SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Bond
Fund
NOVEMBER 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
EDWARD J. BOUDREAU, JR.
DENNIS S. ARONOWITZ*
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
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. In 1998, the market gave us several stark examples of this
phenomenon. From the new highs set in mid-July, the major indices plunged by 19%
through the end of August. It was the worst such fall since 1990. Seeking safety
in a world of global economic uncertainties, investors everywhere converged on
U.S. Treasury bonds and pushed their yields to historic lows.
Then in early October, the stock market began a remarkable rebound that was
sparked by the Federal Reserve's moves to lower interest rates. The Dow Jones
Industrial Average reached a new high and ended November actually up by 17%
year-to-date.
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[A 1" x 1 1/4" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Investors have been understandably shaken by these dramatic twists and turns,
but we are pleased to report that most individual investors did not panic, and
we hope that means they've taken our words to heart. Over the long term, markets
do not move up or down in a straight line. That's why after watching the market
charge ahead almost uninterrupted for so many years, we have been striking a
more cautionary stance in this space over the last several months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the divergence in performance of
stocks and high-quality bonds earlier this year is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY JAMES K. HO, CFA, MANAGEMENT TEAM LEADER AND ANTHONY A.
GOODCHILD AND BENJAMIN MATTHEWS, PORTFOLIO MANAGERS
John Hancock
Bond Fund
Imploding foreign economies test investors' mettle
On October 1, 1998, the Fund's name was changed from John Hancock Sovereign Bond
Fund to John Hancock Bond Fund. The change affects the name only and in no way
alters the Fund's investment strategy.
Over the last six months, stocks and bonds experienced extreme bouts of
volatility as investors grappled with the realization that our world is, indeed,
a small one after all. The impact that disintegrating foreign economies and
political systems can have on the world's financial markets became all too
evident as nervous investors around the globe stampeded out of any security
exhibiting even the slightest risk. Russia's financial meltdown, the ongoing
banking crisis in Japan and Brazil's deepening fiscal woes were among a few of
the events that capsized many investments, particularly several large, highly
leveraged hedge funds.
While the Fund did not escape the turmoil unscathed, it produced respectable
gains. For the six months ended November 30, 1998, the Fund's Class A and Class
B shares had total returns of 3.87% and 3.51%, respectively, at net asset value.
Class C shares, which were introduced on October 1, 1998, returned -0.85% from
inception through November 30, 1998. In comparison, the average corporate debt
A-rated fund produced a return of 4.08% for the six months ended November 30,
1998, according to Lipper Analytical Services, Inc.1 Keep in mind that your net
asset value return will be different from the Fund's performance if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. Longer-term performance information can be found on pages six and
seven.
"...stocks and bonds experienced extreme bouts of volatility..."
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[A 3 1/2 " x 2" photo of fund management team members under second column.
(l-r): "Ben Matthews, Lee Crockett, Jim Ho, Tony Goodchild and Beverly
Cleathero."]
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3
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John Hancock Funds - Bond Fund
"...U.S. Treasury bonds experienced a phenomenal and historic rally..."
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[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Government and Agencies 35%, the second is Banks/Financials 20%,
the third Utilities 11%, the fourth Media 7% and the fifth Transport 5%. A note
below the table reads "As a percentage of net assets on November 30, 1998."]
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Global flight to quality takes its toll
U. S. Treasury securities have long been regarded by investors worldwide as the
safest investment haven. The nerve-wracking international events of the past six
months lent further credence to this norm as investors became increasingly risk
averse. The result was twofold: U.S. Treasury bonds experienced a phenomenal and
historic rally during which the yield (which moves in the opposite direction
from its price) on the bellwether 30-year bond fell below 5% -- a level not seen
since the early 1960s. This, in turn, caused the price performance of virtually
every other fixed-income vehicle to pale in comparison, with more than a few
sectors suffering severe routs.
The obvious loser was emerging-market debt, traditionally the most sensitive
to any hint of turmoil. High-quality U.S. corporate securities and domestic
high-yield bonds, however, also got hit hard as fears of a global recession and
a potentially slowing U.S. economy brought the continuing profitability of
corporate America into question. During the height of market volatility, the
supply of new corporate issues virtually dried up and demand for existing bonds
vanished, simultaneously.
Key sector strategies
We employed several strategies that helped mitigate the impact of the
volatility. Though our investment strategy characteristically emphasizes
high-grade corporate bonds and other so-called spread sectors of the market,
such as high-yield bonds, we bolstered the Fund's position in U.S. Treasury
bonds early in the fiscal period, at one point raising the Fund's stake to
roughly 35% of net assets. This allowed the Fund to participate to some degree
in the Treasury market's dramatic rally.
Prior to the worst of the summer's downturn, we had reduced the Fund's
corporate and high-yield bond exposure by roughly 7%, which helped soften the
blow of price declines in those arenas. We upgraded our credit exposure within
the corporate sector whenever an opportunity presented itself and steered clear
of cyclical issues such as paper, steel, oil, gas and capital goods. We also
favored industries that tend to be defensive in nature, selecting companies that
either exhibit strong growth characteristics in any market environment, such as
telecommunications and media holdings, or those that enjoy steady demand through
all market cycles, such as utility and health-care names. Several holdings that
are positioned to perform well include Tenet Healthcare, Niagara Mohawk Power
Corp., Time Warner and News America Holdings.
Another tactic we employed was to increase the Fund's mortgage-backed and
asset-backed allocations. This, however, proved to hinder rather than help the
portfolio's performance as these securities experienced downward pressure
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[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 Niagara
Mohawk Power Corp. followed by an up arrow with the phrase "Restructuring story;
credit upgrade potential." The second listing is Tenet Healthcare followed by an
up arrow with the phrase "Solid fundamentals." The third listing is Petroleum
Geo-Services followed by a down arrow with the phrase "Downturn in energy
sector." A note below the table reads "See `Schedule of Investments.' Investment
holdings are subject to change."]
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4
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John Hancock Funds - Bond Fund
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[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended November 30, 1998".
The chart is scaled in increments of 2% with -2% at the bottom and 6% at the
top. The first bar represents the 3.87% total return for John Hancock Bond Fund
Class A. The second bar represents the 3.51% total return for John Hancock Bond
Fund Class B. The third bar represents -0.85%* total return for John Hancock
Bond Fund Class C and the fourth bar represents the 4.08% 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
Analytical Services, Inc. See the following two pages for historical performance
information.
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along with corporate issues. We continued to avoid most emerging-market debt,
sidestepping the troubles of that sector.
Well positioned for changing rates
Throughout the period, we maintained a slightly longer-than-average duration
stance. Duration is a measure of the Fund's sensitivity to interest rate
changes. We did this believing that the uncertain global environment and fears
of a U.S. recession might lead to lower interest rates at home. Complementing
our duration position was our continued focus on intermediate-term securities at
the middle part of the yield curve. Known as a "bullet" position, this strategy
typically works well when the difference between the interest rates of
short-term and long-term bonds widens and the yield curve steepens. Both
strategies benefited the Fund as the broad market began to anticipate a Federal
Reserve Board interest rate cut in late summer and when the Fed actually began
its series of rate cuts in September, causing rates at the shorter end of the
curve to decline more significantly than rates at the longer end. Near period's
end, we moved the portfolio away from a bullet position and returned toward a
more neutral yield curve strategy, believing much of the good news had already
been priced into the market.
Sell-off created buying opportunities
While the dramatic downturn in corporate and high-yield bonds was unsettling, it
created historically attractive valuations. When cash flow began to trickle back
into the market and fears calmed, many high-quality corporations brought new
issues to the market at extraordinarily cheap prices. We took advantage of this
opportunity to add several high-grade names to the Fund, including Associates
Corp. of North America, Merrill Lynch and Household Finance. As liquidity in the
market slowly improved, we selectively redeployed assets into both the
investment-grade corporate and high-yield sectors as the bond prices of many
fundamentally sound companies became too compelling to ignore.
Watch, wait, reassess
The Fund remains both defensively and opportunistically positioned in
preparation for any surprises that may lie ahead. We believe the Fed remains
committed to providing liquidity to the market and keeping the current credit
cycle on a upward course which, in turn, should bode well for the bonds in which
the Fund invests.
"The Fund remains both defensively and opportunistically positioned..."
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This commentary reflects the views of the portfolio managers through the end of
the Funds' period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
(1)Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
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John Hancock Funds - Bond Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock 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 shares became
effective October 1, 1998, and do not have a cumulative total return or an
average annual total return as of September 30, 1998.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
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CLASS A
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For the period ended September 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns 4.77% 35.20% 131.18%
Average Annual Total Returns 4.77% 6.22% 8.74%
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CLASS B
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For the period ended September 30, 1998
SINCE
ONE INCEPTION
YEAR (11/23/93)
---- ----------
Cumulative Total Returns 3.92% 36.55%
Average Annual Total Returns 3.92% 6.63%
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YIELDS
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As of November 30, 1998
SEC 30-DAY
YIELD
-----------
John Hancock Bond Fund: Class A 5.38%
John Hancock Bond Fund: Class B 4.93%
John Hancock Bond Fund: Class C 4.87%
6
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John Hancock Funds - Bond Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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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 value of the
hypothetical $10,000 investment made in the John Hancock Bond Fund on May 31,
1988, before sales charge, and is equal to $25,386 as of November 30, 1998. The
second line represents the Lehman Brothers Corporate Bond Index and is equal to
$24,984 as of November 30, 1998. The third line represents the same hypothetical
investment made in the John Hancock Bond Fund, after sales charge, and is equal
to $24,246 as of November 30, 1998.
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 November 30, 1998. 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 $13,805 as of November 30, 1998. The third line represents the same
hypothetical investment made in the John Hancock Bond Fund on November 23, 1993,
after sales charge, and is equal to $13,705 as of November 30, 1998.
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7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on November 30, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
November 30, 1998 (Unaudited)
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Assets:
Investments at value -- Note C:
Bonds (cost - $1,408,144,726) ........................... $1,446,003,476
Preferred stocks and warrant (cost - $15,579,611) ...... 16,139,955
Joint repurchase agreement (cost - $106,890,000) ........ 106,890,000
Corporate savings account ............................... 583
---------------
1,569,034,014
Cash ..................................................... 107,481
Receivable for investments sold .......................... 7,664,908
Receivable for shares sold ............................... 985,294
Interest receivable ...................................... 22,992,845
Other assets ............................................. 108,368
---------------
Total Assets ........................... 1,600,892,910
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Liabilities:
Payable for investments purchased ........................ 42,721,022
Payable for shares repurchased ........................... 309,967
Dividend payable ......................................... 647,990
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................. 1,225,463
Accounts payable and accrued expenses .................... 119,493
---------------
Total Liabilities ...................... 45,023,935
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Net Assets:
Capital paid-in .......................................... 1,545,756,483
Accumulated net realized loss on investments and
financial futures contracts ............................. (28,026,575)
Net unrealized appreciation of investments ............... 38,430,831
Distributions in excess of net investment income ......... (291,764)
---------------
Net Assets ............................. $1,555,868,975
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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 - $1,336,017,194/87,079,449 ...................... $15.34
=============================================================================
Class B - $218,416,848/14,236,058 ........................ $15.34
=============================================================================
Class C* - $1,434,933/93,527 ............................. $15.34
=============================================================================
Maximum Offering Price Per Share**
Class A - ($15.34 x 104.71%) ............................. $16.06
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* 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
Six months ended November 30, 1998 (Unaudited)
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Investment Income:
Interest ................................................... $55,792,113
Dividends .................................................. 730,859
------------
56,522,972
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Expenses:
Investment management fee - Note B ........................ 3,798,881
Distribution and service fee - Note B
Class A ................................................. 1,997,637
Class B ................................................. 946,991
Class C ................................................. 1,498
Transfer agent fee - Note B ............................... 1,695,855
Custodian fee ............................................. 137,654
Financial services fee - Note B ........................... 113,630
Registration and filing fees .............................. 45,896
Trustees' fees ............................................ 41,521
Auditing fee .............................................. 21,977
Miscellaneous ............................................. 17,863
Printing .................................................. 15,624
Legal fees ................................................ 10,510
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Total Expenses ........................... 8,845,537
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Net Investment Income .................... 47,677,435
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Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold ...................... (1,243,138)
Change in net unrealized appreciation/depreciation
of investments ............................................ 9,945,491
------------
Net Realized and Unrealized
Gain on Investments ...................... 8,702,353
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Net Increase in Net Assets
Resulting from Operations ................ $56,379,788
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SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
--------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................................. $102,539,689 $47,677,435
Net realized gain (loss) on investments sold and financial futures contracts .......... 5,946,744 (1,243,138)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ......................................................... 41,880,372 9,945,491
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ................................ 150,366,805 56,379,788
--------------- ---------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($1.0541 and $0.4876 per share, respectively) ............................. (93,841,029) (42,338,042)
Class B - ($0.9471 and $0.4338 per share, respectively) ............................. (9,295,588) (5,337,766)
Class C** - (none and $0.1367 per share, respectively) .............................. -- (7,616)
--------------- ---------------
Total Distributions to Shareholders ................................................. (103,136,617) (47,683,424)
--------------- ---------------
From Fund Share Transactions-- Net:* ..................................................... (48,328,644) 53,461,454
--------------- ---------------
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 $291,764, respectively) ............................................. $1,493,711,157 $1,555,868,975
=============== ===============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1998
MAY 31, 1998 (UNAUDITED)
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold ....................................................... 13,358,697 $202,416,255 13,449,611 $205,540,008
Shares issued to shareholders in reinvestment of distributions .... 4,785,248 72,548,258 2,152,669 32,960,949
------------ ------------- ------------ -------------
18,143,945 274,964,513 15,602,280 238,500,957
Less shares repurchased ........................................... (23,250,555) (352,004,533) (15,566,329) (237,869,121)
------------ ------------- ------------ -------------
Net increase (decrease) ........................................... (5,106,610) ($77,040,020) 35,951 $631,836
============ ============= ============ =============
CLASS B
Shares sold ....................................................... 3,527,995 $53,560,903 4,790,402 $73,314,464
Shares issued to shareholders in reinvestment of distributions .... 347,196 5,266,476 199,424 3,053,701
------------ ------------- ------------ -------------
3,875,191 58,827,379 4,989,826 76,368,165
Less shares repurchased ........................................... (1,984,859) (30,116,003) (1,635,353) (24,980,571)
------------ ------------- ------------ -------------
Net increase ...................................................... 1,890,332 $28,711,376 3,354,473 $51,387,594
============ ============= ============ =============
CLASS C**
Shares sold ....................................................... -- -- 129,749 $1,994,286
Shares issued to shareholders in reinvestment of distributions .... -- -- 177 2,709
------------ ------------- ------------ -------------
-- -- 129,926 1,996,995
Less shares repurchased ........................................... -- -- (36,399) (554,971)
------------ ------------- ------------ -------------
Net increase ...................................................... -- -- 93,527 $1,442,024
============ ============= ============ =============
</TABLE>
** 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.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - 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:
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $15.29 $15.53 $13.90 $15.40
---------- ---------- ---------- ----------
Net Investment Income ..................................... 1.14 1.12 1.12 1.09
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... 0.62 (1.55) 1.50 (0.50)
---------- ---------- ---------- ----------
Total from Investment Operations ........................ 1.76 (0.43) 2.62 0.59
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ...................... (1.14) (1.12) (1.12) (1.09)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts ......................... (0.38) (0.08) -- --
---------- ---------- ---------- ----------
Total Distributions ..................................... (1.52) (1.20) (1.12) (1.09)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................ $15.53 $13.90 $15.40 $14.90
========== ========== ========== ==========
Total Investment Return at Net Asset Value(1) ............. 11.80% (2.75%) 19.40% 4.11%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $1,505,754 $1,326,058 $1,535,204 $1,416,116
Ratio of Expenses to Average Net Assets ................... 1.41% 1.26% 1.13% 1.14%
Ratio of Net Investment Income to Average Net Assets ...... 7.18% 7.74% 7.58% 7.32%
Portfolio Turnover Rate ................................... 107% 85% 103%(5) 123%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
JANUARY 1, 1997 YEAR ENDED NOVEMBER 30, 1998
TO MAY 31, 1997(6) MAY 31, 1998 (UNAUDITED)
------------------ ------------ -----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $14.90 $14.78 $15.25
---------- ---------- ----------
Net Investment Income ..................................... 0.44 1.05(7) 0.49(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... (0.12) 0.47 0.09
---------- ---------- ----------
Total from Investment Operations ........................ 0.32 1.52 0.58
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ...................... (0.44) (1.05) (0.49)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts ......................... -- -- --
---------- ---------- ----------
Total Distributions ..................................... (0.44) (1.05) (0.49)
---------- ---------- ----------
Net Asset Value, End of Period ............................ $14.78 $15.25 $15.34
========== ========== ==========
Total Investment Return at Net Asset Value(1) ............. 2.22%(3) 10.54% 3.87%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $1,361,924 $1,327,728 $1,336,017
Ratio of Expenses to Average Net Assets ................... 1.11%(4) 1.08% 1.08%(4)
Ratio of Net Investment Income to Average Net Assets ...... 7.38%(4) 6.90% 6.35%(4)
Portfolio Turnover Rate ................................... 58% 198% 122%
</TABLE>
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.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CLASS B(2)
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $15.90 $15.52 $13.90 $15.40
------- ------- ------- -------
Net Investment Income ..................................... 0.11 1.04 1.02 0.98
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... -- (1.54) 1.50 (0.50)
------- ------- ------- -------
Total from Investment Operations ........................ 0.11 (0.50) 2.52 0.48
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ...................... (0.11) (1.04) (1.02) (0.98)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts ......................... (0.38) (0.08) -- --
------- ------- ------- -------
Total Distributions ..................................... (0.49) (1.12) (1.02) (0.98)
------- ------- ------- -------
Net Asset Value, End of Period ............................ $15.52 $13.90 $15.40 $14.90
======= ======= ======= =======
Total Investment Return at Net Asset Value(1) ............. 0.90%(3) (3.13%) 18.66% 3.38%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $4,125 $40,299 $98,739 $134,112
Ratio of Expenses to Average Net Assets ................... 1.63%(4) 1.78% 1.75% 1.84%
Ratio of Net Investment Income to Average Net Assets ...... 0.57%(4) 7.30% 6.87% 6.62%
Portfolio Turnover Rate ................................... 107% 85% 103%(5) 123%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
JANUARY 1, 1997 YEAR ENDED NOVEMBER 30, 1998
TO MAY 31, 1997(6) MAY 31, 1998 (UNAUDITED)
------------------ ------------ -----------------
<S> <C> <C> <C>
CLASS B(2)
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $14.90 $14.78 $15.25
------- ------- -------
Net Investment Income ..................................... 0.40 0.95(7) 0.43(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... (0.12) 0.47 0.09
------- ------- -------
Total from Investment Operations ........................ 0.28 1.42 0.52
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ...................... (0.40) (0.95) (0.43)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts ......................... -- -- --
------- ------- -------
Total Distributions ..................................... (0.40) (0.95) (0.43)
------- ------- -------
Net Asset Value, End of Period ............................ $14.78 $15.25 $15.34
======= ======= =======
Total Investment Return at Net Asset Value(1) ............. 1.93%(3) 9.78% 3.51%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $132,885 $165,983 $218,417
Ratio of Expenses to Average Net Assets ................... 1.81%(4) 1.78% 1.78%(4)
Ratio of Net Investment Income to Average Net Assets ...... 6.68%(4) 6.18% 5.65%(4)
Portfolio Turnover Rate ................................... 58% 198% 122%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30, 1998
(UNAUDITED)
-----------------
<S> <C>
CLASS C(2)
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................. $15.61
------
Net Investment Income(7) ......................................................... 0.14
Net Realized and Unrealized Loss on Investments and Financial Futures Contracts .. (0.27)
------
Total from Investment Operations ................................................ (0.13)
------
Less Distributions:
Dividends from Net Investment Income ............................................ (0.14)
------
Net Asset Value, End of Period ................................................... $15.34
======
Total Investment Return at Net Asset Value(1) .................................... (0.85%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......................................... $1,435
Ratio of Expenses to Average Net Assets .......................................... 1.78%(4)
Ratio of Net Investment Income to Average Net Assets ............................. 5.65%(4)
Portfolio Turnover Rate .......................................................... 122%
</TABLE>
(1) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(2) Class B shares commenced operations on November 23, 1993. Class C shares
commenced operations on October 1, 1998.
(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.
(7) Based on the average of the shares outstanding at the end of each month.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Schedule of Investments
November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Bond
Fund on November 30, 1998. 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.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
BONDS
Aerospace (0.47%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R) ........................ 10.910% BBB- $5,800 $7,274,360
--------------
Automobile/Trucks (0.88%)
Chrysler Financial Co. LLC,
Med Term Note Ser S 11-15-01 ...................................... 5.690 A+ 4,520 4,544,815
ERAC USA Finance Co.,
Note 02-15-05 (R) ................................................. 6.625 BBB 6,200 6,045,000
General Motors Corp.,
Bond 05-01-28 ..................................................... 6.750 A 3,000 3,091,140
--------------
13,680,955
--------------
Banks - Foreign (3.33%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) ............................ 8.200 AA- 10,000 11,294,500
African Development Bank,
Sub Note (Supra National) 12-15-03 (Y) ............................ 9.750 AA- 8,000 9,432,240
International Bank for Reconstruction & Development,
Deb (Supra National) 09-01-16 (Y) ................................. 8.250 AAA 5,000 6,342,400
RBSG Capital Corp.,
Gtd Cap Note (Scotland) 03-01-04 (Y) .............................. 10.125 A+ 10,605 12,618,783
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (Netherlands) 11-01-06 (R) (Y) ....................... 8.850 A+ 10,250 12,133,437
--------------
51,821,360
--------------
Banks - United States (3.06%)
Banc One Corp.,
Sub Deb 10-15-26 .................................................. 7.625 A 3,115 3,605,207
Bank of New York,
Cap Security 12-01-26 (R) ......................................... 7.780 A- 5,425 5,902,454
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ............................................. 9.750 AA- 8,925 10,077,574
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 ................................................. 9.450 AA- 10,000 10,906,400
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ......................................... 8.250 A- 2,915 3,368,807
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Banks - United States (continued)
Security Pacific Corp.,
Medium Term Sub Note 05-09-01 ..................................... 10.360% Aa3 $6,000 $6,680,820
Sub Note 11-15-00 ................................................. 11.500 A 6,400 7,112,512
--------------
47,653,774
--------------
Broker Services (0.36%)
Merrill Lynch & Co., Inc.,
Note 11-15-18 ..................................................... 6.875 AA- 5,405 5,580,662
--------------
Chemicals (0.24%)
Akzo Nobel, Inc.,
Gtd Note 11-15-03 (R) ............................................. 6.000 A 2,820 2,830,575
Huntsman Corp.,
Sr Sub Note 07-01-07 (R) .......................................... 9.500 B+ 935 935,000
--------------
3,765,575
--------------
Computers (0.30%)
PSINet, Inc.,
Sr Note 11-01-08 (R) .............................................. 11.500 B- 3,085 3,270,100
Verio, Inc.,
Sr Note 12-01-08 (R) .............................................. 11.250 B- 1,430 1,476,475
--------------
4,746,575
--------------
Cosmetics & Personal Care (0.60%)
Johnson & Johnson,
Deb 11-15-23 ...................................................... 6.730 AAA 6,750 7,548,457
Revlon Consumer Products Corp.,
Sr Note 11-01-06 (R) .............................................. 9.000 B 1,825 1,879,750
--------------
9,428,207
--------------
Electronics (0.45%)
Fisher Scientific International, Inc.,
Sr Sub Note 02-01-08 (R) .......................................... 9.000 B- 2,455 2,455,000
Motorola, Inc.,
Deb 11-15-28 ...................................................... 6.500 AA- 4,505 4,576,449
--------------
7,031,449
--------------
Energy (0.40%)
CalEnergy Company, Inc.,
Sr Note 09-15-06 .................................................. 9.500 BB+ 4,115 4,537,199
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) .......................................... 9.625 B 1,600 1,632,000
--------------
6,169,199
--------------
Fertilizers (0.36%)
IMC Global, Inc.,
Note 11-01-02 ..................................................... 7.400 BBB 5,535 5,604,187
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Finance (4.56%)
Associates Corp. of North America,
Deb 11-01-18 ...................................................... 6.950% AA- $6,015 $6,398,155
Sr Note 11-01-08 .................................................. 6.250 AA- 1,765 1,814,596
Chrysler Financial Corp.,
Deb 11-01-99 ...................................................... 12.750 A+ 3,000 3,190,110
CIT Group Holdings, Inc.,
Deb 03-15-01 ...................................................... 9.250 A 5,000 5,397,800
Note 10-15-01 ..................................................... 5.500 A+ 5,485 5,489,936
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R) ..................................... 9.150 BBB 3,725 4,315,152
DR Investments,
Sr Note (United Kingdom) 05-15-07 (R) (Y) ......................... 7.450 A- 4,500 4,841,235
Finova Capital Corp.,
Note 11-01-02 ..................................................... 6.250 A- 4,105 4,151,181
Ford Motor Credit Co.,
Note 04-28-03 ..................................................... 6.125 A 5,500 5,618,965
General Motors Acceptance Corp.,
Medium Term Note 04-06-00 ......................................... 5.850 A2 3,900 3,930,498
Note 12-01-01 ..................................................... 6.375 A 5,470 5,612,275
Household Finance Corp.,
Note 11-01-02 ..................................................... 5.875 A 6,860 6,870,290
Merrill Lynch Mortgage Investors, Inc.,
Sub Bond Ser 1992-B Class B 04-15-12 .............................. 8.500 Aaa 2,155 2,196,759
Niantic Bay Fuel Trust,
Bond 06-05-03 (R) ................................................. 8.590 B+ 2,350 2,424,345
Standard Credit Card Master Trust,
Credit Card Part Ctf Ser 1995-10 Class A 02-07-01 ................. 5.900 AAA 4,580 4,581,420
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A 06-15-04 (R) ............................ 8.400 BBB- 4,213 4,180,808
--------------
71,013,525
--------------
General Obligation (0.16%)
Atlanta, City of,
GO Ref Ser 1998 12-01-20 .......................................... 5.000 AAA 2,525 2,521,642
--------------
Government - Foreign (1.13%)
Nova Scotia, Province of,
Deb (Canada) 04-01-22 (Y) ......................................... 8.750 A- 7,500 9,607,575
Quebec, Province of,
Deb (Canada) 09-15-14 (Y) ......................................... 13.250 A+ 1,000 1,101,160
Saskatchewan, Province of,
Bond (Canada) 12-15-20 (Y) ........................................ 9.375 A 5,000 6,808,550
--------------
17,517,285
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Government - U.S. (23.91%)
United States Treasury,
Bond 08-15-17 ..................................................... 8.875% AAA $46,097 $65,428,699
Bond 05-15-18 ..................................................... 9.125 AAA 47,075 68,692,781
Bond 02-15-23 ..................................................... 7.125 AAA 70,144 87,099,208
Note 05-15-01 ..................................................... 8.000 AAA 19,601 21,116,941
Note 05-15-02 ..................................................... 7.500 AAA 25,935 28,240,881
Note 08-15-03 ..................................................... 5.750 AAA 27,030 28,259,054
Note 02-15-05 ..................................................... 7.500 AAA 31,135 35,664,208
Note 07-15-06 ..................................................... 7.000 AAA 32,972 37,515,871
--------------
372,017,643
--------------
Government - U.S. Agencies (11.02%)
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 ...................................... 11.250 AAA 924 1,026,578
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 01-25-05 ...................................... 8.000 AAA 10,000 10,240,600
15 Yr Pass Thru Ctf 02-01-08 ...................................... 7.500 AAA 1,819 1,871,564
15 Yr Pass Thru Ctf 09-01-10 to 08-01-13 .......................... 7.000 AAA 4,284 4,381,717
15 Yr Pass Thru Ctf 12-01-12 ...................................... 6.500 AAA 11,090 11,249,155
30 Yr Pass Thru Ctf 03-01-27 to 11-01-28 .......................... 6.500 AAA 18,963 19,186,078
30 Yr Pass Thru Ctf 10-01-23 ...................................... 7.000 AAA 6,493 6,633,470
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ...................... 6.940 AAA 3,396 3,583,522
Financing Corp.,
Bond 02-08-18 ..................................................... 9.400 AAA 7,000 10,052,630
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 05-01-23 ...................................... 5.500 AAA 15,010 15,164,753
30 Yr Pass Thru Ctf 02-15-28 ...................................... 6.500 AAA 7,556 7,634,067
30 Yr Pass Thru Ctf 08-01-24 to 06-15-28 .......................... 7.000 AAA 35,990 36,845,562
30 Yr Pass Thru Ctf 07-15-02 to 06-15-28 .......................... 7.500 AAA 22,785 23,531,121
30 Yr Pass Thru Ctf 11-15-22 ...................................... 8.000 AAA 3,909 4,076,509
30 Yr Pass Thru Ctf 07-15-16 to 01-15-25 .......................... 9.000 AAA 10,922 11,707,767
30 Yr Pass Thru Ctf 11-15-19 to 05-15-21 .......................... 9.500 AAA 2,242 2,420,272
30 Yr Pass Thru Ctf 06-15-20 to 03-15-25 .......................... 10.000 AAA 1,424 1,545,771
30 Yr Pass Thru Ctf 01-15-16 ...................................... 10.500 AAA 79 86,139
30 Yr Pass Thru Ctf 01-15-16 ...................................... 11.000 AAA 152 168,013
--------------
171,405,288
--------------
Household (0.25%)
WestPoint Stevens, Inc.,
Sr Note 06-15-05 .................................................. 7.875 BB 3,715 3,826,450
--------------
Insurance (5.02%)
Conseco, Inc.,
Note 06-15-05 ..................................................... 6.800 BBB 4,225 4,029,129
Equitable Life Assurance Society of the United States,
Surplus Note 12-01-05 (R) ......................................... 6.950 A 6,050 6,392,369
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Insurance (continued)
Fairfax Financial Holdings, Ltd.,
Note (Canada) 04-15-26 (Y) ........................................ 8.300% BBB+ $6,440 $7,026,555
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) ......................................... 8.200 A+ 10,000 11,371,100
Surplus Note 10-15-26 (R) ......................................... 7.875 A+ 3,990 4,520,271
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ......................................... 7.625 AA 10,450 11,600,022
NAC Re Corp.,
Note 06-15-99 ..................................................... 8.000 A- 3,360 3,400,118
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ......................................... 7.500 AA- 15,000 16,025,700
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ......................................... 6.625 AA 7,250 7,540,000
URC Holdings Corp.,
Sr Note 06-30-06 (R) .............................................. 7.875 A- 5,665 6,144,146
--------------
78,049,410
--------------
Leisure (1.87%)
Circus Circus Enterprises, Inc.,
Deb 11-15-36 ...................................................... 7.000 BBB- 2,005 1,814,084
HMH Properties, Inc.,
Gtd Sr Sec Note Ser A 08-01-05 .................................... 7.875 BB 4,360 4,305,500
Mohegan Tribal Gaming Authority,
Sr Sec Note Ser B 11-15-02 ........................................ 13.500 BB+ 1,500 1,841,250
SFX Entertainment, Inc.,
Sr Sub Notes 12-01-08 (R) ......................................... 9.125 B- 5,500 5,527,500
Showboat Marina Casino Partnership/Finance Corp.,
1st Mtg Note Ser B 03-15-03 ....................................... 13.500 BB- 5,000 5,650,000
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas) 03-15-07 (Y) ............................ 9.000 B+ 2,000 2,100,000
Gtd Sr Sub Note (Bahamas) 12-15-07 (Y) ............................ 8.625 B+ 2,225 2,297,312
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 .................................................. 15.500 B- 5,150 5,484,750
--------------
29,020,396
--------------
Manufacturing (0.12%)
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 (R) .......................................... 10.000 B- 2,140 1,883,200
--------------
Media (6.67%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 ............................................ 9.250 B+ 4,750 4,999,375
Sr Note Ser B 07-15-03 ............................................ 8.125 BB 2,250 2,286,562
CBS Corp.,
Sr Note 05-20-05 .................................................. 7.150 BB+ 2,035 2,112,961
CSC Holdings, Inc.,
Sr Note 07-15-08 .................................................. 7.250 BB+ 4,300 4,364,930
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Media (continued)
Century Communications Corp.,
Sr Note 08-15-00 .................................................. 9.500% BB- $2,545 $2,659,525
Clear Channel Communications, Inc.,
Deb 10-15-27 ...................................................... 7.250 BBB- 2,400 2,420,160
Comcast Cable Communications, Inc.,
Note 11-15-08 ..................................................... 6.200 BBB- 3,300 3,308,250
Continental Cablevision, Inc.,
Sr Note 05-15-06 .................................................. 8.300 BBB 3,765 4,199,556
Sr Sub Deb 06-01-07 ............................................... 11.000 BBB- 12,205 13,156,258
Garden State Newspapers, Inc.,
Sr Sub Note Ser B 10-01-09 ........................................ 8.750 B+ 2,365 2,317,700
Le Groupe Videotron Ltee,
Sr Note (Canada) 02-15-05 (Y) ..................................... 10.625 BBB- 7,290 7,916,430
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 ............................................... 8.250 BBB- 4,670 5,325,808
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) ............................... 10.000 BB+ 8,000 9,000,000
Sec 2nd Priority Note (Canada) 08-01-02 (Y) ....................... 9.625 BB+ 2,585 2,785,338
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 ........................................ 10.750 B- 2,960 3,278,200
Sprint Capital Corp.,
Gtd Sr Note 11-15-28 .............................................. 6.875 A- 4,440 4,603,836
TKR Cable I, Inc.,
Sr Deb 10-30-07 ................................................... 10.500 BBB- 17,240 18,833,666
TeleWest Communications Plc,
Sr Deb (United Kingdom) 10-01-06 (Y) .............................. 9.625 B+ 1,235 1,290,575
Time Warner, Inc.,
Deb 01-15-13 ...................................................... 9.125 BBB 4,620 5,762,387
Note 06-15-05 ..................................................... 7.750 BBB 2,875 3,162,788
--------------
103,784,305
--------------
Medical (1.52%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) ..................................... 10.750 B+ 2,350 2,314,750
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security 02-01-08 ............................. 7.875 B+ 3,480 3,384,300
Integrated Health Services, Inc.,
Sr Sub Deb 01-01-01 ............................................... 5.750 B- 3,525 3,075,563
Sr Sub Note 01-15-08 .............................................. 9.250 B- 1,880 1,833,000
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 .............................................. 10.750 B+ 3,155 3,375,850
Sola International, Inc.,
Note 03-15-08 ..................................................... 6.875 BBB- 3,600 3,407,544
Tenet Healthcare Corp.,
Sr Note 12-01-03 .................................................. 8.625 BB+ 2,875 3,047,500
Sr Sub Note 01-15-07 .............................................. 8.625 BB- 1,470 1,558,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Medical (continued)
Watson Pharmaceuticals, Inc.,
Sr Note 05-15-08 .................................................. 7.125% BBB- $1,590 $1,590,000
--------------
23,586,707
--------------
Mortgage Banking (3.36%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A 08-15-02 ......................... 6.350 AAA 3,900 3,977,649
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ....................... 8.100 AAA 3,865 4,043,756
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class A-1A 12-17-07 ...... 6.260 AAA 5,498 5,589,050
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass-Thru Ctf Ser 1998-C1 Class C 03-15-08 ......... 6.861 A2 3,585 3,580,519
FirstPlus Home Loan Trust,
Pass Thru Ctf Ser 1998-4 Class A-5 01-10-18 ....................... 6.380 AAA 6,220 6,190,844
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 ...................... 6.566 Aaa 6,000 6,217,500
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-1 Class A-5 12-25-13 ....................... 6.290 AAA 6,816 6,797,895
Nomura Asset Securities Corp.,
Pass Thru Ctf Ser 1998-D6 Class A-1A 03-17-28 ..................... 6.280 AAA 4,221 4,295,373
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 ................ 6.750 Aaa 3,940 3,968,210
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-D1 Class A6 02-15-25 ....................... 7.180 AAA 7,260 7,575,356
--------------
52,236,152
--------------
Oil & Gas (0.99%)
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01 (Y) ..................................... 9.250 BBB- 3,475 3,353,375
Occidental Petroleum Corp.,
Sr Note 11-15-08 .................................................. 7.375 BBB 6,005 6,170,138
Petroleos Mexicanos,
Gtd Sr Note (Mexico) 12-02-08 (R) (Y) ............................. 9.375 BB 1,825 1,843,250
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) ..................................... 6.625 BBB 4,165 4,078,285
--------------
15,445,048
--------------
Paper & Paper Products (0.70%)
Fort James Corp.,
Sr Note 09-15-02 .................................................. 6.500 BBB- 4,110 4,160,265
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 ........................................ 12.000 B+ 6,195 6,690,600
--------------
10,850,865
--------------
Real Estate Operations (0.18%)
Security Capital Group, Inc.,
Med Term Note Ser A 11-15-03 ...................................... 7.750 BBB 2,785 2,801,989
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Real Estate Investment Trust (0.68%)
American Health Properties, Inc.,
Note 01-15-07 ..................................................... 7.500% BBB- $3,510 $3,299,400
Liberty Property L.P.,
Med Term Note 06-05-02 ............................................ 6.600 BBB- 2,990 2,887,144
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ..................................................... 7.300 BBB- 4,395 4,362,917
--------------
10,549,461
--------------
Retail (0.50%)
Kroger Co. (The),
Sr Note 07-15-06 .................................................. 8.150 BBB- 2,360 2,631,258
Safeway, Inc.,
Deb 01-15-09 ...................................................... 13.500 BBB 2,609 2,719,709
Sr Note 11-15-01 .................................................. 5.875 BBB 2,480 2,482,852
--------------
7,833,819
--------------
Revenue Bonds (0.90%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 (R) .......................................... 11.875 B 1,580 1,643,200
Massachusetts Water Resource Authority,
Gen Rev Ref Ser 1997D 08-01-24 .................................... 5.000 AAA 2,915 2,889,814
Nevada, State of,
GO Nevada Muni Bond Bank Proj Nos. 65 & R-6 05-15-22 .............. 5.000 AAA 3,240 3,213,400
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev Ref Ser 1997A 06-15-21 .......................... 5.125 AAA 1,810 1,814,688
San Jose Redevelopment Agency,
Tax Alloc Merged Area Redevel Proj 08-01-26 ....................... 5.000 AAA 4,510 4,513,653
--------------
14,074,755
--------------
Steel (0.06%)
Bayou Steel Corp.,
Gtd Bond 05-15-08 ................................................. 9.500 B 960 916,800
--------------
Telecommunications (3.37%)
Axia, Inc.,
Sr Sub Note 07-15-08 (R) .......................................... 10.750 B- 1,625 1,641,250
Cable & Wireless Communications Plc,
Note (United Kingdom) 12-01-08 (Y) ................................ 6.750 A- 4,505 4,543,878
Call-Net Enterprises, Inc.,
Sr Note (Canada) 08-15-08 (Y) ..................................... 8.000 BB- 2,635 2,555,950
FLAG Ltd.,
Sr Note (Bermuda) 01-30-08 (Y) .................................... 8.250 B+ 1,645 1,653,225
Global Crossing Holdings, Ltd.,
Sr Note 05-15-08 (R) .............................................. 9.625 B 2,785 2,972,988
GTE North, Inc.,
Deb Ser H 11-15-08 ................................................ 5.650 AA- 4,185 4,195,463
IXC Communications, Inc.,
Sr Sub Note 04-15-08 .............................................. 9.000 CCC+ 2,550 2,575,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Telecommunications (continued)
Intermedia Communications, Inc.,
Sr Note Ser B 01-15-08 ............................................ 8.500% B $560 $543,200
Sr Note Ser B 06-01-08 ............................................ 8.600 B 1,865 1,818,375
McLeodUSA, Inc.,
Sr Note 11-01-08 (R) .............................................. 9.500 B+ 3,090 3,290,850
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 (R) .............................................. 10.000 B 2,045 2,111,463
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ..................................... 12.000 B 2,425 2,716,000
NTL, Inc.,
Sr Note 10-01-08 (R) .............................................. 11.500 B- 2,020 2,252,300
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.75%, 02-15-99) 08-15-04 (A) .......... Zero CCC+ 5,435 5,326,300
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 (R) .............................................. 10.750 B 3,055 3,154,288
Qwest Communications International, Inc.,
Sr Note 11-01-08 (R) .............................................. 7.250 BB+ 1,805 1,823,050
Sr Note 11-01-08 (R) .............................................. 7.500 BB+ 2,915 2,991,519
MCIWorldCom, Inc.,
Sr Note 08-15-01 .................................................. 6.125 BBB+ 6,230 6,344,321
--------------
52,509,920
--------------
Textile (0.50%)
Tropical Sportswear International Corp.,
Gtd Sr Sub Note Ser A 06-15-08 .................................... 11.000 B- 3,010 3,137,925
Unifi, Inc.,
Note Ser B 02-01-08 ............................................... 6.500 A- 4,680 4,619,160
--------------
7,757,085
--------------
Tobacco (0.47%)
RJR Nabisco, Inc.,
Note 12-01-02 ..................................................... 8.625 BBB- 4,555 4,629,429
Note 09-15-03 ..................................................... 7.625 BBB- 2,770 2,684,767
--------------
7,314,196
--------------
Transport (4.28%)
America West Airlines, Inc.,
Pass Thru Ctf Ser B 01-02-08 ...................................... 6.930 A- 4,485 4,436,671
Continental Airlines,
Pass Thru Ctf Ser 96-C 10-15-13 ................................... 9.500 BBB+ 4,771 5,289,613
Fine Air Services, Inc.,
Sr Note 06-01-08 .................................................. 9.875 B 3,735 3,324,150
Humpuss Funding Corp.,
Gtd Note 12-15-09 (R) ............................................. 7.720 B3 4,735 3,117,082
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Transport (continued)
Northwest Airlines, Inc.,
Gtd Note 03-15-04 ................................................. 8.375% BB $4,505 $4,372,643
Pass Thru Ctf Ser 1996-1C 01-02-05 ................................ 10.150 BBB- 3,082 3,005,253
Pass Thru Ctf Ser 1996-1D 01-02-15 ................................ 8.970 BBB- 3,720 3,969,655
NWA Trust,
Sr Note Ser A 12-21-12 ............................................ 9.250 AA 5,307 6,422,063
Rail Car Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A 06-01-04 ............................. 7.750 AAA 13,612 14,389,897
Scandinavian Airlines System,
Deb (Sweden) 07-20-99 (Y) ......................................... 9.125 A3 6,834 6,996,308
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 ................................ 11.200 BB 7,978 8,736,330
Wisconsin Central Transportation Corp.,
Note 04-15-08 ..................................................... 6.625 BBB- 2,470 2,494,700
--------------
66,554,365
--------------
Utilities (10.27%)
AES Corp.,
Sr Sub Note 07-15-06 .............................................. 10.250 B+ 6,005 6,425,350
Sr Sub Note 08-15-07 .............................................. 8.375 B+ 3,435 3,400,650
Avon Energy Partners Holdings,
Note (United Kingdom) 03-04-08 (Y) ................................ 6.460 A- 2,740 2,754,823
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ..................................... 9.000 BB- 5,005 5,686,931
British Telecom Finance, Inc.,
Gtd Deb (United Kingdom) 02-15-19 (Y) ............................. 9.625 AAA 9,805 10,337,313
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 ................................ 8.890 BB- 6,600 7,576,800
CalEnergy Co., Inc.,
Sr Bond 09-15-28 .................................................. 8.480 BB+ 3,060 3,422,610
CalEnergy Co., Inc.,
Sr Note 09-15-08 .................................................. 7.520 BB+ 1,420 1,479,569
Calpine Corp.,
Sr Note 05-15-06 .................................................. 10.500 BB- 4,650 4,975,500
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A (Philippines) 11-15-05 (Y) .......................... 11.450 BB+ 4,100 3,485,000
CE Electric UK Funding Co.,
Sr Note (United Kingdom) 12-30-07 (R) (Y) ......................... 6.995 BBB+ 2,610 2,766,496
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 ............................................ 9.500 BB+ 10,220 11,092,073
Connecticut Light & Power Co.,
1st Mtg Bond 06-01-02 ............................................. 7.750 BB+ 1,900 1,971,155
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ............................................. 10.250 Ba2 9,149 10,909,725
GTE Corp.,
Deb 11-01-20 ...................................................... 10.250 A 6,875 7,736,988
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Utilities (continued)
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) .................................... 9.400% A+ $1,060 $1,409,747
Gtd Deb Ser IF (Canada) 02-01-03 (Y) .............................. 7.375 A+ 7,185 7,842,859
Gtd Deb Ser FU (Canada) 02-01-12 (Y) .............................. 11.750 A+ 5,000 7,395,450
Iberdrola International B.V.,
Note 10-01-02 ..................................................... 7.500 AA- 8,000 8,561,120
Sr Note (Spain) 06-01-03 (R) (Y) .................................. 7.125 AA- 8,629 9,248,476
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 ......................................... 10.330 BB- 8,840 9,425,818
Midland Funding Corp. II,
Deb Ser A 07-23-05 ................................................ 11.750 B 3,750 4,357,575
Deb Ser B 07-23-06 ................................................ 13.250 B 1,900 2,426,186
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) ............................. 9.625 BB 1,320 1,082,400
Niagara Mohawk Power Corp.,
Sr Note Ser G 10-01-08 ............................................ 7.750 BB- 2,670 2,843,550
North Atlantic Energy Corp.,
1st Mtg Bond SerA 06-01-02 ........................................ 9.050 B+ 4,800 4,964,592
Northeast Utilities,
Note Ser A 12-01-06 ............................................... 8.580 B+ 1,057 1,138,395
Puget Sound Energy Capital Trust I,
Gtd Cap Security Ser B 06-01-27 ................................... 8.231 Baa2 3,150 3,315,375
System Energy Resources, Inc.,
1st Mtg 08-01-01 .................................................. 7.710 BBB- 5,525 5,749,205
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 ................................ 8.090 BBB- 5,615 5,995,136
--------------
159,776,867
--------------
TOTAL BONDS
(Cost $1,408,144,726) (92.94%) 1,446,003,476
------- --------------
NUMBER OF
SHARES
OR WARRANTS
-----------
PREFERRED STOCKS AND WARRANTS
Connecticut Light & Power Co., 5.3% Ser 1993, Preferred Stock.............................. 194,398 9,233,905
CSC Holdings, Inc., 11.125% Ser M, Preferred Stock......................................... 59,496 6,693,300
MetroNet Communications Corp., Warrant (Canada) (R) (Y).................................... 4,625 212,750
-------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $15,579,611) (1.04%) 16,139,955
------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ------- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.87%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities USA, Inc. - Dated 11-30-98,
due 12-01-98 (Secured by U.S. Treasury Bills, 4.49% thru 4.54%,
due 10-14-99 thru 11-12-99, U.S. Treasury Bonds, 8.125% thru 12.00%,
due 08-15-13 thru 08-15-19 and U.S. Treasury Notes, 5.25% thru 8.75%,
due 07-31-99 thru 05-15-08) - Note A......................................... 5.370% $106,890 $106,890,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.950%.......................................................... 583
--------------
TOTAL SHORT-TERM INVESTMENTS (6.87%) 106,890,583
-------- --------------
TOTAL INVESTMENTS (100.85%) 1,569,034,014
-------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.85%) (13,165,039)
-------- --------------
TOTAL NET ASSETS (100.00%) $1,555,868,975
======== ==============
</TABLE>
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $172,751,361 or 11.10% of net assets as of November
30, 1998.
* 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.
24
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
(UNAUDITED)
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's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $22,827,929 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 -- $3,894,200, May 31, 2002 -- $9,347,493, May
31, 2004 -- $8,402,805 and May 31, 2005 -- $1,183,431. 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
25
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
respective classes. Distribution and service fees, if any, are calculated daily
at the class level based on the appropriate net assets of each class and the
specific expense rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the period ended November 30, 1998.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the value of the
financial future contracts being traded. Each day, the futures contract is
valued at the official settlement price of the board of trade or U.S.
commodities exchange on which it trades. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market," are recorded by the Fund
as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures transactions.
At November 30, 1998, there were no open positions in financial futures
contracts.
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 market 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
26
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
highly unusual market conditions. To minimize credit and liquidity risks in
over-the-counter options contracts, the Fund will continuously monitor the
creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended November 30,
1998.
NOTE B -
MANAGEMENT FEE 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 period ended November
30, 1998, JH Funds received net sales charges of $661,069 with regard to sales
of Class A shares. Out of this amount, $75,926 was retained and used for
printing of prospectuses, advertising, sales literature and other purposes,
$148,372 was paid as sales commissions to unrelated broker-dealers and $436,771
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended November 30,
1998, contingent deferred sales charges received by JH Funds amounted to
$203,493.
Class C shares which are redeemed within one year of purchase will be subject
to a contingent deferred sales charge ("CDSC") at a rate of 1.0% of the lesser
of the current market value at the time of redemption or the original purchase
cost of the shares being redeemed. Proceeds from the CDSC are paid to JH Funds
and are used in whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of Class C
shares. For the period ended November 30, 1998, 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 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 and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are trustees and/or officers of the Adviser and/or its
27
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
affiliates, as well as trustees of the Fund. The compensation of unaffiliated
trustees is borne by the Fund. The unaffiliated trustees may elect to defer for
tax purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At November 30, 1998, the Fund's investment to
cover the deferred compensation liability had unrealized appreciation of
$11,737.
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 period ended November 30, 1998, aggregated $574,434,189 and
$521,374,498, respectively. Purchases and proceeds from sales of obligations of
the U.S. government and its agencies, during the period ended November 30, 1998,
aggregated $1,222,995,181 and $1,250,824,266, respectively.
The cost of investments owned at November 30, 1998 (excluding the corporate
savings account) for federal income tax purposes was $1,530,614,987. Gross
unrealized appreciation and depreciation of investments aggregated $52,633,058
and $14,214,614, respectively, resulting in net unrealized appreciation of
$38,418,444.
28
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John Hancock Funds - Bond Fund
29
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======================================NOTES=====================================
John Hancock Funds - Bond Fund
30
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Bond Fund
31
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[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds ----------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock 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 210SA 11/98
1/99
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm." A recycled logo in lower left hand corner
with caption "Printed on Recycled Paper."]
