The latest report from your
Fund's management team
ANNUAL REPORT
Bond
Fund
MAY 31, 1999
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.*
William J. Cosgrove
Douglas M. Costle
Leland O. Erdahl
Richard A. Farrell
Gail D. Fosler
William F. Glavin
Anne C. Hodsdon
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
Richard S. Scipione
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CHAIRMAN'S MESSAGE
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief
Executive Officer, flush right next to second paragraph.]
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting
ready to celebrate this historic transition to a new millennium. At John
Hancock Funds, we share the excitement, but we aren't popping the
champagne corks just yet. Rather, we are staying on the course that we
set more than two years ago to ensure that the transition to a new
millennium is a smooth one for our shareholders.
As many already know, the Year 2000 has created more than the prospect of
New Year's festivities of epic proportions. It has also presented the
world with a challenge: making sure that older computers, and any
equipment powered by computer chips, can properly read and process the
date "00" as 2000, not 1900. Much has been written about how the world
will weather the change. Some view it as a non-event, while others see the
potential for disruptions. How much disruption, and for how long, depends
on whom you talk to.
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an
important issue to be dealt with and we have made it a top priority. Two
years ago, John Hancock Funds put a full-time team of experts on the case
and established a company-wide program to evaluate all computer
applications and to modify or replace those that needed changing.
These modifications and replacements are nearly done, and the tests of all
our systems are on schedule for completion by the end of July. The rest of
1999 will be spent testing with our business partners and continuing to
participate in industry testing. We have also established additional
contingency plans beyond our regular ones to prepare for any challenges
that the Year 2000 might present. In the end, John Hancock will spend
approximately $90-$95 million to ensure we make a successful transition to
the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is
featuring articles with more detailed information on Y2K matters of
importance to our shareholders. I encourage you to read them, or contact
one of our Customer Service Representatives at 1-800-225-5291 for another
copy. For your own peace of mind, we also recommend that you save your
1999 statements, especially those you receive between October and
December, so that you are able to check them against the first one you
receive in 2000. It's a measure of prudence, not panic. Good record
keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although
we cannot make any ironclad assurances, we are confident that the steps we
have taken will provide shareholders with as smooth a transition as
possible. Once that occurs, we will happily raise our glasses to toast the
New Year, future prosperity and our hopes to serve you well into the
2000's.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JAMES K. HO, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
ANTHONY A. GOODCHILD AND BENJAMIN MATTHEWS, PORTFOLIO MANAGERS
[A 3 1/4" x 2" photo at bottom right side of page of John Hancock Bond Fund.
Caption below reads "Fund management team members (l-r): "Ben Matthews, Lee
Crockett, Jim Ho, Tony Goodchild and Beverly Cleathero."]
John Hancock Bond Fund
Sharp contrasts and changing investor sentiment for bonds
The twelve months ended May 31, 1999 were among the most dramatic periods
for fixed-income securities in recent history. The sharp contrasts in
investment conditions between the first and second halves of the Fund's
fiscal year resulted in a modest performance for the Fund by fiscal year
end.
For the twelve months ended May 31, 1999, John Hancock Bond Fund's Class A
and Class B shares produced total returns of 3.11% and 2.39%,
respectively, at net asset value. Class C shares, which were introduced on
October 1, 1998, returned -1.95%, at net asset value, from inception
through May 31, 1999. In comparison, the average corporate debt A-rated
fund produced a return of 2.52% for the 12 months ended May 31, 1999,
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.
Longer-term performance information can be found on pages six and seven.
"...among
the most
dramatic
periods for
fixed-income
securities in
recent
history."
A tale of two market environments
During the first six months of the Fund's fiscal year, a host of overseas
economic ills -- from Russia's debt default to emerging- market currency
devaluations -- tainted all financial markets, causing investor concern
and a global flight to quality. As a result, the U.S. Treasury market
soared and yields, which move in the opposite direction from prices,
dropped to levels not seen since the early 1960s. On the other hand,
domestic corporate and high-yield bonds, along with emerging-market debt,
plummeted in price.
[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Government & Agencies 29%, the second is Banks/Financials
20%, the third Utilities 11%, the fourth Telecommunications 7% and the fifth
Media 6%. A note below the table reads "As a percentage of net assets on May
31, 1999."]
"...U.S.
corporate
and high-
yield bonds
staged a
dramatic
comeback."
In the midst of the global turmoil, the Federal Reserve Board, along with
the world's other central banks, intervened and cut interest rates. This
succeeded in injecting liquidity into the world marketplace, calming
markets and restoring investor confidence.
In the second half of the Fund's fiscal year, investors became more
comfortable taking on risk in their portfolios and once again turned their
attention to fixed-income securities that offered higher yields, and
extremely attractive prices, relative to Treasury securities. From
December through early May, U.S. corporate and high-yield bonds staged a
dramatic comeback. Mortgage-backed and asset-backed securities also gained
ground. Emerging-market issues, 1998's worst-hit bonds, rallied
impressively. U.S. Treasury securities, on the other hand, suffered
significantly. The yield on the bellwether 30-year bond steadily rose from
its record low of 4.72% in the fourth quarter of calendar 1998 to nearly
6% by period's end.
[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
Continental Cablevision followed by an up arrow with the phrase "Upcoming
merger and likely credit upgrade." The second listing is Liberty Mutual
followed by a sideways arrow with the phrase "Lackluster operating results."
The third listing is Integrated Health Services followed by a down arrow with
the phrase "Company experiencing financial difficulties." A note below the
table reads "See 'Schedule of Investments.' Investment holdings are subject
to change."]
In the final weeks of the period, the Fed renewed its bias toward a
possible interest-rate hike in light of unexpectedly strong indicators of
inflation, a bond investor's nemesis since it eats into the fixed-income
stream's purchasing power. In response, bonds across the board gave back
some recent gains.
Staying flexible pays off
While we typically focus on high-grade corporate bonds, with a complement
of other yield-enhanced securities such as high-yield bonds, we have the
flexibility to move assets among various fixed-income sectors as
opportunities arise and conditions warrant. For example, early in the
fiscal year, we bolstered the Fund's position in U.S. Treasury bonds by
slightly trimming back our exposure to corporate and high-yield bonds.
This allowed the portfolio to participate in the Treasury market's
historic run-up and avoid somewhat the worst of last summer's rout in the
corporate sector. Additionally, whenever an opportunity arose we upgraded
our corporate credit exposure and looked to relatively defensive
industries, such as telecommunications and media, whose growth and profit
potential is strong in all market cycles. We also stayed away from
cyclical issues, such as energy, paper and steel at that time.
New-year shift
By November, however, corporate bond prices had become extremely
attractive. As the second half of the fiscal year progressed, we took
advantage of the historic valuations and began redeploying assets from
Treasury securities back into investment-grade corporate and high-yield
bonds. Through extensive credit research we not only added high-grade
bonds such as Merrill Lynch Mortgage Investors and Household Finance, but
also to some lower-quality investment-grade bonds and high-yield issues in
the telecommunications, media, energy, paper and real estate investment
trust (REIT) sectors. This move helped us avoid getting hit by the full
brunt of the Treasury market decline, while allowing us to participate
fully in the corporate sector's rally. Noteworthy performers in the media
and telecommunications area included Continental Cablevision, Global
Crossing Holdings, NEXTLINK Communications, Nextel Communications and
Adelphia Communications. In the other sectors, we had solid performances
from Union Pacific, Packaging Corp. and ProLogis.
[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, 1999." The chart
is scaled in increments of .5% with -2.0% at the bottom and 3.5% at the top.
The first bar represents the 3.11% total return for John Hancock Bond Fund
Class A. The second bar represents the 2.39% total return for John Hancock
Bond Fund Class B. The third bar represents the -1.95%* total return for John
Hancock Bond Fund Class C. The fourth bar represents the 2.52% total return
for Average corporate debt A-rated fund. A note below the chart reads "Total
returns for John Hancock Bond Fund are at net asset value with all
distributions reinvested. The average corporate debt A-rated fund is tracked
by Lipper, Inc.1 See the following two pages for historical performance
information. *From inception October 1, 1998 to May 31, 1999."]
The Fund's mortgage-backed and asset-backed holdings, which held us back
in the first half, rose in value along with corporate bonds during the
period's second half. As prices rose, we decreased our weighting in these
holdings to realize profits. Throughout the year, we avoided most
emerging-market debt, keeping one element of volatility out of the
portfolio. These bonds rode a wild roller-coaster ride of price changes
right up to the last day of the period.
Duration moves
Early on we maintained a slightly longer-than-average duration stance
within the Treasury sector. Duration is a measure of the Fund's
sensitivity to interest-rate changes. When interest rates decline, a
longer duration offers greater potential for price appreciation; the
opposite holds true when rates rise. Our stance helped the Fund's
performance last year as interest rates trended downward with the
anticipation of the Fed's rate cuts. By early 1999, we had moved toward a
more neutral position, not making any major bets on future interest-rate
movements. Near period's end, we took on a shorter duration posture,
anticipating the likelihood of rising interest rates as inflationary
concerns began to arise.
"...extensive
credit
research will
be the key
to success."
Outlook is mixed
We look forward with cautious optimism. The mere prospect of a Fed rate
hike could unnerve investors. This, in turn, could push yields higher
across the board and place downward pressure on bond prices. On the flip
side, however, the economy is in good shape, corporate earnings remain
healthy and inflation is still low. We see the current environment as one
providing an ideal opportunity to selectively and incrementally increase
our corporate bond exposure. As always, extensive credit research will be
the key to success.
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.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average
annual total returns for the John Hancock Bond Fund. Total return measures
the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable
sales charge of 4.5%. Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years).
Class C performance includes a contingent deferred sales charge (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, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- -------
Cumulative Total Returns 0.39% 39.20% 123.98%
Average Annual Total Returns 0.39% 6.84% 8.40%
CLASS B
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (11/23/93)
------- ------- -------
Cumulative Total Returns (0.53%) 38.19% 36.77%
Average Annual Total Returns (0.53%) 6.68% 6.03%
CLASS B
For the period ended March 31, 1999
SINCE
INCEPTION
(10/1/98)
-------
Cumulative Total Return (2.08%)
Average Annual Total Return (2.08%)(1)
YIELDS
As of May 31, 1999
SEC 30-DAY
YIELD
-------
John Hancock Bond Fund:
Class A 5.96%
John Hancock Bond Fund:
Class B 5.53%
John Hancock Bond Fund:
Class C 5.53%
Notes to Performance
(1) Not annualized.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock 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 Corporate Bond Index, an
unmanaged index that mirrors the investment objectives and characteristics
of the Fund. Past performance is not indicative of future results.
Line chart with the heading John Hancock 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
Corporate Bond Index and is equal to $22,701 as of May 31, 1999. The second
line represents the value of the hypothetical $10,000 investment made in the
John Hancock Bond Fund on May 31, 1989, before sales charge, and is equal to
$22,410 as of May 31, 1999. The third line represents the value of the same
hypothetical investment made in the John Hancock Bond Fund, after sales
charge, and is equal to $21,396 as of May 31, 1999.
Line chart with the heading John Hancock Bond 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
Corporate Bond Index and is equal to $14,047 as of May 31, 1999. The second
line represents the value of the hypothetical $10,000 investment made in the
John Hancock Bond Fund on November 23, 1993, before sales charge, and is
equal to $13,656 as of May 31, 1999. The third line represents the value of
the same hypothetical investment made in the John Hancock Bond Fund, after
sales charge, and is equal to $13,556 as of May 31, 1999.
Line chart with the heading John Hancock 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
Corporate Bond Index and is equal to $9,969 as of May 31, 1999. The second
line represents the value of the hypothetical $10,000 investment made in the
John Hancock Bond Fund on October 1, 1998, before sales charge, and is equal
to $9,805 as of May 31, 1999. The third line represents the value of the same
hypothetical investment made in the John Hancock Bond Fund, after sales
charge, and is equal to $9,711 as of May 31, 1999.
FINANCIAL STATEMENTS
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, 1999.
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, 1999
- -----------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $1,461,942,830) $1,440,719,573
Preferred stocks and warrants (cost - $8,098,475) 8,739,166
Joint repurchase agreement (cost - $75,068,000) 75,068,000
Corporate savings account 4,431,706
--------------
1,528,958,445
Receivable for investments sold 63,658,556
Receivable for shares sold 1,253,515
Interest receivable 27,540,308
Other assets 127,317
--------------
Total Assets 1,621,538,141
- -----------------------------------------------------------------------
Liabilities:
Payable for investments purchased 80,764,832
Payable for shares repurchased 182,847
Payable for variation margin - Note A 46,096
Dividend payable 806,328
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 1,067,897
Accounts payable and accrued expenses 129,317
--------------
Total Liabilities 82,997,317
- -----------------------------------------------------------------------
Net Assets:
Capital paid-in 1,588,833,823
Accumulated net realized loss on investments and
financial futures contracts (29,374,286)
Net unrealized depreciation of investments and
financial futures contracts (20,633,860)
Distributions in excess of net investment
income (284,853)
--------------
Net Assets $1,538,540,824
=======================================================================
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 - $1,278,582,000/86,620,517 $14.76
=======================================================================
Class B - $238,591,181/16,163,916 $14.76
=======================================================================
Class C* - $21,367,643/1,447,601 $14.76
=======================================================================
Maximum Offering Price Per Share**
Class A - ($14.76 x 104.71%) $15.46
=======================================================================
* Class C shares commenced operations on October 1, 1998.
** 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, 1999
- -----------------------------------------------------------------------
Investment Income:
Interest $113,195,477
Dividends 1,165,278
--------------
114,360,755
--------------
Expenses:
Investment management fee - Note B 7,686,223
Distribution and service fee - Note B
Class A 3,967,564
Class B 2,108,507
Class C 81,045
Transfer agent fee - Note B 3,391,395
Custodian fee 272,949
Accounting and legal services fee - Note B 226,136
Registration and filing fees 96,440
Trustees' fees 76,013
Miscellaneous 49,465
Auditing fee 43,346
Printing 35,108
Legal fees 24,159
--------------
Total Expenses 18,058,350
- -----------------------------------------------------------------------
Net Investment Income 96,302,405
- -----------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized loss on investments sold (3,011,034)
Net realized gain on financial futures
contracts 418,435
Change in net unrealized
appreciation/depreciation
of investments (49,067,906)
Change in net unrealized
appreciation/depreciation
of financial futures contracts (51,294)
--------------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts (51,711,799)
- -----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $44,590,606
=======================================================================
See notes to financial statements.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
-------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $102,539,689 $96,302,405
Net realized gain (loss) on investments
sold and financial futures contracts 5,946,744 (2,592,599)
Change in net unrealized
appreciation/depreciation of investments
and financial futures contracts 41,880,372 (49,119,200)
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 150,366,805 44,590,606
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($1.0541 and $0.9665 per share,
respectively) (93,841,029) (83,968,102)
Class B - ($0.9471 and $0.8597 per share,
respectively) (9,295,588) (11,887,365)
Class C** - (none and $0.5512 per share,
respectively) -- (446,938)
-------------- --------------
Total Distributions to Shareholders (103,136,617) (96,302,405)
-------------- --------------
From Fund Share Transactions -- Net:* (48,328,644) 96,541,466
-------------- --------------
Net Assets:
Beginning of period 1,494,809,613 1,493,711,157
-------------- --------------
End of period (including distributions in
excess of net investment income of
$285,775 and $284,853, respectively) $1,493,711,157 $1,538,540,824
============== ==============
* Analysis of Fund Share Transactions:
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------------------------
1998 1999
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 13,358,697 $202,416,255 33,840,928 $513,805,047
Shares issued to shareholders in
reinvestment of distributions 4,785,248 72,548,258 4,291,217 65,236,811
-------------- -------------- -------------- --------------
18,143,945 274,964,513 38,132,145 579,041,858
Less shares repurchased (23,250,555) (352,004,533) (38,555,126) (585,265,951)
-------------- -------------- -------------- --------------
Net decrease (5,106,610) ($77,040,020) (422,981) ($6,224,093)
============== ============== ============== ==============
CLASS B
Shares sold 3,527,995 $53,560,903 8,756,754 $133,473,644
Shares issued to shareholders in
reinvestment of distributions 347,196 5,266,476 440,757 6,690,223
-------------- -------------- -------------- --------------
3,875,191 58,827,379 9,197,511 140,163,867
Less shares repurchased (1,984,859) (30,116,003) (3,915,180) (59,486,821)
-------------- -------------- -------------- --------------
Net increase 1,890,332 $28,711,376 5,282,331 $80,677,046
============== ============== ============== ==============
CLASS C**
Shares sold -- -- 1,510,673 $23,046,624
Shares issued to shareholders in
reinvestment of distributions -- -- 24,293 365,237
-------------- -------------- -------------- --------------
-- -- 1,534,966 23,411,861
Less shares repurchased -- -- (87,365) (1,323,348)
-------------- -------------- -------------- --------------
Net increase -- -- 1,447,601 $22,088,513
============== ============== ============== ==============
** Class C shares commenced operations on October 1, 1998.
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.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns,
key ratios and supplemental data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM YEAR ENDED MAY 31,
----------------------------------- JANUARY 1, 1997 TO ----------------------
1994 1995 1996 MAY 31, 1997(6) 1998 1999
-------- -------- -------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of
Period $15.53 $13.90 $15.40 $14.90 $14.78 $15.25
-------- -------- -------- -------- -------- --------
Net Investment Income 1.12 1.12 1.09 0.44 1.05(2) 0.97(2)
Net Realized and Unrealized
Gain (Loss) on Investments and
Financial Futures Contracts (1.55) 1.50 (0.50) (0.12) 0.47 (0.49)
-------- -------- -------- -------- -------- --------
Total from Investment
Operations (0.43) 2.62 0.59 0.32 1.52 0.48
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income (1.12) (1.12) (1.09) (0.44) (1.05) (0.97)
Distributions from Net Realized
Gain on Investments Sold and
Financial Futures Contracts (0.08) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions (1.20) (1.12) (1.09) (0.44) (1.05) (0.97)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $13.90 $15.40 $14.90 $14.78 $15.25 $14.76
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(1) (2.75%) 19.40% 4.11% 2.22%(3) 10.54% 3.11%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $1,326,058 $1,535,204 $1,416,116 $1,361,924 $1,327,728 $1,278,582
Ratio of Expenses to Average
Net Assets 1.26% 1.13% 1.14% 1.11%(4) 1.08% 1.07%
Ratio of Net Investment Income
to Average Net Assets 7.74% 7.58% 7.32% 7.38%(4) 6.90% 6.35%
Portfolio Turnover Rate 85% 103%(5) 123% 58% 198% 228%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of
Period $15.52 $13.90 $15.40 $14.90 $14.78 $15.25
-------- -------- -------- -------- -------- --------
Net Investment Income 1.04 1.02 0.98 0.40 0.95(2) 0.86(2)
Net Realized and Unrealized
Gain (Loss) on Investments and
Financial Futures Contracts (1.54) 1.50 (0.50) (0.12) 0.47 (0.49)
-------- -------- -------- -------- -------- --------
Total from Investment
Operations (0.50) 2.52 0.48 0.28 1.42 0.37
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income (1.04) (1.02) (0.98) (0.40) (0.95) (0.86)
Distributions from Net Realized
Gain on Investments Sold and
Financial Futures Contracts (0.08) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions (1.12) (1.02) (0.98) (0.40) (0.95) (0.86)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $13.90 $15.40 $14.90 $14.78 $15.25 $14.76
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(1) (3.13%) 18.66% 3.38% 1.93%(3) 9.78% 2.39%
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $40,299 $98,739 $134,112 $132,885 $165,983 $238,591
Ratio of Expenses to Average
Net Assets 1.78% 1.75% 1.84% 1.81%(4) 1.78% 1.77%
Ratio of Net Investment Income
to Average Net Assets 7.30% 6.87% 6.62% 6.68%(4) 6.18% 5.65%
Portfolio Turnover Rate 85% 103%(5) 123% 58% 198% 228%
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- -------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
OCTOBER 1, 1998
(COMMENCEMENT OF
OPERATIONS)
TO MAY 31, 1999
---------------
<S> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of
Period $15.61
--------
Net Investment Income(2) 0.55
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts (0.85)
--------
Total from Investment
Operations (0.30)
--------
Less Distributions:
Dividends from Net Investment
Income (0.55)
--------
Net Asset Value, End of Period $14.76
========
Total Investment Return at Net
Asset Value(1) (1.95%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $21,368
Ratio of Expenses to Average
Net Assets 1.77%(4)
Ratio of Net Investment Income
to Average Net Assets 5.65%(4)
Portfolio Turnover Rate 228%
(1) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Not annualized.
(4) Annualized.
(5) Portfolio turnover rate excludes merger activity.
(6) Effective May 31, 1997, the fiscal period end changed from December 31 to May 31.
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated:
net investment income, gains (losses), distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period. Additionally, important relationships
between some items presented in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
May 31, 1999
- ----------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Bond Fund on May 31, 1999. It's divided into three main categories: bonds,
preferred stocks and warrants, and short-term investments. The bonds are
further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
BONDS
Aerospace (0.45%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2
08-15-14 (R) 10.910% BBB $5,800 $7,012,780
-----------
Automobile/Trucks (0.88%)
Chrysler Financial Co. LLC,
Med Term Note Ser S 11-15-01 5.690 A+ 4,520 4,473,082
ERAC USA Finance Co.,
Note 02-15-05 (R) 6.625 BBB+ 6,200 6,029,500
United Rentals, Inc.,
Note 04-01-09 (R) 9.000 BB- 3,060 3,067,038
-----------
13,569,620
-----------
Banks - Foreign (3.19%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) 8.200 AA- 10,000 10,694,000
African Development Bank,
Sub Note (Supra National) 12-15-03 (Y) 9.750 AA- 8,000 9,085,920
International Bank for Reconstruction & Development,
Deb (Supra National) 09-01-16 (Y) 8.250 AAA 5,000 5,881,700
RBSG Capital Corp.,
Gtd Cap Note (Scotland) 03-01-04 (Y) 10.125 A 10,605 11,908,142
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (Netherlands) 11-01-06 (R) (Y) 8.850 A+ 10,250 11,457,245
-----------
49,027,007
-----------
Banks - United States (3.55%)
Banc One Corp.,
Sub Deb 10-15-26 7.625 A 4,445 4,622,578
BankBoston Corp.,
Sub Note 12-01-05 6.625 BBB+ 4,115 4,060,229
Bank of New York,
Cap Security 12-01-26 (R) 7.780 A- 5,425 5,243,425
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 9.750 AA- 8,925 9,760,023
First Union National Bank,
Sub Note 12-01-28 6.500 A 4,475 4,028,842
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 9.450 AA- 10,000 10,610,900
NB Capital Trust IV,
Gtd Cap Security 04-15-27 8.250 A- 2,915 3,032,912
Security Pacific Corp.,
Medium Term Sub Note 05-09-01 10.360 A 6,000 6,463,860
Sub Note 11-15-00 11.500 A 6,400 6,888,448
-----------
54,711,217
-----------
Beverages (0.26%)
Canadaigua Brands, Inc.,
Sr Sub Notes Ser C 12-15-03 8.750 B+ 4,115 4,115,000
-----------
Broker Services (0.27%)
Merrill Lynch & Co., Inc.,
Note 11-15-18 6.875 AA- 4,390 4,227,921
-----------
Building (0.45%)
Oakwood Homes Corp.,
Sr Note 03-01-04 7.875 BBB- 3,200 3,148,320
Owens Corning,
Note 03-15-09 7.000 BBB- 4,090 3,887,136
-----------
7,035,456
-----------
Chemicals (0.71%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) 6.000 A 2,820 2,754,435
Equistar Chemicals, L.P.,
Sr Note 02-15-04 (R) 8.500 BBB- 3,950 4,078,375
Monsanto Co.,
Deb 12-01-28 (R) 6.600 A 4,440 4,058,116
-----------
10,890,926
-----------
Computers (0.93%)
PSINet, Inc.,
Sr Note 11-01-08 11.500 B- 4,540 4,767,000
Primark Corp.,
Sr Sub Note 12-15-08 9.250 B+ 3,170 3,059,050
Verio, Inc.,
Sr Note 04-01-05 10.375 B- 6,235 6,422,050
-----------
14,248,100
-----------
Cosmetics & Personal Care (0.44%)
Johnson & Johnson,
Deb 11-15-23 6.730 AAA 6,750 6,713,550
-----------
Energy (1.17%)
AES Corp.,
Sr Sub Note 07-15-06 10.250 B+ 6,005 6,245,200
MidAmerican Energy Holdings,
Sr Bond 09-15-28 8.480 BBB- 2,885 3,168,134
Sr Note 09-15-06 9.500 BBB- 4,115 4,475,351
P & L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 9.625 B 4,040 4,040,000
-----------
17,928,685
-----------
Finance (3.93%)
Bombardier Capital, Inc.,
Note 01-15-02 (R) 6.000 BBB+ 4,620 4,541,922
Chrysler Financial Corp.,
Deb 11-01-99 12.750 A+ 3,000 3,090,990
CIT Group Holdings, Inc.,
Deb 03-15-01 9.250 A 5,000 5,262,550
Note 10-15-01 5.500 A+ 5,485 5,402,725
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R) 9.150 BBB 3,725 3,806,056
Finova Capital Corp.,
Note 11-01-02 6.250 A- 4,105 4,070,107
Ford Motor Credit Co.,
Note 04-28-03 6.125 A 5,500 5,449,125
General Motors Acceptance Corp.,
Note 12-01-01 6.375 A 5,470 5,489,418
Household Finance Corp.,
Note 11-01-02 5.875 A 6,860 6,744,752
Sr Note 02-01-09 5.875 A 3,320 3,079,300
Marlin Water Trust & Marlin Water Capital Corp.,
Sr Sec Note 12-15-01 (R) 7.090 BBB 5,455 5,455,000
Merrill Lynch Mortgage Investors, Inc.,
Sub Bond Ser 1992-B Class B
04-15-12 8.500 Aaa 1,950 1,963,677
Midland Funding Corp. II,
Deb Ser B 07-23-06 13.250 BB 1,900 2,286,612
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A 06-15-04 (R) 8.400 BBB- 4,102 3,815,209
-----------
60,457,443
-----------
Food (0.26%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 11.875 B 1,580 1,635,300
Luigino's, Inc.,
Sr Sub Note 02-01-06 (R) 10.000 B- 2,365 2,365,000
-----------
4,000,300
-----------
Government - Foreign (1.07%)
Nova Scotia, Province of,
Deb (Canada) 04-01-22 (Y) 8.750 A- 7,500 9,066,825
Quebec, Province of,
Deb (Canada) 09-15-14 (Y) 13.250 A+ 1,000 1,067,070
Saskatchewan, Province of,
Bond (Canada) 12-15-20 (Y) 9.375% A 5,000 6,352,600
-----------
16,486,495
-----------
Government - U.S. (20.93%)
United States Treasury,
Bond 08-15-17 8.875 AAA 46,652 60,581,821
Bond 05-15-18 9.125 AAA 47,075 62,727,437
Bond 02-15-23 7.125 AAA 51,384 57,967,318
Note 05-15-01 8.000 AAA 4,391 4,596,148
Note 05-15-02 7.500 AAA 27,866 29,289,674
Note 08-15-03 5.750 AAA 31,000 31,062,930
Note 02-15-05 7.500 AAA 26,735 28,961,491
Note 07-15-06 7.000 AAA 43,782 46,757,863
-----------
321,944,682
-----------
Government - U.S. Agencies (7.96%)
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 11.250 AAA 732 807,856
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 09-01-10 to
08-01-13 7.000 AAA 3,434 3,483,863
15 Yr Pass Thru Ctf 12-01-12 6.500 AAA 9,820 9,777,121
15 Yr Pass Thru Ctf 01-25-05 8.000 AAA 9,262 9,412,897
15 Yr Pass Thru Ctf 02-01-08 7.500 AAA 1,466 1,506,066
30 Yr Pass Thru Ctf 11-01-28 6.500 AAA 3,758 3,673,440
30 Yr Pass Thru Ctf 10-01-23 7.000 AAA 5,594 5,604,618
Pass Thru Ctf Ser 1997-M8 Class A-1
01-25-22 6.940 AAA 3,317 3,370,990
Financing Corp.,
Bond 02-08-18 9.400 AAA 7,000 9,206,120
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 02-15-28 to
01-15-29 6.500 AAA 14,956 14,586,486
30 Yr Pass Thru Ctf 06-15-28 to
04-15-29 7.000 AAA 26,552 26,552,226
30 Yr Pass Thru Ctf 07-15-02 to
06-15-28 7.500 AAA 18,362 18,789,600
30 Yr Pass Thru Ctf 11-15-22 8.000 AAA 3,055 3,185,536
30 Yr Pass Thru Ctf 07-15-16 to
01-15-25 9.000 AAA 8,478 9,081,323
30 Yr Pass Thru Ctf 11-15-19 to
05-15-21 9.500 AAA 1,869 2,008,636
30 Yr Pass Thru Ctf 06-15-20 to
03-15-25 10.000 AAA 1,024 1,102,923
30 Yr Pass Thru Ctf 01-15-16 10.500 AAA 78 84,616
30 Yr Pass Thru Ctf 01-15-16 11.000 AAA 148 163,034
-----------
122,397,351
-----------
Insurance (4.06%)
Conseco, Inc.,
Note 06-15-05 6.800 BBB 2,030 1,926,003
Equitable Life Assurance Society of the United States,
Surplus Note 12-01-05 (R) 6.950 A 6,050 6,071,054
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26 (Y) 8.300 BBB+ 3,775 3,720,489
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) 8.200 A+ 4,190 4,511,960
Surplus Note 10-15-26 (R) 7.875 A+ 1,460 1,457,474
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) 7.625 AA 10,450 10,841,875
NAC Re Corp.,
Note 06-15-99 8.000 A- 3,360 3,362,453
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) 7.500 AA- 15,000 14,857,200
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) 6.625 AA 7,250 7,105,000
URC Holdings Corp.,
Sr Note 06-30-06 (R) 7.875 A- 5,665 5,793,709
Willis Corroon Group Plc,
Sr Sub Note 02-01-09 (R) 9.000 B+ 2,890 2,788,850
-----------
62,436,067
-----------
Leisure (1.81%)
HMH Properties, Inc.,
Sr Gtd Sec Note Ser A 08-01-05 7.875 BB 2,525 2,386,125
Harrah's Operating Co., Inc.,
Sr Note 01-15-09 7.500 BBB- 2,635 2,583,617
Sr Sub Note 12-15-05 7.875 BB+ 3,080 2,979,900
Marvel Enterprises, Inc.,
Sr Note 06-15-09 (R) 12.000 B- 3,905 4,031,912
SFX Entertainment, Inc.,
Gtd Sr Sub Note 12-01-08 9.125 B- 4,465 4,465,000
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas) 03-15-07 (Y) 9.000 B+ 2,000 2,010,000
Gtd Sr Sub Note (Bahamas) 12-15-07 (Y) 8.625 B+ 2,225 2,202,750
Trump Hotels & Casino Resorts Funding,
Inc./Holdings, L.P.,
Sr Note 06-15-05 15.500 B- 5,150 5,253,000
Waterford Gaming LLC,
Sr Note 03-15-10 (R) 9.500 B+ 1,930 1,958,950
-----------
27,871,254
-----------
Manufacturing (0.03%)
Globe Manufacturing Corp.,
Gtd Sr Sub Note 08-01-08 10.000 B- 600 480,000
-----------
Media (6.44%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 9.250 B+ 4,750 4,868,750
Sr Note Ser B 07-15-03 8.125 B1 2,250 2,216,250
Sr Note 05-01-09 7.875 B1 1,530 1,449,675
CSC Holdings, Inc.,
Sr Note 07-15-08 7.250 BB+ 2,875 2,823,767
Sr Sub Deb 05-15-16 10.500 BB- 2,890 3,352,400
Century Communications Corp.,
Sr Note 08-15-00 9.500 BB- 2,545 2,608,625
Comcast Cellular Holdings, Inc.,
Sr Note Ser B 05-01-07 9.500 BB+ 8,220 9,165,300
Continental Cablevision, Inc.,
Sr Note 05-15-06 8.300 BBB 3,765 4,037,887
EchoStar DBS Corp.,
Sr Note 02-01-09 (R) 9.375 B 3,630 3,657,225
Falcon Holdings Group L.P.,
Deb Ser B 04-15-10 8.375 B 2,820 2,749,500
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 (R) 8.625 B+ 2,445 2,421,699
Sr Sub Note Ser B 10-01-09 8.750 B+ 2,365 2,341,350
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 8.250 BBB- 4,670 5,005,072
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) 10.000 BB+ 8,000 8,900,000
Sec 2nd Priority Note (Canada)
08-01-02 (Y) 9.625 BB+ 2,585 2,714,250
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 10.750 B- 2,960 3,322,600
TCI Communications, Inc.,
Sr Deb 02-15-26 7.875 AA- 4,455 4,817,058
TKR Cable I, Inc.,
Sr Deb 10-30-07 10.500 AA- 17,240 18,453,351
TV Guide, Inc.,
Sr Sub Note 03-01-09 (R) 8.125 B+ 4,850 4,704,500
Time Warner, Inc.,
Deb 01-15-13 9.125 BBB 4,620 5,417,735
Deb 05-15-29 6.625 BBB 4,395 4,003,757
-----------
99,030,751
-----------
Medical (1.43%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) 10.750 B+ 2,350 2,420,500
Sr Note (Canada) 01-15-06 (R) (Y) 10.750 B+ 2,690 2,770,700
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security
02-01-08 7.875 B+ 3,480 3,323,400
Guidant Corp.,
Note 02-15-06 6.150 A- 3,720 3,522,468
Integrated Health Services, Inc.,
Sr Sub Deb 01-01-01 5.750 CCC 3,525 2,009,250
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 10.750 B+ 3,185 3,678,675
Sola International, Inc.,
Note 03-15-08 6.875 BBB- 1,580 1,403,214
Tenet Healthcare Corp.,
Sr Note 12-01-03 8.625 BB+ 1,330 1,346,625
Watson Pharmaceuticals, Inc.,
Sr Note 05-15-08 7.125 BBB- 1,590 1,536,337
-----------
22,011,169
-----------
Metal (0.34%)
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 (R) 12.000 BB- 2,465 2,538,950
National Steel Corp.,
1st Mtg Bond Ser B 03-01-09 (R) 9.875 B+ 2,620 2,659,300
-----------
5,198,250
-----------
Mortgage Banking (3.31%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A
08-15-02 6.350 AAA 3,955 3,984,742
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5
08-15-25 8.100 AAA 3,880 3,991,550
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser
1998-C1 Class A-1A 12-17-07 6.260 AAA 5,314 5,239,540
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass Thru Ctf Ser
1998-C1 Class C 03-15-08 6.861 A2 3,585 3,386,706
First Union-Lehman Brothers-Bank of America,
Pass Thru Ctf Ser 1998-C2 Class A-1
06-18-07 6.280 AAA 4,363 4,320,638
FirstPlus Home Loan Trust,
Pass Thru Ctf Ser 1998-4 Class A-5
01-10-18 6.380 AAA 6,220 5,904,299
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3
11-15-07 6.566 Aaa 6,025 5,964,750
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-1 Class A-5
12-25-13 6.290 AAA 6,816 6,826,701
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2
Class A-2 07-25-24 6.750 Aaa 3,940 3,917,897
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-D1 Class A6
02-15-25 7.180 AAA 7,260 7,359,825
-----------
50,896,648
-----------
Oil & Gas (2.58%)
Burlington Resources, Inc.,
Deb 03-01-29 7.375 A- 4,425 4,491,375
CMS Panhandle Holding Co.,
Sr Note 07-15-29 (R) 7.000 BBB- 2,940 2,775,360
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01 (Y) 9.250 BBB- 3,475 3,370,750
Conoco, Inc.,
Sr Note 04-15-29 6.950 A- 4,400 4,221,096
El Paso Energy Corp.,
Sr Note 05-15-09 6.750 BBB- 3,470 3,378,912
Ocean Energy, Inc.,
Sr Sub Note 07-15-07 8.875 BB- 2,940 2,954,700
Petroleos Mexicanos Finance Ltd.,
Note (Cayman Islands) 02-15-08 (R) (Y) 6.550 AAA 4,175 4,101,937
Petroleos Mexicanos,
Gtd Sr Note (Mexico) 12-02-08 (R) (Y) 9.375 BB 1,825 1,815,875
Petroleum Geo-Services, Inc.,
Sr Note (Norway) 03-30-08 (Y) 6.625 BBB 4,165 3,978,783
Triton Energy,
Sr Note 04-15-02 8.750 B+ 4,630 4,548,975
Valero Energy Corp.,
Note 03-15-06 7.375 BBB- 4,085 4,004,117
-----------
39,641,880
-----------
Paper & Paper Products (1.07%)
Fort James Corp.,
Sr Note 09-15-02 6.500 BBB- 4,110 4,118,836
Packaging Corp.,
Sr Sub Note 04-01-09 (R) 9.625 B 3,135 3,182,025
Repap New Brunswick,
Sr Sec Note (Canada) 06-01-04 (R) (Y) 11.500 B- 2,425 2,449,250
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 12.000 B+ 6,195 6,644,138
-----------
16,394,249
-----------
Real Estate Operations (0.23%)
Mack-Cali Realty L.P.,
Note 03-15-09 7.250 BBB 3,690 3,542,400
-----------
Real Estate Investment Trust (1.36%)
American Health Properties, Inc.,
Note 01-15-07 7.500 BBB- 3,510 3,115,125
Cabot Industrial Properties L.P.,
Note 05-01-04 7.125 BBB- 3,400 3,355,120
Camden Property Trust,
Sr Note 04-15-04 7.000 BBB 3,755 3,691,165
Liberty Property L.P.,
Med Term Note 06-05-02 6.600 BBB- 2,990 2,907,775
ProLogis Trust,
Sr Note 04-15-04 6.700 BBB+ 3,520 3,449,600
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 7.300 BBB- 4,395 4,366,345
-----------
20,885,130
-----------
Retail (1.28%)
Great Atlantic & Pacific Tea Co., Inc. (The)
Note 04-15-07 7.750 BBB- 4,600 4,501,284
Meyer (Fred), Inc.,
Note 03-01-08 7.450 BBB- 7,255 7,406,847
Pathmark Stores, Inc.,
Sub Note 06-15-02 11.625 CCC+ 5,200 5,304,000
Safeway, Inc.,
Sr Note 11-15-01 5.875 BBB 2,480 2,453,464
-----------
19,665,595
-----------
Telecommunications (6.90%)
AXIA, Inc.,
Sr Sub Note 07-15-08 10.750 B- 1,625 1,592,500
Call-Net Enterprises, Inc.,
Sr Note (Canada) 05-15-09 (Y) 9.375 BB- 3,350 3,216,000
Clearnet Communications, Inc.,
Sr Disc Notes (Canada) 05-01-09 (A) (Y) Zero B3 3,295 1,746,350
Electric Lightwave, Inc.,
Note 05-15-04 (R) 6.050 AA- 3,415 3,325,117
GTE North, Inc.,
Deb Ser H 11-15-08 5.650 AA- 5,715 5,311,121
Global Crossing Holdings, Ltd.,
Sr Note 05-15-08 9.625 BB 4,060 4,445,700
Hermes Europe Railtel B.V.,
Sr Note (Netherlands) 08-15-07 (Y) 11.500 B 2,450 2,554,125
Sr Note (Netherlands) 01-15-09 (Y) 10.375 B 1,455 1,484,100
Intermedia Communications, Inc.,
Sr Note Ser B 06-01-08 8.600 B 1,865 1,743,775
LCI International, Inc.,
Sr Note 06-15-07 7.250 BB+ 3,825 3,796,963
Lenfest Communications,
Sr Sub Note 06-15-06 10.500 BB- 5,645 6,661,100
McLeodUSA, Inc.,
Sr Note 02-15-09 (R) 8.125 B+ 2,890 2,716,600
Sr Note 11-01-08 9.500 B+ 3,090 3,105,450
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 (R) 10.000 B 4,710 4,863,075
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) 12.000 B 2,425 2,837,250
NTL, Inc.,
Sr Note 10-01-08 (R) 11.500 B- 3,770 4,090,450
Nextel Communications, Inc.,
Sr Disc Note, 08-15-04 9.750 B- 2,710 2,791,300
Sr Disc Note, Step Coupon (9.95%,
02-15-03) 02-15-08 (A) Zero B- 3,410 2,267,650
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 (R) 10.750 B 4,855 4,855,000
Orange Plc,
Sr Note (United Kingdom) 08-01-08 (Y) 8.000 BB- 3,780 3,883,950
Pegasus Communications Corp.,
Sr Note 10-15-05 9.625 B- 1,550 1,592,625
Qwest Communications International, Inc.,
Sr Note 11-01-08 (R) 7.250 BB+ 5,505 5,408,663
RCN Corp.,
Sr Note 10-15-07 10.000 B3 2,315 2,315,000
Sprint Capital Corp.,
Gtd Note 05-01-19 6.900 BBB+ 7,330 7,014,810
Telecorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon
(11.625%, 04-15-04) 04-15-09 (A) (R) Zero B3 3,045 1,568,175
Viatel, Inc.,
Sr Sec Note 04-15-08 11.250 Caa1 4,045 4,045,000
WorldCom, Inc.,
Sr Note 08-15-01 6.125 BBB+ 6,230 6,224,019
Sr Note 08-15-28 6.950 BBB+ 6,470 6,299,710
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (R) (Y) 12.500 B- 4,340 4,470,200
-----------
106,225,778
-----------
Textile (0.33%)
Tropical Sportswear International Corp.,
Gtd Sr Sub Note Ser A 06-15-08 11.000 B- 1,410 1,466,400
WestPoint Stevens, Inc.,
Sr Note 06-15-05 7.875 BB 3,715 3,668,563
-----------
5,134,963
-----------
Transport (5.35%)
America West Airlines, Inc.,
Pass Thru Ctf Ser B 01-02-08 6.930 A- 3,996 3,918,133
Continental Airlines,
Pass Thru Ctf Ser 96-C 10-15-13 9.500 BBB+ 4,653 5,001,588
Pass Thru Ctf Ser 1999-1A 08-02-20 6.545 AA+ 5,615 5,488,663
Note 12-15-05 8.000 BB- 3,915 3,817,125
Fine Air Services, Inc.,
Sr Note 06-01-08 9.875 B 3,735 3,286,800
Humpuss Funding Corp.,
Gtd Note 12-15-09 (R) 7.720 B3 4,604 2,968,305
NWA Trust,
Sr Note Ser A 12-21-12 9.250 AA 5,236 5,734,150
Northwest Airlines, Inc.,
Gtd Note 03-15-04 8.375 BB 4,505 4,341,153
Pass Thru Ctf Ser 1996-1 01-02-15 8.970 BBB- 3,641 3,729,184
Pass Thru Ctf Ser 1996-1C 01-02-05 10.150 BBB- 2,864 2,907,139
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A
06-01-04 7.750 AAA 12,639 13,039,558
Scandinavian Airlines System,
Deb (Sweden) 07-20-99 (Y) 9.125 A3 6,834 6,868,170
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 11.200 BB 7,369 8,013,932
Ucar Global Enterprises, Inc.,
Sr Sub Note 01-15-05 12.000 B 6,470 6,890,550
Union Pacific Corp.,
Deb 02-01-29 6.625 BBB- 4,390 3,942,044
Wisconsin Central Transportation Corp.,
Note 04-15-08 6.625 BBB- 2,470 2,389,725
-----------
82,336,219
-----------
Utilities (10.67%)
AES Eastern Energy,
Pass Thru Ctf 01-02-17 (R) 9.000 BBB- 3,660 3,661,830
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 9.000 BB- 5,005 5,561,806
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 8.890 BB- 6,600 7,375,500
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A (Philippines)
11-15-05 (Y) 11.450 BB+ 4,100 3,649,000
CMS Energy Corp.,
Sr Note 01-15-04 (R) 6.750 BB 3,545 3,367,750
Sr Note 01-15-09 7.500 BB 5,250 5,013,750
Calpine Corp.,
Sr Note 04-15-09 7.750 BB 3,775 3,665,525
Sr Note 05-15-06 10.500 BB 4,650 5,033,625
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 9.500 BB+ 10,220 10,884,300
Connecticut Light & Power Co.,
1st Mtg Ser C 06-01-02 7.750 BBB- 1,900 1,944,441
EIP Funding-PNM,
Sec Fac Bond 10-01-12 10.250 BB- 9,039 10,189,665
East Coast Power LLC,
Sr Sec Note 03-31-12 (R) 7.066 BBB- 4,670 4,455,764
GG1B Funding Corp.,
Deb 01-15-11 7.430 BBB- 3,699 3,642,774
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) 9.400 A+ 3,140 3,958,472
Gtd Deb (Canada) 02-01-03 (Y) 7.375 A+ 7,185 7,410,753
Gtd Deb Ser FU (Canada) 02-01-12 (Y) 11.750 A+ 5,000 7,070,050
Iberdrola International B.V.,
Note 10-01-02 7.500 AA- 8,000 8,282,640
Note 06-01-03 (R) 7.125 AA- 8,629 8,822,462
Long Island Lighting Co.,
Deb 03-15-23 8.200 A- 5,615 5,994,013
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 10.330 BBB- 8,681 9,169,656
Midland Funding Corp. II,
Deb Ser A 07-23-05 11.750 BB 3,750 4,293,750
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) 9.625 BB 1,320 1,122,000
Niagara Mohawk Power Corp.,
Deb 01-01-18 8.770 BBB- 6,990 7,262,261
Niantic Bay Fuel Trust,
Bond 06-05-03 (R) 8.590 B+ 2,350 2,365,745
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 9.050 BB- 3,575 3,685,182
Northeast Utilities,
Note Ser A 12-01-06 8.580 BB- 979 975,244
PECO Energy Transition Trust,
Pass Thru Ctf Ser 1999-A Class A-6
03-01-09 6.050 AAA 4,481 4,326,943
PNPP II Funding Corp.,
Deb 05-30-16 9.120 BB- 3,905 4,344,313
Puget Sound Energy Capital Trust I,
Gtd Cap Security Ser B 06-01-27 8.231 BBB- 3,150 3,169,688
System Energy Resources, Inc.,
1st Mtg 08-01-01 7.710 BBB- 5,525 5,469,750
U.S. West Capital Funding, Inc.,
Gtd Bond 07-15-28 6.875 A- 2,915 2,754,295
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 8.090 BBB- 5,154 5,279,740
-----------
164,202,687
-----------
TOTAL BONDS
(Cost $1,461,942,830) (93.64%) 1,440,719,573
------- --------------
NUMBER OF
SHARES
OR WARRANTS
-----------
PREFERRED STOCKS AND WARRANTS
California Federal Preferred
Capital Corp., 9.125%, Ser A,
Preferred Stock 245,755 6,604,666
MetroNet Communications Corp.,
Warrant (Canada) (R) (Y) 4,625 462,500
Packaging Corp. of America,
12.375%, Payment-In-Kind,
Preferred Stock (R) 16,000 1,672,000
------- --------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $8,098,475) (0.57%) 8,739,166
------- --------------
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ------- -------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.88%)
Investment in a joint repurchase agreement transaction with
ABN AMRO, Inc. - Dated 05-28-99, due 06-01-99 (Secured by U.S.
Treasury Bonds, 5.500% thru 12.000%, due 11-15-03 thru 08-15-28
and U.S. Treasury Notes, 6.500% and 7.785%, due 11-15-04 and
10-15-06) - Note A 4.790% $75,068 $75,068,000
Corporate Savings Account (0.29%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% 4,431,706
--------------
TOTAL SHORT-TERM INVESTMENTS (5.17%) 79,499,706
------- --------------
TOTAL INVESTMENTS (99.38%) 1,528,958,445
------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.62%) 9,582,379
------- --------------
TOTAL NET ASSETS (100.00%) $1,538,540,824
======= ==============
(A) Cash interest will be paid on this obligation at the stated rate beginning on the stated date.
(R) These securities are exempt from registration under Rule 144A of the Securities Act of 1933.
Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $216,374,542 or 14.06% of net assets as of May 31, 1999.
(Y) Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer;
however, security is U.S. dollar denominated.
* Credit ratings are unaudited and rated by Standard and Poor's where available, or Moody's Investors Service or
John Hancock Advisers, Inc. where Standard and Poor's ratings are not available.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets
of the Fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
NOTE A -
ACCOUNTING POLICIES
John Hancock Sovereign Bond Fund (the "Trust") is a diversified open-end
investment management company, registered under the Investment Company Act
of 1940. The Trust consists of one series: John Hancock Bond Fund (the
"Fund"). Prior to October 1, 1998, the Fund was known as John Hancock
Sovereign Bond Fund. The investment objective of the Fund is to generate a
high level of current income, consistent with prudent investment risk,
through investment in a diversified portfolio of freely marketable debt
securities.
The Trustees have authorized the issuance of multiple classes of the Fund,
designated as Class A, Class B and Class C. The Trustees authorized the
issuance of Class C shares effective October 1, 1998. 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 and the
Internal Revenue Service. Shareholders of a class which bears distribution
and service expenses under the terms of a distribution plan have exclusive
voting rights regarding such 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.
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
$24,368,796 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,
2001 -- $4,066,817, May 31, 2002 -- $9,347,493, May 31, 2004 --
$8,402,805, May 31, 2005 -- $1,183,431 and May 31, 2007 -- $1,368,250.
Expired capital loss carryforwards are reclassified to capital paid-in in
the year of expiration.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment
securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ
from generally accepted accounting principles. Dividends paid by the Fund
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.
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 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. Effective March 12, 1999, the Fund entered into a syndicated
line of credit agreement with various banks, and the agreements previously
in effect were terminated. 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 based on the average daily unused portion of the line of
credit is allocated among the participating funds. The Fund had no
borrowing activity for the year ended 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 will be required to deposit with its custodian a specified
amount of cash or U.S. government securities, known as "initial margin,"
equal to a certain percentage of the value of the financial future
contracts being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities
exchange on which it trades. Subsequent payments, known as "variation
margin," to and from the broker are made on a daily basis as the market
price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market," are recorded by
the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contract
may not correlate with changes in the value of the underlying securities.
In addition, the Fund could be prevented from opening or realizing the
benefits of closing out futures positions because of position limits or
limits on daily price fluctuations imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures
transactions.
At May 31, 1999, open positions in financial futures contracts were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
SEP 99 179 U.S. TREASURY BOND SHORT $50,440
SEP 99 122 U.S. TREASURY NOTE LONG 854
-------
$51,294
=======
At May 31, 1999, the Fund had deposited $357,500 par value of United
States Treasury Bonds, 7.125%, due 02-15-23, in a segregated account to
cover margin requirements on open financial futures contracts.
OPTIONS Listed options are valued at the last quoted sales price on the
exchange on which they are primarily traded. Over-the-counter options are
valued at the mean between the last bid and asked prices. Upon the writing
of a call or put option, an amount equal to the premium received by the
Fund is included in the Statement of Assets and Liabilities as an asset
and corresponding liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the written
option.
The Fund may use options contracts to manage its exposure to the stock
market. Writing puts and buying calls tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls tend to
decrease the Fund's exposure to the underlying instrument, or hedge other
Fund investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face
(or "notional") amount of each contract at value reflects the maximum
exposure of the Fund in these contracts, but the actual exposure will be
limited to the change in value of the contract over the period the
contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms ("credit risk"), or if the Fund is unable to offset a contract with
a counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties to
each transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit risk and liquidity risks in
over-the-counter option contracts, the Fund will continuously monitor the
creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's
period-end Statement of Assets and Liabilities.
At May 31, 1999, there were no written option transactions.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
fee to the Adviser for a continuous investment program equivalent on an
annual basis to the sum of (a) 0.50% of the first $1,500,000,000 of the
Fund's average daily net asset value, (b) 0.45% of the next $500,000,000,
(c) 0.40% of the next $500,000,000 and (d) 0.35% of the Fund's average
daily net asset value in excess of $2,500,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended May
31, 1999, net sales charges received with regard to sales of Class A
shares amounted to $1,782,697. Out of this amount, $137,960 was retained
and used for printing prospectuses, advertising, sales literature and
other purposes, $720,309 was paid as sales commissions to unrelated
broker-dealers and $924,428 was paid as sales commissions to sales
personnel of Signator Investors, Inc. ("Signator Investors"), a related
broker-dealer, formerly known as John Hancock Distributors, Inc. The
Adviser's indirect parent, John Hancock Mutual Life Insurance Company
("JHMLICo"), is the indirect sole shareholder of Signator Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in
part to defray its expenses related to providing distribution related
services to the Fund in connection with the sale of Class B shares. For
the year ended May 31, 1999, contingent deferred sales charges received by
JH Funds amounted to $455,292.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.0% of the lesser of the current market
value at the time of redemption or the original purchase cost of the
shares being redeemed. Proceeds from the CDSC are paid to JH Funds and are
used in whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class C shares. For the year ended May 31, 1999, contingent deferred sales
charges received by JH Funds amounted to $1,393.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans
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 0.30% 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 these
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo.
The Fund pays transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
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. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon and
Mr. Richard S. Scipione are trustees and/or officers of the Adviser,
and/or its affiliates, as well as Trustees of the Fund. The compensation
of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The Fund
makes investments into other John Hancock funds, as applicable, to cover
its liability for the deferred compensation. Investments to cover the
Fund's deferred compensation liability are recorded on the Fund's books as
an other asset. The deferred compensation liability and the related other
asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized
gains or losses. 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, 1999, aggregated $1,435,973,269
and $1,354,396,395, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies, during the year
ended May 31, 1999, aggregated $1,973,487,121 and $1,982,301,025,
respectively.
The cost of investments owned at May 31, 1999 (excluding the corporate
savings account) for federal income tax purposes was $1,550,115,649. Gross
unrealized appreciation and depreciation of investments aggregated
$22,851,197 and $48,440,107, respectively, resulting in net unrealized
depreciation of $25,588,910.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended May 31, 1999, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of
$1,750, a decrease in distributions in excess of net investment income of
$922 and a decrease in capital paid-in of $ 2,672. This represents the
amount necessary to report these balances on a tax basis, excluding
certain temporary differences, as of May 31, 1999. 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 per share
in the financial highlights excludes these adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Bond Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock Bond Fund (formerly John Hancock Sovereign Bond Fund)
(the "Fund"), including the schedule of investments, as of May 31, 1999,
the related statement of operations for the year then ended, and the
statement of changes in net assets and the financial highlights for each
of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of May 31, 1999, 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 Bond Fund at May 31, 1999, the results of its
operations for the year then ended, and the changes in its net assets and
the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
July 7, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished
with respect to the dividends of the Fund paid during its taxable year
ended May 31, 1999.
Shareholders will be mailed a 1999 U.S. Treasury Department Form 1099-DIV
in January 2000. This will reflect the total of all distributions which
are taxable for calendar year 1999.
With respect to the Fund's ordinary taxable income for the fiscal year
ended May 31, 1999, 1.21% of the distributions qualify for the dividends
received deduction available to corporations.
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2100A 5/99
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