) ........... Zero B 2,740 1,616,600
-----------
56,291,060
-----------
Paper & Paper Products (4.48%)
Advance Agro Public Co.,
Sr Note (Thailand) 11-15-07 (R) (Y) ..................................... 13.000 CCC 6,950 5,907,500
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia) 04-30-03 (R) (Y) ................................... 3.500 CCC+ 990 693,000
APP Finance II Mauritius Ltd.,
Bond (Indonesia) 12-29-49 (Y) ........................................... 12.000 Caa 7,500 3,900,000
APP International Finance Co. B.V.,
Gtd Note (Indonesia) 09-15-99 (Y) ....................................... 8.742 Caa1 3,800 3,268,000
Gtd Sec Note (Indonesia) 10-01-05 (Y) ................................... 11.750 CCC+ 5,900 4,602,000
FSW International Finance Company B.V.,
Gtd Sr Sec Note (Indonesia) 11-01-06 (Y) ................................ 12.500 D 5,000 750,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<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)
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) .............................................. 12.625% BB- $2,065 $1,879,150
Indah Kiat Finance Mauritius Ltd.,
Gtd Sr Note (Indonesia) 07-01-07 (Y) .................................... 10.000 Caa1 7,000 4,550,000
Indah Kiat International Finance Co.,
Gtd Sec Bond Ser C (Indonesia) 06-15-06 (Y) ............................. 12.500 CCC+ 2,500 1,800,000
Pindo Deli Finance Mauritius Ltd.,
Gtd Sr Deb (Indonesia) 10-01-02 (Y) ..................................... 10.250 Caa1 1,000 530,000
Repap New Brunswick, Inc.,
Sr Sec Note (Canada) 04-15-05 (Y) ....................................... 10.625 CCC+ 20,000 15,600,000
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa) 08-01-02 (R) (Y) ........................... 7.500 BB- 1,560 1,326,000
Tjiwi Kimia Finance Mauritius Ltd.,
Gtd Sr Note (Indonesia) 08-01-04 (Y) .................................... 10.000 BB 1,500 975,000
Tjiwi Kimia International Finance Co. B.V.,
Gtd Sr Note (Indonesia) 08-01-01 (Y) .................................... 13.250 B- 2,000 1,440,000
-----------
47,220,650
-----------
Pollution Control (0.39%)
ICF Kaiser International, Inc.,
Sr Note Ser B 12-31-03 .................................................. 13.000 B- 1,000 1,010,000
Sr Sub Note 12-31-03 .................................................... 13.000 CCC 7,750 3,100,000
-----------
4,110,000
-----------
Printing - Commercial (0.19%)
Sullivan Graphics, Inc.,
Sr Sub Note 08-01-05 .................................................... 12.750 B- 2,000 2,040,000
-----------
Real Estate Operations (0.41%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 .................................................. 5.750 B 6,965 4,327,006
-----------
Retail (3.29%)
American Restaurant Group, Inc.,
Sr Sec Note 02-15-03 .................................................... 11.500 B 7,950 6,757,500
Corporate Express, Inc.,
Conv Note 07-01-00 ...................................................... 4.500 B 5,900 5,258,375
Frank's Nursery & Crafts,
Sr Sub Note 03-01-08 .................................................... 10.250 B- 3,795 3,700,125
Hills Stores Co.,
Sr Note Ser B 07-01-03 .................................................. 12.500 B- 10,482 5,555,460
Imperial Home Decor Group, Inc.,
Gtd Sr Sub Note 03-15-08 ................................................ 11.000 B- 4,875 4,436,250
Jitney-Jungle Stores of America, Inc.,
Gtd Sr Sub Note 09-15-07 ................................................ 10.375 B- 6,900 7,003,500
Penn Traffic Co.,
Sr Note 10-01-04 ........................................................ 10.375 B 4,005 1,922,400
-----------
34,633,610
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<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>
Revenue Bonds (0.30%)
Port of Walla Walla Public Corp.,
Solid Waste Recycling Rev Ser 1995 Ponderosa Fibres Proj 01-01-26 .. 9.125% BB- $6,000 $3,180,000
-----------
Steel (3.76%)
Acindar Industria Argentina de Aceros S.A.,
Bond (Argentina) 02-15-04 (Y) ...................................... 11.250 B+ 3,975 3,418,500
Algoma Steel, Inc.,
1st Mtg Bond 07-15-05 .............................................. 12.375 B 6,860 5,453,700
Altos Hornos de Mexico, S.A. de C.V.,
Bond Ser B (Mexico) 04-30-04 (Y) ................................... 11.875 BB 3,000 2,040,000
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 .............................................. 13.500 CCC+ 17,750 7,543,750
NSM Steel Inc./NSM Steel Ltd.,
Sr Sub Mtg Note Ser B 02-01-08 (R) ................................. 12.250 CC 10,175 1,424,500
Oregon Steel CF&I,
Note 03-31-03 (r) .................................................. 9.500 B 6,345 6,154,635
Renco Steel Holdings,
Sr Sec Note Ser B 02-01-05 ......................................... 10.875 B- 2,000 1,840,000
Sheffield Steel Corp.,
1st Mtg Note 12-01-05 .............................................. 11.500 B- 4,125 3,093,750
Weirton Steel Corp.,
Sr Note 07-01-04 ................................................... 11.375 B 8,875 8,608,750
-----------
39,577,585
-----------
Telecommunications (11.55%)
Advanced Radio Telecom Corp.,
Sr Note 02-15-07 ................................................... 14.000 CCC 2,250 1,687,500
AMSC Acquisition Co., Inc./American Mobile Corp.,
Gtd Sr Note Ser B 04-01-08 ......................................... 12.250 B- 9,960 6,573,600
Barak I.T.C.,
Sr Sub Disc Note Ser B, Step Coupon (12.50%, 11-15-02) (Israel)
11-15-07 (A) (Y) ................................................. Zero CCC 9,100 4,732,000
Call-Net Enterprises, Inc.,
Sr Note (Canada) 08-15-08 (Y) ...................................... 8.000 BB- 2,000 1,940,000
COLT Telecom Group Plc,
Sr Note (Germany) 07-31-08 # ....................................... 7.625 B 10,000 5,871,072
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-01-02) 11-15-07 (A) ......... Zero B 3,940 2,738,300
Dolphin Telecom Plc,
Sr Disc Note, Step Coupon (11.50%, 06-01-03) (United Kingdom)
06-01-08 (R) (Y) ................................................. Zero CCC+ 2,960 1,184,000
e.spire Communications, Inc.,
Sr Note 07-15-07 ................................................... 13.750 B- 3,000 3,225,000
Echostar DBS Corp.,
Gtd Sr Sec Note 07-01-02 ........................................... 12.500 B- 5,000 5,650,000
Esprit Telecom Group Plc,
Sr Note (United Kingdom) 06-15-08 (Y) .............................. 10.875 B- 60 59,400
Sr Note (Germany) 06-15-08 # ....................................... 11.000 B- 10,940 6,245,434
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<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)
Facilicom International,
Sr Note 01-15-08 ........................................................ 10.500% B- $5,350 $4,413,750
GST Equipment Funding, Inc.,
Sr Sec Note 05-01-07 .................................................... 13.250 B 5,100 5,253,000
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 (Y) ........................................... 12.875 B- 2,000 1,560,000
International Wireless Communications, Inc.,
Sr Sec Disc Note 08-15-01 ............................................... Zero B- 16,450 1,645,000
ITC DeltaCom, Inc.,
Sr Note 11-15-08 (R) .................................................... 9.750 B 2,900 3,030,500
Long Distance International, Inc.,
Sr Note 04-15-08 (R) .................................................... 12.250 B- 1,900 1,567,500
McCaw International Ltd.,
Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) ............... Zero CCC+ 11,300 6,102,000
McLeodUSA, Inc.,
Sr Note 11-01-08 (R) .................................................... 9.500 B+ 1,650 1,757,250
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 (R) .................................................... 10.000 B 1,800 1,858,500
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ........................................... 12.000 B 5,250 5,880,000
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 (R) .................................................... 10.750 B 4,925 5,085,063
NTL, Inc.,
Sr Note, Step Coupon (12.375%, 10-01-03) 10-01-08 (A) (R) ............... Zero B- 4,400 2,838,000
Sr Note 10-01-08 (R) .................................................... 11.500 B- 3,250 3,623,750
Omnipoint Corp.,
Sr Note Ser A 08-15-06 .................................................. 11.625 CCC+ 2,984 1,917,220
Paging Network do Brasil S.A.,
Sr Note (Brazil) 06-06-05 (Y) ........................................... 13.500 B- 2,550 1,479,000
Primus Telecommunications Group, Inc.,
Sr Sec Note 08-01-04 .................................................... 11.750 B- 6,750 7,020,000
Qwest Communications International, Inc.,
Sr Note 11-01-08 (R) .................................................... 7.500 BB+ 2,175 2,232,094
Startec Global Communications Corp.,
Sr Note 05-15-08 ........................................................ 12.000 CCC 3,000 2,580,000
Teletrac, Inc.,
Sr Note Ser B 08-01-07 .................................................. 14.000 CCC+ 3,500 1,575,000
Teligent, Inc.,
Sr Note 12-01-07 ........................................................ 11.500 CCC 5,984 5,714,720
VersaTel Telecom B.V.,
Sr Note (Netherlands) 05-15-08 (R) (Y) .................................. 13.250 B- 5,375 5,364,250
Viatel, Inc.,
Jr Sub Deb (Germany) 04-15-11 (R) # ..................................... 10.000 Caa1 254 134,653
Sr Note (Germany) 04-15-08 # ............................................ 11.150 Caa1 4,830 2,792,978
Sr Sec Note 04-15-08 .................................................... 11.250 Caa1 1,990 1,990,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<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)
WinStar Communications, Inc.,
Sr Sub Def Note 03-01-07 ................................................ 15.000% CCC $2,000 $1,980,000
Sr Sub Def Note 03-15-08 ................................................ 11.000 CCC 2,966 2,372,800
-----------
121,673,334
-----------
Textile (1.34%)
Apparel Ventures, Inc.,
Sr Note Ser B 12-31-00 .................................................. 12.250 Caa3 3,350 3,316,500
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon (13.75%, 06-01-03) 06-01-09 (A) (R) ............ Zero CCC+ 4,700 1,833,000
Steel Heddle Manufacturing Co.,
Sr Sub Note 06-01-08 (R) ................................................ 10.625 CCC+ 3,950 3,357,500
Tropical Sportswear International Corp.,
Gtd Sr Sub Note Ser A 06-15-08 .......................................... 11.000 B- 3,750 3,909,375
Willcox & Gibbs, Inc.,
Gtd Sr Note Ser B 12-15-03 .............................................. 12.250 CCC 5,000 1,750,000
-----------
14,166,375
-----------
Transport (2.64%)
Cenargo International Plc,
1st Mtg Note (United Kingdom) 06-15-08 (R) (Y) .......................... 9.750 BB- 3,980 3,840,700
Fine Air Services, Inc.,
Gtd Sr Note 06-01-08 .................................................... 9.875 B 7,900 7,031,000
MRS Logistica S.A.,
Bond Ser B (Brazil) 08-15-05 (R) (Y) .................................... 10.625 B 6,000 3,180,000
Navigator Gas Transport Plc,
Unit (Mtg Note & Warrant) (United Kingdom) 06-30-07 (R) (Y) ............. 12.000 B 3,000 2,850,000
Northwest Airlines Corp.,
Gtd Note 03-15-07 ....................................................... 8.700 BB 7,900 7,745,239
Pacific & Atlantic Holding, Inc.,
1st Mtg Note (Greece) 05-30-08 (R) (Y) .................................. 11.500 B 2,950 2,455,875
World Airways, Inc.,
Sub Deb 08-26-04 (R) .................................................... 8.000 B- 2,000 680,000
-----------
27,782,814
-----------
Utilities (0.81%)
CalEnergy Co., Inc.,
Sr Note 09-15-08 ........................................................ 7.520 BB+ 2,900 3,021,655
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A (Philippine Islands) 11-15-05 (Y) ......................... 11.450 BB+ 2,000 1,700,000
Empire Gas Corp.,
Gtd Sr Sec Note 07-15-04 ................................................ 7.000 CC 4,950 3,861,000
-----------
8,582,655
-----------
Waste Disposal Service & Equipment (1.03%)
Waste Systems International, Inc.,
Sub Note 05-13-05 (R) ................................................... 7.000 CCC+ 11,300 10,848,000
-----------
TOTAL BONDS
(Cost $1,020,332,346) (80.73%) 850,392,986
-------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<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) ......................... 1,233,500 $11,641,156
Aeroporti di Roma SpA, Common Stock (Italy) (Y) ** ............................ 160,000 1,321,744
American Mobile Satellite Corp., Warrant (R) .................................. 9,960 --
American Pacific Corp., Common Stock ** ....................................... 175,500 1,206,563
American Telecasting, Inc., Warrant ** ........................................ 2,000 400
AVI Holdings, Inc., Warrant ** ................................................ 1,500 9,000
Capstar Broadcasting Partners, 12.00%, Payment-In-Kind, Preferred Stock ....... 7,446 733,431
Core Cap, Inc. (Class A), Common Stock (r) .................................... 67,000 871,000
Core Cap, Inc. Ser A/I, 10.00%, Preferred Stock (r) ........................... 67,000 1,593,930
Crown Packaging Holdings Ltd., Warrant (Canada) (Y) ** ........................ 2,750 22,000
Cumulus Media, Inc., 13.75%, Ser A, Preferred Stock ........................... 5,143 5,708,730
Decorative Home Accents, Inc., Common Stock ** ................................ 1,000 1
e.spire Communications, Inc., 12.75%, Payment-In-Kind, Preferred Stock ........ 564 451,200
Electronic Retailing Systems International, Inc., Warrant ** .................. 1,000 5,000
Farm Fresh Holdings Corp. (Class B), Common Stock ** .......................... 1,000 10
Fitzgeralds Gaming Corp., Preferred Stock ..................................... 125,000 2,750,000
Galileo International, Inc., Common Stock ..................................... 565,600 22,624,000
Gaylord Container Corp. (Class A), Common Stock ** ............................ 1,090,200 5,723,550
Geneva Steel Co., 14.00%, Ser B, Preferred Stock .............................. 10,000 460,000
Glasstech, Inc., Warrant ** ................................................... 2,000 2,500
Global Crossing Ltd., 10.50%, Payment-In-Kind, Preferred Stock (R) ............ 49,000 4,900,000
Gothic Energy Corp., Warrant .................................................. 39,586 --
Granite Broadcasting Corp., 12.75%, Payment-In-Kind, Preferred Stock .......... 75,995 7,219,525
Great Atlantic & Pacific Tea Co., Inc., Common Stock .......................... 169,800 4,637,663
Grey Wolf, Inc., Common Stock ** .............................................. 397,000 397,000
Haynes Holdings, Inc., Common Stock ** ........................................ 67,938 271,752
ICF Kaiser International Inc., Warrant (Expires 12-31-98) ** .................. 33,600 3,360
ICF Kaiser International, Inc., Warrant (Expires 12-31-99) ** ................. 7,000 3,500
Interact Systems, Inc., Warrant ** ............................................ 6,000 1,200
International Wireless Inc., Warrant ** ....................................... 1,500 15
Ithaca Industries, Inc., Common Stock ** ...................................... 235,000 440,625
Kelley Oil & Gas Corp., $2.625, Convertible, Preferred Stock .................. 125,000 1,875,000
KLM Royal Dutch Airlines N.V., Common Stock (Netherlands) # ................... 139,821 3,949,943
Long Distance International Inc., Warrant ** .................................. 1,900 2,375
McCaw International Ltd., Warrant ** .......................................... 10,050 25,125
Nakornthai Strip Mill Plc, Warrant (Thailand) (R) (Y) ......................... 9,591,354 95,914
Nextel Communications, Inc., 13.00%, Payment-In-Kind, Ser D, Preferred Stock .. 18,734 19,483,027
NEXTLINK Communications Inc., Warrant (R) ** .................................. 30,000 --
Northeast Utilities, Common Stock ** .......................................... 298,700 4,704,525
Northwest Airlines Corp. (Class A), Common Stock ** ........................... 725,000 18,170,312
Paging do Brazil Holding Co. LLC (Class B), Common Stock (R) ** ............... 2,550 --
Petroleum Heat & Power Co., Inc., Common Stock ** ............................. 16,866 --
Petroleum Heat & Power Co., Inc., 12.875%, Ser C, Preferred Stock ............. 200,000 4,000,000
Renaissance Cosmetics, Warrant ** ............................................. 4,000 4
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<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 (continued)
Repap Enterprises, Inc., Common Stock (Canada) ** # ........................... 2,000,000 $124,200
Samuels Jewelers, Inc., Common Stock ** ....................................... 300,000 2,550,000
Samuels Jewelers, Inc., Warrant ** ............................................ 2,612 26
SFX Broadcasting, Inc., 12.625%, Ser E, Preferred Stock ....................... 48,741 5,848,920
Sheffield Steel Corp., Common Stock ** ........................................ 500 1,000
Startec Global Communications Corp., Warrant ** ............................... 3,000 750
Sterling Chemicals Holdings, Warrant ** ....................................... 1,000 12,000
Stone Container Corp., $1.75, Ser E, Preferred Stock .......................... 248,000 4,650,000
Supermarkets General Holding Corp., $3.52, Preferred Stock .................... 71,964 1,655,172
Takefuji Corp., Common Stock (Japan) # ........................................ 100,000 6,833,710
Teletrac, Inc., Warrant ** .................................................... 3,500 --
VersaTel Telecom B.V., Warrant (R) ** ......................................... 5,375 64,500
Viatel, Inc., 10.00%, Ser A, Preferred Stock .................................. 987 88,830
Wang Laboratories, Inc., Ser B, Preferred Stock (R) ........................... 100,000 5,350,000
Weatherford International, Inc., Common Stock ** .............................. 99,300 1,812,225
Weirton Steel Corp., Common Stock ** .......................................... 100,000 187,500
Westshore Terminals Income Fund, Common Stock (Canada) # ...................... 160,000 648,576
----------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $172,976,287) (14.72%) 155,132,489
--------- -----------
<CAPTION>
PAR VALUE
INTEREST (000s
RATE OMITTED)
-------- ---------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.20%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities USA, Inc. -
Dated 11-30-98, due 12-01-98 (Secured by
U.S. Treasury Bills, 4.49% thru 4.54%, due 10-14-99
thru 11-12-99, U.S. Treasury Bonds, 8.125% thru
12.00% due 08-15-13 thru 08-15-19, and U.S. Treasury
Notes, 5.25% thru 8.75%, due 07-03-99 thru 05-15-08) - Note A .. 5.370% $23,168 23,168,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.350% ............................................ 522
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $23,168,000) (2.20%) 23,168,522
-------- --------------
TOTAL INVESTMENTS (97.65%) 1,028,693,997
-------- --------------
OTHER ASSETS AND LIABILITIES, NET (2.35%) 24,742,503
-------- --------------
TOTAL NET ASSETS (100.00%) $1,053,436,500
======== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
NOTES TO THE SCHEDULE OF INVESTMENTS
* Credit ratings are rated by Moody's Investors Service or John Hancock
Advisers, Inc. where Standard and Poor's ratings are not available.
** Non-income producing security.
*** Represents rate in effect on November 30, 1998.
# Par value of foreign bonds and common stocks is expressed in local
currency, as shown parenthetically in security description.
(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 $190,896,393 or 18.12% of net assets as of
November 30, 1998.
(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 as 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.
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, 1998
- ------------------- ----------- ----------- ---------- -----------------
<S> <C> <C> <C> <C>
Alabama River Newsprint Co. ...................... 04-14-98 $4,697,254 0.38% $4,014,916
Core Cap, Inc. (Class A), Common Stock ........... 10-31-97 1,340,000 0.08 871,000
Core Cap, Inc. Ser A/I, 10.00%, Preferred Stock .. 10-31-97 1,675,000 0.15 1,593,930
Key Energy Group, Inc. ........................... 11-06-98 7,008,000 0.68 7,154,000
Norse CBO, Ltd. .................................. 08-04-98 750,000 0.07 750,000
Oregon Steel CF&I ................................ 05-14-98 6,147,085 0.58 6,154,635
</TABLE>
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.
25
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Portfolio Concentration
November 30, 1998 (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, 1998 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ---------------
Argentina ............................................... 1.59%
Brazil .................................................. 1.13
Canada .................................................. 3.92
Germany ................................................. 0.28
Greece .................................................. 0.23
Indonesia ............................................... 2.14
Israel .................................................. 0.45
Italy ................................................... 0.13
Jamaica ................................................. 0.24
Japan ................................................... 0.69
Luxembourg .............................................. 0.15
Mexico .................................................. 1.11
Netherlands ............................................. 0.88
Norway .................................................. 0.33
Philippine Islands ...................................... 0.16
South Africa ............................................ 0.13
Thailand ................................................ 0.57
United Kingdom .......................................... 2.78
United States ........................................... 80.74
-----
TOTAL INVESTMENTS 97.65%
=====
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION NET ASSETS
- -------------------- ---------------
AAA ..................................................... 7.45%
BBB ..................................................... 0.04
BB ...................................................... 5.80
B ....................................................... 47.37
CCC ..................................................... 19.34
CC ...................................................... 0.56
C ....................................................... 0.10
D ....................................................... 0.07
-----
TOTAL BONDS 80.73%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
26
<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 such as: domestic and foreign corporate bonds; debentures and notes;
convertible securities; preferred stocks; and domestic and foreign government
obligations. As a secondary objective, the Fund seeks capital appreciation but
only when it is consistent with the primary objective of maximizing current
income.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C 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,
Inc., 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.
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 respective classes.
Distribution and service fees, if any, are calculated
27
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
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 funds.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 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
rates ranging from 0.070% to 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, 1998.
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 will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the value of the
financial future contracts 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 contract 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
fluctuations imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures transactions.
At November 30, 1998, there were no open positions in financial futures
contracts.
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
28
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
other than investments in securities at fiscal year end, resulting from changes
in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
Open forward foreign currency sell contracts at November 30, 1998, were as
follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ---------- --------------
SELLS
British Pound Sterling 4,712,730 FEB 99 $58,187
Deutsche Mark 22,223,565 JAN 99 364,667
Italian Lira 1,600,000,000 JAN 99 28,503
Japanese Yen 610,000,000 DEC 98 (299,906)
--------
$151,451
========
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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $990,378. Out of this amount, $168,758 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$671,225 was paid as sales commissions to unrelated broker-dealers and $150,395
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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,
1998, contingent deferred sales charges paid to JH Funds amounted to $946,074.
Class C shares which are redeemed within one year of purchase will be subject
to a contingent deferred sales charge ("CDSC") at a rate of 1.0% 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
29
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
Fund in connection with the sale of Class C shares. For the period ended
November 30, 1998, contingent deferred sales charges paid to JH Funds amounted
to $8,499.
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, Class B and Class C 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 and Class C
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, 1998, the Fund's investments 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, 1998, aggregated $97,244,297 and $7,024,062, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies during the period ended November 30, 1998, aggregated $319,539,530 and
$231,478,287, respectively.
The cost of investments owned at November 30, 1998 for federal income tax
purposes was $1,216,696,121. Gross unrealized appreciation and depreciation of
investments aggregated $22,764,616 and $210,767,262, respectively, resulting in
net unrealized depreciation of $188,002,646.
30
<PAGE>
======================================NOTES=====================================
John Hancock Funds - High Yield Bond Fund
31
<PAGE>
================================================================================
----------------
[LOGO] 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 ----------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
High Yield Bond Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[Recycle Logo] Printed on Recycled Paper 570SA 11/98
1/99
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Intermediate
Maturity
Government
Fund
NOVEMBER 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------------
DIRECTORS
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R.DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
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:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. In 1998, the market gave us several stark examples of this
phenomenon. From the new highs set in mid-July, the major indices plunged by 19%
through the end of August. It was the worst such fall since 1990. Seeking safety
in a world of global economic uncertainties, investors everywhere converged on
U.S. Treasury bonds and pushed their yields to historic lows.
Then in early October, the stock market began a remarkable rebound that was
sparked by the Federal Reserve's moves to lower interest rates. The Dow Jones
Industrial Average reached a new high and ended November actually up by 17%
year-to-date.
- --------------------------------------------------------------------------------
[A 1" x 1 1/4" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Investors have been understandably shaken by these dramatic twists and turns,
but we are pleased to report that most individual investors did not panic, and
we hope that means they've taken our words to heart. Over the long term, markets
do not move up or down in a straight line. That's why after watching the market
charge ahead almost uninterrupted for so many years, we have been striking a
more cautionary stance in this space over the last several months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the divergence in performance of
stocks and high-quality bonds earlier this year is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BARRY H. EVANS, CFA, AND DAWN BAILLIE, PORTFOLIO MANAGERS
John Hancock
Intermediate Maturity
Government Fund
U.S. government bonds take off as investors seek safe havens
After making little headway in June, U.S. government bonds set a fast and
furious pace from July to October. A major sell-off in U.S. stocks coupled with
concern about a slowdown in the domestic economy triggered investors' flight to
quality. Devaluation of the Russian ruble and continued turmoil in world
financial markets further fueled inflows into the government sector. To restore
investor confidence, the Federal Reserve cut short-term interest three times
during the fall. As bond investors anticipated these rate cuts, yields on the
30-year Treasury dropped a full percentage point in less than six months' time.
With yields moving toward an all-time low in early October, bond prices soared.
Once investors started moving back into higher-risk assets, bond yields began
moving up again. Yields on the 10-year Treasury -- which had gone from a high in
June of 5.59% to a low of 4.16% in October -- closed November at 4.71%.
The best returns -- interest plus changes in price -- came from long-term
Treasuries with maturities of 20 or 30 years. Between May 31, 1998 and November
30, 1998, 30-year Treasuries returned an amazing 12.79%. By contrast, mortgage
bonds turned in their worst performance in the past decade with the Lehman
Brothers Mortgage-Backed Securities Index
"...the Federal Reserve cut short-term interest three times..."
- --------------------------------------------------------------------------------
[A 31/2" x 21/2" photo of fund management team members under second column.
(l-r): "Barry Evans, Dawn Baillie and Jeff Given."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Intermediate Maturity Government Fund
"The Fund also gained ground by owning long-term Treasuries..."
- --------------------------------------------------------------------------------
[Pie Chart at the top left hand column with the heading "Portfolio
Diversification". The chart is divided into three sections (from top to left):
Short-Term Investments & Other 4%, U.S. Treasuries 40% and U.S. Government
Agencies 56%. A note below the chart reads "As a percentage of net assets on
November 30, 1998."]
- --------------------------------------------------------------------------------
returning just 3.51% during the same period. Falling interest rates caused many
homeowners to pay off existing mortgage loans and refinance at lower rates. This
surge in new issuance hurt mortgage bond prices.
John Hancock Intermediate Maturity Government Fund fared well in this
environment. The Fund's Class A and Class B shares had total returns of 5.51%
and 5.12%, respectively, at net asset value for the six months ended November
30, 1998. The Fund outpaced the average intermediate-term government fund, which
returned 4.59%, according to Lipper Analytical Services, Inc.(1) Keep in mind
that your net asset value return will differ from the Fund's performance if you
were not invested in the Fund for the entire period and did not reinvest all
distributions. For longer-term performance information, please see pages six and
seven.
Right places, right times
The Fund benefited from an unusually long duration at the height of the market's
rally in September and October. Duration measures how sensitive a bond's price
is to interest rate changes. The longer a bond's duration, the more its price
will rise as interest rates fall -- or fall as interest rates rise. During June
and July, the Fund's duration hovered around 4.4 years. This worked well when
bond yields were moving up and down within a narrow range. In August, when it
looked like an interest-rate cut was coming, we began aggressively increasing
duration. Throughout September and early October, we kept duration around 4.7
years. After the rally ended in early October, we shortened to 3.8 years to lock
in the Fund's gains. With the prospect of another rate cut on the horizon in
November, we moved duration back up to 4.2 years.
The Fund also gained ground by owning long-term Treasuries in a falling
interest-rate environment. Starting in July, the Fund enjoyed heavy inflows from
investors seeking safe havens for their money. We put most of these new assets
to work in 30-year Treasuries, as well as short-term, cash-like investments. We
also sold some of the Fund's short-term Treasuries for long-term ones. By also
using the returned principal from our prepaid mortgage bonds to buy Treasuries,
we ended up with a lighter-than-average stake in mortgage bonds -- between 25%
and 30% during the summer. We kept mainly bonds with current coupons (or stated
interest rates). While all mortgages lagged Treasuries by wide margins, these
were among the better performers in the sector because of their longer duration.
At the end of October, we began to increase our investment in bonds with a
yield advantage over Treasuries. Prices on mortgage bonds had dropped and credit
spreads -- or the differences in yield between mortgage bonds and Treasuries --
were historically wide. Our expectation was that in the near future mortgages
would again
4
<PAGE>
================================================================================
John Hancock Funds - Intermediate Maturity Government Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended November 30, 1998".
The chart is scaled in increments of 2% with 0% at the bottom and 8% at the top.
The first bar represents the 5.51% total return for John Hancock Intermediate
Maturity Government Fund Class A. The second bar represents the 5.12% total
return for John Hancock Intermediate Maturity Government Fund Class B and the
third bar represents 4.59% total return for Average intermediate-term government
fund. A note below the chart reads "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. See the following two pages for historical performance
information.
- --------------------------------------------------------------------------------
start to outpace Treasuries. We bought 15-year FNMA bonds with current coupons
because of their liquidity. We also added some 30-year GNMAs with 7% coupons,
which offer a yield advantage and are also less likely to be prepaid. By the end
of November, we had a 37% stake in mortgage bonds. Throughout the period, we
also added short-term U.S. government agency bonds that could be called, or
redeemed before their due dates. These bonds performed like cash but also gave
us a slightly higher yield.
Tempered optimism
Looking ahead, our expectation is that the U.S. economy should continue to grow
at a moderate or slightly slower pace. To track the economy's progress, we'll
monitor manufacturing activity carefully. We'll also follow the employment cost
index to ensure that inflation stays in check. Asia is still the biggest
unknown. With problems there still unresolved, the potential exists for Asia's
troubles to place more of a drag on U.S. companies. If this happens or if
consumer confidence falls to lower levels, the Federal Reserve may decide to cut
short-term interest rates again in early 1999. Even if interest rates drop
further, we doubt bond yields will fall below their October lows. Bond investors
may end up with mostly interest income in the coming year rather than dramatic
price appreciation. Given the uncertainties that exist, our strategy will be
two- pronged. First, we'll keep the Fund's duration slightly long -- around 4.2
to 4.5 years -- so we can take advantage of any drop in interest rates. At the
same time, we plan to increase our stake in mortgage bonds, which tend to do
better than Treasuries when interest rates are rising or stagnant. We believe
this approach will best protect the Fund from market downdrafts, while still
allowing us to participate in the rallies.
"...the U.S. economy should continue to grow at a moderate or slightly slower
pace."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' 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 - Intermediate Maturity Government 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 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.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
---- ----- ----------
Cumulative Total Returns 7.79% 32.01% 45.89%
Average Annual Total Returns (1) 7.79% 5.71% 5.75%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
---- ----- ----------
Cumulative Total Returns 7.32% 31.52% 43.74%
Average Annual Total Returns (1) 7.32% 5.63% 5.52%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1998
SEC 30-DAY
YIELD
----------
John Hancock Intermediate
Maturity Government Fund: Class A 4.48%
John Hancock Intermediate
Maturity Government Fund: Class B 3.87%
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
7.74%, 5.31% and 5.31% for Class A shares, respectively, and 7.28%, 5.23%
and 5.08% for Class B shares, respectively.
6
<PAGE>
================================================================================
John Hancock Funds - Intermediate Maturity Government Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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
Lehman Brothers Government Bond Index and is equal to $16,749 as of November 30,
1998. The second line represents the Lipper Intermediate U.S. Government Index
and is equal to $15,427. The third line represents the value of the hypothetical
$10,000 investment made in the John Hancock Intermediate Maturity Government
Fund on December 31, 1991, before sales charge, and is equal to $15,023 as of
November 30, 1998. The fourth line represents the value of the same hypothetical
investment made in the John Hancock Intermediate Maturity Government Fund, after
sales charge, and is equal to $14,572 as of November 30, 1998.
Line chart with the heading John Hancock 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 three lines. The first line represents
the Lehman Brothers Government Bond Index and is equal to $16,749 as of November
30, 1998. The second line represents the Lipper Intermediate U.S. Government
Index and is equal to $15,427. The third line represents the value of the
hypothetical $10,000 investment made in the John Hancock Intermediate Maturity
Government Fund on December 31, 1991, before sales charge, and is equal to
$14,338 as of November 30, 1998.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
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, 1998. 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $210,184,117) .................................. $212,064,661
Joint repurchase agreement (cost - $18,640,000) .......... 18,640,000
Corporate savings account ................................ 397
------------
230,705,058
Receivable for shares sold ................................. 1,368
Interest receivable ........................................ 2,265,972
Receivable for variation margin - Note A ................... 73,125
Other assets ............................................... 25,213
------------
Total Assets ....................... 233,070,736
-----------------------------------------------------
Liabilities:
Payable for shares repurchased ............................. 11,438,177
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 203,199
Accounts payable and accrued expenses ...................... 71,021
------------
Total Liabilities .................. 11,712,397
-----------------------------------------------------
Net Assets:
Capital paid-in ............................................ 233,187,880
Accumulated net realized loss on investments and
financial futures contracts .............................. (13,839,025)
Net unrealized appreciation of investments and
financial futures contracts .............................. 2,000,413
Undistributed net investment income ........................ 9,071
------------
Net Assets ......................... $221,358,339
=====================================================
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 - $171,864,481 / 17,269,081 ........................ $9.95
=============================================================================
Class B - $49,493,858 / 4,973,183 .......................... $9.95
=============================================================================
Maximum Offering Price Per Share*
Class A - ($9.95 x 103.09%) ................................ $10.26
=============================================================================
* 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ..................................................... $7,055,755
-----------
Expenses:
Investment management fee - Note B ......................... 398,554
Distribution and service fee - Note B
Class A .................................................. 209,011
Class B .................................................. 160,338
Transfer agent fee - Note B ................................ 290,210
Registration and filing fees ............................... 53,364
Custodian fee .............................................. 28,758
Auditing fee ............................................... 19,727
Printing ................................................... 18,242
Financial services fee - Note B ............................ 14,841
Trustees' fees ............................................. 7,963
Miscellaneous .............................................. 2,255
Legal fees ................................................. 982
-----------
Total Expenses ....................... 1,204,245
------------------------------------------------------
Net Investment Income ................ 5,851,510
------------------------------------------------------
Realized and Unrealized Gain on Investments and
Financial Futures Contracts:
Net realized gain on investments sold ........................ 3,009,537
Net realized gain on financial futures contracts ............. 324,895
Change in net unrealized appreciation/depreciation
of investments ............................................. 906,727
Change in net unrealized appreciation/depreciation
of financial futures contracts ............................. 117,705
-----------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts .......... 4,358,864
------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............ $10,210,374
======================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Maturity Government Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................ $6,527,017 $5,851,510
Net realized gain on investments sold and financial futures contracts ............ 1,939,903 3,334,432
Change in net unrealized appreciation/depreciation of investments and financial
futures contracts .............................................................. (317,027) 1,024,432
------------- -------------
Net Increase in Net Assets Resulting from Operations ........................... 8,149,893 10,210,374
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6222 and $0.2962 per share, respectively) ........................ (5,879,115) (5,015,662)
Class B - ($0.5497 and $0.2593 per share, respectively) ........................ (647,299) (841,397)
------------- -------------
Total Distributions to Shareholders ............................................ (6,526,414) (5,857,059)
------------- -------------
From Fund Share Transactions - Net:* ............................................... 151,641,791 34,533,871
------------- -------------
Net Assets:
Beginning of period .............................................................. 29,205,883 182,471,153
------------- -------------
End of period (including undistributed net investment income of $14,620
and $9,071, respectively) ...................................................... $182,471,153 $221,358,339
============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 3,794,449 $36,863,657 3,181,326 $31,416,980
Shares issued in reorganization - Note D ........................ 15,475,727 149,668,850 -- --
Shares issued to shareholders in reinvestment of distributions .. 457,237 4,435,608 420,293 4,150,122
------------ ------------ ------------ ------------
19,727,413 190,968,115 3,601,619 35,567,102
Less shares repurchased ......................................... (5,318,845) (51,730,310) (3,146,385) (30,976,386)
------------ ------------ ------------ ------------
Net increase .................................................... 14,408,568 $139,237,805 455,234 $4,590,716
============ ============ ============ ============
CLASS B
Shares sold ..................................................... 2,201,425 $21,367,420 4,730,611 $47,014,132
Shares issued in reorganization - Note D ........................ 996,713 9,639,411 -- --
Shares issued to shareholders in reinvestment of distributions .. 37,530 363,774 37,770 374,258
------------ ------------ ------------ ------------
3,235,668 31,370,605 4,768,381 47,388,390
Less shares repurchased ......................................... (1,950,374) (18,966,619) (1,762,417) (17,445,235)
------------ ------------ ------------ ------------
Net increase .................................................... 1,285,294 $12,403,986 3,005,964 $29,943,155
============ ============ ============ ============
</TABLE>
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 two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
1994 1995(1) 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $10.05 $9.89 $9.79 $9.69
-------- -------- -------- --------
Net Investment Income ....................................... 0.41 0.49 0.62 0.67
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ........................... (0.16) (0.11) (0.08) (0.25)
-------- -------- -------- --------
Total from Investment Operations ........................ 0.25 0.38 0.54 0.42
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.41) (0.48) (0.64) (0.66)
Distributions from Net Realized Gain on Investments Sold .. -- -- -- (0.08)
-------- -------- -------- --------
Total Distributions ..................................... (0.41) (0.48) (0.64) (0.74)
-------- -------- -------- --------
Net Asset Value, End of Period .............................. $9.89 $9.79 $9.69 $9.37
======== ======== ======== ========
Total Investment Return at Net Asset Value (2) .............. 2.51% 3.98% 5.60% 4.56%
Total Adjusted Investment Return at Net Asset Value (2,3) ... 2.27% 3.43% 4.83% 4.19%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $24,310 $12,950 $29,024 $22,043
Ratio of Expenses to Average Net Assets (4) ................. 0.75% 0.80% 0.75% 0.75
Ratio of Adjusted Expenses to Average Net Assets (4,5) ...... 0.99% 1.35% 1.45% 1.12%
Ratio of Net Investment Income to Average Net Assets ........ 4.09% 4.91% 6.49% 6.99%
Ratio of Adjusted Net Investment Income to
Average Net Assets (5) .................................... 3.85% 4.36% 5.79% 6.62%
Fee Reduction Per Share (7) ................................. $0.02 $0.05 $0.07 $0.04
Portfolio Turnover Rate ..................................... 244% 341% 423%(6) 427%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
APRIL 1, 1997 YEAR ENDED NOVEMBER 30, 1998
TO MAY 31, 1997(8) MAY 31, 1998 (UNAUDITED)
------------------ ------------ -----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $9.37 $9.46 $9.72
-------- -------- --------
Net Investment Income ....................................... 0.11(7) 0.62(7) 0.30(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ........................... 0.09 0.26 0.23
-------- -------- --------
Total from Investment Operations ........................ 0.20 0.88 0.53
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.11) (0.62) (0.30)
Distributions from Net Realized Gain on Investments Sold .. -- -- --
-------- -------- --------
Total Distributions ..................................... (0.11) (0.62) (0.30)
-------- -------- --------
Net Asset Value, End of Period .............................. $9.46 $9.72 $9.95
======== ======== ========
Total Investment Return at Net Asset Value (2) .............. 2.13%(10) 9.56% 5.51%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) ... 1.93%(10) 9.49% --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $22,755 $163,358 $171,864
Ratio of Expenses to Average Net Assets (4) ................. 0.75%(9) 1.09% 1.09%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) ...... 1.92%(9) 1.16% --
Ratio of Net Investment Income to Average Net Assets ........ 7.07%(9) 6.43% 5.99%(9)
Ratio of Adjusted Net Investment Income to
Average Net Assets (5) .................................... 5.90%(9) 6.36% --
Fee Reduction Per Share (7) ................................. $0.02 $0.01 --
Portfolio Turnover Rate ..................................... 77% 250%(6) 126%
</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,
-------------------------------------------
1994 1995(1) 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $10.05 $9.89 $9.79 $9.69
------- ------- ------- -------
Net Investment Income ....................................... 0.34 0.43 0.57 0.60
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ........................... (0.16) (0.11) (0.10) (0.24)
------- ------- ------- -------
Total from Investment Operations ........................ 0.18 0.32 0.47 0.36
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ...................... (0.34) (0.42) (0.57) (0.60)
Distributions from Net Realized Gain on Investments Sold .. -- -- -- (0.08)
------- ------- ------- -------
Total Distributions ..................................... (0.34) (0.42) (0.57) (0.68)
------- ------- ------- -------
Net Asset Value, End of Period .............................. $9.89 $9.79 $9.69 $9.37
======= ======= ======= =======
Total Investment Return at Net Asset Value (2) .............. 1.85% 3.33% 4.92% 3.84%
Total Adjusted Investment Return at Net Asset Value (2,3) ... 1.61% 2.78% 4.15% 3.47%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $11,626 $9,506 $8,532 $6,779
Ratio of Expenses to Average Net Assets (4) ................. 1.40% 1.45% 1.40% 1.43%
Ratio of Adjusted Expenses to Average Net Assets (4,5) ...... 1.64% 2.00% 2.10% 1.80%
Ratio of Net Investment Income to Average Net Assets ........ 3.44% 4.26% 5.80% 6.30%
Ratio of Adjusted Net Investment Income to
Average Net Assets (5) .................................... 3.20% 3.71% 5.10% 5.93%
Fee Reduction Per Share (7) ................................. $0.02 $0.05 $0.07 $0.04
Portfolio Turnover Rate ..................................... 244% 341% 423%(6) 427%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
APRIL 1, 1997 YEAR ENDED NOVEMBER 30, 1998
TO MAY 31, 1997(8) MAY 31, 1998 (UNAUDITED)
------------------ ------------ -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $9.37 $9.46 $9.72
------- ------- -------
Net Investment Income ....................................... 0.10(7) 0.55(7) 0.26(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ........................... 0.09 0.26 0.23
------- ------- -------
Total from Investment Operations ........................ 0.19 0.81 0.49
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ...................... (0.10) (0.55) (0.26)
Distributions from Net Realized Gain on Investments Sold .. -- -- --
------- ------- -------
Total Distributions ..................................... (0.10) (0.55) (0.26)
------- ------- -------
Net Asset Value, End of Period .............................. $9.46 $9.72 $9.95
======= ======= =======
Total Investment Return at Net Asset Value (2) .............. 2.01%(10) 8.74% 5.12%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) ... 1.81%(10) 8.67% --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $6,451 $19,113 $49,494
Ratio of Expenses to Average Net Assets (4) ................. 1.50%(9) 1.84% 1.84%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) ...... 2.67%(9) 1.91% --
Ratio of Net Investment Income to Average Net Assets ........ 6.04%(9) 5.66% 5.24%(9)
Ratio of Adjusted Net Investment Income to
Average Net Assets (5) .................................... 4.87%(9) 5.59% --
Fee Reduction Per Share (7) ................................. $0.02 $0.01 --
Portfolio Turnover Rate ..................................... 77% 250%(6) 126%
</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 of shares outstanding at the end of each month.
(8) Effective May 31, 1997, the fiscal year 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Intermediate Maturity Government Fund on November 30, 1998. It's divided into
two main categories: U.S. government and agencies securities and short-term
investments. Short-term investments, which represent the Fund's "cash" position,
are listed last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Government - U.S. (39.69%)
United States Treasury,
Bond ............................... 11.125% 08-15-03 $2,000 $2,530,000
Bond ............................... 11.875 11-15-03 17,000 22,272,720
Bond ............................... 10.750 08-15-05 12,750 17,059,117
Bond ............................... 12.000 08-15-13 12,910 19,754,366
Bond ............................... 6.000 02-15-26 8,000 8,787,520
Bond ............................... 5.250 11-15-28 10,000 10,278,100
Note ............................... 6.125 12-31-01 1,885 1,965,414
Note ............................... 5.625 05-15-08 3,000 3,191,250
Note ............................... 5.625 12-31-99 2,000 2,019,680
----------
87,858,167
----------
Government - U.S. Agencies (56.11%)
Federal Home Loan Bank,
Bond ............................... 6.630 08-08-02 1,000 1,001,870
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf ................ 8.500 06-01-06 to 4,152 4,320,145
07-01-07
30 Yr Adjustable Rate Mortgage ..... 7.500# 05-01-17 50 50,608
30 Yr Adjustable Rate Mortgage ..... 7.625# 10-01-18 56 56,515
CMO REMIC Ser 1204 Class G ......... 7.000 11-15-05 370 369,491
Deb ................................ 6.000 11-18-03 2,000 2,003,440
Deb ................................ 8.000 06-21-06 1,000 1,015,310
Note ............................... 6.950 03-25-04 2,000 1,999,060
Note ............................... 5.750 04-15-08 3,000 3,091,410
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf ................ 6.000 03-01-11 to 19,014 19,038,310
11-01-13
15 Yr Pass Thru Ctf ................ 6.500 04-01-13 to 25,746 26,116,302
05-01-13
30 Yr Adjustable Rate Mortgage ..... 6.749# 03-01-14 to 43 43,747
06-01-14
30 Yr Adjustable Rate Mortgage ..... 7.125# 05-01-17 42 42,395
30 Yr Adjustable Rate Mortgage ..... 7.625# 03-01-22 88 88,700
30 Yr Adjustable Rate Mortgage ..... 7.300# 03-01-27 40 39,463
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Maturity Government 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)
Federal National Mortgage Assn. (cont.),
Deb Ser 01-Q ................................................... 6.150% 12-14-01 $2,520 $2,520,000
Med Term Note Ser B ............................................ 7.170 06-17-04 1,765 1,763,341
Medium Term Note ............................................... 7.230 03-30-06 6,000 6,032,820
Note Ser 04-J .................................................. 8.250 10-12-04 23,000 23,521,180
Government National Mortgage Assn.,
30 Yr Adjustable Rate Mortgage ................................... 7.000# 10-20-23 881 889,850
30 Yr Pass Thru Ctf ............................................ 12.500 07-15-15 18 21,156
30 Yr Pass Thru Ctf ............................................ 6.500 10-15-28 2,014 2,033,744
30 Yr Pass Thru Ctf ............................................ 7.000 11-15-27 to 27,469 28,121,614
04-15-28
30 Yr Pass Thru Ctf ............................................ 12.000 02-15-14 23 26,023
------------
124,206,494
------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $210,184,117) (95.80%) 212,064,661
--------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.42%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities USA, Inc. -
Dated 11-30-98, due 12-01-98 (Secured by
U.S. Treasury Bills, 4.49% thru 4.54%, due 10-14-99
thru 11-12-99, U.S. Treasury Bonds, 8.125% thru
12.00%, due 08-15-13 thru 08-15-19, and U.S. Treasury
Notes, 5.25% thru 8.75%, due 07-31-99 thru 05-15-08) - Note A .. 5.370 18,640 18,640,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.35% ............................................. 397
------------
TOTAL SHORT-TERM INVESTMENTS (8.42%) 18,640,397
--------- ------------
TOTAL INVESTMENTS (104.22%) 230,705,058
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (4.22%) (9,346,719)
--------- ------------
TOTAL NET ASSETS (100.00%) $221,358,339
========= ============
</TABLE>
# Represents rate in effect on November 30, 1998.
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 Trust (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of three series: John Hancock 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. Effective December 8, 1998, the
Board of Trustees have authorized the issuance of Class C shares in 1999. 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,
Inc., 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 $17,038,087
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 gain distributions will be made. The carryforward
expires as follows: May 31, 1999 -- $1,018,204, May 31, 2000 -- $23,234, May 31,
2001 -- $11,348,721, May 31, 2002 -- $427,159, May 31, 2003 -- $1,950,205, May
31, 2004 -- $ 1,741,681 and May 31, 2005 -- $528,883. 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 are directly identifiable to
an individual fund. Expenses which are not readily identifiable
14
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Maturity Government Fund
to a specific fund are allocated in such a manner as deemed equitable, taking
into consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
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 Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 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
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the lines of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the period ended November 30, 1998.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. 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 will be required to deposit with
its custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price on 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," will be 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, 1998, open positions in financial futures contracts were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION APPRECIATION
- ---------- -------------- -------- ------------
MAR 99 60 U.S. TREASURY NOTES LONG $117,705
========
At November 30, 1998, the Fund had deposited in a segregated account
$14,000,000 par value of U.S. Treasury Bond, 11.875%, 11-15-03, to cover margin
requirements on open financial futures contracts.
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 on
an annual basis to 0.40% of the Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended November
30, 1998, net sales charges received with regard to sales of Class A shares
amounted to $76,554. Out of this amount, $10,705 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $12,867
was paid as sales
15
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Maturity Government Fund
commissions to unrelated broker-dealers and $52,982 was paid as sales
commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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 3.00% 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,
1998, contingent deferred sales charges amounted to $38,722.
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 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 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, 1998 the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $2,164.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended November 30, 1998 aggregated $273,822,806
and $241,057,437, respectively.
The cost of investments owned at November 30, 1998 (excluding the corporate
savings account) for federal income tax purposes was $228,886,983. Gross
unrealized appreciation and depreciation of investments aggregated $2,943,872,
and $1,126,194, respectively, resulting in net unrealized appreciation of
$1,817,678.
NOTE D -
REORGANIZATION
On November 12, 1997, the shareholders of the John Hancock Limited-Term
Government Fund ("Limited-Term Government Fund") approved a plan of
reorganization between Limited-Term Government Fund and the Fund providing for
the transfer of substantially all of the assets and liabilities of Limited-Term
Government Fund to the Fund in exchange solely for Class A and Class B shares of
the Fund. The acquisition was accounted for as a tax free exchange of 15,475,727
Class A shares and 996,713 Class B shares of John Hancock Intermediate Maturity
Government Fund for the net assets of Limited-Term Government Fund, which
amounted to $149,668,850 and $9,639,411 for Class A and B shares, respectively,
including $1,284,544 of unrealized appreciation, after the close of business on
December 5, 1997.
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>
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