---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Intermediate
Government
Fund
MAY 31, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-------------------------------------
DIRECTORS
STEPHEN L. BROWN
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM
RONALD R. DION*
MAUREEN R. FORD
CHARLES L. LADNER
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman, President and
Chief Executive Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
WILLIAM L. BRAMAN
Executive Vice President and
Chief Investment 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
INDEPENDENT AUDITORS
ERNST &YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
---------------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech stocks
pushed the NASDAQ Composite Index to the stratosphere, as investors
single-mindedly pursued anything technology related. But after setting a new
high on March 10 amid significantly heightened volatility, the tables started to
turn rapidly. Concerns about Microsoft's antitrust ruling and out-of-sight
valuation levels finally triggered waves of selling that sent the index down 32%
from its March high by the end of May.
In this same period, fixed-income-type securities, including bonds and preferred
stocks, struggled as interest rates rose on fears that the roaring U.S. economy
and the rebound of many others around the world would spark an inflation
outbreak.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
While the battle between old and new rages on, a couple of things are clear:
More than ever, diversification and a long-term investment perspective are two
of an investor's best allies. Since not all parts of your portfolio will perform
equally well all the time, we believe it is important to allocate your assets
among different types of investments and funds that target a variety of stock-
and bond-market segments. This strategy, executed under the guidance of a
seasoned investment professional, could provide you with a better chance of both
realizing longer-term results and weathering the market's changing conditions.
Sincerely,
/s/ Maureen R. Ford
-------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BARRY H. EVANS, CFA, AND DAWN BAILLIE, PORTFOLIO MANAGERS
John Hancock
Intermediate
Government Fund
Treasuries make comeback, despite other bonds' woes from
--------------------------------------------------------
rising interest rates and inflationary pressures
------------------------------------------------
Bond investors fought an uphill battle for much of the past year, as the Federal
Reserve continued to raise short-term interest rates in an effort to restrain
economic growth and keep inflation in control. The federal funds rate - the
interest rate that banks charge each other for overnight loans - climbed from
4.75% in May 1999 to 6.5% a year later. A full percentage point of the increase
occurred after the new year, as inflationary concerns continued to mount. Robust
fourth-quarter gross domestic product numbers that were released in January
initially signaled that economic growth remained strong. Then oil prices rose to
over $30 per barrel -- a level not seen since the 1970s. Strong stock market
gains in the first quarter added concerns that consumer spending would heat up.
Finally, unemployment edged down to 3.9%, increasing the potential for wage
inflation.
Bond market review
As interest rates rose throughout the second half of 1999, bond prices fell,
with mortgage bonds faring better than Treasuries because of their added yield.
This situation, however, began to reverse in February 2000. Thanks to a budget
surplus, the government announced that it would begin buying back longer-dated
Treasuries -- those with 20-year average maturities and coupons (or stated
interest rates) higher than
--------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock Intermediate
Government Fund. Caption below reads "Portfolio managers Barry Evans and Dawn
Baillie."]
--------------------------------------------------------------------------------
"Bond investors fought an uphill battle for much of the past year..."
3
<PAGE>
================================================================================
John Hancock Funds - Intermediate Government Fund
"...we began moving into longer-dated Treasuries."
--------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into three sections (from top to left): Short-Term Investments
& Other 4%, U.S. Government 32% and U.S. Agencies 64%. A note below the chart
reads "As a percentage of net assets on May 31, 2000."]
--------------------------------------------------------------------------------
prevailing rates. Following this announcement, prices on longer-dated Treasury
bonds appreciated significantly. Yields on 30-year Treasuries actually fell
below those on two-year Treasuries for the first time in years. Prices on
longer-dated Treasuries -- those with maturities over 10 years -- climbed,
pushing the Lehman Brothers Treasury Index to a 3.35% return for the year ended
May 31, 2000.
Rumors that the government might remove its implied backing of bonds
issued by the Federal Home Loan Mortgage Association (Freddie Mac) and Federal
National Mortgage Association (Fannie Mae) also influenced the market. Investors
reacted to the news by fleeing securities issued by both agencies and seeking
safety in Treasuries. This soon hurt all types of bonds with a yield advantage
over Treasuries, including both mortgage bonds issued by U.S. agencies and
non-mortgage agency issues. As yields on these securities rose, their prices
tumbled, leaving the Lehman Brothers Mortgage-Backed Securities Fixed-Rate Index
with a 2.47% return for the year ended May 31, 2000.
Fund performance
John Hancock Intermediate Government Fund benefited during the first half of the
period from favoring mortgage bonds and U.S. government agency bonds over
Treasuries and then moving into longer-dated Treasuries in the second half. For
the year ended May 31, 2000, the Fund's Class A, Class B and Class C shares had
total returns of 2.22%, 1.46% and 1.44%, respectively, at net asset value. By
comparison, the average intermediate-term government fund returned 1.33% during
the same time, according to Lipper, Inc.1 Keep in mind that your net asset value
return will differ from the Fund's performance if you were not invested for the
entire period and did not reinvest all distributions. For longer-term
performance information, please see pages six and seven.
Early yield advantage
During the summer and fall of 1999, we kept a high stake in mortgage bonds
issued by U.S. government agencies. We focused on GNMA bonds with current
coupons of 7% and 7.5% because they are easy to buy and sell. They also carry
less prepayment risk -- the risk that homeowners will pay off their mortgages
early -- than higher- yielding mortgage bonds. Our stake in mortgage bonds did
well during the first half of the fiscal year as investors looked for higher
yields. For similar reasons, we increased our investment in non-mortgage U.S.
government agency bonds to 31% of net assets by the end of November. We trimmed
Treasuries -- which are the most sensitive to changes in interest rates -- to
28% of net assets.
4
<PAGE>
================================================================================
John Hancock Funds - Intermediate Government Fund
--------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended May 31, 2000." The chart is
scaled in increments of .5% with 0.0% at the bottom and 2.5% at the top. The
first bar represents the 2.22% total return for John Hancock Intermediate
Government Fund Class A. The second bar represents the 1.46% total return for
John Hancock Intermediate Government Fund Class B. The third bar represents the
1.44% total return for John Hancock Intermediate Government Class C. The fourth
bar represents the 1.33% total return for Average intermediate-term government
fund. A note below the chart reads "Total returns for John Hancock Intermediate
Government Fund are at net asset value with all distributions reinvested. The
average intermediate-term government fund is tracked by Lipper, Inc. 1 See the
following two pages for historical performance information."]
--------------------------------------------------------------------------------
Shift toward Treasuries
Following the government's announcement of its buy-back program in February, we
began moving into longer-dated Treasuries. We used cash and the proceeds from
selling five- and 10-year Treasuries to fund our purchases, bringing Treasuries
to 32% of net assets by the end of May. This move lengthened the Fund's duration
-- a measure of interest-rate sensitivity -- from 4.25 years at the end of
November to 4.35 years at the end of May. The longer a bond's duration, the more
its price will fall as interest rates rise -- or rise as interest rates fall.
Fortunately, as yields fell on longer-dated Treasuries, prices appreciated
significantly, with 30-year Treasuries posting a 7.45% return for the six months
ended May 31, 2000. We kept our 37% stake in mortgages, but scaled back slightly
on Freddie Mac and Fannie Mae agencies, even though it seemed unlikely they
would lose their implied government backing. Our stake in non-mortgage bonds
issued by U.S. government agencies was 27% at the end of May.
Positive prospects
Looking ahead, we are optimistic for a couple of reasons. First, the prospect of
more moderate economic growth seems imminent. For the past year, the Federal
Reserve has been vigilantly raising interest rates. Typically, higher interest
rates do not have a measurable economic impact for at least six months. Numbers
released in late April finally began showing slower economic growth. If this
trend continues, we could well be near the top for interest rates, which would
be a plus for the bond market. Second, the bond market has already prepared for
another interest-rate increase of 25 basis points (or one-quarter of a
percentage point), as reflected in current bond yields. Finally, the government
buy-back program should continue to boost prices on longer-dated Treasuries
throughout 2000. We plan to keep the Fund's duration longer than average to take
advantage of this situation. In addition, if the economy continues to show signs
of slowing, we may scale back on some of our mortgage and agency bonds and
increase our stake in Treasuries.
--------------------------------------------------------------------------------
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, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
"...the bond market has already prepared for another interest-rate increase..."
5
<PAGE>
================================================================================
John Hancock Funds - Intermediate 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 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 an up-front 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). Class C
performance includes an up-front sales charge of 1% and a contingent deferred
sales charge (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 March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
------- ------ ---------
Cumulative Total Returns (1.11%) 27.95% 47.49%
Average Annual Total Returns(1) (1.11%) 5.05% 4.82%
--------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------------
For the period ended March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
------- ------ ---------
Cumulative Total Returns (1.67%) 27.28% 43.71%
Average Annual Total Returns(1) (1.67%) 4.94% 4.49%
--------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------
For the period ended March 31, 2000
SINCE
INCEPTION
(4/1/99)
---------
Cumulative Total Return (0.67%)
Average Annual Total Return (0.67%)(2)
--------------------------------------------------------------------------------
YIELDS
--------------------------------------------------------------------------------
As of May 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock Intermediate Government Fund: Class A 5.80%
John Hancock Intermediate Government Fund: Class B 5.23%
John Hancock Intermediate Government Fund: Class C 5.17%
Notes to Performance
(1) Prior to December 5, 1997, the Adviser had agreed to limit the Fund's
expenses, including management fee, to 0.75% and 1.50% of the average net
assets attributable to the Class A and Class B shares, respectively.
Without the reduction of expenses, the average annual total returns for
the five-year and since inception periods would have been 4.79% and 4.46%,
respectively, for Class A shares and 4.67% and 4.13%, respectively, for
Class B shares.
(2) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Intermediate 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 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 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. It is not possible to invest in an index. Past
performance is not indicative of future results.
--------------------------------------------------------------------------------
Line chart with the heading John Hancock Intermediate 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 $16,925 as of May 31, 2000. The
second line represents the Lipper Intermediate U.S. Government Index and is
equal to $15,511 as of May 31, 2000. The third line represents the value of the
hypothetical $10,000 investment made in the John Hancock Intermediate Government
Fund on December 31, 1991, before sales charge, and is equal to $15,178 as of
May 31, 2000. The fourth line represents the value of the same hypothetical
investment made in the John Hancock Intermediate Government Fund, after sales
charge, and is equal to $14,723 as of May 31, 2000.
Line chart with the heading John Hancock Intermediate 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 $16,925 as of May 31, 2000. The
second line represents the Lipper Intermediate U.S. Government Index and is
equal to $15,511 as of May 31, 2000. The third line represents the value of the
hypothetical $10,000 investment made in the John Hancock Intermediate Government
Fund on December 31, 1991, before sales charge, and is equal to $14,335 as of
May 31, 2000.
Line chart with the heading John Hancock Intermediate Government Fund Class C*,
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 $10,228 as of May 31, 2000. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock Intermediate Government Fund on April 1, 1999, before sales
charge, and is equal to $10,106 as of May 31, 2000. The third line represents
the Lipper Intermediate U.S. Government Index and is equal to $10,094 as of May
31, 2000. The fourth line represents the value of the same hypothetical
investment made in the John Hancock Intermediate Government Fund, after sales
charge, and is equal to $10,005 as of May 31, 2000.
*No contingent deferred sales charge applicable.
--------------------------------------------------------------------------------
7
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Intermediate 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 May 31, 2000. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
May 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $167,187,543) ................................................ $158,671,832
Foreign government bonds (cost - $3,810,000) ........................... 3,270,000
Joint repurchase agreement (cost - $1,485,000) ......................... 1,485,000
Corporate savings account .............................................. 120
------------
163,426,952
Receivable for shares sold ............................................... 5,797
Interest receivable ...................................................... 1,733,150
Other assets ............................................................. 30,648
------------
Total Assets ..................................... 165,196,547
-----------------------------------------------------------------
Liabilities:
Payable for shares repurchased ........................................... 90,585
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................................ 138,636
Accounts payable and accrued expenses .................................... 85,317
------------
Total Liabilities ................................ 314,538
-----------------------------------------------------------------
Net Assets:
Capital paid-in .......................................................... 193,627,012
Accumulated net realized loss on investments
and financial futures contracts ........................................ (19,699,727)
Net unrealized depreciation of investments ............................... (9,055,711)
Undistributed net investment income ...................................... 10,435
------------
Net Assets ....................................... $164,882,009
=================================================================
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 - $137,921,827/15,029,443 ........................................ $9.18
=========================================================================================
Class B - $26,517,382/2,889,619 .......................................... $9.18
=========================================================================================
Class C - $442,800/48,252 ................................................ $9.18
=========================================================================================
Maximum Offering Price Per Share:
Class A* - ($9.18/0.97) .................................................. $9.46
=========================================================================================
Class C - ($9.18/0.99) ................................................... $9.27
=========================================================================================
</TABLE>
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended May 31, 2000
--------------------------------------------------------------------------------
Investment Income:
Interest ................................................. $13,619,866
-----------
Expenses:
Investment management fee - Note B ..................... 761,362
Distribution and service fee - Note B
Class A .............................................. 382,361
Class B .............................................. 366,096
Class C .............................................. 4,214
Transfer agent fee - Note B ............................ 554,357
Registration and filing fees ........................... 86,211
Custodian fee .......................................... 52,369
Accounting and legal services fee - Note B ............. 36,497
Auditing fee ........................................... 35,039
Printing ............................................... 22,755
Miscellaneous .......................................... 9,425
Trustees' fees ......................................... 7,373
Legal fees ............................................. 1,271
-----------
Total Expenses ................... 2,319,330
------------------------------------------------
Net Investment Income ............ 11,300,536
------------------------------------------------
Realized and Unrealized Loss on Investments
Net realized loss on investments sold .................... (3,931,691)
Change in net unrealized appreciation/depreciation
of investments ......................................... (3,891,938)
------------------------------------------------
Net Realized and Unrealized
Loss on Investments .............. (7,823,629)
------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........ $3,476,907
================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Intermediate Government Fund
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................ $12,330,613 $11,300,536
Net realized gain (loss) on investments sold and financial futures contracts ..... 1,397,882 (3,931,691)
Change in net unrealized appreciation/depreciation of investments
and financial futures contracts ............................................... (6,139,754) (3,891,938)
------------ ------------
Net Increase in Net Assets Resulting from Operations .......................... 7,588,741 3,476,907
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.5912 and $0.5724 per share, respectively) ....................... (10,208,310) (9,306,556)
Class B - ($0.5185 and $0.5028 per share, respectively) ....................... (2,122,195) (1,971,610)
Class C** - ($0.0726 and $0.5013 per share, respectively) ..................... (108) (22,370)
------------ ------------
Total Distributions to Shareholders ........................................... (12,330,613) (11,300,536)
------------ ------------
From Fund Share Transactions - Net: * ............................................... 35,217,860 (40,241,503)
------------ ------------
Net Assets:
Beginning of period .............................................................. 182,471,153 212,947,141
------------ ------------
End of period (including undistributed net investment income of
$12,812 and $10,435, respectively) ............................................ $212,947,141 $164,882,009
============ ============
</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 Government Fund
Statement of Changes in Net Assets (continued)
--------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------------------
1999 2000
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------- --------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ....................................................... 7,939,500 $78,080,716 3,195,433 $29,781,751
Shares issued to shareholders in reinvestment of distributions .... 843,752 8,280,862 824,709 7,669,902
---------- ----------- ---------- ------------
8,783,252 86,361,578 4,020,142 37,451,653
Less shares repurchased ........................................... (7,917,166) (77,701,525) (6,670,632) (62,107,787)
---------- ----------- ---------- ------------
Net increase (decrease) ........................................... 866,086 $8,660,053 (2,650,490) ($24,656,134)
========== =========== ========== ============
CLASS B
Shares sold ....................................................... 7,209,397 $71,316,897 2,707,694 $25,330,710
Shares issued to shareholders in reinvestment of distributions .... 83,053 813,137 111,142 1,034,073
---------- ----------- ---------- ------------
7,292,450 72,130,034 2,818,836 26,364,783
Less shares repurchased ........................................... (4,642,116) (45,600,492) (4,546,770) (42,375,068)
---------- ----------- ---------- ------------
Net increase (decrease) ........................................... 2,650,334 $26,529,542 (1,727,934) ($16,010,285)
========== =========== ========== ============
CLASS C **
Shares sold ....................................................... 2,922 $28,161 151,537 $1,412,098
Shares issued to shareholders in reinvestment of distributions .... 11 104 1,963 17,867
---------- ----------- ---------- ------------
2,933 28,265 153,500 1,429,965
Less shares repurchased ........................................... -- -- (108,181) (1,005,049)
---------- ----------- ---------- ------------
Net increase ...................................................... 2,933 $28,265 45,319 $424,916
========== =========== ========== ============
</TABLE>
** Class C shares commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Intermediate 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
listed as follows:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
---------------------- APRIL 1, 1997 TO
1996 1997 MAY 31, 1997(1)
---------------------- ------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $9.79 $9.69 $9.37
------- ------- -------
Net Investment Income ......................................... 0.62 0.67 0.11(2)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ................................ (0.08) (0.25) 0.09
------- ------- -------
Total from Investment Operations ........................ 0.54 0.42 0.20
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ....................... (0.64) (0.66) (0.11)
Distributions from Net Realized Gain
on Investments Sold ...................................... -- (0.08) --
------- ------- -------
Total Distributions ..................................... (0.64) (0.74) (0.11)
------- ------- -------
Net Asset Value, End of Period ................................ $9.69 $9.37 $9.46
======= ======= =======
Total Investment Return at Net Asset Value(3) ................. 5.60% 4.56% 2.13%(4)
Total Adjusted Investment Return at Net Asset Value(3,5) ...... 4.83% 4.19% 1.93%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $29,024 $22,043 $22,755
Ratio of Expenses to Average Net Assets(6) .................... 0.75% 0.75% 0.75%(7)
Ratio of Adjusted Expenses to Average Net Assets(6,8) ......... 1.45% 1.12% 1.92%(7)
Ratio of Net Investment Income to Average Net Assets .......... 6.49% 6.99% 7.07%(7)
Ratio of Adjusted Net Investment Income
to Average Net Assets(8) ................................... 5.79% 6.62% 5.90%(7)
Fee Reduction Per Share(2) .................................... $0.07 $0.04 $0.02
Portfolio Turnover Rate ....................................... 423%(9) 427% 77%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------
1998 1999 2000
----------------------------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $9.46 $9.72 $9.55
-------- -------- --------
Net Investment Income ......................................... 0.62(2) 0.59(2) 0.57(2)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ................................ 0.26 (0.17) (0.37)
-------- -------- --------
Total from Investment Operations ........................ 0.88 0.42 0.20
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ....................... (0.62) (0.59) (0.57)
Distributions from Net Realized Gain
on Investments Sold ...................................... -- -- --
-------- -------- --------
Total Distributions ..................................... (0.62) (0.59) (0.57)
-------- -------- --------
Net Asset Value, End of Period ................................ $9.72 $9.55 $9.18
======== ======== ========
Total Investment Return at Net Asset Value(3) ................. 9.56% 4.33% 2.22%
Total Adjusted Investment Return at Net Asset Value(3,5) ...... 9.49% -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $163,358 $168,826 $137,922
Ratio of Expenses to Average Net Assets(6) .................... 1.09% 1.03% 1.07%
Ratio of Adjusted Expenses to Average Net Assets(6,8) ......... 1.16% -- --
Ratio of Net Investment Income to Average Net Assets .......... 6.43% 6.03% 6.08%
Ratio of Adjusted Net Investment Income
to Average Net Assets(8) ................................... 6.36% -- --
Fee Reduction Per Share(2) .................................... $0.01 -- --
Portfolio Turnover Rate ....................................... 250%(9) 267% 300%
</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.
11
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Intermediate Government Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
-------------------- APRIL 1, 1997 TO
1996 1997 MAY 31, 1997(1)
-------------------- -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $9.79 $9.69 $9.37
------ ------ ----------
Net Investment Income ...................................... 0.57 0.60 0.10(2)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... (0.10) (0.24) 0.09
------ ------ ----------
Total from Investment Operations ..................... 0.47 0.36 0.19
------ ------ ----------
Less Distributions:
Dividends from Net Investment Income .................... (0.57) (0.60) (0.10)
Distributions from Net Realized Gain on
Investments Sold ...................................... -- (0.08) --
------ ------ ----------
Total Distributions .................................. (0.57) (0.68) (0.10)
------ ------ ----------
Net Asset Value, End of Period ............................. $9.69 $9.37 $9.46
====== ====== ======
Total Investment Return at Net Asset Value(3) .............. 4.92% 3.84% 2.01%(4)
Total Adjusted Investment Return at Net Asset Value(3,5) ... 4.15% 3.47% 1.81%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $8,532 $6,779 $6,451
Ratio of Expenses to Average Net Assets(6) ................. 1.40% 1.43% 1.50%(7)
Ratio of Adjusted Expenses to Average Net Assets(6,8) ...... 2.10% 1.80% 2.67%(7)
Ratio of Net Investment Income to Average Net Assets ....... 5.80% 6.30% 6.04%(7)
Ratio of Adjusted Net Investment Income to
Average Net Assets(8) ................................... 5.10% 5.93% 4.87%(7)
Fee Reduction Per Share(2) ................................. $0.07 $0.04 $0.02
Portfolio Turnover Rate .................................... 423%(9) 427% 77%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------
1998 1999 2000
------------------------------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $9.46 $9.72 $9.55
------- ------- -------
Net Investment Income ...................................... 0.55(2) 0.52(2) 0.50(2)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... 0.26 (0.17) (0.37)
------- ------- -------
Total from Investment Operations ..................... 0.81 0.35 0.13
------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................... (0.55) (0.52) (0.50)
Distributions from Net Realized Gain on
Investments Sold ...................................... -- -- --
------- ------- -------
Total Distributions .................................. (0.55) (0.52) (0.50)
------- ------- -------
Net Asset Value, End of Period ............................. $9.72 $9.55 $9.18
======= ======= =======
Total Investment Return at Net Asset Value(3) .............. 8.74% 3.57% 1.46%
Total Adjusted Investment Return at Net Asset Value(3,5) ... 8.67% -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $19,113 $44,093 $26,517
Ratio of Expenses to Average Net Assets(6) ................. 1.84% 1.77% 1.81%
Ratio of Adjusted Expenses to Average Net Assets(6,8) ...... 1.91% -- --
Ratio of Net Investment Income to Average Net Assets ....... 5.66% 5.30% 5.34%
Ratio of Adjusted Net Investment Income to
Average Net Assets(8) ................................... 5.59% -- --
Fee Reduction Per Share(2) ................................. $0.01 -- --
Portfolio Turnover Rate .................................... 250%(9) 267% 300%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Intermediate Government Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1999(10) MAY 31, 2000
---------------- ------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................... $9.66 $9.55
----- -----
Net Investment Income(2) ........................................................... 0.07 0.50(2)
Net Realized and Unrealized Loss on Investments and Financial Futures Contracts .... (0.11) (0.37)
----- -----
Total from Investment Operations ............................................. (0.04) 0.13
----- -----
Less Distributions:
Dividends from Net Investment Income ............................................ (0.07) (0.50)
----- -----
Net Asset Value, End of Period ..................................................... $9.55 $9.18
===== =====
Total Investment Return at Net Asset Value(3) ...................................... (0.38%)(4) 1.44%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................................... $28 $443
Ratio of Expenses to Average Net Assets ............................................ 1.77%(7) 1.82%
Ratio of Net Investment Income to Average Net Assets ............................... 5.30%(7) 5.33%
Portfolio Turnover Rate ............................................................ 267% 300%
</TABLE>
(1) Effective May 31, 1997, the fiscal year end changed from March 31 to May
31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
(6) 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.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Portfolio turnover rate excludes merger activity.
(10) Class C shares began operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Intermediate Government Fund
Schedule of Investments
May 31, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Intermediate Government Fund on May 31, 2000. It's divided into three main
categories: U.S. government and agencies securities, foreign government 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. (31.97%)
United States Treasury,
Bond ......................................... 11.875% 11-15-03 $19,000 $21,971,790
Bond ......................................... 10.750 08-15-05 5,000 5,886,700
Bond ......................................... 12.000 08-15-13 10,000 13,317,200
Bond ......................................... 9.250 02-15-16 5,000 6,377,350
Bond ......................................... 6.250 05-15-30 5,000 5,158,600
-----------
52,711,640
-----------
Government - U.S. Agencies (64.26%)
Federal Home Loan Bank,
Bond ......................................... 5.763 08-20-01 1,000 984,530
Note ......................................... 6.750 02-01-02 3,000 2,985,300
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf .......................... 8.500 06-01-06 to 2,411 2,450,689
07-01-07
30 Yr Adjustable Rate Mortgage ............... 6.875# 05-01-17 48 49,254
30 Yr Adjustable Rate Mortgage ............... 7.375# 10-01-18 54 55,351
Deb .......................................... 5.880 02-10-03 2,000 1,926,560
Deb .......................................... 6.000 11-18-03 2,000 1,901,560
Fannie Mae,
15 Yr Pass Thru Ctf .......................... 6.500 04-01-13 to 21,407 20,363,325
05-01-13
15 Yr Pass Thru Ctf .......................... 6.000 07-01-13 to 16,180 15,083,777
11-01-13
15 Yr Pass Thru Ctf .......................... 7.000 07-01-14 6,293 6,100,635
30 Yr Adjustable Rate Mortgage ............... 6.751# 03-01-14 to 41 39,826
06-01-14
30 Yr Adjustable Rate Mortgage ............... 7.625# 03-01-22 86 85,961
30 Yr Adjustable Rate Mortgage ............... 7.720# 03-01-27 39 39,591
Deb Ser SM-07-B .............................. 7.550 03-27-07 2,025 1,961,395
Med Term Note Ser B .......................... 6.610 03-16-09 3,000 2,767,500
Note ......................................... 4.750 11-14-03 5,500 5,060,000
Government National Mortgage Assn.,
30 Yr Adjustable Rate Mortgage ............... 7.125# 10-20-23 627 627,532
30 Yr Pass Thru Ctf .......................... 6.500 10-15-28 1,798 1,682,088
30 Yr Pass Thru Ctf .......................... 7.000 11-15-27 to 21,737 20,855,948
04-15-28
30 Yr Pass Thru Ctf .......................... 12.000 02-15-14 22 24,671
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Intermediate 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)
Private Export Funding Corp.,
Sec Note Ser 2000-1 (R)................................ 7.170% 05-15-07 $7,500 $7,303,125
Sec Note, Ser C........................................ 6.310 09-30-04 4,000 3,867,080
Sec Note, Ser G........................................ 6.670 09-15-09 4,500 4,241,250
Sec Note, Ser I........................................ 7.200 01-15-10 4,500 4,398,750
Small Business Administration,
Deb Ser 90-10D......................................... 8.700 12-01-00 1,097 1,104,494
-----------
105,960,192
-----------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $167,187,543) (96.23%) 158,671,832
------- -----------
FOREIGN GOVERNMENT BONDS
U.S. Dollar-Denominated Foreign Government Bonds (1.99%)
International Bank for Reconstruction and Development,
30 Yr Bond............................................. 8.625 10-15-16 3,000 3,270,000
-----------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $3,810,000) (1.99%) 3,270,000
------- -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.90%)
Investment in a joint repurchase agreement transaction
with SBC Warburg, Inc. - Dated 05-31-00, due 06-01-00
(Secured by U.S. Treasury Bonds, 5.500% thru 10.750%,
due 02-15-03 thru 08-15-28) - Note A .................. 6.370 1,485 1,485,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.20%..................................... 120
------------
TOTAL SHORT-TERM INVESTMENTS (0.90%) 1,485,120
------- ------------
TOTAL INVESTMENTS (99.12%) 163,426,952
------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.88%) 1,455,057
------- ------------
TOTAL NET ASSETS (100.00%) $164,882,009
======= ============
</TABLE>
(R) This security is 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 $7,303,125 or 4.43% of net assets as of
May 31, 2000.
# Represents rate in effect on May 31, 2000.
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.
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Government Fund
NOTE A--
ACCOUNTING POLICIES
John Hancock Intermediate Government Fund (the "Fund") is a diversified series
of John Hancock Bond Trust, an open-end management investment company,
registered under the Investment Company Act of 1940. 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, 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, 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income or excise tax provision is required.
For federal income tax purposes, the Fund has $18,331,510 of capital loss carry
forwards available, to the extent provided by regulations, to offset future net
realized capital gains. If such carry forwards are used by the Fund, no capital
gain distributions will be made. The Fund's carry forwards expire as follows:
May 31, 2001 -- $9,365,539, May 31, 2002 -- $427,159, May 31, 2003 --
$1,950,205, May 31, 2004 -- $1,741,681, May 31, 2005 -- $528,883 and May 31,
2008 -- $4,318,043. Availability of a certain amount of loss carry forwards
which were acquired on September 22, 1995 and December 5, 1997 in mergers, may
be limited in a given year. Additionally, net capital losses of $1,312,592
attributable to security transactions incurred after October 31, 1999 are
treated as arising on the first day (June 1, 2000) of the Fund's next taxable
year.
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 to a specific
fund are allocated in such a manner as deemed equitable,
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Government Fund
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. The Fund has entered into
a syndicated line of credit agreement with various banks that enables the Fund
to participate with other funds managed by the Adviser in unsecured lines of
credit with banks, which permit borrowings up to $500 million, collectively.
Interest is charged to each fund, based on its borrowing. In addition, a
commitment fee is charged based on the average daily unused portion of the lines
of credit and is allocated among the participating funds. The Fund had no
borrowing activity for the year ended May 31, 2000.
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/losses can be affected as a result of futures contracts.
At May 31, 1999, there were no 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 year ended May 31,
2000, up-front sales charges received with regard to sales of Class A shares
amounted to $88,041. Out of this amount, $6,904 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $21,974
was paid as sales commissions to unrelated broker-dealers and $59,163 was paid
as sales commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Life Insurance Company ("JHLICo"), 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
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Government Fund
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 year ended May 31,
2000, contingent deferred sales charges amounted to $198,822.
Effective May 1, 2000, all Class C retail purchases are assessed a 1.00%
up-front sales charge. For the year ended May 31, 2000, up-front sales charges
received with regard to sales of Class C shares amounted to $200, which was paid
as sales commissions to sales personnel of Signator Investors. Class C shares
which are redeemed within one year of purchase will be subject to a CDSC at a
rate of 1.00% 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 C shares. For the year ended May 31, 2000,
contingent deferred sales charges paid to JH Funds amounted to $1,033.
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 Conduct Rules of the National Association of Securities Dealers. Under
the Conduct Rules, 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 JHLICo. 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,
accounting and legal services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford 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. The investment had no impact on the operations of the Fund.
NOTE C--
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the year ended May 31, 2000, aggregated $549,896,273 and
$583,677,656, respectively.
The cost of investments owned at May 31, 2000 (excluding the corporate
savings account) for federal income tax purposes was $172,538,168. Gross
unrealized appreciation and depreciation of investments aggregated $22,658 and
$9,133,994, respectively, resulting in net unrealized depreciation of
$9,111,336.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Government Fund
NOTE D--
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended May 31, 2000, the Fund has reclassified amounts to reflect
a decrease in accumulated net realized loss on investments of $2,377 and a
decrease in undistributed net investment income of $2,377. This represents the
amount necessary to report these balances on a tax basis, excluding certain
temporary differences, as of May 31, 2000. Additional adjustments may be needed
in subsequent reporting periods. These reclassifications, which have no impact
on the net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains under
federal tax rules versus generally accepted accounting principles. The
calculation of net investment income in the financial highlights excludes these
adjustments.
19
<PAGE>
================================================================================
John Hancock Funds - Intermediate Government Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Bond Trust--
John Hancock Intermediate Government Fund
We have audited the accompanying statement of assets and liabilities of the John
Hancock Intermediate Government Fund (formerly the John Hancock Intermediate
Maturity Government Fund) (one of the portfolios constituting the John Hancock
Bond Trust) (the "Fund"), including the schedule of investments, as of May 31,
2000, the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 2000, by correspondence with the custodian and brokers, or
other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
John Hancock Intermediate Government Fund at May 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the indicated periods, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 7, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended May 31, 2000.
All of the dividends paid for the fiscal year are taxable as ordinary
income. None of the dividends qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 2000 U.S. Treasury Department Form 1099-DIV
in January of 2001. This will reflect the tax character of all distributions for
calendar year 2000.
20
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Intermediate Government Fund
21
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Intermediate Government Fund
22
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Intermediate Government Fund
23
<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.jhfunds.com ---------------
--------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Intermediate Government Fund. It may be used as sales literature when preceded
or accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
(RECYCLE LOGO) Printed on Recycled Paper 5500A 5/00
7/00
<PAGE>
------------------------------
The latest report from your
Fund's management team
------------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC]
High Yield
Bond Fund
MAY 31, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------------
TRUSTEES
STEPHEN L. BROWN
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM
RONALD R. DION*
MAUREEN R. FORD
CHARLES L. LADNER
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman, President and
Chief Executive Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
WILLIAM L. BRAMAN
Executive Vice President and
Chief Investment 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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech stocks
pushed the NASDAQ Composite Index to the stratosphere, as investors
single-mindedly pursued anything technology related. But after setting a new
high on March 10 amid significantly heightened volatility, the tables started to
turn rapidly. Concerns about Microsoft's antitrust ruling and out-of-sight
valuation levels finally triggered waves of selling that sent the index down 32%
from its March high by the end of May.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
In this same period, fixed-income-type securities, including bonds and preferred
stocks, struggled as interest rates rose on fears that the roaring U.S. economy
and the rebound of many others around the world would spark an inflation
outbreak.
While the battle between old and new rages on, a couple of things are clear:
More than ever, diversification and a long-term investment perspective are two
of an investor's best allies. Since not all parts of your portfolio will perform
equally well all the time, we believe it is important to allocate your assets
among different types of investments and funds that target a variety of stock-
and bond-market segments. This strategy, executed under the guidance of a
seasoned investment professional, could provide you with a better chance of both
realizing longer-term results and weathering the market's changing conditions.
Sincerely,
/s/ MAUREEN R. FORD
-------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
BY ARTHUR N. CALAVRITINOS, CFA, PORTFOLIO MANAGEMENT TEAM
LEADER, AND FREDERICK L. CAVANAUGH, JR., JANET L. CLAY, CFA, AND
DANIEL S. JANIS, PORTFOLIO MANAGERS
John Hancock
High Yield Bond Fund
Dreary 12 months for high-yield bonds
High-yield bonds made little headway over the last 12 months, as they fought the
twin demons of rising interest rates and investor disinterest. With the U.S.
economy growing at a blistering pace, the Federal Reserve launched an
anti-inflation campaign, raising interest rates six times between last June and
May 2000. As a result, bond prices, which move in the opposite direction of
interest rates, fell. The Fed was trying to slow the economy down to a more
moderate pace that allowed for growth, but would prevent an inflation outbreak.
Investors were also captivated for much of the past year by high-flying
technology and telecommunications stocks. High-yield bond returns just couldn't
compete and investors left, or ignored, the sector to pursue the lure of the New
Economy. This, combined with a lack of liquidity, drove prices down even
further. Finally, the number of defaults and earnings disappointments at
high-yield companies rose during the year, despite the robust economy.
Fund performance
In this difficult environment, high-yield bond mutual funds had a hard time
breaking even over the last year. For the 12 months ended May 31, 2000, John
Hancock High Yield Bond Fund's Class A, Class B and Class C shares posted total
returns of 0.15%, -0.61% and -0.61%, respectively, at net asset value.
Thankfully, that was bet-
"...the twin demons of rising interest rates and investor disinterest."
--------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock High Yield Bond
Fund. Caption below reads "Fund management team members (l-r): Janet Clay, Dan
Janis, Arthur Calavritinos and Fred Cavanaugh."]
--------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
"The Fund benefited from its overweighted position in the energy and paper
sectors..."
--------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Securities." The first listing
is Nextel Communications 2.5%, the second is Northwest Airlines 2.2%, the third
Key Energy Services 2.1%, the fourth Grey Wolf 1.8% and the fifth Stone
Container 1.4%. A note below the table reads "As a percentage of net assets on
May 31, 2000."]
--------------------------------------------------------------------------------
ter than the average high current yield fund's -2.89% return, according to
Lipper, 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. Historical performance
information can be found on pages six and seven.
Energy, paper help Fund outperform
The Fund benefited from its overweighted position in the energy and paper
sectors, which came back to life as the global economy rebounded from 1998's
turmoil. Rising oil prices prompted a renewed interest in drilling and
exploration, to the benefit of oil-service companies R&B Falcon and Key Energy
Services, in which we took some profits when its stock and bonds hit our price
targets. Drilling company Grey Wolf was also a strong performer, with its
dominance in drilling for natural gas, a promising source of fuel. These three
companies have the characteristics we seek in our energy companies. They are
dominant in their specific fields and have the most valuable, sought-after
physical assets where the barriers to entry are high, which keeps demand strong.
Companies like Key Energy have also reaped the rewards of spearheading the
consolidation that has changed and improved its industry.
Consolidation activity in the paper industry continued to benefit the sector,
allowing the remaining players to boost prices, especially given the lack of new
supply. Having a larger position here than our peers served us well. As merger
activity heated up, the stock and bond prices of long-time holding Repap New
Brunswick rose on speculation that the company would be bought out. When they
reached our target levels, we sold the bulk of our position and locked in
profits. Packaging Corp. of America also served us well when the company took
back some of its preferred stock at an attractive price.
Selectivity counts
In addition to avoiding a number of sectors that produced poor results, like
health care, textiles, specialty retailers and consumer products, we also
managed to steer clear of some of the worst- performing individual companies. As
we mentioned, the number of high-yield companies that failed to execute their
business plans rose in the last 12 months, including such high-profile names as
Iridium and Fruit of the Loom, which we were fortunate not to own, thanks to our
rigorous research. A heightened level of defaults and earnings disappointments
comes with the high-yield bond territory. It's where investors can find the
highest yields, but where the attendant risks of owning companies rated below
investment grade are greater.
--------------------------------------------------------------------------------
[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 R&B Falcon
followed by an up arrow with the phrase "Growing demand for oil drilling
services." The second listing is Repap New Brunswick followed by an up arrow
with the phrase "Benefits from merger activity in paper industry." The third
listing is AEI Resources followed by a down arrow with the phrase "Hit by
accounting questions, pending coal legislation." 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 heading "Fund Performance". Under the
heading is a note that reads "For the year ended May 31, 2000." The chart is
scaled in increments of 1% with -4% at the bottom and 1% at the top. The first
bar represents the 0.15% total return for John Hancock High Yield Bond Fund
Class A. The second bar represents the -0.61% total return for John Hancock High
Yield Bond Fund Class B. The third bar represents the -0.61% total return for
John Hancock High Yield Bond Fund Class C. The fourth bar represents the -2.89%
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, Inc.1 See the following two pages for historical performance
information."]
--------------------------------------------------------------------------------
While we had fewer disappointments than others, we did not escape altogether.
Pathmark Supermarkets saw its preferred stock and bonds hit hard when a U.S.
antitrust ruling foiled a Dutch company's bid to buy the New York supermarket
chain. Pathmark defaulted on its bonds and is in the process of working out a
financial restructuring package. Coal company AEI Resources also ran into
difficulties over accounting issues and concerns about the negative impact of
pending coal legislation.
Telecom picks
Telecommunications companies make up the largest component of the high-yield
market, and it is the Fund's largest sector weighting as well. The sector got
hit when the environment for technology soured late in the fiscal year and fears
grew that telecom companies might have a harder time getting access to their
next phase of capital in the equity market. We have maintained an underweighted
stance on the sector, since so many telecom companies have yet to deliver
results. We are sticking with companies that display the best ability to grow
revenues and that have good business plans and a market, cost or product
advantage. Currently we like telephone companies in Europe and cell-phone
companies like Nextel Communications -- our biggest holding -- that are
developing the next generation of wireless equipment. We also target merger
candidates.
A look ahead
For now, all eyes are on the economy, waiting for signs that growth has slowed
to the Fed's satisfaction. In the short term, we have some concern that if the
U.S. economy slows too much, high-yield companies could have a harder time
implementing their business plans and making their earnings targets. In this
environment, individual credit selection is more important than ever. We will
continue to apply our in-depth fundamental analysis with an even sharper eye
toward maintaining a portfolio of companies that are worth the extra risk we are
taking to own them. Consolidating industries remain a focus, including the
airlines, where merger activity picked up late in the fiscal year.
"...waiting for signs that growth has slowed to the Fed's satisfaction."
--------------------------------------------------------------------------------
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.
See the prospectus for the risks of investing in high-yield bonds.
(1) Figures from Lipper, 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 an up-front 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 an up-front sales charge of 1% and a contingent deferred
sales charge (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 March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (6/30/93)
-------- --------- ------------
Cumulative Total Returns 1.75% 45.58% 51.01%
Average Annual Total Returns 1.75% 7.80% 6.30%
--------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------------
For the period ended March 31, 2000
ONE FIVE TEN
YEAR YEARS YEARS
-------- --------- ------------
Cumulative Total Returns 1.07% 45.07% 153.14%
Average Annual Total Returns 1.07% 7.72% 9.73%
--------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------
For the period ended March 31, 2000
SINCE
ONE INCEPTION
YEAR (5/1/98)
-------- ------------
Cumulative Total Returns 3.72% (10.91%)
Average Annual Total Returns 3.72% (5.85%)
--------------------------------------------------------------------------------
YIELDS
--------------------------------------------------------------------------------
As of May 31, 2000
SEC 30-DAY
YIELD
-------------
John Hancock High Yield Bond Fund: Class A 13.44%
John Hancock High Yield Bond Fund: Class B 13.31%
John Hancock High Yield Bond Fund: Class C 13.17%
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. It is not possible to invest in an index. 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 $15,845 as of May 31, 2000. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock High Yield Bond Fund on June 30, 1993, before sales charge, and
is equal to $15,421 as of May 31, 2000. The third line represents the value of
the same hypothetical investment made in the John Hancock High Yield Bond Fund,
after sales charge, and is equal to $14,727 as of May 31, 2000.
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 $26,776 as of May 31, 2000. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock High Yield Bond Fund on May 31, 1990, before sales charge, and
is equal to $23,922 as of May 31, 2000.
Line chart with the heading John Hancock High Yield Bond Fund Class C*,
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 $9,732 as of May 31, 2000. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock High Yield Bond Fund on May 1, 1998, before sales charge, and
is equal to $8,746 as of May 31, 2000. The third line represents the value of
the same hypothetical investment made in the John Hancock High Yield Bond Fund,
after sales charge, and is equal to $8,658 as of May 31, 2000.
*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 May 31, 2000. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
May 31, 2000
--------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $964,949,192) .............................. $726,985,417
Common and preferred stocks and warrants
(cost - $198,746,394) ................................. 153,553,220
Joint repurchase agreement ................................ 36,679,000
Corporate savings account ................................. 957
-------------
917,218,594
Receivable for investments sold ........................... 5,945,105
Receivable for shares sold ................................ 1,389,521
Interest receivable ....................................... 32,313,976
Foreign tax receivable .................................... 8,371
Receivable for forward foreign currency exchange
contracts sold - Note A .................................. 1,192,821
Receivable for forward foreign currency exchange
contracts purchased - Note A ............................. 3,183
Other assets .............................................. 74,482
-------------
Total Assets ............................ 958,146,053
-----------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................ 849,604
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 839,843
Accounts payable and accrued expenses ..................... 157,548
-------------
Total Liabilities ....................... 1,846,995
-----------------------------------------------------------
Net Assets:
Capital paid-in ........................................... 1,271,295,931
Accumulated net realized loss on investments, financial
futures contracts and foreign currency transactions ...... (46,545,561)
Net unrealized depreciation of investments and
foreign currency transactions ............................ (282,084,607)
Undistributed net investment income ....................... 13,633,295
-------------
Net Assets .............................. $956,299,058
===========================================================
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 - $237,619,361/40,477,156 ......................... $5.87
=============================================================================
Class B - $691,331,253/117,764,489 ........................ $5.87
=============================================================================
Class C - $27,348,444/4,658,657 ........................... $5.87
=============================================================================
Maximum Offering Price Per Share
Class A* - ($5.87/0.955) .................................. $6.15
=============================================================================
Class C - ($5.87/0.99) .................................... $5.93
=============================================================================
* 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
Year ended May 31, 2000
--------------------------------------------------------------------------------
Investment Income:
Interest .................................................. $123,365,606
Dividends (net of foreign withholding taxes
of $291,103) ............................................. 11,217,651
-------------
134,583,257
-------------
Expenses:
Investment management fee - Note B ....................... 5,589,737
Distribution and service fee - Note B
Class A ................................................ 670,758
Class B ................................................ 7,899,133
Class C ................................................ 316,066
Transfer agent fee - Note B .............................. 1,575,936
Custodian fee ............................................ 224,579
Accounting and legal services fee - Note B ............... 208,845
Registration and filing fees ............................. 165,706
Printing ................................................. 108,283
Miscellaneous ............................................ 57,238
Auditing fee ............................................. 43,205
Trustees' fees ........................................... 42,189
Legal fees ............................................... 41,714
-------------
Total Expenses .......................... 16,943,389
-----------------------------------------------------------
Net Investment Income ................... 117,639,868
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions:
Net realized loss on investments sold ..................... (1,084,212)
Net realized gain on foreign currency transactions ........ 4,610,789
Change in net unrealized appreciation/depreciation
of investments ........................................... (123,503,114)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ......................... 318,237
-------------
Net Realized and Unrealized
Loss on Investments and Foreign
Currency Transactions ................... (119,658,300)
-----------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ............... ($2,018,432)
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------
1999 2000
--------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ...................................................... $109,304,644 $117,639,868
Net realized gain (loss) on investments sold, financial futures contracts
and foreign currency transactions ........................................ (40,052,651) 3,526,577
Change in net unrealized appreciation/depreciation of investments, financial
futures contracts and foreign currency transactions ...................... (174,423,486) (123,184,877)
--------------- ---------------
Net Decrease in Net Assets Resulting from Operations ..................... (105,171,493) (2,018,432)
--------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.7518 and $0.7124 per share, respectively) .................. (28,606,693) (30,247,084)
Class B - ($0.6992 and $0.6644 per share, respectively) ................. (79,060,160) (82,960,771)
Class C - ($0.6985 and $0.6644 per share, respectively) .................. (1,683,288) (3,342,364)
Distributions from net realized gain on investments sold
Class A - ($0.0983 and none per share, respectively) .................... (4,208,715) --
Class B - ($0.0983 and none per share, respectively) .................... (12,355,006) --
Class C - ($0.0983 and none per share, respectively) .................... (435,500) --
--------------- ---------------
Total Distributions to Shareholders ...................................... (126,349,362) (116,550,219)
--------------- ---------------
From Fund Share Transactions - Net: * ......................................... 306,345,845 (74,599,261)
--------------- ---------------
Net Assets:
Beginning of period ........................................................ 1,074,641,980 1,149,466,970
--------------- ---------------
End of period (including undistributed net investment income of
$2,037,296 and $13,633,295, respectively) ................................ $1,149,466,970 $956,299,058
=============== ===============
</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
Statement of Changes in Net Assets (continued)
--------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------------------
1999 2000
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ....................................... 34,649,971 $235,006,979 20,237,845 $126,590,470
Shares issued to shareholders in reinvestment of
distributions ................................... 2,356,435 15,840,316 2,270,338 14,364,926
------------ ------------- ------------ -------------
37,006,406 250,847,295 22,508,183 140,955,396
Less shares repurchased ........................... (26,674,634) (182,519,505) (25,443,080) (160,599,281)
------------ ------------- ------------ -------------
Net increase (decrease) ........................... 10,331,772 $68,327,790 (2,934,897) ($19,643,885)
============ ============= ============ =============
CLASS B
Shares sold ....................................... 61,628,963 $423,033,170 30,252,064 $191,538,306
Shares issued to shareholders in reinvestment of
distributions ................................... 5,023,895 33,623,357 4,353,639 28,726,482
------------ ------------- ------------ -------------
66,652,858 456,656,527 34,605,703 220,264,788
Less shares repurchased ........................... (36,105,662) (245,899,556) (44,007,108) (277,081,096)
------------ ------------- ------------ -------------
Net increase (decrease) ........................... 30,547,196 $210,756,971 (9,401,405) ($56,816,308)
============ ============= ============ =============
CLASS C
Shares sold ....................................... 4,721,663 $31,941,073 4,122,602 $25,949,635
Shares issued to shareholders in reinvestment of
distributions ................................... 163,311 1,077,825 221,504 1,482,317
------------ ------------- ------------ -------------
4,884,974 33,018,898 4,344,106 27,431,952
Less shares repurchased ........................... (873,902) (5,757,814) (4,083,289) (25,571,020)
------------ ------------- ------------ -------------
Net increase ...................................... 4,011,072 $27,261,084 260,817 $1,860,932
============ ============= ============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<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>
YEAR ENDED OCTOBER 31, PERIOD FROM
------------------------ NOVEMBER 1, 1996
1995(1) 1996 TO MAY 31, 1997(2)
-------- -------- ------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $7.33 $7.20 $7.55
-------- -------- --------
Net Investment Income ....................................... 0.72 0.76(3) 0.45
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions .............................. (0.12) 0.35 0.32
-------- -------- --------
Total from Investment Operations ........................... 0.60 1.11 0.77
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ....................... (0.73) (0.76) (0.45)
Distributions from Net Realized Gain on Investments Sold ... -- -- --
-------- -------- --------
Total Distributions ........................................ (0.73) (0.76) (0.45)
-------- -------- --------
Net Asset Value, End of Period .............................. $7.20 $7.55 $7.87
======== ======== ========
Total Investment Return at Net Asset Value(4) ............... 8.83% 16.06% 10.54%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $26,452 $52,792 $97,925
Ratio of Expenses to Average Net Assets ..................... 1.16% 1.10% 1.05%(6)
Ratio of Net Investment Income to Average Net Assets ........ 10.23% 10.31% 10.19%(6)
Portfolio Turnover Rate ..................................... 98% 113% 78%
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $7.87 $8.26 $6.57
-------- -------- --------
Net Investment Income ....................................... 0.78(3) 0.75(3) 0.72(3)
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions .............................. 0.51 (1.59) (0.70)
-------- -------- --------
Total from Investment Operations ........................... 1.29 (0.84) 0.02
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ....................... (0.78) (0.75) (0.72)
Distributions from Net Realized Gain on Investments Sold ... (0.12) (0.10) --
-------- -------- --------
Total Distributions ........................................ (0.90) (0.85) (0.72)
-------- -------- --------
Net Asset Value, End of Period .............................. $8.26 $6.57 $5.87
======== ======== ========
Total Investment Return at Net Asset Value(4) ............... 17.03% (9.85%) 0.15%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $273,277 $285,184 $237,619
Ratio of Expenses to Average Net Assets ..................... 0.97% 0.98% 0.99%
Ratio of Net Investment Income to Average Net Assets ........ 9.33% 10.94% 11.36%
Portfolio Turnover Rate ..................................... 100% 56% 49%
</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.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD FROM
------------------------ NOVEMBER 1, 1996
1995(1) 1996 TO MAY 31, 1997(2)
-------- -------- ------------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $7.33 $7.20 $7.55
-------- -------- --------
Net Investment Income ....................................... 0.67 0.70(3) 0.42
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions .............................. (0.13) 0.35 0.32
-------- -------- --------
Total from Investment Operations ........................... 0.54 1.05 0.74
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ....................... (0.67) (0.70) (0.42)
Distributions from Net Realized Gain on Investments Sold ... -- -- --
-------- -------- --------
Total Distributions ........................................ (0.67) (0.70) (0.42)
-------- -------- --------
Net Asset Value, End of Period .............................. $7.20 $7.55 $7.87
======== ======== ========
Total Investment Return at Net Asset Value(4) ............... 7.97% 15.24% 10.06%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $180,586 $242,944 $379,024
Ratio of Expenses to Average Net Assets ..................... 1.89% 1.82% 1.80%(6)
Ratio of Net Investment Income to Average Net Assets ........ 9.42% 9.49% 9.45%(6)
Portfolio Turnover Rate ..................................... 98% 113% 78%
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $7.87 $8.26 $6.57
-------- -------- --------
Net Investment Income ....................................... 0.71(3) 0.70(3) 0.67(3)
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions .............................. 0.51 (1.59) (0.70)
-------- -------- --------
Total from Investment Operations ........................... 1.22 (0.89) (0.03)
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ....................... (0.71) (0.70) (0.67)
Distributions from Net Realized Gain on Investments Sold ... (0.12) (0.10) --
-------- -------- --------
Total Distributions ........................................ (0.83) (0.80) (0.67)
-------- -------- --------
Net Asset Value, End of Period .............................. $8.26 $6.57 $5.87
======== ======== ========
Total Investment Return at Net Asset Value(4) ............... 16.16% (10.54%) (0.61%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $798,170 $835,392 $691,331
Ratio of Expenses to Average Net Assets ..................... 1.72% 1.73% 1.74%
Ratio of Net Investment Income to Average Net Assets ........ 8.62% 10.20% 10.61%
Portfolio Turnover Rate ..................................... 100% 56% 49%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
PERIOD ENDED -------------------------
MAY 31, 1998(7) 1999 2000
--------------- ---------- ----------
<S> <C> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $8.45 $8.26 $6.57
---------- ---------- ----------
Net Investment Income(3) ....................................................... 0.06 0.70 0.67
Net Realized and Unrealized Loss on Investments, Financial Futures
Contracts and Foreign Currency Transactions ................................... (0.19) (1.59) (0.70)
---------- ---------- ----------
Total from Investment Operations .............................................. (0.13) (0.89) (0.03)
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .......................................... (0.06) (0.70) (0.67)
Distributions from Net Realized Gain on Investments Sold ...................... -- (0.10) --
---------- ---------- ----------
Total Distributions ........................................................... (0.06) (0.80) (0.67)
---------- ---------- ----------
Net Asset Value, End of Period ................................................. $8.26 $6.57 $5.87
========== ========== ==========
Total Investment Return at Net Asset Value(4) .................................. (1.59%)(5) (10.54%) (0.61%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................................... $3,195 $28,891 $27,348
Ratio of Expenses to Average Net Assets ........................................ 1.72%(6) 1.73% 1.74%
Ratio of Net Investment Income to Average Net Assets ........................... 6.70%(6) 10.20% 10.61%
Portfolio Turnover Rate ........................................................ 100% 56% 49%
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc., became the investment
adviser of the Fund.
(2) Effective May 31, 1997, the fiscal year end changed from October 31 to May
31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) Class C shares began operations on May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Schedule of Investments
May 31, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by High
Yield Bond Fund on May 31, 2000. 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
Aerospace (0.17%)
Compass Aerospace Corp.,
Gtd Sr Sub Note Ser D 04-15-05 .......................................... 10.125% CCC $4,475 $1,655,750
-----------
Agricultural Operations (0.11%)
Iowa Select Farms L.P./ISF Finance, Inc.,
Sr Sub Note 12-01-05 (R) ................................................ 10.750 CC 4,990 1,097,800
-----------
Automobile/Trucks (1.10%)
AM General Corp.,
Sr Note Ser B 05-01-02 .................................................. 12.875 B 1,824 1,605,120
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 ........................................................ 12.500 B 9,725 8,947,000
-----------
10,552,120
-----------
Banks - United States (0.44%)
CSBI Capital Trust I,
Gtd Sub Cap Inc Ser A 06-06-27 .......................................... 11.750 B- 3,890 4,162,300
-----------
Building (1.11%)
Amatek Industries Property Ltd.,
Sr Sub Note (Australia) 02-15-08 (Y) .................................... 12.000 B 4,975 4,577,000
Nortek, Inc.,
Sr Note 08-01-08 ........................................................ 8.875 B+ 1,550 1,395,000
Presley Companies (The),
Gtd Sr Note 07-01-01 .................................................... 12.500 CCC 4,994 4,594,480
-----------
10,566,480
-----------
Business Services - Misc. (0.53%)
AP Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 03-15-03) 03-15-08 (A) ............... Zero CCC+ 1,800 180,000
COMFORCE Operating, Inc.,
Sr Note Ser B 12-01-07 .................................................. 12.000 B- 3,000 1,590,000
MSX International, Inc.,
Gtd Sr Sub Note 01-15-08 ................................................ 11.375 B- 3,500 3,307,500
-----------
5,077,500
-----------
Chemicals (1.78%)
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 .................................................... 10.125 B+ 2,900 2,827,500
</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>
Chemicals (continued)
Huntsman ICI Holdings LLC,
Sr Disc Note 12-31-09 ................................................... Zero B+ $13,635 $4,158,675
OPP Petroquimica S.A.,
Bond (Brazil) 10-29-04 (R) (Y) .......................................... 11.000% B+ 2,000 1,900,000
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) .......................................... 10.625 B+ 12,000 8,160,000
-----------
17,046,175
-----------
Computers (2.36%)
Baan Company, N.V.,
Conv Sub Note (Netherlands) 12-15-01 (Y) ................................ 4.500 CCC- 2,000 1,714,000
Cybernet Internet Services International, Inc.,
Sr Note 07-01-09 ........................................................ 14.000 Caa2 4,000 2,800,000
Exodus Communications, Inc.,
Sr Note 07-01-08 ........................................................ 11.250 B- 5,475 5,529,750
Sr Note 12-15-09 ........................................................ 10.750 B- 2,350 2,326,500
Interact Operating Co.,
Sr Note 08-01-03 ........................................................ 14.000 CCC+ 3,210 1,091,400
PSINet, Inc.,
Sr Note 11-01-08 ........................................................ 11.500 B- 3,000 2,730,000
Sr Note Ser B 02-15-05 .................................................. 10.000 B- 2,720 2,393,600
Verio, Inc.,
Sr Note 12-01-08 ........................................................ 11.250 B- 1,750 1,946,875
Sr Note 04-01-05 ........................................................ 10.375 B- 1,950 2,052,375
-----------
22,584,500
-----------
Consumer Products Misc. (0.46%)
Diamond Brands Operating Corp.,
Sr Sub Note 04-15-08 .................................................... 10.125 CCC+ 5,000 2,750,000
Indesco International, Inc.,
Sr Sub Note 04-15-08 .................................................... 9.750 CCC+ 4,900 1,617,000
-----------
4,367,000
-----------
Containers (4.17%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07 .................................................. 9.375 B- 2,985 2,417,850
Sr Sub Note Ser B 02-15-08 .............................................. 9.875 CCC+ 13,400 9,916,000
Kappa Beheer B.V.,
Sr Sub Bond (Netherlands) 07-15-09 (Y) .................................. 10.625 B 3,175 3,270,250
Sr Sub Bond, Step Coupon (12.50%, 07-15-04) (Euro) 07-15-09 (A) # ....... Zero B 4,400 2,647,712
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 ................................................ 10.875 CCC+ 8,980 8,261,600
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Int Cert) 04-01-02 ...................... 12.250 B- 13,200 13,365,000
-----------
39,878,412
-----------
</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>
Cosmetics & Personal Care (0.61%)
Carson, Inc.,
Gtd Sr Sub Note Ser B 11-01-07 .......................................... 10.375% CCC+ $4,435 $4,346,300
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 .................................................... 11.000 CCC+ 3,175 1,047,750
Styling Technology Corp.,
Gtd Sr Sub Note 07-01-08 ................................................ 10.875 C 1,990 417,900
-----------
5,811,950
-----------
Diversified Operations (0.73%)
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 # ........................................ 10.000 B- 4,950 6,928,027
-----------
Energy (1.48%)
AEI Resources, Inc.,
Sr Sub Note 12-15-06 .................................................... 11.500 CC 5,000 250,000
AEI Resources, Inc./AEI Resources Holdings, Inc.,
Gtd Note 12-15-05 (R) ................................................... 10.500 CCC- 5,055 1,011,000
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 .............................................. 9.625 B 14,400 12,852,000
-----------
14,113,000
-----------
Finance (0.37%)
Nationwide Credit, Inc.,
Sr Note Ser A 01-15-08 .................................................. 10.250 B- 4,000 2,720,000
Norse CBO, Ltd.,
Jr Sub Note 08-13-10 (r) ................................................ Zero B- 750 825,000
-----------
3,545,000
-----------
Food (1.91%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 .................................................... 11.875 B 8,425 6,950,625
Mastellone Hermanos S.A.,
Sr Note (Argentina) 04-01-08 (Y) ........................................ 11.750 B+ 13,875 10,649,063
RAB Holdings, Inc.,
Sr Note 05-01-08 ........................................................ 13.000 CCC 1,380 690,000
-----------
18,289,688
-----------
Glass Products (0.43%)
Vicap S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 (Y) ....................................... 11.375 B+ 5,000 4,100,000
-----------
Insurance (0.26%)
SIG Capital Trust I,
Gtd Trust Preferred Security 08-15-27 ................................... 9.500 BB+ 5,000 850,000
Willis Corroon Corp.,
Gtd Sr Sub Note 02-01-09 ................................................ 9.000 B+ 2,050 1,619,500
-----------
2,469,500
-----------
Leisure (4.71%)
Claridge Hotel & Casino Corp.,
1st Mtg Note 02-01-02 (B) ............................................... 11.750 D 7,736 4,428,860
</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>
Leisure (continued)
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Note Ser B 12-15-04 (B) ...................................... 12.250% D $9,450 $5,292,000
Hollywood Casino Shreveport,
1st Mtg Bond 08-01-06 (R) ............................................... 13.000 B 2,150 2,279,000
Production Resource Group LLC,
Sr Sub Note 01-15-08 .................................................... 11.500 CCC- 4,475 1,342,500
SC International Services, Inc.,
Sr Sub Note Ser B 09-01-07 .............................................. 9.250 B 8,600 7,826,000
SFX Entertainment, Inc.,
Sr Sub Note 02-01-08 .................................................... 9.125 B- 3,900 3,919,500
Sr Sub Note 12-01-08 .................................................... 9.125 B- 3,500 3,465,000
Trump Atlantic City Associates,
1st Mtg Note 05-01-06 ................................................... 11.250 B- 7,425 5,197,500
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 ........................................................ 15.500 CCC+ 8,630 4,919,100
Venetian Casino Resort LLC/Las Vegas Sands, Inc.,
1st Mtg Note 11-15-04 ................................................... 12.250 B- 6,650 6,384,000
-----------
45,053,460
-----------
Machinery (0.35%)
Glasstech, Inc.,
Sr Note Ser B 07-01-04 .................................................. 12.750 B3 4,475 3,311,500
-----------
Manufacturing (0.18%)
ICON Health & Fitness, Inc.,
Gtd Note 09-27-05 ....................................................... 12.000 B 2,935 1,760,880
-----------
Media (4.95%)
AMFM Operating, Inc.,
Sr Sub Deb, Payment-In-Kind 10-31-06 .................................... 12.625 B 5,509 6,362,664
Capstar Broadcasting Partners, Inc.,
Sub Deb 07-01-09 ........................................................ 12.000 B1 837 957,792
CD Radio, Inc.,
Sr Disc Note, Step Coupon (15.00%, 12-01-02) 12-01-07 (A) ............... Zero CCC+ 2,990 1,584,700
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon (12.625%, 03-01-03) 03-01-08 (A) ........ Zero B- 3,950 2,093,500
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 .................................................. 12.500 CCC+ 11,095 11,538,800
Radio One, Inc.,
Sr Sub Note Ser B 05-15-04 .............................................. 12.000 B- 3,000 3,202,500
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon (12.875%, 07-01-03) (United
Kingdom) 07-01-08 (A) # ............................................... Zero B3 3,730 3,517,565
Sr Note (United Kingdom) 07-01-08 (Y) ................................... 10.500 B- 1,170 1,170,000
Supercanal Holdings S.A./Supercanal S.A.,
Sr Note (Argentina) 05-15-05 (B) (R) (Y) ................................ 11.500 D 3,976 1,868,720
United International Holdings, Inc.
Sr Disc Note, Step Coupon (10.75%, 02-15-03) 02-15-08 (A) ............... Zero B- 11,925 6,737,625
</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>
Media (continued)
XM Satellite Radio Holdings, Inc.,
Unit (Sr Sec Note & Warrant) 03-15-10 (R) ............................... 14.000% CCC+ $9,350 $8,251,375
-----------
47,285,241
-----------
Medical (0.44%)
Total Renal Care Holdings, Inc.,
Conv Sub Note 05-15-09 (R) .............................................. 7.000 B- 6,950 4,239,500
-----------
Metal (3.76%)
ALatief Freeport Finance Co. B.V. (P.T.),
Sr Note 04-15-01 ........................................................ 9.750 CCC+ 7,950 6,837,000
Doe Run Resources Corp.,
Gtd Sr Note Ser B 03-15-03 .............................................. 12.653*** B- 4,975 2,487,500
Gtd Sr Note Ser B 03-15-05 .............................................. 11.250 B- 6,990 2,796,000
Echo Bay Mines Ltd.,
Jr Sub Deb (Canada) 04-01-27 (Y) ........................................ 11.000 D 2,000 1,160,000
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 11-15-06 ........................................................ 7.500 CCC 9,925 6,252,750
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 ................................................... 12.000 BB- 6,475 6,734,000
Haynes International, Inc.,
Sr Note 09-01-04 ........................................................ 11.625 B- 10,000 6,000,000
TVX Gold, Inc.,
Conv Sub Note (Canada) 03-28-02 (Y) ..................................... 5.000 B- 5,150 3,708,000
-----------
35,975,250
-----------
Oil & Gas (9.67%)
Comstock Resources, Inc.,
Gtd Sr Note 05-01-07 .................................................... 11.250 B 2,475 2,462,625
Frontier Oil Corp.,
Sr Note 11-15-09 ........................................................ 11.750 B+ 6,925 6,630,688
Giant Industries, Inc.,
Sr Sub Note 11-15-03 .................................................... 9.750 B+ 3,075 2,959,688
Gothic Energy Corp.,
Sr Disc Note, Step Coupon (14.125%, 05-01-02) 05-01-06 (A) .............. Zero CC 4,990 1,746,500
Gothic Production Corp.,
Sr Sec Note Ser B 05-01-05 .............................................. 11.125 CCC 3,325 2,859,500
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
HS Resources, Inc.,
Sr Sub Note Ser B 11-15-06 .............................................. 9.250 B 4,000 3,860,000
Key Energy Services, Inc.,
Conv Sub Note 09-15-04 (R) .............................................. 5.000 B 26,300 20,514,000
Conv Sub Note 09-15-04 .................................................. 5.000 Caa2 10,249 7,994,220
Sr Sub Note Ser B 01-15-09 .............................................. 14.000 B- 10,275 11,097,000
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 .............................................. 10.500 B- 3,990 3,620,925
</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>
Oil & Gas (continued)
Ocean Rig Norway A.S.,
Gtd Sr Sec Note (Norway) 06-01-08 (Y) ................................... 10.250% B- $4,945 $4,153,800
PANACO, Inc.,
Gtd Sr Sub Note Ser B 10-01-04 .......................................... 10.625 CCC 2,990 2,093,000
Pemex Finance Ltd.,
Note (Mexico) 05-15-07 (Y) .............................................. 8.020 BBB 10,000 9,500,000
R&B Falcon Corp.,
Gtd Sr Note 12-15-03 .................................................... 9.125 B+ 6,940 6,749,150
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A) ............... Zero B 2,740 1,781,000
-----------
92,486,096
-----------
Paper & Paper Products (4.61%)
Advance Agro Capital B.V.,
Gtd Sr Note (Thailand) 11-15-07 (Y) ..................................... 13.000 CC 6,950 4,309,000
Alabama River Newsprint Co.,
Note 04-30-25 (r) ....................................................... Zero BB 4,726 3,875,282
APP China Group Ltd.,
Unit (Sr Disc Note & Warrant) (Indonesia) 03-15-10 (R) (Y) .............. 14.000 CCC+ 9,250 6,012,500
APP Finance (II) Mauritius Ltd.,
Bond (Indonesia) 12-29-49 (Y) ........................................... 12.000 CCC+ 7,500 3,375,000
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia) 04-30-03 (R) (Y) ................................... 3.500 CCC+ 990 683,100
APP Global Finance Ltd.,
Conv Note 07-25-00 ...................................................... 2.000 CCC+ 950 1,111,500
APP International Finance Mauritius Ltd.,
Bond (Indonesia) 07-07-00 (R) (Y) ....................................... Zero B3 5,000 4,825,000
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) .............................................. 12.625 BB- 10,040 9,964,700
Indah Kiat Finance Mauritius Ltd.,
Gtd Sr Note (Indonesia) 07-01-07 (Y) .................................... 10.000 CCC+ 6,000 3,300,000
Indah Kiat International Finance Co.,
Gtd Sec Bond Ser C (Indonesia) 06-15-06 (Y) ............................. 12.500 CCC+ 3,500 2,275,000
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa) 08-01-02 (R) (Y) ........................... 7.500 BB- 2,060 1,854,000
Tjiwi Kimia Finance Mauritius Ltd.,
Gtd Sr Note (Indonesia) 08-01-04 (Y) .................................... 10.000 BB 1,500 825,000
Tjiwi Kimia International Finance Co. B.V.,
Gtd Note (Indonesia) 08-01-01 (Y) ....................................... 13.250 CCC+ 2,000 1,700,000
-----------
44,110,082
-----------
Pollution Control (0.50%)
ICF Kaiser International, Inc.,
Sr Note Ser B 12-31-03 .................................................. 12.000 B- 1,000 880,000
Sr Sub Note 12-31-03 .................................................... 12.000 Caa2 7,750 3,875,000
-----------
4,755,000
-----------
</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>
Printing - Commercial (0.21%)
Sullivan Graphics, Inc.,
Sr Sub Note 08-01-05 .................................................... 12.750% B- $2,000 $2,025,000
-----------
Real Estate Operations (0.08%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 (B) .............................................. 5.750 D 6,965 774,856
-----------
REIT (0.28%)
Host Marriott L.P.,
Gtd Sr Note 02-15-06 .................................................... 8.375 BB 2,975 2,707,250
-----------
Retail (0.65%)
American Restaurant Group, Inc.,
Gtd Sr Sec Note 02-15-03 ................................................ 11.500 B 5,750 4,096,875
Imperial Home Decor Group, Inc.,
Gtd Sr Sub Note 03-15-08 (B) ............................................ 11.000 C 4,875 48,750
Pathmark Stores, Inc.,
Sub Note 06-15-02 (B) ................................................... 11.625 C 3,503 910,780
SpinCycle, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-01-01) 05-01-05 (A) ............... Zero CCC+ 3,850 1,155,000
-----------
6,211,405
-----------
Steel (2.01%)
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 (B) ............................................... 13.500 Caa3 17,750 1,597,500
LTV Corp. (The),
Gtd Sr Sub Note 11-15-09 ................................................ 11.750 BB- 3,750 3,356,250
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon (12.75%, 07-15-03) 07-15-08 (A) ............... Zero CCC+ 11,185 2,460,700
Metallurg, Inc.,
Gtd Sr Note Ser B 12-01-07 .............................................. 11.000 B- 4,270 3,416,000
NSM Steel, Inc./NSM Steel Ltd.,
Gtd Sr Sub Mtg Note Ser B 02-01-08 (B) (R) .............................. 12.250 D 10,175 101,750
Oregon Steel CF&I,
Note 03-31-03 (r) ....................................................... 9.500 B 4,517 3,333,318
Republic Technologies International LLC/RTI Capital Corp.,
Sr Sec Note 07-15-09 .................................................... 13.750 CC 8,300 1,037,500
Sheffield Steel Corp.,
1st Mtg Note Ser B 12-01-05 ............................................. 11.500 B- 5,625 3,937,500
-----------
19,240,518
-----------
Telecommunications (17.33%)
Advanced Radio Telecom Corp.,
Sr Note 02-15-07 ........................................................ 14.000 CCC 2,250 1,980,000
AMSC Acquisition Co., Inc.,
Sr Note Ser B 04-01-08 .................................................. 12.250 B- 9,960 6,075,600
COLT Telecom Group Plc,
Sr Note (Germany) 07-31-08 # ............................................ 7.625 B 2,150 917,886
</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)
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) .............. Zero B $3,940 $2,856,500
Sr Note 05-15-11 ........................................................ 9.000% B 1,875 1,725,000
CTI Holdings S.A.,
Sr Note, Step Coupon (11.25%, 04-15-03) (Argentina) 04-15-08 (A) (Y) .... Zero B 7,925 4,358,750
Dolphin Telecom Plc,
Sr Disc Note Ser B, Step Coupon (14.00%, 05-15-04)
(United Kingdom) 05-15-09 (A) (Y) ..................................... Zero CCC+ 5,950 1,963,500
Sr Disc Note, Step Coupon (11.50%, 06-01-03) (United
Kingdom) 06-01-08 (A) (Y) ............................................. Zero Caa1 8,940 2,682,000
Esprit Telecom Group Plc,
Sr Note (Germany) 06-15-08 # ............................................ 11.000 BB- 10,940 4,787,962
Global TeleSystems Group, Inc.,
Sr Note 02-15-05 ........................................................ 9.875 B- 2,950 2,242,000
GST Equipment Funding, Inc.,
Sr Sec Note 05-01-07 (B) ................................................ 13.250 D 5,100 2,371,500
GT Group Telecom, Inc.,
Unit (Sr Disc Note & Warrant), Step Coupon (13.25%, 02-01-05)
02-01-10 (R) .......................................................... Zero Caa1 5,750 2,990,000
Hermes Europe Railtel B.V.,
Sr Note (Netherlands) 01-15-09 (Y) ...................................... 10.375 B 1,750 1,452,500
ICG Holdings, Inc.,
Sr Disc Note, Step Coupon (13.50%, 09-15-00) 09-15-05 (A) ............... Zero B- 2,975 2,841,125
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 (Y) ........................................... 12.875 B- 2,000 1,800,000
ITC/DeltaCom, Inc.,
Sr Note 11-15-08 ........................................................ 9.750 B+ 2,900 2,769,500
Jazztel Plc,
Sr Note (Euro) 12-15-09 (R) # ........................................... 13.250 CCC+ 2,200 1,898,553
KMC Telecom Holdings, Inc.,
Sr Note 05-15-09 ........................................................ 13.500 CCC+ 9,900 9,108,000
McCaw International Ltd.,
Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) ............... Zero B- 12,300 8,610,000
McLeodUSA, Inc.,
Sr Note 03-15-08 ........................................................ 8.375 B+ 3,940 3,506,600
Metrocall, Inc.,
Sr Sub Note 09-15-08 .................................................... 11.000 CCC+ 4,000 3,000,000
Metromedia Fiber Network, Inc.,
Sr Note Ser B 11-15-08 .................................................. 10.000 B+ 6,025 5,738,813
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) ............... Zero CCC+ 1,930 1,254,500
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 ........................................................ 10.750 B 4,925 4,691,063
NTL Communications Corp.,
Sr Note Ser B 10-01-08 .................................................. 11.500 B3 3,250 3,266,250
Sr Note Ser B, Step Coupon (12.375%, 10-01-03) 10-01-08 (A) ............. Zero B- 4,400 2,816,000
Nuevo Grupo Iusacell S.A. de C.V.,
Sr Note (Mexico) 12-01-06 (R) ........................................... 14.250 B+ 2,465 2,465,000
</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)
Paging Network do Brasil S.A.,
Sr Note (Brazil) 06-06-05 (Y) ........................................... 13.500% B3 $2,550 $102,000
Primus Telecommunications Group, Inc.,
Sr Note 10-15-09 ........................................................ 12.750 B- 5,200 4,420,000
Sr Sec Note 08-01-04 .................................................... 11.750 B- 6,750 5,670,000
PTC International Finance II S.A.,
Gtd Sr Sub Note (Euro) 12-01-09 (R) # ................................... 11.250 B+ 2,975 2,921,241
Spectrasite Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 04-15-04) 04-15-09 (A) ............... Zero B3 2,975 1,606,500
Startec Global Communications Corp.,
Sr Note 05-15-08 ........................................................ 12.000 CCC 3,000 2,505,000
Tele1 Europe B.V.,
Sr Note (Euro) 12-01-09 (R) # ........................................... 11.875 B- 1,950 1,755,579
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.875%, 04-15-04) (United
Kingdom) 04-15-09 (A) # ............................................... Zero B1 5,875 4,792,887
Teligent, Inc.,
Sr Note 12-01-07 ........................................................ 11.500 CCC 7,934 6,109,180
United Pan-Europe Communications N.V.,
Sr Disc Note, Step Coupon (13.375%, 11-01-04) (Euro)
11-01-09 (A) (R) # .................................................... Zero B2 3,970 1,703,753
Sr Note (Euro) 11-01-07 (R) # ........................................... 10.875 B 3,950 3,095,528
Sr Note (Euro) 11-01-09 (R) # ........................................... 11.250 B- 3,475 2,755,701
VersaTel Telecom International N.V.,
Sr Note (Netherlands) 05-15-02 (Y) ...................................... 13.250 B- 5,375 5,213,750
Sr Note (Netherlands) 07-15-09 (Y) ...................................... 11.875 B- 1,975 1,817,000
Viatel, Inc.,
Sr Note (Germany) 04-15-08 # ............................................ 11.150 Caa1 4,830 1,958,364
Sr Sec Note 04-15-08 .................................................... 11.250 B- 10,925 8,521,500
Williams Communications Group, Inc.,
Sr Note 10-01-09 ........................................................ 10.875 BB- 4,925 4,925,000
Winstar Communications, Inc.,
Sr Disc Note, Step Coupon (14.75%, 04-15-05) 04-15-10 (A) (R) ........... Zero B- 8,273 3,598,755
Sr Note 04-15-10 (R) .................................................... 12.750 B- 2,824 2,626,320
World Access, Inc.,
Sr Note Ser B 01-15-08 .................................................. 13.250 B- 5,350 4,788,250
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (Y) ........................................... 12.500 B+ 4,700 4,676,500
-----------
165,731,410
-----------
Textile (1.23%)
Coyne International Enterprises Corp.,
Sr Sub Note 06-01-08 .................................................... 11.250 B- 5,925 4,828,875
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon (13.75%, 06-01-03) 06-01-09 (A) ................ Zero CC 4,700 376,000
Steel Heddle Manufacturing Co.,
Gtd Sr Sub Note Ser B 06-01-08 .......................................... 10.625 CC 5,950 2,380,000
Tropical Sportswear International Corp.,
Sr Sub Note Ser A 06-15-08 .............................................. 11.000 B- 4,350 4,132,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<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>
Textile (continued)
Willcox & Gibbs, Inc.,
Gtd Sr Note Ser B 12-15-03 .............................................. 12.250% Caa3 $5,000 $50,000
-----------
11,767,375
-----------
Transportation (5.69%)
Amtran, Inc.,
Sr Note 08-01-04 ........................................................ 10.500 B+ 7,450 6,779,500
Cenargo International Plc,
1st Mtg Note (United Kingdom) 06-15-08 (Y) .............................. 9.750 B+ 3,980 3,184,000
Fine Air Services, Inc.,
Sr Note 06-01-08 ........................................................ 9.875 CCC- 7,900 6,241,000
MRS Logistica S.A.,
Bond Ser B (Brazil) 08-15-05 (R) (Y) .................................... 10.625 B 6,000 4,320,000
Navigator Gas Transport Plc,
Unit (2nd Mtg Note & Warrants) 06-30-07 (R) ............................. 12.000 Caa2 3,000 30,000
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) ................................................ 13.375 B- 6,225 5,851,500
Northwest Airlines Corp.,
Gtd Note 03-15-07 ....................................................... 8.700 BB 7,900 7,204,089
Northwest Airlines, Inc.,
Gtd Note 04-07-04 ....................................................... 8.520 BB 3,815 3,509,800
Pacer International, Inc.,
Sr Sub Note 06-01-07 .................................................... 11.750 B- 4,950 4,851,000
Pacific & Atlantic Holdings, Inc.,
Sr Sec Note 12-31-07 (R) ................................................ 10.500 B- 1,152 898,828
Ultralpetrol (Bahamas) Ltd.,
1st Mtg Pfd Ship Note 04-01-08 .......................................... 10.500 BB- 2,150 1,763,000
US Airways, Inc.,
Pass Thru Ctf Ser 1993-A3 03-01-13 ...................................... 10.375 BB- 4,950 4,356,000
Sr Note 02-01-01 ........................................................ 9.625 CCC+ 4,925 4,854,425
World Airways, Inc.,
Conv Sr Sub Deb 08-26-04 (R) ............................................ 8.000 B- 2,000 520,000
-----------
54,363,142
-----------
Waste Disposal Service & Equip. (1.35%)
Allied Waste North America, Inc.,
Sr Sub Note Ser B 08-01-09 .............................................. 10.000 B+ 14,875 11,751,250
Waste Systems International, Inc.,
Gtd Sr Note 01-15-06 .................................................... 11.500 B 1,985 1,191,000
-----------
12,942,250
-----------
TOTAL BONDS
(Cost $964,949,192) (76.02%) 726,985,417
------- -----------
</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
Abitibi-Consolidated, Inc., Common Stock (Canada) (Y) ............................. 1,233,500 $13,028,844
American Pacific Corp., Common Stock ** ........................................... 200,500 1,177,938
American Telecasting, Inc., Warrant ** ............................................ 2,000 20
CD Radio, Inc., Warrant (R) ** .................................................... 6,000 450,000
Contour Energy Co., $2.625, Preferred Stock ....................................... 125,000 640,625
Core Cap, Inc. (Class A), Common Stock (r) ........................................ 67,000 1,098,800
Core Cap, Inc., Ser A/I, 10.00%, Preferred Stock (r) .............................. 67,000 1,590,580
Cybernet Internet Services International, Inc., Warrant ** ........................ 4,000 240,000
Decorative Home Accents, Inc., Common Stock ** .................................... 1,000 1
DIVA Systems Corp., Warrant (R) ** ................................................ 11,850 23,700
Electronic Retailing Systems International, Inc., Warrant ** ...................... 1,000 1,000
Farm Fresh Holdings Corp. (Class B), Common Stock ** .............................. 1,000 10
Fitzgeralds Gaming Corp., Preferred Stock (B) ..................................... 125,000 218,750
Fitzgeralds Gaming Corp., Common Stock (B) ........................................ 156,752 78,376
Freeport-McRoRan Copper & Gold, Inc., 7.00% Conv, Preferred Stock ................. 500,000 6,562,500
Gaylord Container Corp. (Class A), Common Stock ** ................................ 1,190,200 4,760,800
Geneva Steel Co., 14.00%, Ser B, Preferred Stock (B) .............................. 10,000 1,000
Glasstech, Inc., Warrant ** ....................................................... 2,000 1,000
Gothic Energy Corp., Warrant ** ................................................... 39,586 --
Granite Broadcasting Corp., 12.75%, Payment-In-Kind, Preferred Stock .............. 9,146 8,231,400
Great Atlantic & Pacific Tea Co., Inc., Common Stock .............................. 169,800 3,120,075
Grey Wolf, Inc., Common Stock ** .................................................. 3,500,650 17,503,250
Harvard Industries, Inc., Common Stock ** ......................................... 230,210 1,035,945
Haynes Holdings, Inc., Common Stock ** ............................................ 67,938 16,984
HF Holdings, Inc., Warrant ** ..................................................... 28,092 14,046
Hills Stores Co., Warrant ** ...................................................... 10,482,000 --
Inter-Act Electronic Marketing, Inc., Warrant ** .................................. 6,000 60
Inter-Act Electronic Marketing, Inc., 14.00% Conv, Preferred Stock ................ 6,000 6,000
Interact Systems, Inc., Warrant ** ................................................ 6,000 60
International Wireless Communications Holdings, Inc., Common Stock ................ 795,269 1,480,632
KLM Royal Dutch Airlines N.V., Common Stock (Netherlands) (Y) ..................... 107,625 2,340,844
McCaw International Ltd., Warrant ** .............................................. 10,050 25,125
Motient Corp., Warrant (R) ** ..................................................... 9,960 249,000
Nakornthai Strip Mill Plc, Warrant (Thailand) (R) (Y) ** .......................... 9,591,354 9,591
Nextel Communications, Inc., 13.00%, Payment-In-Kind, Ser D, Preferred Stock ...... 22,692 23,826,600
Northwest Airlines Corp., Common Stock ** ......................................... 725,000 20,617,188
ONO Finance Plc, Warrant (United Kingdom) (R) (Y) ** .............................. 7,150 715,000
Pacific & Atlantic Holdings, Inc., 7.50%, Preferred Stock ......................... 69,141 483,987
Paging do Brazil Holding Co. LLC (Class B), Common Stock (Brazil) (R) (Y) ** ...... 2,550 --
R&B Falcon Corp., Warrant (R) ** .................................................. 6,950 3,648,750
R&B Falcon Corp., 13.875%, Preferred Stock ........................................ 7,990 8,868,900
Repap Enterprises, Inc., Common Stock (Canada) # ** ............................... 81,395 5,437
Republic Technologies International LLC, Warrant (R) ** ........................... 8,300 83
Samuels Jewelers, Inc., Warrant ** ................................................ 2,612 26
Samuels Jewelers, Inc., Common Stock ** ........................................... 300,000 1,500,000
Sheffield Steel Corp., Common Stock ** ............................................ 500 1,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<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)
Sirius Satellite Radio, Inc., Common Stock ........................................ 121,068 $4,585,451
SpinCycle, Inc., Warrant (R) ** ................................................... 3,850 38
Star Gas Partners, L.P., Common Stock ............................................. 102,203 1,430,842
Startec Global Communications Corp., Warrant ** ................................... 3,000 3,000
Sterling Chemicals Holdings, Warrant ** ........................................... 1,000 12,000
Stone Container Corp., $1.75, Ser E, Preferred Stock .............................. 462,400 7,918,600
Supermarkets General Holding Corp., $3.52, Preferred Stock ........................ 71,964 98,950
Tele1 Europe Holding AB, Common Stock (Sweden) (Y) ** ............................. 29,800 342,700
TimberWest Forest Corp., Unit (Common & Preferred Shares) (Canada) # .............. 715,650 4,897,837
Tosco Corp., Common Stock ......................................................... 99,000 3,031,875
Versatel Telecom International N.V., Common Stock (Netherlands) (Y) ** ............ 71,670 2,450,218
Waste Systems International, Inc., Warrant (R) ** ................................. 29,775 14,887
Waste Systems International, Inc., Common Stock ** ................................ 800,000 1,300,000
Waste Systems International, Inc., 8.00%, Ser E, Preferred Stock .................. 9,086 2,498,650
Westshore Terminals Income Fund, Common Stock (Canada) # .......................... 160,000 332,240
World Access, Inc., Preferred Stock ............................................... 1,265 885,500
World Access, Inc., Common Stock ** ............................................... 16,810 176,505
------------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $198,746,394) (16.06%) 153,553,220
------- ------------
<CAPTION>
PAR VALUE
INTEREST (000s
RATE OMITTED)
---------- -----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.83%)
Investment in a joint repurchase agreement transaction
with SBC Warburg, Inc. - Dated 05-31-00, due 06-01-00
(Secured by U.S. Treasury Bonds, 5.500% thru
10.750%, due 02-15-03 thru 08-15-28) - Note A........................... 6.370% $36,679 36,679,000
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.20%...................................................... 957
------------
TOTAL SHORT-TERM INVESTMENTS (3.83%) 36,679,957
------- ------------
TOTAL INVESTMENTS (95.91%) 917,218,594
------- ------------
OTHER ASSETS AND LIABILITIES, NET (4.09%) 39,080,464
------- ------------
TOTAL NET ASSETS (100.00%) $956,299,058
======= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
NOTES TO THE SCHEDULE OF INVESTMENTS
* Credit ratings are unaudited and 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 May 31, 2000.
# 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.
(B) Non-income producing issuer, filed for protection under Federal Bankruptcy
Code or is in default on interest payment.
(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 $105,339,552 or 10.98% of net assets as
of May 31, 2000.
(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 MAY 31, 2000
------------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Alabama River Newsprint Co..................................... 04-14-98 $4,720,654 0.41% $3,875,282
Core Cap, Inc. (Class A), Common Stock......................... 10-31-97 1,340,000 0.11 1,098,000
Core Cap, Inc., Ser A/I, 10.00%, Preferred Stock............... 10-31-97 1,675,000 0.17 1,590,580
Norse CBO, Ltd................................................. 08-04-98 750,000 0.09 825,000
Oregon Steel CF&I.............................................. 05-14-98 4,375,816 0.35 3,333,318
</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.
26
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Portfolio Concentration
May 31, 2000 (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 within the countries in 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
May 31, 2000, assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
----------------------- ---------------
Argentina..................................................... 1.76%
Australia..................................................... 0.48
Brazil........................................................ 1.51
Canada........................................................ 2.91
Indonesia..................................................... 2.40
Luxembourg.................................................... 0.31
Mexico........................................................ 2.91
Netherlands................................................... 3.16
Norway........................................................ 0.43
South Africa.................................................. 0.19
Sweden........................................................ 0.04
Thailand...................................................... 0.45
United Kingdom................................................ 3.41
United States................................................. 75.95
-----
TOTAL INVESTMENTS 95.91%
=====
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
QUALITY DISTRIBUTION
--------------------
BBB........................................................... 0.99%
BB............................................................ 5.93
B............................................................. 48.39
CCC........................................................... 17.73
CC............................................................ 1.17
C............................................................. 0.14
D............................................................. 1.67
-----
TOTAL BONDS 76.02%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock High Yield Bond Fund (the "Fund") is a diversified series of John
Hancock Bond Trust, an open-end management investment company, registered under
the Investment Company Act of 1940. 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $35,838,657 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized capital gains. To the extent that such carryforwards are used by
the Fund, no capital gain distributions will be made. The carryforwards expire
as follows: May 31, 2007 -- $21,790,325 and May 31, 2008 -- $14,048,332.
Additionally, net capital losses of $9,556,843 are attributable to security
transactions incurred after October 31, 1999 and are treated as arising on the
first day (June 1, 2000) of the Fund's next taxable year.
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. The Fund may
place a debt obligation on non-accrual status and reduce related interest income
by ceasing current accruals and writing off interest receivables when the
collection of all or a portion of interest has become doubtful. 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,
28
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
except for the effect of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund has entered into
a syndicated line of credit agreement with various banks. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee is charged to each fund based on the average daily
unused portion of the line of credit and is allocated among the participating
funds. The Fund had no borrowing activity for the year ended May 31, 2000.
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 the "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 May 31, 2000, 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.
29
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
Such fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
Open foreign currency forward sell contracts at May 31, 2000, were as
follows:
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
-------- ------------------- ----- --------------
BUYS
Euro Currency 5,147,007 JUN 00 $3,183
==========
SELLS
British Pound Sterling 5,464,631 JUL 00 $315,427
British Pound Sterling 11,887,316 AUG 00 453,792
Canadian Dollar 478,274 AUG 00 6,607
Euro Currency 13,114,056 JUN 00 530,572
Euro Currency 5,204,500 JUL 00 124,896
Euro Currency 9,754,748 AUG 00 (233,561)
Euro Currency 4,823,971 SEP 00 (4,912)
----------
$1,192,821
==========
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 year ended May 31,
2000, up-front sales charges received with regard to sales of Class A shares
amounted to $324,205. Out of this amount, $60,570 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$111,534 was paid as sales commissions to unrelated broker-dealers and $152,101
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Life Insurance Company ("JHLICo"), 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 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being
30
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
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 year
ended May 31, 2000, contingent deferred sales charges paid to JH Funds amounted
to $3,733,824.
Effective May 1, 2000, all Class C retail purchases are assessed a 1.00%
up-front sales charge. For the year ended May 31, 2000, the up-front sales
charges received with regard to sales of Class C shares amounted to $7,974. Out
of this amount $7,974 was paid as sales commissions to unrelated broker-dealers
and no commissions were paid to sales personnel of Signator Investors. Class C
shares which are redeemed within one year of purchase will be subject to a CDSC
at a rate of 1.00% 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 C shares. For the year ended May 31, 2000,
contingent deferred sales charges paid to JH Funds amounted to $40,057.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distributions 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 Conduct Rules of the National Association of Securities Dealers. Under
the Conduct Rules, 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 JHLICo. 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,
accounting and legal services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford 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. The investment had no impact on the operations of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of securities, other than
obligations of the U.S. government and its agencies and short-term securities,
during the year ended May 31, 2000, aggregated $502,888,748 and $632,583,437,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the year ended May 31, 2000.
The cost of investments owned at May 31, 2000 for federal income tax purposes
was $1,201,599,646. Gross unrealized appreciation and depreciation of
investments aggregated $24,122,278 and $308,504,287, respectively, resulting in
net unrealized depreciation of $284,382,009.
31
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended May 31, 2000, the Fund has reclassified amounts to reflect
an increase in accumulated net realized loss on investments of $10,506,350 and
an increase in undistributed net investment income of $10,506,350. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of May 31, 2000. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to the treatment of foreign currency gains and losses
used in the computation of distributable income and capital gains under federal
tax rules versus generally accepted accounting principles. The calculation of
net investment income per share in the financial highlights excludes these
adjustments.
32
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Bond Trust--
John Hancock High Yield Bond Fund
We have audited the accompanying statement of assets and liabilities of the John
Hancock High Yield Bond Fund (one of the portfolios constituting the John
Hancock Bond Trust) (the "Fund"), including the schedule of investments, as of
May 31, 2000, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 2000, by correspondence with the custodian and brokers, or
other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
John Hancock High Yield Bond Fund of the John Hancock Bond Trust at May 31,
2000, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the indicated periods, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young
Boston, Massachusetts
July 7, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund paid during its taxable year ended May
31, 2000.
Shareholders will be mailed a 2000 U.S. Treasury Department Form 1099-DIV in
January 2001. This will reflect the total of all distributions which are taxable
for calendar year 2000.
With respect to the Fund's ordinary taxable income for the fiscal year ended
May 31, 2000, 7.40% of the distributions qualify for the dividends received
deduction available to corporations.
33
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======================================NOTES=====================================
John Hancock Funds - High Yield Bond Fund
34
<PAGE>
======================================NOTES=====================================
John Hancock Funds - High Yield Bond Fund
35
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS ---------------
A Global Investment Management Firm Bulk Rate
U.S. Postage
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA
INTERNET: www.jhfunds.com Permit No. 75
---------------
--------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock High
Yield Bond Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 5700A 5/00
7/00
<PAGE>
---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Government
Income Fund
MAY 31, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
---------------------------------------------
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion*
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment 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
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
-------------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech stocks
pushed the NASDAQ Composite Index to the stratosphere, as investors
single-mindedly pursued anything technology related. But after setting a new
high on March 10 amid significantly heightened volatility, the tables started to
turn rapidly. Concerns about Microsoft's antitrust ruling and out-of-sight
valuation levels finally triggered waves of selling that sent the index down 32%
from its March high by the end of May.
In this same period, fixed-income-type securities, including bonds and preferred
stocks, struggled as interest rates rose on fears that the roaring U.S. economy
and the rebound of many others around the world would spark an inflation
outbreak.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
While the battle between old and new rages on, a couple of things are clear:
More than ever, diversification and a long-term investment perspective are two
of an investor's best allies. Since not all parts of your portfolio will perform
equally well all the time, we believe it is important to allocate your assets
among different types of investments and funds that target a variety of stock-
and bond-market segments. This strategy, executed under the guidance of a
seasoned investment professional, could provide you with a better chance of both
realizing longer-term results and weathering the market's changing conditions.
Sincerely,
/s/Maureen R. Ford
------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Barry H. Evans, CFA, and Dawn Baillie, Portfolio Managers
John Hancock
Government Income Fund
Volatility marks bond market as U.S. economic growth
----------------------------------------------------
remains strong
--------------
Bond investors fought an uphill battle for much of the past year, as the Federal
Reserve continued to raise short-term interest rates in an effort to restrain
economic growth and keep inflation under control. The federal funds rate - the
interest rate that banks charge each other for overnight loans - reached 6.50%
in May of 2000, up from 4.75% a year earlier. Much of the increase occurred
after the new year, as inflationary concerns continued to mount. Of particular
concern were robust fourth-quarter gross domestic product numbers released in
January, high oil prices throughout the winter, strong first-quarter stock
market gains and falling unemployment levels.
Bond market review
As interest rates rose throughout the second half of 1999, bond prices fell -
with mortgage bonds faring better than Treasuries be- cause of their added
yield. This situation began to reverse, however, in February 2000. Thanks to a
budget surplus, the government announced that it would begin buying back
longer-dated Treasuries - those with 20-year average maturities and coupons (or
stated interest rates) higher than prevailing rates. Following this
announcement, prices on longer-dated Treasury bonds appreciated significantly.
Yields on 30-year Treasuries actually fell below those on two-year Treasuries
for the first time in years. Prices on longer-dated Treasuries - those with
maturities over 10 years - climbed, pushing the Lehman Brothers Treasury Index
to a 3.35% return for the year ended May 31, 2000.
--------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock Government Income
Fund. Caption below reads "Portfolio managers (l-r): Barry Evans and Dawn
Baillie."]
--------------------------------------------------------------------------------
"Bond investors fought an uphill battle for much of the past year..."
3
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
"...yields on longer-dated Treasuries fell and prices appreciated significantly
during the second half."
--------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into four sections (from top to left): Short-Term Investments &
Other 3%, Foreign Governments 8%, U.S. Treasuries 16% and U.S. Agencies 73%. A
note below the chart reads "As a percentage of net assets on May 31, 2000."]
--------------------------------------------------------------------------------
Rumors also began circulating that the government might remove its
implied backing of bonds issued by the Federal Home Loan Mortgage Association
(Freddie Mac) and Federal National Mortgage Association (Fannie Mae). Investors
reacted by fleeing securities issued by both agencies and seeking safety in
Treasuries. This soon hurt all types of bonds with a yield advantage over
Treasuries, including mortgage bonds. As yields on these securities rose, their
prices tumbled, leaving the Lehman Brothers Mortgage-Backed Securities
Fixed-Rate Index with a 2.47% return for the year ended May 31, 2000.
Fund performance
John Hancock Government Income Fund benefited during the first half of the
period from favoring mortgage bonds and U.S. government agency bonds over
Treasuries and then moving into longer-dated Treasuries in the second half.
Although we trimmed agencies in the new year, we still retained a high stake in
both mortgages and non-mortgage agency bonds - sectors that historically have
outperformed Treasuries over long periods. This hurt us in the second half of
the period. For the year ended May 31, 2000, the Fund's Class A, Class B and
Class C shares posted total returns of 1.38%, 0.64% and 0.61%, respectively, at
net asset value. By comparison, the average general U.S. government fund
returned 1.08% during the same time, according to Lipper, Inc.1 Keep in mind
that your net asset value return will differ from the Fund's performance if you
were not invested for the entire period and did not reinvest all distributions.
For longer-term performance information, please see pages six and seven.
Early yield advantage
During the summer and fall of 1999, as we mentioned, we added to our stake in
bonds with a yield advantage over Treasuries, focusing mainly on mortgage bonds
issued by the Government National Mortgage Association (GNMA) with stated
interest rates of 6.0% and 6.5%. These issues offered less prepayment risk - the
risk that homeowners would pay off their mortgages early - than higher-yielding
mortgage bonds. We also held on to our stake in collateralized mortgage
obligations (CMOs) - bonds that separate the cash flows of mortgage pools into
various classes with different maturities. Our main change in the first half of
the fiscal year was to boost our investment in non-mortgage U.S. government
agencies. We added mainly callable bonds, which have slightly higher yields than
bonds that cannot be called or redeemed before maturity. We also trimmed
Treasuries to 11% of net assets, selling mostly longer-dated bonds and
shortening the Fund's duration to 5.1 years. This benefited the Fund, since the
shorter a bond's duration, the less its price will fall as interest rates rise.
4
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
--------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended May 31, 2000." The chart is
scaled in increments of 1% with 0% at the bottom and 5% at the top. The first
bar represents the 1.38% total return for John Hancock Government Income Fund
Class A. The second bar represents the 0.64% total return for John Hancock
Government Income Fund Class B. The third bar represents the 0.61% total return
for John Hancock Government Income Fund Class C. The fourth bar represents the
1.08% total return for Average general U.S. government 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, Inc. 1 See the following two pages
for historical performance information."]
--------------------------------------------------------------------------------
Shift toward Treasuries
Following the government's announcement of its buy-back program in February, we
began shifting back into longer-dated Treasuries. This brought Treasuries to 16%
of net assets by the end of May 2000. It also lengthened the Fund's duration to
5.5 years, slightly longer than the peer group average of 5.25 years. A longer
duration helped the Fund, as yields on longer-dated Treasuries fell and prices
appreciated significantly during the second half. Yields on 30-year Treasuries,
for example, dropped from a high of 6.75% in January 2000 to a low of 5.66% in
April. We kept our 60% stake in mortgages, but scaled back slightly on Freddie
Mac and Fannie Mae agencies, even though it seemed unlikely they would lose
their implied government backing. Our stake in non-mortgage bonds issued by U.S.
government agencies was 13% at the end of May.
Positive prospects
We expect to see more moderate economic growth ahead, which would be good for
the bond market. After a year of Fed interest-rate hikes, we finally began
seeing economic data in late April that showed growth was slowing. The Fed may
still raise interest rates again, but the bond market has already prepared for
another 25-basis- point (or one-quarter of a percentage point) increase, as
reflected in current bond yields. We also expect the government buy-back program
to continue boosting prices on longer-dated Treasuries throughout 2000. We plan
to keep the Fund's duration longer than average to take advantage of this
situation. Once we feel more comfortable that the Fed is done raising interest
rates, we may scale back further on our mortgage and agency bonds and increase
our stake in Treasuries.
--------------------------------------------------------------------------------
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.
1Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
"The Fed may still raise interest rates again, but the bond market has already
prepared..."
5
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
--------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
--------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Government Income Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include an up-front 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 an up-front sales charge of 1% and a contingent deferred
sales charge (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 March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (9/30/94)
------- ------- --------
Cumulative Total Returns (3.09%) 31.81% 37.76%
Average Annual Total Returns(1) (3.09%) 5.68% 6.00%
--------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------------
For the period ended March 31, 2000
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (4.03%) 31.19% 89.52%
Average Annual Total Returns(1) (4.03%) 5.58% 6.60%
--------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------
For the period ended March 31, 2000
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (1.07%)
Average Annual Total Return(1) (1.07%)(2)
--------------------------------------------------------------------------------
YIELDS
--------------------------------------------------------------------------------
As of May 31, 2000
SEC 30-DAY
YIELD
--------
John Hancock Government Income Fund: Class A 5.90%
John Hancock Government Income Fund: Class B 5.43%
John Hancock Government Income Fund: Class C 5.38%
Notes to Performance
(1) Effective December 4, 1998, the Adviser agreed to limit the Fund's
management fee to 0.50% of the Fund's daily net assets. Without the
limitation of expenses, the average annual total return for the
one-year, five-year and since inception periods for Class A shares
would have been (3.20%), 5.65% and 5.97%, respectively. The average
annual total return for the one-year, five-year and ten-year periods
for Class B shares would have been (4.14%), 5.55% and 6.58%,
respectively. The total return since inception for Class C shares would
have been (1.19%). Without the reductions of expenses, the yield for
Class A, Class B and Class C shares would have been 5.78%, 5.31% and
5.26%, respectively.
(2) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
--------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
--------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Government Income Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Lehman Brothers Government Bond Index - an unmanaged
index of fixed-income securities that are similar, but not identical, to the
bonds in the Fund's portfolio. It is not possible to invest in an index. Past
performance is not indicative of future results.
--------------------------------------------------------------------------------
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 $14,813 as of May 31, 2000. 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 $14,313 as of May 31, 2000. The third line represents
the value of the same hypothetical investment made in the John Hancock
Government Income Fund, after sales charge, and is equal to $13,669 as of May
31, 2000.
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 $21,088 as of May 31, 2000. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock Government Income Fund on May 31, 1990, before sales charge,
and is equal to $18,575 as of May 31, 2000.
Line chart with the heading John Hancock Government Income Fund Class C*,
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 $10,228 as of May 31, 2000. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock Government Income Fund on April 1, 1999, before sales charge,
and is equal to $9,996 as of May 31, 2000. The third line represents the value
of the same hypothetical investment made in the John Hancock Government Income
Fund, after sales charge, and is equal to $9,896 as of May 31, 2000.
*No contingent deferred sales charge applicable.
--------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Statement of Assets and Liabilities
May 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments at value - Note C:
U.S. government and agencies securities (cost - $583,577,120) .......................................... $550,084,610
Foreign government bonds (cost - $55,130,906) .......................................................... 52,304,250
Multi-family mortgage-backed bonds (cost - $4,151,695) ................................................. 3,938,852
Joint repurchase agreement (cost - $9,955,000) ......................................................... 9,955,000
Corporate savings account .............................................................................. 594
------------------
616,283,306
Receivable for investments sold ......................................................................... 3,094,976
Receivable for shares sold .............................................................................. 104,908
Interest receivable ..................................................................................... 5,926,977
Other assets ............................................................................................ 218,209
------------------
Total Assets .......................................................................... 625,628,376
----------------------------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased .......................................................................... 642,984
Payable for investments purchased ....................................................................... 6,080,279
Payable for variation margin - Note A ................................................................... 37,436
Dividend payable ........................................................................................ 34,772
Payable to John Hancock Advisers, Inc. and affiliates - Note B .......................................... 693,898
Accounts payable and accrued expenses ................................................................... 162,387
------------------
Total Liabilities ..................................................................... 7,651,756
----------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ......................................................................................... 800,315,930
Accumulated net realized loss on investments ............................................................ (145,603,723)
Net unrealized depreciation of investments and financial futures contracts .............................. (36,631,239)
Distributions in excess of net investment income ........................................................ (104,348)
------------------
Net Assets ............................................................................ $617,976,620
==========================================================================================================
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 - $504,678,319/58,825,338 ....................................................................... $8.58
============================================================================================================================
Class B - $112,894,135/13,158,948 ....................................................................... $8.58
============================================================================================================================
Class C - $404,166/47,110 .............................................................................. $8.58
============================================================================================================================
Maximum Offering Price Per Share
Class A*- ($8.58/0.955) ................................................................................. $8.98
============================================================================================================================
Class C - ($8.58/0.990) ................................................................................. $8.67
============================================================================================================================
* 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 Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on May 31, 2000. You'll also
find the net asset value and the maximum offering price per share as of that
date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Statement of Operations
Year ended May 31, 2000
--------------------------------------------------------------------------------
Investment Income:
Interest ...................................................... $51,214,669
--------------
Expenses:
Investment management fee - Note B ........................... 4,350,206
Distribution and service fee - Note B
Class A ..................................................... 1,351,063
Class B ..................................................... 1,516,917
Class C ..................................................... 6,219
Transfer agent fee - Note B .................................. 1,594,527
Custodian fee ................................................ 136,243
Accounting and legal services fee - Note B ................... 133,331
Registration and filing fees ................................. 69,214
Auditing fee ................................................. 41,789
Trustees' fees ............................................... 27,983
Printing ..................................................... 27,925
Miscellaneous ................................................ 21,807
Legal fees ................................................... 4,111
--------------
Total Expenses ...................... 9,281,335
---------------------------------------------------
Less Expense Reduction - Note B ..... (870,945)
---------------------------------------------------
Net Expenses ........................ 8,410,390
---------------------------------------------------
Net Investment Income ............... 42,804,279
---------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized loss on investments sold ......................... (16,400,836)
Net realized gain on financial futures contracts .............. 798,322
Change in net unrealized appreciation/depreciation of investments (20,372,920)
Change in net unrealized appreciation/depreciation of
financial futures contracts .................................. (105,810)
--------------
Net Realized and Unrealized Loss
on Investments and Financial
Futures Contracts ................... (36,081,244)
---------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........... $6,723,035
===================================================
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.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
YEAR ENDED MAY 31,
----------------------------------------------
1999 2000
------------------- --------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ....................................................... $38,107,647 $42,804,279
Net realized gain (loss) on investments sold and financial futures contracts 8,382,615 (15,602,514)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ................................................ (37,389,120) (20,478,730)
--------------- ----------------
Net Increase in Net Assets Resulting from Operations ....................... 9,101,142 6,723,035
--------------- ----------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5690 and $0.5527 per share, respectively) .................... (28,770,636) (34,151,452)
Class B - ($0.5039 and $0.4887 per share, respectively) .................... (9,336,959) (8,618,052)
Class C** - ($0.0701 and $0.4867 per share, respectively) .................. (51) (34,775)
--------------- ----------------
Total Distributions to Shareholders ........................................ (38,107,646) (42,804,279)
--------------- ----------------
From Fund Share Transactions - Net: * ........................................ 353,722,184 (128,059,900)
--------------- ----------------
Net Assets:
Beginning of period ......................................................... 457,402,084 782,117,764
--------------- ----------------
End of period (including distributions in excess of net investment
income of $152,940 and $104,348, respectively) ............................. $782,117,764 $617,976,620
=============== ================
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.
10
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Government Income Fund
Statement of Changes in Net Assets (continued)
--------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED MAY 31,
---------------------------------------------------------------
1999 2000
--------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .............................................. 16,324,398 $152,558,986 9,423,996 $82,549,698
Shares issued in reorganization - Note E ................. 30,190,113 285,764,515 - -
Shares reinvested ........................................ 1,838,139 17,064,295 2,584,365 22,530,705
------------ ------------- ----------- --------------
48,352,650 455,387,796 12,008,361 105,080,403
Less shares repurchased .................................. (20,239,768) (188,850,730) (18,017,087) (157,479,548)
------------ ------------- ----------- --------------
Net increase (decrease) .................................. 28,112,882 $266,537,066 (6,008,726) ($52,399,145)
============ ============= =========== ==============
CLASS B
Shares sold .............................................. 9,971,790 $93,705,559 3,923,014 $34,405,070
Shares issued in reorganization - Note E ................. 9,178,316 86,877,349 - -
Shares reinvested ........................................ 497,010 4,618,186 523,006 4,563,276
------------ ------------- ----------- --------------
19,647,116 185,201,094 4,446,020 38,968,346
Less shares repurchased .................................. (10,509,513) (98,025,258) (13,166,748) (115,050,325)
------------ ------------- ----------- --------------
Net increase (decrease) .................................. 9,137,603 $87,175,836 (8,720,728) ($76,081,979)
============ ============= =========== ==============
CLASS C**
Shares sold .............................................. 1,005 $9,235 3,336,028 $28,852,151
Shares reinvested ........................................ 5 47 1,197 10,383
------------ ------------- ----------- --------------
.......................................................... 1,010 9,282 3,337,225 28,862,534
Less shares repurchased .................................. - - (3,291,125) (28,441,310)
------------ ------------- ----------- --------------
Net increase ............................................. 1,010 $9,282 46,100 $421,224
============ ============= =========== ==============
**Class C shares commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<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:
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD FROM YEAR ENDED MAY 31,
----------------------- NOVEMBER 1, 1996 ----------------------------
1995(1) 1996 TO MAY 31, 1997(2) 1998 1999 2000
---------- ---------- ------------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period................... $8.75 $9.32 $9.07 $8.93 $9.25 $9.02
--------- -------- -------- --------- -------- --------
Net Investment Income ................................. 0.72 0.65(3) 0.37(3) 0.62(3) 0.57(3) 0.55(3)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts . 0.57 (0.25) (0.14) 0.32 (0.23) (0.44)
--------- -------- --------- --------- -------- --------
Total from Investment Operations ..................... 1.29 0.40 0.23 0.94 0.34 0.11
--------- -------- -------- --------- -------- --------
Less Distributions:
Dividends from Net Investment Income .................. (0.72) (0.65) (0.37) (0.62) (0.57) (0.55)
--------- -------- -------- --------- -------- --------
Net Asset Value, End of Period ........................ $9.32 $9.07 $8.93 $9.25 $9.02 $8.58
========= ======== ======== ========= ======== ========
Total Investment Return at Net Asset Value(4,5) ....... 15.32% 4.49% 2.57%(6) 10.82% 3.64% 1.38%
Total Adjusted Investment Return at Net Asset Value(5,7) 15.28% - - - 3.59% 1.25%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $470,569 $396,323 $359,758 $339,572 $584,766 $504,678
Ratio of Expenses to Average Net Assets(4) ............ 1.19% 1.17% 1.13%(8) 1.10% 1.05% 1.05%
Ratio of Adjusted Expenses to Average Net Assets ...... - - - - 1.10% 1.18%
Ratio of Net Investment Income
to Average Net Assets(4) ............................. 7.38% 7.10% 7.06%(8) 6.79% 6.08% 6.31%
Ratio of Adjusted Net Investment Income
to Average Net Assets ................................ - - - - 6.03% 6.18%
Fee Reduction Per Share(3) ............................ - - - - $0.00(9) $0.01
Portfolio Turnover Rate ............................... 102%(10) 106% 129% 106% 161%(10) 106%
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.
12
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Government Income Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD FROM YEAR ENDED MAY 31,
----------------------- NOVEMBER 1, 1996 ----------------------------
1995(1) 1996 TO MAY 31, 1997(2) 1998 1999 2000
---------- ---------- ------------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $8.75 $9.32 $9.08 $8.93 $9.25 $9.02
-------- -------- -------- -------- -------- --------
Net Investment Income .................................. 0.65 0.58(3) 0.33(3) 0.55(3) 0.50(3) 0.49(3)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts .. 0.57 (0.24) (0.15) 0.32 (0.23) (0.44)
-------- -------- -------- -------- -------- --------
Total from Investment Operations ...................... 1.22 0.34 0.18 0.87 0.27 0.05
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.65) (0.58) (0.33) (0.55) (0.50) (0.49)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ......................... $9.32 $9.08 $8.93 $9.25 $9.02 $8.58
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(4,5) ........ 14.49% 3.84% 2.02%(6) 10.01% 2.92% 0.64%
Total Adjusted Investment Return at Net Asset Value(5,7) 14.47% - - - 2.87% 0.51%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $226,954 $178,124 $153,390 $117,830 $197,342 $112,894
Ratio of Expenses to Average Net Assets(4) ............. 1.89% 1.90% 1.86%(8) 1.85% 1.74% 1.78%
Ratio of Adjusted Expenses to Average Net Assets ....... - - - - 1.79% 1.91%
Ratio of Net Investment Income
to Average Net Assets(4) .............................. 7.26% 6.37% 6.32%(8) 6.05% 5.39% 5.58%
Ratio of Adjusted Net Investment Income
to Average Net Assets ................................. - - - - 5.34% 5.45%
Fee Reduction Per Share(3) ............................. - - - - $0.00(9) $0.01
Portfolio Turnover Rate ................................ 102%(10) 106% 129% 106% 161%(10) 106%
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Government Income Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED
MAY 31, 1999(11) MAY 31, 2000
----------------- ------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period.................................... $9.15 $9.02
------- -------
Net Investment Income(3) ............................................... 0.07 0.49
Net Realized and Unrealized Loss on
Investments, Options and Financial Futures Contracts .................. (0.13) (0.44)
------- -------
Total from Investment Operations ...................................... (0.06) 0.05
------- -------
Less Distributions:
Dividends from Net Investment Income ................................... (0.07) (0.49)
------- -------
Net Asset Value, End of Period ......................................... $9.02 $8.58
======= =======
Total Investment Return at Net Asset Value(5) .......................... (0.65%)(6) 0.61%
Total Adjusted Investment Return at Net Asset Value(5,7) ............... (0.66%)(6) 0.48%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................... $9 $404
Ratio of Expenses to Average Net Assets ................................ 1.80%(8) 1.80%
Ratio of Adjusted Expenses to Average Net Assets ....................... 1.85%(8) 1.93%
Ratio of Net Investment Income to Average Net Assets ................... 5.33%(8) 5.56%
Ratio of Adjusted Net Investment Income to Average Net Assets .......... 5.28%(8) 5.43%
Fee Reduction Per Share(3) ............................................. $0.00(9) $0.01
Portfolio Turnover Rate ................................................ 161%(10) 106%
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(2) Effective May 31, 1997, the fiscal year end changed from October 31 to May 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Excludes interest expense, which equalled 0.01% and 0.04% for Class A for the periods ended
October 31, 1994 and 1995, respectively, and 0.01% and 0.02% for Class B for the years ended
October 31, 1994 and 1995, respectively.
(5) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(6) Not annualized.
(7) Estimated total return calculation that does not take into consideration
management fee reductions and other expense subsidies by the Adviser during the
periods shown.
(8) Annualized.
(9) Less than $0.01 per share.
(10) Portfolio turnover excludes merger activity.
(11) Class C shares began operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Government Income Fund
Schedule of Investments
May 31, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Government Income Fund on May 31, 2000. It's divided into four main categories:
U.S. government and agencies securities, foreign government bonds, multi-family
mortgage-backed bonds and short-term investments. Short-term investments, which
represent the Fund's "cash" position, are listed last.
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
------------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Government - U.S. (15.76%)
United States Treasury,
Bond ..................................................... 15.750% 11-15-01 $14,340 $16,085,465
Bond ..................................................... 12.750 11-15-10 9,000 11,413,080
Bond ..................................................... 11.875 11-15-03 10,000 11,564,100
Bond* .................................................... 9.250 02-15-16 26,000 33,162,220
Bond ..................................................... 6.250 05-15-30 18,500 19,086,820
Note ..................................................... 8.500 11-15-00 6,000 6,055,320
----------
97,367,005
----------
Government - U.S. Agencies (73.26%)
Fannie Mae,
10 Yr Pass Thru Ctf ...................................... 8.900 06-12-00 5,000 5,003,900
15 Yr Pass Thru Ctf ...................................... 9.000 02-01-10 2,144 2,190,921
15 Yr Pass Thru Ctf ...................................... 7.500 09-01-14 4,754 4,678,797
15 Yr Pass Thru Ctf ...................................... 6.500 05-01-13 11,776 11,201,649
15 Yr Pass Thru Ctf ...................................... 6.000 09-01-13 to 47,064 43,765,282
08-01-28
30 Yr Pass Thru Ctf ...................................... 8.500 09-01-24 to 4,180 4,227,272
10-01-24
CMO REMIC 1994-60-PJ ..................................... 7.000 04-25-24 6,100 5,655,798
CMO REMIC 1994-75-K ...................................... 7.000 04-25-24 3,100 2,883,961
CMO REMIC 1996-28-PK ..................................... 6.500 07-25-25 7,589 6,723,589
CMO REMIC G-8-E .......................................... 9.000 04-25-21 2,345 2,401,827
CMO REMIC 1990-51-H ...................................... 7.500 05-25-20 87 86,143
CMO REMIC 1990-58-J ...................................... 7.000 05-25-20 2,574 2,507,649
CMO REMIC 1990-94-D ...................................... 6.500 08-25-20 570 543,274
CMO REMIC 1991-56-M ...................................... 6.750 06-25-21 1,888 1,813,287
CMO REMIC 1993-225-TK .................................... 6.500 12-25-23 5,032 4,522,510
Note ..................................................... 6.625 01-15-02 8,500 8,415,000
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf ...................................... 10.500 02-01-03 270 270,897
30 Yr Pass Thru Ctf ...................................... 9.500 08-01-16 4,916 5,112,199
CMO REMIC 1094-K ......................................... 7.000 06-15-21 1,028 1,000,477
CMO REMIC 1603-K ......................................... 6.500 10-15-23 5,000 4,471,850
CMO REMIC 1608-L ......................................... 6.500 09-15-23 12,000 10,781,160
CMO REMIC 1617-PM ........................................ 6.500 11-15-23 10,000 9,025,000
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Government Income Fund
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
------------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Government - U.S. Agencies (continued)
Federal Home Loan Mortgage Corp. (continued),
CMO REMIC 1634-PN ....................................... 4.500% 12-15-23 $10,575 $7,802,341
CMO REMIC 1667-PE ....................................... 6.000 03-15-08 11,750 11,536,972
CMO REMIC 1727-I ........................................ 6.500 05-15-24 5,000 4,465,600
Deb ..................................................... 6.700 03-03-08 1,000 932,190
Federal Judiciary Office Building,
Bond .................................................... Zero 02-15-01 250 238,125
Financing Corp.,
Bond .................................................... 10.700 10-06-17 2,000 2,624,060
Bond .................................................... 9.400 02-08-18 4,000 4,758,760
Bond .................................................... 10.350 08-03-18 12,500 16,060,500
Bond .................................................... 9.650 11-02-18 1,600 1,949,504
Government National Mortgage Assn.,
30 Yr Adjustable Rate Mortgage .......................... 7.375# 03-20-23 5,783 5,802,818
30 Yr Adjustable Rate Mortgage .......................... 7.125# 10-20-22 to 7,400 7,412,705
10-20-23
30 Yr Pass Thru Ctf ..................................... 6.000 11-15-28 to 84,256 76,523,689
03-15-29
30 Yr Pass Thru Ctf ..................................... 6.500 02-15-27 to 74,195 69,484,187
10-15-28
30 Yr Pass Thru Ctf ..................................... 7.000 01-15-28 to 44,691 42,866,940
05-15-29
30 Yr Pass Thru Ctf ..................................... 7.500 06-15-23 to 15,581 15,349,200
02-15-26
30 Yr Pass Thru Ctf ..................................... 8.000 09-15-23 to 6,457 6,487,440
01-15-25
30 Yr Pass Thru Ctf ..................................... 11.000 01-15-14 to 3,206 3,502,449
12-15-15
Private Export Funding Corp.,
Sec Note, Ser 2000-1 (R) ................................ 7.170 05-15-07 10,000 9,737,500
Sec Note, Ser G ......................................... 6.670 09-15-09 6,000 5,655,000
Small Business Administration,
Pass Thru Ctf Ser 97-B .................................. 7.100 02-01-17 4,189 3,979,333
Pass Thru Ctf Ser 97-D .................................. 7.500 04-01-17 4,311 4,191,671
Pass Thru Ctf Ser 97-E .................................. 7.300 05-01-17 5,258 5,051,639
Tennessee Valley Authority,
Note Ser D .............................................. 8.250 04-15-42 8,824 9,022,540
-----------
452,717,605
-----------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $583,577,120) (89.02%) 550,084,610
-------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Government Income Fund
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
------------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
FOREIGN GOVERNMENT BONDS
U.S. Dollar-Denominated Foreign Government Bonds (8.46%)
Argentina, Republic of,
Bond...................................................... 12.125% 02-25-19 $3,750 $3,356,250
Hydro-Quebec,
Gtd Deb Ser FU ........................................... 11.750 02-01-12 5,000 6,450,000
Gtd Deb Ser IF ........................................... 8.000 02-01-13 15,750 15,907,500
International Bank for Reconstruction and Development,
Deb ...................................................... 8.625 10-15-16 15,000 16,350,000
Landesbank Baden-Wuerttemberg,
Sub Note ................................................. 7.625 02-01-23 6,500 6,272,500
United Mexican States,
Note ..................................................... 9.875 02-01-10 4,000 3,968,000
----------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $55,130,906) (8.46%) 52,304,250
------- ----------
MULTI-FAMILY MORTGAGE-BACKED BONDS (0.64%)
DLJ Mortgage Acceptance Corp.,
CMO REMIC 1993-M10-A2 .................................... 7.200 07-15-03 4,006 3,938,852
----------
TOTAL MULTI-FAMILY MORTGAGE-BACKED BONDS
(Cost $4,151,695) (0.64%) 3,938,852
------- ----------
INTEREST
RATE
--------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.61%)
Investment in a joint repurchase agreement transaction with
SBC Warburg, Inc. - Dated 05-31-00, due 06-01-00 (Secured by U.S.
Treasury Bonds, 5.500% thru 10.750%, due 02-15-03 thru 08-15-28) - Note A 6.370% 9,955 9,955,000
-----------
Coporate Savings Account (0.00%)
Investor's Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.20% ....................................... 594
-----------
TOTAL SHORT-TERM INVESTMENTS (1.61%) 9,955,594
------- -----------
TOTAL INVESTMENTS (99.73%) 616,283,306
------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.27%) 1,693,314
------- -----------
TOTAL NET ASSETS (100.00%) $617,976,620
======= ============
* A portion of this security is held in collateral for open futures
contracts -- Note A.
# Represents rate in effect on May 31, 2000.
(R) This security is 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 $9,737,500 or 1.58% of
net assets as of May 31, 2000.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Government Income Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Government Income Fund is a diversified series of John Hancock Bond
Trust, an open-end management investment company, registered under the
Investment Company Act of 1940, as amended. 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, 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 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income, which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $137,022,891 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 - $80,627,702, May 31, 2003 - $34,312,457, May 31, 2004 -
$5,561,263, May 31, 2005 - $4,339,751 and May 31, 2008 - $12,181,718.
Availability of a certain amount of these loss carryforwards which were acquired
on September 15, 1995 and December 4, 1998 in mergers, may be limited in a given
year. Additionally, net capital losses of $8,565,680 attributable to security
transactions incurred after October 31, 1999 are treated as arising on the first
day (June 1, 2000) of the Fund's next taxable year.
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
18
<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 size 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. The Fund has entered into
a syndicated line of credit agreement with various banks. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowings. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the year ended May 31, 1999.
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 May 31, 2000, open positions in financial futures contracts were as
follows:
UNREALIZED
APPRECIATION/
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
---------- -------------- -------- --------------
SEPT 00 319 TREASURY NOTE SHORT ($114,381)
SEPT 00 148 TREASURY BOND LONG 15,151
--------------
($99,230)
==============
At May 31, 2000, the Fund has deposited in a segregated account
$11,700,000 par value of U.S. Treasury Bond, 9.250%, 02-15-16, 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 the sum of (a) 0.65% of the first $200,000,000 of the Fund's
average daily net asset value, (b)
19
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Government Income Fund
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. Effective December 4, 1998, the Adviser
agreed to limit the Fund's management fee to 0.50% of the Fund's daily net
assets. Accordingly, the reduction in the management fee amounted to $870,945
for the year ended May 31, 2000. The Adviser may terminate this limitation in
the future.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the year ended May
31, 2000, up-front sales charges received with regard to sales of Class A shares
amounted to $232,105. Out of this amount, $19,689 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $84,856
was paid as sales commissions to unrelated broker-dealers and $127,560 was paid
as sales commissions to sales personnel of Signator Investors ("Signator
Investors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Life Insurance Company ("JHLICo"), 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 5.00% 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 year ended May 31, 2000,
contingent deferred sales charges paid to JH Funds amounted to $753,942.
Effective May 1, 2000, all Class C retail purchases are assessed a
1.00% up-front sales charge. For the year ended May 31, 2000, up-front sales
charges received with regard to sales of Class C shares amounted to $70. All of
this amount was paid as sales commissions to sales personnel of Signator
Investors. Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% 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 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 C shares. For the year ended
May 31, 2000, there were no contingent deferred sales charges paid to JH Funds.
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 Conduct Rules of the National Association of Securities Dealers. Under
the Conduct Rules, 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 JHLICo. 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,
accounting and legal 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. Stephen L. Brown, Ms. Maureen R. Ford 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. The investment had no impact on the operations of the Fund.
20
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Government Income Fund
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the year ended May 31, 2000, aggregated $760,922,371 and
$890,425,750, respectively.
The cost of investments (including the joint repurchase agreement)
owned at May 31, 2000 for federal income tax purposes was $652,814,721. Gross
unrealized appreciation and depreciation of investments aggregated $2,551,433
and $39,083,442, respectively, resulting in net unrealized depreciation of
$36,532,009.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended May 31, 2000, the Fund has reclassified amounts to reflect
an increase in accumulated net realized loss on investments of $6,889,988, a
decrease in distributions in excess of net investment income of $48,592 and an
increase in capital paid-in of $6,841,396. This represents the amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of May 31, 2000. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains under
federal tax rules versus generally accepted accounting principles.
NOTE E -
REORGANIZATION
On November 11, 1998, the shareholders of John Hancock Sovereign U.S. Government
Income Fund (JHSGIF) approved a plan of reorganization between JHSGIF and the
Fund, providing for the transfer of substantially all of the assets and
liabilities of JHSGIF to the Fund in exchange solely for Class A and Class B
shares of the Fund. The acquisition of JHSGIF was accounted for as a tax free
exchange of 30,190,113 Class A shares and 9,178,316 Class B shares of the Fund,
which amounted to $285,764,515 and $86,877,349 for Class A and Class B shares,
respectively, including $11,220,009 of unrealized appreciation, after the close
of business at December 4, 1998. The aggregate net assets of JHSGIF and the Fund
were $372,641,864 and $500,562,839, respectively, immediately before the
acquisition.
21
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Bond Trust
John Hancock Government Income Fund:
We have audited the accompanying statement of assets and liabilities of the John
Hancock Government Income Fund (one of the portfolios constituting the John
Hancock Bond Trust) (the "Fund"), including the schedule of investments, as of
May 31, 2000, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 2000, by correspondence with the custodian and brokers, or
other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the John Hancock Government Income Fund of the John Hancock Bond
Trust at May 31, 2000, the results of its operations for the year then ended,
and the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the indicated periods, in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
--------------------
Boston, Massachusetts
July 7, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the dividends of the Fund during the fiscal year ended May 31, 2000.
None of the 2000 dividends qualify for the dividends-received deduction
available to corporations.
Shareholders will be mailed a 2000 U.S. Treasury Department Form
1099-DIV in January 2001. This will reflect the total of all distributions which
are taxable for calendar year 2000.
22
<PAGE>
====================================NOTES=======================================
John Hancock Funds - Government Income Fund
23
<PAGE>
================================================================================
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