-----------------------------
The latest report from your
Fund's management team
-----------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[PHOTO]
Bond
Fund
NOVEMBER 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-----------------------------------------
TRUSTEES
DENNIS S. ARONOWITZ*
STEPHEN L. BROWN
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
LELAND O. ERDAHL
RICHARD A. FARRELL
MAUREEN R. FORD
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
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Executive 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
-----------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
The best thing about this massive mailing is that it can serve as a wake-up call
to encourage families to focus more on planning for their financial future.
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy, making sure your annual
earnings history and amounts you have contributed over the years are correct.
Keep in mind that the estimated benefits are precisely that, and that rules and
regulations may change by the time you retire. Also remember that they are not
inflation adjusted, so it would be unrealistic to expect them to have the same
purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement. Together, you should make sure to maximize your
participation in tax-advantaged programs like IRAs and 401(k)s.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/ Maureen R. Ford
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY JAMES K. HO, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
BENJAMIN A. MATTHEWS, ANTHONY A. GOODCHILD AND TRIET M. NGUYEN,
PORTFOLIO MANAGERS
John Hancock Bond Fund
Rising interest rates take their toll on bond market
The six months ended November 30, 1999 were an unsettled period for the
fixed-income market and John Hancock Bond Fund. Inflation fears and rising
interest rates at home and abroad restrained the performance of most bonds
worldwide. A midsummer glut of new issues in the domestic corporate and
high-yield arenas, Y2K concerns and three Federal Reserve Board rate hikes put
further pressure on the bond sectors in which the Fund invests. Yields rose and
prices declined across the board. Emerging- market debt was the one sector that
escaped the downturn, as the global economic rebound fostered an increased
willingness among investors to take on the risks associated with these
securities.
Performance reflects market challenges
For the six months ended November 30, 1999, the Fund's Class A, Class B and
Class C shares posted total returns of 0.34%, -0.02% and -0.02%, respectively,
at net asset value. By comparison, the average corporate debt A-rated fund
returned -0.19%, 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.
Flexibility allowed for timely maneuvers
Over the period, we put the Fund's flexibility to work, which we believed
contributed significantly to the Fund's strong relative performance. While we
continued to emphasize high-grade corporate bonds, we rotated assets in and out
of various fixed-income sectors as opportunities arose and market conditions
warranted.
Corporate bonds pared, then boosted
When the Fund's fiscal year began in June, we had begun to pare back the
portfolio's corporate bond and high-yield debt exposure slightly in
"Yields rose and prices declined across the board."
- --------------------------------------------------------------------------------
[A 3" 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, Jim Ho, Triet
Nguyen and Tony Goodchild."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Bond Fund
"...we put the Fund's flexibility to work..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Government & Agencies 34%, the second is Utilities 11%, the
third Telecommunications 6%, the fourth Media 5% and the fifth Transport 5%. A
note below the table reads "As a percentage of net assets on November 30,
1999."]
- --------------------------------------------------------------------------------
anticipation of further market turbulence due to Federal Reserve Board rate
hikes, heavy issuance and slackened demand. Doing so enabled the Fund to avoid
the worst of the summer's downdraft. This strategy also put us in a favorable
position to add selectively to corporate and high-yield issues as credit spreads
(the difference in yield between bonds of different credit quality) reached
compelling levels later in the period. Once the expected new-issue calendar fell
short of expectations after Labor Day, spreads began to narrow and many of the
Fund's holdings bounced off their price lows.
Treasury holdings bolstered, then trimmed
We used the proceeds realized from the early scale-back of the portfolio's
corporate-bond weighting to fund an increase in long-term Treasury bond
positions as yields approached 6.25%. As the period progressed, we sold out of
some intermediate-term holdings to create more of a barbell structure. As
opposed to a bullet yield-curve position, a barbell is one in which assets are
clustered at both the short and long ends of the maturity spectrum. In our
opinion, this type of positioning should serve the Fund well in the months ahead
if the yield curve retains its flattening bias, as we anticipate. Even if the
Fed decides to raise rates yet again, we believe its commitment to containing
inflation may help renew investors' interest in long-term bonds -- pushing their
yields lower -- while rates rise at the short end of the yield curve.
In the mortgage-backed security arena, we added holdings when prices
declined over the summer, then sold out of some positions when these issues
began to recover. At that time, we purchased some government agency positions,
such as Fannie Mae, which have a structure that stands to benefit should
interest rates begin to decline later in the fiscal year.
Duration extended
For much of 1999, we preferred to keep the Fund's average duration, or
interest-rate sensitivity, relatively short. (When interest rates rise, a
shorter duration can help buoy a portfolio's share price. When rates decline, a
shorter duration may inhibit a portfolio from participating fully in price
appreciation possibilities.) In recent months, however, we opted to extend the
Fund's average duration a bit, believing that the worst of inflation fears have
already been priced into the market. This move brings the Fund back to more of a
neutral duration posture, which means we are making no bets on the direction of
interest rates in the near term.
Emerging-market issues avoided
Despite the rally in emerging-market bonds, we continued to avoid this sector
because of its illiquidity and risk profile. As evidenced by events
- --------------------------------------------------------------------------------
[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 Orange PLC
followed by an up arrow with the phrase "Merger and acquisition activity." The
second listing is Long Island Lighting Co. followed by a sideways arrow with the
phrase "Rising rates." The third listing is Integrated Health Services followed
by a down arrow with the phrase "Financial difficulties; industry issues." A
note below the table reads "See `Schedule of Investments.' Investment holdings
are subject to change."]
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4
<PAGE>
================================================================================
John Hancock Funds - Bond Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended November 30, 1999." The
chart is scaled in increments of 1% with -1% at the bottom and 1% at the top.
The first bar represents the 0.34% total return for John Hancock Bond Fund Class
A. The second bar represents the -0.02% total return for John Hancock Bond Fund
Class B. The third bar represents the -0.02% total return for John Hancock Bond
Fund Class C. The fourth bar represents the -0.19% 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. See the
following two pages for historical performance information."]
- --------------------------------------------------------------------------------
in 1998, emerging-market securities are highly sensitive to the world's
political and economic events, making them one of the most highly volatile
sectors in the fixed-income universe.
Telecom and cable: performance leaders
Our telecommunications and cable corporate-bond holdings continued to be
positive contributors to the Fund's performance. Ongoing consolidation and
dynamic growth potential within these industries make them worthwhile long-term
investments regardless of short-term market movements. Holdings that have
performed well for the Fund include Orange PLC, a wireless operator in the U.K.
which benefited from an acquisition by Mannesmann and a resulting credit
upgrade. Qwest Communications and Chancellor Broadcasting also performed well on
the heels of merger and acquisition activity by U.S. West and Clear Channel,
respectively. Other positive contributors to performance included SFX
Entertainment, PSINet, Nextel Communications, Global Crossing Holdings, Charter
Communications Holdings and Adelphia Communications.
Going forward, we believe the primary driver of performance in the cable
and telecom sectors will continue to be consolidation, as companies seek to
become the dominant player in providing Internet, cable and telephone services.
In the cyclical industries of energy and industrials, several holdings
proved to be notable performers that benefited from rising oil prices. These
included Ocean Energy, Swift Energy, CMS Energy, Amerada Hess and CalEnergy.
Disappointing performers included Integrated Health Services and Oakwood Homes
Corporation, which we sold prior to the worst of their downturns. Broadly
speaking, health-care and utility bonds remained depressed throughout the
period.
Outlook
In the months ahead, we cannot rule out the possibility of further volatility,
as inflation remains a potential threat. That said, we believe the global
liquidity that was provided by the world's central banks via interest-rate cuts
in 1998 should give the current economic expansion the necessary boost to be the
longest in postwar history. If the Fed continues to show its vigilance in
fighting inflation by raising rates when necessary, we believe corporate and
high-yield bonds stand to benefit as investors look further down the road to a
more benign inflation, economic and interest-rate picture.
"...possibility of further volatility, as inflation remains a potential threat."
- --------------------------------------------------------------------------------
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.
5
<PAGE>
================================================================================
John Hancock Funds - Bond Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Bond Fund. Total return measures the change
in value of an investment from the beginning to the end of a period, assuming
that 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 September 30, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------ -------
Cumulative Total Returns (5.60%) 38.91% 105.76%
Average Annual Total Returns (5.60%) 6.79% 7.48%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (11/23/93)
------- ------ ----------
Cumulative Total Returns (6.49%) 38.59% 35.03%
Average Annual Total Returns (6.49%) 6.74% 5.27%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
ONE
YEAR
--------
Cumulative Total Returns (3.32%)
Average Annual Total Returns (3.32%)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1999
SEC 30-DAY
YIELD
----------
John Hancock Bond Fund: Class A 6.49%
John Hancock Bond Fund: Class B 6.09%
John Hancock Bond Fund: Class C 6.09%
6
<PAGE>
================================================================================
John Hancock Funds - Bond Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
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 $22,982 as of November 30, 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
$22,485 as of November 30, 1999. The third line represents the same hypothetical
investment made in the John Hancock Bond Fund, after sales charge, and is equal
to $21,468 as of November 30, 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 two lines. The first line represents the Lehman Brothers Corporate
Bond Index and is equal to $14,181 as of November 30, 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
$13,653 as of November 30, 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 two lines. The first line represents the Lehman Brothers Corporate
Bond Index and is equal to $10,092 as of November 30, 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
$9,803 as of November 30, 1999.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
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, 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
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $1,406,068,623) .......................... $1,355,045,288
Preferred stocks and warrants (cost - $16,047,038) ..... 16,132,686
Joint repurchase agreement (cost - $75,911,000) ........ 75,911,000
Corporate savings account .............................. 57
---------------
1,447,089,031
Receivable for investments sold .......................... 5,422,189
Receivable for shares sold ............................... 749,397
Dividends and interest receivable ........................ 25,582,379
Other assets ............................................. 425,316
---------------
Total Assets ........................ 1,479,268,312
--------------------------------------------------------
Liabilities:
Payable for investments purchased ........................ 8,297,606
Payable for shares repurchased ........................... 1,995,945
Payable for futures variation margin - Note A ............ 60,531
Dividend payable ......................................... 35,421
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................ 1,190,315
Accounts payable and accrued expenses .................... 124,006
---------------
Total Liabilities ................... 11,703,824
--------------------------------------------------------
Net Assets:
Capital paid-in .......................................... 1,563,461,335
Accumulated net realized loss on investments
and financial futures contracts ........................ (45,031,973)
Net unrealized depreciation of investments
and financial futures contracts ........................ (50,583,230)
Distributions in excess of net investment income ......... (281,644)
---------------
Net Assets .......................... $1,467,564,488
========================================================
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 - $1,214,852,224/84,828,301 ...................... $14.32
==============================================================================
Class B - $228,948,863/15,986,589 ........................ $14.32
==============================================================================
Class C - $23,763,401/1,659,304 .......................... $14.32
==============================================================================
Maximum Offering Price Per Share*
Class A - ($14.32 x 104.71%) ............................. $14.99
==============================================================================
* 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest .................................................. $57,643,497
Dividends ................................................. 183,195
------------
57,826,692
------------
Expenses:
Investment management fee - Note B ...................... 3,737,194
Distribution and service fee - Note B
Class A ............................................... 1,858,906
Class B ............................................... 1,167,628
Class C ............................................... 113,768
Transfer agent fee - Note B ............................. 1,941,682
Accounting and legal services fee - Note B .............. 147,702
Custodian fee ........................................... 140,041
Printing ................................................ 42,680
Trustees' fees .......................................... 39,600
Miscellaneous ........................................... 31,499
Auditing fee ............................................ 22,020
Registration and filing fees ............................ 21,905
Legal fees .............................................. 4,374
------------
Total Expenses ....................... 9,268,999
--------------------------------------------------------
Net Investment Income ................ 48,557,693
--------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized loss on investments sold ..................... (15,245,092)
Net realized loss on financial futures contracts .......... (412,595)
Change in net unrealized appreciation/depreciation
of investments .......................................... (30,355,121)
Change in net unrealized appreciation/depreciation
of financial futures contracts .......................... 405,751
------------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts .......... (45,607,057)
--------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............ $2,950,636
========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
--------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................... $96,302,405 $48,557,693
Net realized loss on investments sold and financial
futures contracts ...................................................... (2,592,599) (15,657,687)
Change in net unrealized appreciation/depreciation of
investments and financial futures contracts ............................ (49,119,200) (29,949,370)
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ................. 44,590,606 2,950,636
--------------- ---------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.9665 and $0.4779 per share, respectively) .............. (83,968,102) (40,980,195)
Class B - ($0.8597 and $0.4273 per share, respectively) .............. (11,887,365) (6,902,480)
Class C** - ($0.5512 and $0.4271 per share, respectively) ............ (446,938) (671,809)
--------------- ---------------
Total Distributions to Shareholders .................................. (96,302,405) (48,554,484)
--------------- ---------------
From Fund Share Transactions - Net: * ...................................... 96,541,466 (25,372,488)
--------------- ---------------
Net Assets:
Beginning of period ..................................................... 1,493,711,157 1,538,540,824
--------------- ---------------
End of period (including distributions in excess of net investment income
of $284,853 and $281,644, respectively) .............................. $1,538,540,824 $1,467,564,488
=============== ===============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........... 33,840,928 $513,805,047 6,253,783 $90,746,319
Shares reinvested ..... 4,291,217 65,236,811 2,265,647 32,645,044
------------- ------------- ------------- -------------
38,132,145 579,041,858 8,519,430 123,391,363
Less shares repurchased (38,555,126) (585,265,951) (10,311,646) (149,290,068)
------------- ------------- ------------- -------------
Net decrease .......... (422,981) ($6,224,093) (1,792,216) ($25,898,705)
============= ============= ============= =============
CLASS B
Shares sold ........... 8,756,754 $133,473,644 2,140,834 $30,984,749
Shares reinvested ..... 440,757 6,690,223 304,325 4,381,598
------------- ------------- ------------- -------------
9,197,511 140,163,867 2,445,159 35,366,347
Less shares repurchased (3,915,180) (59,486,821) (2,622,486) (37,910,990)
------------- ------------- ------------- -------------
Net increase (decrease) 5,282,331 $80,677,046 (177,327) ($2,544,643)
============= ============= ============= =============
CLASS C**
Shares sold ........... 1,510,673 $23,046,624 241,128 $3,496,541
Shares reinvested ..... 24,293 365,237 40,028 576,372
------------- ------------- ------------- -------------
1,534,966 23,411,861 281,156 4,072,913
Less shares repurchased (87,365) (1,323,348) (69,453) (1,002,053)
------------- ------------- ------------- -------------
Net increase .......... 1,447,601 $22,088,513 211,703 $3,070,860
============= ============= ============= =============
</TABLE>
** Class C shares commenced operations on October 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------------------------ JANUARY 1, 1997 TO
1994 1995 1996 MAY 31, 1997(6)
---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .......... $15.53 $13.90 $15.40 $14.90
---------- ---------- ---------- ----------
Net Investment Income ......................... 1.12 1.12 1.09 0.44
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts . (1.55) 1.50 (0.50) (0.12)
---------- ---------- ---------- ----------
Total from Investment Operations ........... (0.43) 2.62 0.59 0.32
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .......... (1.12) (1.12) (1.09) (0.44)
Distributions from Net Realized Gain on
Investments Sold and Financial
Futures Contracts ........................... (0.08) -- -- --
---------- ---------- ---------- ----------
Total Distributions ........................ (1.20) (1.12) (1.09) (0.44)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ................ $13.90 $15.40 $14.90 $14.78
========== ========== ========== ==========
Total Investment Return at Net Asset Value(1) . (2.75%) 19.40% 4.11% 2.22%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...... $1,326,058 $1,535,204 $1,416,116 $1,361,924
Ratio of Expenses to Average Net Assets ....... 1.26% 1.13% 1.14% 1.11%(4)
Ratio of Net Investment Income to Average
Net Assets .................................. 7.74% 7.58% 7.32% 7.38%(4)
Portfolio Turnover Rate ....................... 85% 103%(5) 123% 58%
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
-------------------------- NOVEMBER 30, 1999
1998 1999 (UNAUDITED)
---------- ---------- -----------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .......... $14.78 $15.25 $14.76
---------- ---------- ----------
Net Investment Income ......................... 1.05(2) 0.97(2) 0.48(2)
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts . 0.47 (0.49) (0.44)
---------- ---------- ----------
Total from Investment Operations ........... 1.52 0.48 0.04
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .......... (1.05) (0.97) (0.48)
Distributions from Net Realized Gain on
Investments Sold and Financial
Futures Contracts ........................... -- -- --
---------- ---------- ----------
Total Distributions ........................ (1.05) (0.97) (0.48)
---------- ---------- ----------
Net Asset Value, End of Period ................ $15.25 $14.76 $14.32
========== ========== ==========
Total Investment Return at Net Asset Value(1) . 10.54% 3.11% 0.34%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...... $1,327,728 $1,278,582 $1,214,852
Ratio of Expenses to Average Net Assets ....... 1.08% 1.07% 1.11%(4)
Ratio of Net Investment Income to Average
Net Assets .................................. 6.90% 6.35% 6.60%(4)
Portfolio Turnover Rate ....................... 198% 228% 80%
</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.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------------------- JANUARY 1, 1997 TO
1994 1995 1996 MAY 31, 1997(6)
------- ------- -------- ---------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .......... $15.52 $13.90 $15.40 $14.90
------- ------- -------- --------
Net Investment Income ......................... 1.04 1.02 0.98 0.40
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts . (1.54) 1.50 (0.50) (0.12)
------- ------- -------- --------
Total from Investment Operations ........... (0.50) 2.52 0.48 0.28
------- ------- -------- --------
Less Distributions:
Dividends from Net Investment Income .......... (1.04) (1.02) (0.98) (0.40)
Distributions from Net Realized Gain on
Investments Sold and Financial
Futures Contracts ........................... (0.08) -- -- --
------- ------- -------- --------
Total Distributions ........................ (1.12) (1.02) (0.98) (0.40)
------- ------- -------- --------
Net Asset Value, End of Period ................ $13.90 $15.40 $14.90 $14.78
======= ======= ======== ========
Total Investment Return at Net Asset Value(1) . (3.13%) 18.66% 3.38% 1.93%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...... $40,299 $98,739 $134,112 $132,885
Ratio of Expenses to Average Net Assets ....... 1.78% 1.75% 1.84% 1.81%(4)
Ratio of Net Investment Income to Average
Net Assets .................................. 7.30% 6.87% 6.62% 6.68%(4)
Portfolio Turnover Rate ....................... 85% 103%(5) 123% 58%
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
----------------------- NOVEMBER 30, 1999
1998 1999 (UNAUDITED)
-------- -------- ----------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .......... $14.78 $15.25 $14.76
-------- -------- --------
Net Investment Income ......................... 0.95(2) 0.86(2) 0.43(2)
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts . 0.47 (0.49) (0.44)
-------- -------- --------
Total from Investment Operations ........... 1.42 0.37 (0.01)
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income .......... (0.95) (0.86) (0.43)
Distributions from Net Realized Gain on
Investments Sold and Financial
Futures Contracts ........................... -- -- --
-------- -------- --------
Total Distributions ........................ (0.95) (0.86) (0.43)
-------- -------- --------
Net Asset Value, End of Period ................ $15.25 $14.76 $14.32
======== ======== ========
Total Investment Return at Net Asset Value(1) . 9.78% 2.39% (0.02%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...... $165,983 $238,591 $228,949
Ratio of Expenses to Average Net Assets ....... 1.78% 1.77% 1.81%(4)
Ratio of Net Investment Income to Average
Net Assets .................................. 6.18% 5.65% 5.90%(4)
Portfolio Turnover Rate ....................... 198% 228% 80%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
------------ -----------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $15.61 $14.76
---------- ----------
Net Investment Income(2) ........................... 0.55 0.43
Net Realized and Unrealized Loss on Investments and
Financial Futures Contracts ...................... (0.85) (0.44)
---------- ----------
Total from Investment Operations ................. (0.30) (0.01)
---------- ----------
Less Distributions:
Dividends from Net Investment Income ............... (0.55) (0.43)
---------- ----------
Net Asset Value, End of Period ..................... $14.76 $14.32
========== ==========
Total Investment Return at Net Asset Value(1) ...... (1.95%)(3) (0.02%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........... $21,368 $23,763
Ratio of Expenses to Average Net Assets ............ 1.77%(4) 1.81%(4)
Ratio of Net Investment Income to Average Net Assets 5.65%(4) 5.89%(4)
Portfolio Turnover Rate ............................ 228% 80%
</TABLE>
(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.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Schedule of Investments
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Bond
Fund on November 30, 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.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C>
BONDS
Aerospace (0.44%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R) ....... 10.910% BBB $5,800 $6,471,292
-----------
Automobile/Trucks (0.71%)
Chrysler Financial Co. LLC,
Med Term Note Ser S 11-15-01 ..................... 5.690 A+ 4,520 4,437,646
ERAC USA Finance Co.,
Note 02-15-05 (R) ................................ 6.625 BBB+ 6,200 5,952,868
-----------
10,390,514
-----------
Banks - Foreign (3.22%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) ........... 8.200 AA- 10,000 10,366,300
African Development Bank,
Sub Note (Supra National) 12-15-03 (Y) ........... 9.750 AA- 8,000 8,826,480
International Bank for Reconstruction & Development,
Deb (Supra National) 09-01-16 (Y) ................ 8.250 AAA 5,000 5,565,150
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 ............................ 10.125 A 10,605 11,592,325
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (Netherlands) 11-01-06 (R) (Y) ...... 8.850 A+ 10,250 10,916,045
-----------
47,266,300
-----------
Banks - United States (3.37%)
Bank of New York,
Cap Security 12-01-26 (R) ........................ 7.780 A- 5,705 5,327,215
Barclay's North American Capital Corp.,
Gtd Cap Note 05-15-21 ............................ 9.750 AA- 8,925 9,560,460
First Union National Bank,
Sub Note 12-01-28 ................................ 6.500 A 4,705 4,013,647
FleetBoston Financial Corp.,
Sub Note 12-01-05 ................................ 6.625 A- 4,445 4,330,052
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 ................................ 9.450 AA- 10,000 10,348,000
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ........................ 8.250 A- 2,915 2,944,150
</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>
Banks - United States (continued)
Security Pacific Corp.,
Medium Term Sub Note 05-09-01 .................... 10.360% A $6,000 $6,304,020
Sub Note 11-15-00 ................................ 11.500 A 6,400 6,669,760
-----------
49,497,304
-----------
Beverages (0.50%)
Canandaigua Brands, Inc.,
Sr Sub Note Ser C 12-15-03 ....................... 8.750 B+ 4,115 4,053,275
Seagram (Joseph) & Sons, Inc.,
Gtd Deb 09-15-11 ................................. 8.875 BBB- 3,100 3,322,487
-----------
7,375,762
-----------
Broker Services (0.40%)
Goldman Sachs Group, Inc.,
Medium Term Note Ser B 10-01-09 .................. 7.350 A+ 5,840 5,805,252
-----------
Building (0.17%)
Owens Corning,
Note 03-15-09 .................................... 7.000 BBB- 2,805 2,492,888
-----------
Chemicals (0.90%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) ................................ 6.000 A 2,820 2,707,200
Du Pont (E.I.) de Nemours & Co.,
Note 10-15-09 .................................... 6.875 AA- 3,310 3,258,860
Equistar Chemicals, L.P.,
Note 02-15-04 .................................... 8.500 BBB- 3,950 3,880,875
Lyondell Chemical Co.,
Sr Sec Note Ser A 05-01-07 ....................... 9.625 BB 650 667,875
Monsanto Co.,
Deb 12-01-28 (R) ................................. 6.600 A 2,990 2,618,194
-----------
13,133,004
-----------
Computers (1.01%)
Ceridian Corp.,
Sr Note 06-01-04 ................................. 7.250 BBB 3,820 3,706,622
Primark Corp.,
Sr Sub Note 12-15-08 ............................. 9.250 B+ 2,220 2,097,900
PSINet, Inc.,
Sr Note 11-01-08 ................................. 11.500 B- 2,920 3,036,800
Sr Note 08-01-09 ................................. 11.000 B- 1,525 1,540,250
Verio, Inc.,
Sr Note 04-01-05 ................................. 10.375 B- 4,395 4,449,938
-----------
14,831,510
-----------
Cosmetics & Personal Care (0.43%)
Johnson & Johnson,
Deb 11-15-23 ..................................... 6.730 AAA 6,750 6,365,115
-----------
</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>
Energy (1.02%)
AES Corp.,
Sr Sub Note 07-15-06 ............................. 10.250% B+ $6,005 $6,095,075
MidAmerican Energy Holdings,
Sr Bond 09-15-28 ................................. 8.480 BBB- 4,660 4,853,297
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 ....................... 9.625 B 4,040 3,999,600
-----------
14,947,972
-----------
Fiber Optics (0.09%)
Williams Communications Group, Inc.,
Sr Note 10-01-09 ................................. 10.875 BB- 1,280 1,337,600
-----------
Finance (3.47%)
Bombardier Capital, Inc.,
Note 01-15-02 (R) ................................ 6.000 A- 4,620 4,516,974
CIT Group Holdings, Inc.,
Deb 03-15-01 ..................................... 9.250 A 5,000 5,150,650
Note 10-15-01 .................................... 5.500 A+ 5,485 5,372,393
Finova Capital Corp.,
Note 11-01-02 .................................... 6.250 A- 4,105 4,003,319
Ford Motor Credit Co.,
Note 04-28-03 .................................... 6.125 A 5,500 5,371,300
Note 10-28-09 .................................... 7.375 A 5,840 5,864,178
General Motors Acceptance Corp.,
Note 12-01-01 .................................... 6.375 A 5,470 5,429,741
Household Finance Corp.,
Note 11-01-02 .................................... 5.875 A 6,860 6,641,029
Marlin Water Trust & Marlin Water Capital Corp.,
Sr Sec Note 12-15-01 (R) ......................... 7.090 BBB 4,405 4,327,912
Merrill Lynch Mortgage Investors, Inc.,
Sub Bond Ser 1992-B Class B 04-15-12 ............. 8.500 Aaa 601 600,587
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A 06-15-04 (R) ........... 8.400 BBB- 3,969 3,651,779
-----------
50,929,862
-----------
Government - Foreign (0.98%)
Nova Scotia, Province of,
Deb (Canada) 04-01-22 (Y) ........................ 8.750 A- 7,500 8,413,800
Saskatchewan, Province of,
Bond (Canada) 12-15-20 (Y) ....................... 9.375 A 5,000 5,978,750
-----------
14,392,550
-----------
Government - U.S. (21.44%)
United States Treasury,
Bond 08-15-17 .................................... 8.875 AAA 41,247 50,791,968
Bond 05-15-18 .................................... 9.125 AAA 47,075 59,498,563
Bond 02-15-23 .................................... 7.125 AAA 88,234 94,079,503
Note 05-15-01 .................................... 8.000 AAA 4,391 4,513,114
</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>
Government - U.S. (continued)
Note 05-15-02 .................................... 7.500% AAA $19,686 $20,325,795
Note 08-15-03 .................................... 5.750 AAA 16,935 16,728,562
Note 02-15-05 .................................... 7.500 AAA 33,690 35,574,619
Note 07-15-06 .................................... 7.000 AAA 31,907 33,143,396
-----------
314,655,520
-----------
Government - U.S. Agencies (12.62%)
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 ..................... 11.250 AAA 582 633,506
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 01-25-05 ..................... 8.000 AAA 6,879 6,941,272
15 Yr Pass Thru Ctf 02-01-08 ..................... 7.500 AAA 1,264 1,277,027
15 Yr Pass Thru Ctf 09-01-10 to 12-01-10 ......... 7.000 AAA 3,007 2,994,574
15 Yr Pass Thru Ctf 12-01-12 ..................... 6.500 AAA 8,990 8,795,672
30 Yr Pass Thru Ctf 11-01-28 ..................... 6.500 AAA 3,676 3,507,146
30 Yr Pass Thru Ctf 10-01-23 ..................... 7.000 AAA 5,142 5,048,438
Bond 05-15-29 .................................... 6.250 AAA 19,585 17,758,111
Note 05-14-04 .................................... 5.625 AAA 13,500 13,008,465
Note 08-15-04 .................................... 6.500 AAA 13,945 13,897,029
Note 09-15-09 .................................... 6.625 AAA 30,210 29,846,574
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ..... 6.940 AAA 3,237 3,199,651
Financing Corp.,
Bond 02-08-18 .................................... 9.400 AAA 7,000 8,643,880
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 02-15-28 to 07-15-28 ......... 6.500 AAA 15,093 14,357,356
30 Yr Pass Thru Ctf 06-15-28 to 04-15-29 ......... 7.000 AAA 25,714 25,110,818
30 Yr Pass Thru Ctf 02-15-24 to 12-21-29 ......... 7.500 AAA 17,089 17,081,742
30 Yr Pass Thru Ctf 11-15-22 ..................... 8.000 AAA 2,765 2,818,199
30 Yr Pass Thru Ctf 07-15-16 to 01-15-25 ......... 9.000 AAA 7,046 7,437,413
30 Yr Pass Thru Ctf 11-15-19 to 05-15-21 ......... 9.500 AAA 1,750 1,861,058
30 Yr Pass Thru Ctf 06-15-20 to 03-15-25 ......... 10.000 AAA 772 836,432
30 Yr Pass Thru Ctf 01-15-16 ..................... 10.500 AAA 56 60,788
30 Yr Pass Thru Ctf 01-15-16 ..................... 11.000 AAA 129 141,788
-----------
185,256,939
-----------
Insurance (3.50%)
Conseco, Inc.,
Note 10-15-06 .................................... 9.000 BBB+ 4,075 4,144,071
Equitable Life Assurance Society of the United States,
Surplus Note 12-01-05 (R) ........................ 6.950 A 6,050 5,944,911
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26 (Y) ....................... 8.300 BBB+ 3,775 3,410,524
Liberty Mutual Insurance Co.,
Surplus Note 10-15-26 (R) ........................ 7.875 A+ 1,460 1,320,731
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ........................ 7.625 AA 10,450 10,272,350
</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>
Insurance (continued)
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ........................ 7.500% AA- $15,000 $13,770,000
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ........................ 6.625 AA- 7,250 6,873,000
URC Holdings Corp.,
Sr Note 06-30-06 (R) ............................. 7.875 A- 5,665 5,658,995
-----------
51,394,582
-----------
Leasing Companies (0.18%)
United Rentals, Inc.,
Sr Sub Note Ser B 04-01-09 ....................... 9.000 BB- 2,975 2,692,375
-----------
Leisure (1.39%)
Harrah's Operating Co., Inc.,
Sr Note 01-15-09 ................................. 7.500 BBB- 4,085 3,877,319
HMH Properties, Inc.,
Sr Gtd Sec Note Ser A 08-01-05 ................... 7.875 BB 2,380 2,201,500
Marvel Enterprises, Inc.,
Sr Note 06-15-09 ................................. 12.000 B- 1,695 1,576,350
Premier Parks, Inc.,
Sr Note 06-15-07 ................................. 9.750 B- 2,265 2,259,338
SFX Entertainment, Inc.,
Gtd Sr Sub Note 12-01-08 ......................... 9.125 B- 4,465 4,197,100
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 ................................. 15.500 B- 5,150 4,377,500
Waterford Gaming LLC,
Sr Note 03-15-10 (R) ............................. 9.500 B+ 1,886 1,874,212
-----------
20,363,319
-----------
Media (5.05%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 ........................... 9.250 B+ 4,750 4,797,500
Sr Note Ser B 07-15-03 ........................... 8.125 B+ 2,250 2,185,313
Sr Note 05-01-09 ................................. 7.875 B+ 2,285 2,079,350
Sr Note 11-15-09 ................................. 9.375 B+ 1,635 1,630,912
AMFM, Inc.,
Sr Sub Note 10-01-08 ............................. 9.000 B 2,910 3,055,500
Century Communications Corp.,
Sr Note 08-15-00 ................................. 9.500 BB- 2,545 2,567,269
Charter Communications Holdings, LLC,
Sr Note 04-01-09 ................................. 8.625 B+ 4,030 3,808,350
Comcast Cable Communications, Inc.,
Note 11-15-08 .................................... 6.200 BBB 2,900 2,667,826
Continental Cablevision, Inc.,
Sr Note 05-15-06 ................................. 8.300 BBB 3,765 3,932,317
CSC Holdings, Inc.,
Sr Note Ser B 07-15-09 ........................... 8.125 BB+ 4,510 4,510,000
Sr Sub Deb 05-15-16 .............................. 10.500 BB- 2,890 3,222,350
</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>
Media (continued)
Echostar DBS Corp.,
Sr Note 02-01-09 ................................. 9.375% B $1,385 $1,391,925
Falcon Holdings Group L.P.,
Deb Ser B 04-15-10 ............................... 8.375 B 1,810 1,814,525
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 ............................. 8.625 B+ 2,445 2,200,500
Sr Sub Note Ser B 10-01-09 ....................... 8.750 B+ 2,365 2,211,275
Liberty Media Group,
Note 07-15-29 (R) ................................ 8.500 BBB- 3,900 3,960,840
Mediacom LLC/Mediacom Capital Corp.,
Sr Note Ser B 04-15-08 ........................... 8.500 B+ 2,880 2,678,400
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 .............................. 8.250 BBB- 4,910 4,907,201
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) .............. 10.000 BB+ 4,880 5,221,600
TCI Communications, Inc.,
Sr Deb 02-15-26 .................................. 7.875 AA- 4,680 4,779,356
Time Warner, Inc.,
Deb 01-15-13 ..................................... 9.125 BBB 4,865 5,450,162
TV Guide, Inc.,
Sr Sub Note Ser B 03-01-09 ....................... 8.125 B+ 3,230 3,181,550
United Pan-Europe Communications N.V.,
Sr Note (Netherlands) 11-01-09 (R) (Y) ........... 11.250 B- 1,795 1,857,825
-----------
74,111,846
-----------
Medical (0.85%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) .................... 10.750 B+ 5,040 4,914,000
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security 02-01-08 ............ 7.875 B+ 3,480 3,166,800
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ............................. 10.750 B+ 3,185 3,328,325
Sola International, Inc.,
Note 03-15-08 .................................... 6.875 BBB- 1,260 1,103,584
-----------
12,512,709
-----------
Metal (0.38%)
Golden Northwest Aluminium, Inc.,
1st Mtg Note 12-15-06 ............................ 12.000 BB- 2,465 2,569,762
National Steel Corp.,
1st Mtg Ser D 03-01-09 ........................... 9.875 B+ 2,895 2,981,850
-----------
5,551,612
-----------
Mortgage Banking (3.12%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A 08-15-02 ........ 6.350 AAA 3,955 3,943,926
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ...... 8.100 AAA 3,880 3,906,675
</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>
Mortgage Banking (continued)
Credit Suisse First Boston Mortgage Securities Corp.
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class A-1A 12-17-07 6.260% AAA $5,055 $4,889,329
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class C 03-15-08 6.861 A2 3,585 3,312,764
FirstPlus Home Loan Trust,
Pass Thru Ctf Ser 1998-4 Class A-5 01-10-18 ...... 6.380 AAA 6,220 5,940,100
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 ..... 6.566 Aaa 6,025 5,796,050
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-1 Class A-5 12-25-13 ...... 6.290 AAA 6,816 6,773,877
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 6.750 Aaa 3,940 3,905,761
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-D1 Class A6 02-15-25 ...... 7.180 AAA 7,260 7,276,448
-----------
45,744,930
-----------
Oil & Gas (1.49%)
Amerada Hess Corp.,
Bond 10-01-29 .................................... 7.875 BBB 4,660 4,601,750
CMS Panhandle Holding Co.,
Sr Note 07-15-29 ................................. 7.000 BBB- 2,940 2,660,700
Ocean Energy, Inc.,
Sr Sub Note Ser B 07-15-07 ....................... 8.875 B- 1,960 1,979,600
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) .................... 6.625 BBB 4,165 3,880,489
Snyder Oil Corp.,
Sr Sub Note 06-15-07 ............................. 8.750 BB- 2,555 2,548,612
Swift Energy Co.,
Sr Sub Note 08-01-09 ............................. 10.250 B- 1,605 1,629,075
Triton Energy Ltd.,
Sr Note 04-15-02 ................................. 8.750 BB- 4,630 4,612,638
-----------
21,912,864
-----------
Paper & Paper Products (0.94%)
Fort James Corp.,
Sr Note 09-15-02 ................................. 6.500 BBB 4,110 4,031,992
Packaging Corp. of America,
Sr Sub Note 04-01-09 ............................. 9.625 B 3,135 3,236,888
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 ....................... 12.000 B+ 6,195 6,473,775
-----------
13,742,655
-----------
Real Estate Investment Trust (1.39%)
American Health Properties, Inc.,
Note 01-15-07 .................................... 7.500 BBB- 3,510 2,968,758
Cabot Industrial Properties, L.P.,
Note 05-01-04 .................................... 7.125 BBB- 3,400 3,281,000
</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>
Real Estate Investment Trust (continued)
Camden Property Trust,
Note 04-15-04 .................................... 7.000% BBB $3,755 $3,641,373
Liberty Property L.P.,
Med Term Note 06-05-02 ........................... 6.600 BBB- 2,990 2,900,300
ProLogis Trust,
Sr Note 04-15-04 ................................. 6.700 BBB+ 3,520 3,370,189
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 .................................... 7.300 BB 4,395 4,251,723
-----------
20,413,343
-----------
Retail (1.00%)
Great Atlantic & Pacific Tea Co., Inc. (The),
Note 04-15-07 .................................... 7.750 BBB- 3,130 2,973,437
Meyer (Fred), Inc.,
Note 03-01-08 .................................... 7.450 BBB- 4,605 4,528,281
Pathmark Stores, Inc.,
Sub Note 06-15-02 ................................ 11.625 CCC+ 4,700 4,664,750
Safeway, Inc.,
Note 11-15-01 .................................... 5.875 BBB 2,480 2,427,598
-----------
14,594,066
-----------
Revenue Bonds (0.88%)
Massachusetts Bay Transportation Authority,
Gen Trans Sys Ser 1998B 03-01-28 ................. 5.000 AAA 5,255 4,508,002
Massachusetts Water Resource Authority,
Ref Gen Rev Ser D 08-01-24 ....................... 5.000 AAA 4,495 3,904,132
New York State Dormitory Authority,
Mental Hlth Serv Facil Imp Rev Ser 1998D 02-15-23 5.000 AAA 5,200 4,523,324
-----------
12,935,458
-----------
Telecommunications (5.67%)
AXIA, Inc.,
Sr Sub Note 07-15-08 ............................. 10.750 B- 1,625 1,478,750
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon (10.125%, 05-01-04)
(Canada) 05-01-09 (A) (Y) ........................ Zero BB- 6,020 3,687,250
Crown Castle International Corp.,
Sr Note 05-15-11 ................................. 9.000 B 4,025 3,934,438
Global Crossing Holdings Ltd.,
Sr Note 11-15-06 (R) ............................. 9.125 BB 1,625 1,600,625
Sr Note 11-15-09 (R) ............................. 9.500 BB 3,860 3,806,925
GTE North, Inc.,
Deb Ser H 11-15-08 ............................... 5.650 AA- 5,715 5,134,127
Hermes Europe Railtel B.V.,
Sr Note (Netherlands) 08-15-07 (Y) ............... 11.500 B 2,950 3,031,125
Sr Note (Netherlands) 01-15-09 (Y) ............... 10.375 B 1,515 1,492,275
LCI International, Inc.,
Sr Note 06-15-07 ................................. 7.250 BB+ 3,825 3,699,387
</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>
Telecommunications (continued)
Lenfest Communications, Inc.,
Sr Sub Note 06-15-06 ............................. 10.500% BB- $5,645 $6,378,850
McLeodUSA, Inc.,
Sr Note 11-01-08 ................................. 9.500 B+ 3,270 3,294,525
Metromedia Fiber Network, Inc.,
Sr Note Ser B 11-15-08 ........................... 10.000 B+ 3,950 3,989,500
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) .................... 12.000 BBB 2,425 2,800,875
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.95%, 02-15-03)
02-15-08 (A) ..................................... Zero B 3,225 2,273,625
Sr Note 11-15-09 (R) ............................. 9.375 B 3,260 3,235,550
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 ................................. 10.750 B 2,605 2,670,125
NTL Communications Corp.,
Sr Note Ser B 10-01-08 ........................... 11.500 B- 4,350 4,719,750
Omnipoint Corp.,
Sr Note 09-15-09 (R) ............................. 11.500 CCC+ 2,620 2,829,600
Orange Plc,
Sr Note (United Kingdom) 08-01-08 (Y) ............ 8.000 BBB 3,250 3,298,750
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+ 4,700 4,344,304
Tritel PCS, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-15-04)
05-15-09 (A) (R) ................................. Zero B3 1,280 819,200
Triton PCS, Inc.,
Gtd Sr Sub Disc Note, Step Coupon (11.00%, 05-01-03)
05-01-08 (A) ..................................... Zero CCC+ 2,440 1,720,200
WorldCom, Inc.,
Sr Note 08-15-01 ................................. 6.125 A- 6,230 6,178,727
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (Y) .................... 12.500 B+ 4,340 4,502,750
-----------
83,236,233
-----------
Transport (5.10%)
America West Airlines, Inc.,
Pass Thru Ctf Ser 1996-1B 01-02-08 ............... 6.930 A- 3,634 3,471,368
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1996-C 10-15-13 ................ 9.500 BBB+ 4,557 4,753,796
Pass Thru Ctf Ser 1999-1A 08-02-20 ............... 6.545 AA+ 5,613 5,155,223
Note 12-15-05 .................................... 8.000 BB- 3,915 3,592,012
Fine Air Services, Inc.,
Sr Note 06-01-08 ................................. 9.875 B 3,735 3,174,750
Humpuss Funding Corp.,
Gtd Note (Indonesia) 12-15-09 (R) (Y) ............ 7.720 B3 2,072 1,443,695
</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>
Transport (continued)
Northwest Airlines, Inc.,
Gtd Note 03-15-04 ................................ 8.375% BB $4,505 $4,283,759
Pass Thru Ctf Ser 1996-1C 01-02-05 ............... 10.150 BBB- 2,581 2,555,665
Pass Thru Ctf Ser 1996-1D 01-02-15 ............... 8.970 BBB- 3,624 3,623,444
NWA Trust,
Sr Note Ser A 12-21-12 ........................... 9.250 AA 5,164 5,459,526
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A 06-01-04 ............ 7.750 AAA 11,630 11,814,121
Ucar Global Enterprises, Inc.,
Sr Sub Note 01-15-05 ............................. 12.000 B 6,470 6,728,800
Union Pacific Corp.,
Deb 02-01-29 ..................................... 6.625 BBB- 4,685 4,005,300
US Airways, Inc.,
Pass Thru Ctf Ser 1989-A2 01-01-13 ............... 9.820 BB 5,125 4,984,063
Pass Thru Ctf Ser 1990-A1 03-19-05 ............... 11.200 BB 7,317 7,536,068
Wisconsin Central Transportation Corp.,
Note 04-15-08 .................................... 6.625 BBB- 2,470 2,283,219
-----------
74,864,809
-----------
Utilities (10.62%)
AES Eastern Energy,
Pass Thru Ctf 07-02-17 (R) ....................... 9.000 BBB- 3,660 3,500,058
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 .................... 9.000 BB- 5,005 5,067,562
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 ............... 8.890 BB- 6,600 6,765,000
Calpine Corp.,
Sr Note 05-15-06 ................................. 10.500 BB+ 4,650 4,836,000
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 ........................... 9.500 BB+ 10,220 10,616,025
CMS Energy Corp.,
Sr Note Ser B 01-15-04 ........................... 6.750 BB 3,545 3,364,276
Sr Note 01-15-09 ................................. 7.500 BB 5,250 4,830,000
Connecticut Light & Power Co.,
1st Ref Mtg Ser C 06-01-02 ....................... 7.750 BBB- 1,900 1,929,887
Note 06-05-03 (R) ................................ 8.590 BBB- 2,350 2,365,839
East Coast Power LLC,
Sr Sec Note 03-31-12 (R) ......................... 7.066 BBB- 4,670 4,237,885
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ............................ 10.250 BBB- 8,923 9,633,182
GG1B Funding Corp.,
Deb 01-15-11 ..................................... 7.430 BBB- 3,668 3,513,084
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) ................... 9.400 A+ 3,140 3,724,856
Gtd Deb (Canada) 02-01-03 (Y) .................... 7.375 A+ 7,185 7,276,034
Gtd Deb Ser FU (Canada) 02-01-12 (Y) ............. 11.750 A+ 5,000 6,717,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<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)
Iberdrola International B.V.,
Note 10-01-02 .................................... 7.500% AA- $8,000 $8,109,840
Note (Netherlands) 06-01-03 (R) (Y) .............. 7.125 AA- 8,629 8,682,759
Long Island Lighting Co.,
Deb 03-15-23 ..................................... 8.200 A- 5,615 5,615,000
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 ........................ 10.330 BBB- 7,807 8,065,272
Midland Funding Corp. II,
Deb Ser A 07-23-05 ............................... 11.750 BB 5,130 5,607,552
Deb Ser B 07-23-06 ............................... 13.250 BB 1,900 2,263,090
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) ............ 9.625 BB 1,320 1,128,600
Niagara Mohawk Power Corp.,
Deb 01-01-18 ..................................... 8.770 BBB 6,900 7,185,867
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 ........................... 9.050 BB- 3,575 3,633,523
Northeast Utilities,
Note Ser A 12-01-06 .............................. 8.580 BB- 979 982,466
PECO Energy Transition Trust,
Pass Thru Ctf Ser 1999-A Class A-6 03-01-09 ...... 6.050 AAA 4,481 4,256,950
PNPP II Funding Corp.,
Deb 05-30-16 ..................................... 9.120 BB- 3,905 4,135,825
System Energy Resources, Inc.,
1st Mtg 08-01-01 ................................. 7.710 BBB- 5,525 5,541,575
U.S. West Capital Funding, Inc.,
Gtd Deb 07-15-28 ................................. 6.875 A- 4,695 4,197,612
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 ............... 8.090 BBB- 8,289 8,041,734
-----------
155,825,103
-----------
TOTAL BONDS
(Cost $1,406,068,623) (92.33%) 1,355,045,288
------- -------------
<CAPTION>
NUMBER OF
SHARES
OR WARRANTS
-----------
<S> <C> <C>
PREFERRED STOCKS AND WARRANTS
California Federal Preferred Capital Corp., 9.125%, Ser A, Preferred Stock ............ 327,190 7,484,471
CSC Holdings, Inc., 11.125%, Ser M, Preferred Stock ................................... 49,150 5,332,775
CSC Holdings, Inc., 11.750%, Ser H, Preferred Stock ................................... 8,688 938,304
MetroNet Communications Corp., Warrant (Canada) (R) (Y) ............................... 4,625 531,875
Packaging Corp. of America, 12.375%, Preferred Stock .................................. 16,929 1,845,261
---------- ----------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $16,047,038) (1.10%) 16,132,686
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<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 (5.17%)
Investment in a joint repurchase agreement transaction with Barclay's, Inc. -
Dated 11-30-99, due 12-01-99 (Secured by U.S. Treasury Bonds, 7.500% thru
11.625%, due 11-15-04 thru 11-15-22 and U.S. Treasury Notes, 6.625% thru
7.500%, due 03-31-02 thru
02-15-05) - Note A ........................................................... 5.690% $75,911 $75,911,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.50% ........................................................... 57
--------------
TOTAL SHORT-TERM INVESTMENTS (5.17%) 75,911,057
------- --------------
TOTAL INVESTMENTS (98.60%) 1,447,089,031
------- --------------
OTHER ASSETS AND LIABILITIES, NET (1.40%) 20,475,457
------- --------------
TOTAL NET ASSETS (100.00%) $1,467,564,488
======= ==============
</TABLE>
(A) Cash interest will 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 $132,204,954 or 9.01% of net assets as of
November 30, 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.
25
<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"). 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 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 a 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 $23,620,416 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 -- $619,870. 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
26
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
daily at the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund entered into a
syndicated line of credit agreement with various banks that enables the Fund to
participate with other funds managed by the Adviser in 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 period ended November 30, 1999.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates 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 to and from the broker, known as "variation margin," 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, 1999, open positions in financial futures contracts were
as follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION APPRECIATION
- ---------- -------------- -------- ------------
DEC 99 149 U.S. TREASURY BOND SHORT $354,457
========
At November 30, 1999, the Fund had deposited $220,000 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 option 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.
27
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
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 November 30, 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 period ended November
30, 1999, net sales charges received with regard to sales of Class A shares
amounted to $350,362. Out of this amount, $25,770 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $93,661
was paid as sales commissions to unrelated broker-dealers and $230,931 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,
1999, contingent deferred sales charges received by JH Funds amounted to
$381,313.
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
period ended November 30, 1999, contingent deferred sales charges received by JH
Funds amounted to $3,841.
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. A maximum of 0.25% of these payments may be service fees as defined by
the Conduct Rules of the National Association of Securities Dealers. Under the
Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur
under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of 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 period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford, Ms. Anne C. Hodsdon and Mr.
Richard S. Scipione are trustees and/or officers of the Adviser,
28
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
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 period ended November 30, 1999, aggregated $442,757,922 and
$570,053,112, respectively. Purchases and proceeds from sales of obligations and
maturities of the U.S. government and its agencies, during the period ended
November 30, 1999, aggregated $673,206,188 and $594,980,010, respectively.
The cost of investments owned at November 30, 1999 (excluding the
corporate savings account) for federal income tax purposes was $1,500,181,071.
Gross unrealized appreciation and depreciation of investments aggregated
$12,308,375 and $65,400,472, respectively, resulting in net unrealized
depreciation of $53,092,097.
29
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=====================================NOTES======================================
John Hancock Funds - Bond Fund
30
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Bond Fund
31
<PAGE>
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