---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC]
Bond
Fund
MAY 31, 2000
[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
GAIL D. FOSLER
WILLIAM F. GLAVIN
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, President and
Chief Executive Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
WILLIAM L. BRAMAN
Executive Vice President and
Chief Investment Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
ERNST &YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
================================== CEO CORNER ==================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech stocks
pushed the NASDAQ Composite Index to the stratosphere, as investors
single-mindedly pursued anything technology related. But after setting a new
high on March 10 amid significantly heightened volatility, the tables started to
turn rapidly. Concerns about Microsoft's antitrust ruling and out-of-sight
valuation levels finally triggered waves of selling that sent the index down 32%
from its March high by the end of May.
In this same period, fixed-income-type securities, including bonds and preferred
stocks, struggled as interest rates rose on fears that the roaring U.S. economy
and the rebound of many others around the world would spark an inflation
outbreak.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
While the battle between old and new rages on, a couple of things are clear:
More than ever, diversification and a long-term investment perspective are two
of an investor's best allies. Since not all parts of your portfolio will perform
equally well all the time, we believe it is important to allocate your assets
among different types of investments and funds that target a variety of stock-
and bond-market segments. This strategy, executed under the guidance of a
seasoned investment professional, could provide you with a better chance of both
realizing longer-term results and weathering the market's changing conditions.
Sincerely,
/s/ Maureen R. Ford
-------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY JAMES K. HO, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
BENJAMIN A. MATTHEWS, PORTFOLIO MANAGER
John Hancock Bond Fund
Rising interest rates and inflation fears
keep bonds under pressure
A combination of technical and market factors made the past 12 months one of the
roughest rides bonds have had in a long time. While pockets of strength occurred
among the various fixed-income sectors, they were short-lived. With the economy
booming, inflation remained a worry throughout the year, and the Federal Reserve
Board raised interest rates six times starting last June, so that by the end of
the period the federal funds rate stood at 6.50%, up from 4.75% a year ago. The
anticipation of an eventual economic slowdown due to the Fed's actions made
investors wary of the future creditworthiness of corporate issuers. A rise in
defaults cast further aspersions on high-yield bonds. The buildup of concerns
prior to Y2K contributed to the downturn, as did a glut of new corporate
issuance last summer. Longer-term U.S. Treasury bonds fared somewhat better as
the result of the U.S. Treasury's announced buy-back program. The stock market's
volatility in recent months further bolstered the demand for long-term Treasury
bonds at the expense of other bond sectors as a "flight-to-quality" took place.
Credit quality spreads (the difference in yield between bonds of different
credit quality) widened dramatically to levels last seen in the 1990 recession.
Fund performance
John Hancock Bond Fund produced a modest gain for the 12 months ended May 31,
2000. The Fund's Class A, Class B and Class C shares posted total returns of
0.97%, 0.27% and 0.28%, respectively, at net asset value. By comparison, the
average corporate debt A-rated fund returned 0.14%, 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.
Defensive duration stance
The Fund began the year last June with a duration, or interest-rate sensitivity,
that was relatively short. As you may know, the shorter the duration, the less
price volatility a portfolio is likely to experience when interest rates rise or
fall. Conversely,
"...the Federal Reserve Board raised interest rates six times starting last
June..."
--------------------------------------------------------------------------------
[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 and Jim Ho."]
--------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Bond Fund
"...heavy exposure to corporate issues throughout the year helped overall."
--------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Government & Agencies 36%, the second is Utilities 12%, the
third Telecommunications 5%, the fourth Media 5% and the fifth U.S. Banks 4%. A
note below the table reads "As a percentage of net assets on May 31, 2000."]
--------------------------------------------------------------------------------
the longer the duration, the greater price appreciation or depreciation
possibilities a fund may experience as interest rates change. Within the past
few months, we moved away from the shorter, more defensive, duration posture
toward a more neutral orientation. Recent economic numbers seem to suggest
slower growth, which may temper the Fed's tightening.
Treasuries barbelled
For most of the period, we had the Fund's U.S. Treasury holdings anchored at
both the short- and long-end of the maturity spectrum, graphically represented
by what's known as the yield curve. This allowed the portfolio to benefit from
the yield curve's flattening through the end of calendar 1999. With the
announcement of the Treasury's intention to buy back securities, investors bid
up the price of 30-year bonds, causing yields on longer-term bonds to fall below
those of shorter-term issues, inverting the yield curve. The Fund's holdings in
long-term Treasury bonds benefited as a result. Quite recently, we began to
shift our focus somewhat to intermediate-term securities, believing that once
the Fed's actions take effect and slow the economy, the yield curve should
steepen again. When a steepening occurs, intermediate-term securities tend to
perform well.
Adding shorter-maturity corporates
Although there was a significant downturn in corporate bond prices this past
spring, the Fund's heavy exposure to corporate issues throughout the year helped
overall. We added to and pared back the Fund's weighting in this sector several
times during the year, participating in the brief run-ups while avoiding the
worst of the declines. Since February, we tried to position the Fund's corporate
holdings for the credit widening we believed would soon follow the Fed's
continued rate increases. Whenever an opportunity presented itself to move out
of a longer-term bond and purchase a shorter-term security by the same issuer we
did so. For example, we trimmed back some exposure in 30-year bonds issued by
Lockheed Martin and DaimlerChrysler and moved into the five-year debt of the
same name.
We also looked to upgrade the portfolio in terms of adding to mortgage-backed
and agency securities, such as Ginnie Mae and Fannie Mae. The Fannie Mae issues,
however, suffered a setback when the Clinton Administration supported
eliminating government financial support. We quickly sold these issues and
avoided the brunt of the ensuing price declines. We have recently begun adding
back to them, as prices have become quite attractive. We also avoided
emerging-market debt, believing this sector's limited liquidity presents undue
risk at this time.
--------------------------------------------------------------------------------
[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 Verio
followed by an up arrow with the phrase "Pending merger with NTT Japan." The
second listing is Dillards followed by a down arrow with the phrase "Acquisition
integration problems." The third listing is Goldman Sachs followed by a sideways
arrow with the phrase "Impact of rising interest rates." A note below the table
reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
--------------------------------------------------------------------------------
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 year ended May 31, 2000." The chart is
scaled in increments of 1% with -1% at the bottom and 1% at the top. The first
bar represents the 0.97% total return for John Hancock Bond Fund Class A. The
second bar represents the 0.27% total return for John Hancock Bond Fund Class B.
The third bar represents the 0.28% total return for John Hancock Bond Fund Class
C. The fourth bar represents the 0.14% total return for Average corporate debt
A-rated fund. A note below the chart reads "Total returns for John Hancock Bond
Fund are at net asset value with all distributions reinvested. The average
corporate debt A-rated fund is tracked by Lipper, Inc.1 See the following two
pages for historical performance information."]
--------------------------------------------------------------------------------
"New economy" holdings boost performance
Together, telecommunication, media/cable and wireless companies have been one of
our main focuses in the corporate arena. The rapid evolution of technology,
brisk merger and acquisition activity globally and increased corporate
profitability of this sector have not only propelled the stock prices of many
companies, but also bolstered the performance of their debt obligations.
Holdings that have performed well for the Fund include Orange Plc, a wireless
operator in the United Kingdom, Verio, a web hoster, and SFX Entertainment, the
world's largest entertainment operator. These three holdings benefited from
credit upgrades on the heels of announced acquisitions by Mannesmann, NTT and
Clear Channel, respectively. Other noteworthy holdings include Adelphia
Communications, Continental Cablevision, Metromedia Fiber Network, Clearnet
Communications and Nextel Communications.
Through extensive credit research, we were able to avoid many of the defaults
and downgradings that occurred. We were also able to maneuver relatively early
on out of disappointing holdings such as Conseco, Integrated Health Services and
Dillards.
Outlook
Recent economic indicators suggest that perhaps the Fed's aggressive counters to
inflation may have peaked, and corporate bond prices have responded favorably.
We are not, however, ruling out the possibility of further rate hikes in the
near term, the uncertainty of which may cause some volatility. While the jury is
still out on whether or not the Fed successfully engineered a soft landing --
slowing down the economy to just the right degree -- we shall view the market
with cautious optimism, vigilantly pursuing high current income that's
consistent with prudent investment risk.
"We are not... ruling out the possibility of further rate hikes in the near
term..."
--------------------------------------------------------------------------------
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 an up-front 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 an up-front sales charge of 1% and a contingent deferred
sales charge (1% declining to 0% after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
--------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------
For the period ended March 31, 2000
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (3.47%) 33.68% 105.81%
Average Annual Total Returns (3.47%) 5.98% 7.48%
--------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------------
For the period ended March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (11/23/93)
---- ----- ----------
Cumulative Total Returns (4.34%) 33.19% 38.25%
Average Annual Total Returns (4.34%) 5.90% 5.23%
--------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------
For the period ended March 31, 2000
SINCE
ONE INCEPTION
YEAR (10/1/98)
---- ---------
Cumulative Total Returns (1.53%) (1.73%)
Average Annual Total Returns (1.53%) (1.16%)
--------------------------------------------------------------------------------
YIELDS
--------------------------------------------------------------------------------
As of May 31, 2000
SEC 30-DAY
YIELD
-----
John Hancock Bond Fund: Class A 6.56%
John Hancock Bond Fund: Class B 6.23%
John Hancock Bond Fund: Class C 6.11%
6
<PAGE>
================================================================================
John Hancock Funds - Bond Fund
--------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
--------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Bond Fund would be worth, assuming all distributions were reinvested for the
period indicated. For comparison, we've shown the same $10,000 investment in the
Lehman Brothers Corporate Bond Index, an unmanaged index that mirrors the
investment objectives and characteristics of the Fund. It is not possible to
invest in an index. Past performance is not indicative of future results.
--------------------------------------------------------------------------------
Line chart with the heading John Hancock Bond Fund Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the Lehman Brothers
Corporate Bond Index and is equal to $21,108 as of May 31, 2000. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Bond Fund on May 31, 1990, before sales charge, and is equal to $21,018
as of May 31, 2000. The third line represents the value of the same hypothetical
investment made in the John Hancock Bond Fund, after sales charge, and is equal
to $20,072 as of May 31, 2000.
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 $14,217 as of May 31, 2000. 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
$13,770 as of May 31, 2000.
Line chart with the heading John Hancock Bond Fund Class C*, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the Lehman Brothers
Corporate Bond Index and is equal to $10,118 as of May 31, 2000. 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
$9,832 as of May 31, 2000. The third line represents the value of the same
hypothetical investment made in the John Hancock Bond Fund, after sales charge,
and is equal to $9,734 as of May 31, 2000.
*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 May 31, 2000. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
May 31, 2000
--------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $1,286,508,828) .......................... $1,223,802,256
Preferred stocks and warrants (cost - $14,682,838) ..... 14,114,711
Short-term investments (cost - $44,975,663) ............ 44,975,663
Joint repurchase agreement (cost - $26,095,000) ........ 26,095,000
Corporate savings account .............................. 9,130
--------------
1,308,996,760
Receivable for investments sold ......................... 64,052,038
Receivable for shares sold .............................. 491,485
Dividends and interest receivable ....................... 22,811,987
Other assets ............................................ 127,318
--------------
Total Assets .......................... 1,396,479,588
-----------------------------------------------------------
Liabilities:
Payable for investments purchased ....................... 75,599,438
Payable for shares repurchased .......................... 600,590
Dividend payable ........................................ 11,873
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................ 1,068,276
Accounts payable and accrued expenses ................... 118,475
--------------
Total Liabilities ..................... 77,398,652
-----------------------------------------------------------
Net Assets:
Capital paid-in ......................................... 1,452,941,523
Accumulated net realized loss on investments
and financial futures contracts ........................ (70,494,857)
Net unrealized depreciation of investments .............. (63,274,699)
Distributions in excess of net investment income ........ (91,031)
--------------
Net Assets ............................ $1,319,080,936
===========================================================
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 - $1,097,992,715/78,795,871 ..................... $13.93
=============================================================================
Class B - $197,188,632/14,150,959 ....................... $13.93
=============================================================================
Class C - $23,899,589/1,715,120 ......................... $13.93
=============================================================================
Maximum Offering Price Per Share
Class A* - ($13.93/0.955) ............................... $14.59
=============================================================================
Class C - ($13.93/0.99) ................................. $14.07
=============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended May 31, 2000
--------------------------------------------------------------------------------
Investment Income:
Interest .................................................. $111,410,668
Dividends ................................................. 1,119,076
------------
112,529,744
------------
Expenses:
Investment management fee - Note B ....................... 7,206,180
Distribution and service fee - Note B
Class A ................................................ 3,587,881
Class B ................................................ 2,206,940
Class C ................................................ 228,348
Transfer agent fee - Note B .............................. 3,661,129
Accounting and legal services fee - Note B ............... 276,177
Custodian fee ............................................ 263,155
Trustees' fees ........................................... 79,520
Printing ................................................. 73,066
Miscellaneous ............................................ 68,807
Registration and filing fees ............................. 41,818
Auditing fee ............................................. 37,000
Legal fees ............................................... 13,754
------------
Total Expenses .......................... 17,743,775
-----------------------------------------------------------
Net Investment Income ................... 94,785,969
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized loss on investments sold ..................... (40,641,098)
Net realized loss on financial futures contracts .......... (479,491)
Change in net unrealized appreciation/depreciation
of investments ........................................... (42,692,133)
Change in net unrealized appreciation/depreciation
of financial futures contracts ........................... 51,294
------------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts ............. (83,761,428)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............... $11,024,541
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .............................................................. $96,302,405 $94,785,969
Net realized loss on investments sold and financial futures contracts .............. (2,592,599) (41,120,589)
Change in net unrealized appreciation/depreciation of investments and financial
futures contracts ................................................................. (49,119,200) (42,640,839)
-------------- --------------
Net Increase in Net Assets Resulting from Operations ............................. 44,590,606 11,024,541
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.9665 and $0.9569 per share, respectively) .......................... (83,968,102) (80,052,771)
Class B - ($0.8597 and $0.8580 per share, respectively) .......................... (11,887,365) (13,337,325)
Class C** - ($0.5512 and $0.8542 per share, respectively) ........................ (446,938) (1,395,873)
-------------- --------------
Total Distributions to Shareholders .............................................. (96,302,405) (94,785,969)
-------------- --------------
From Fund Share Transactions - Net: * ................................................. 96,541,466 (135,698,460)
-------------- --------------
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 $91,031, respectively) ........................................... $1,538,540,824 $1,319,080,936
============== ==============
</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>
YEAR ENDED MAY 31,
-----------------------------------------------------------
1999 2000
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ................ 33,840,928 $513,805,047 16,180,316 $230,911,081
Shares reinvested .......... 4,291,217 65,236,811 4,427,262 63,104,859
----------- ------------ ----------- -------------
38,132,145 579,041,858 20,607,578 294,015,940
Less shares repurchased .... (38,555,126) (585,265,951) (28,432,224) (405,098,642)
----------- ------------ ----------- -------------
Net decrease ............... (422,981) ($6,224,093) (7,824,646) ($111,082,702)
=========== ============ =========== =============
CLASS B
Shares sold ................ 8,756,754 $133,473,644 3,416,464 $49,024,555
Shares reinvested .......... 440,757 6,690,223 554,800 7,907,679
----------- ------------ ----------- -------------
9,197,511 140,163,867 3,971,264 56,932,234
Less shares repurchased .... (3,915,180) (59,486,821) (5,984,221) (85,404,315)
----------- ------------ ----------- -------------
Net increase (decrease) .... 5,282,331 $80,677,046 (2,012,957) ($28,472,081)
=========== ============ =========== =============
CLASS C**
Shares sold ................ 1,510,673 $23,046,624 586,098 $8,361,864
Shares reinvested .......... 24,293 365,237 78,808 1,122,359
----------- ------------ ----------- -------------
1,534,966 23,411,861 664,906 9,484,223
Less shares repurchased .... (87,365) (1,323,348) (397,387) (5,627,900)
----------- ------------ ----------- -------------
Net increase ............... 1,447,601 $22,088,513 267,519 $3,856,323
=========== ============ =========== =============
</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
1995 1996 MAY 31, 1997(1)
---------- ---------- ------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $13.90 $15.40 $14.90
---------- ---------- ----------
Net Investment Income ..................................... 1.12 1.09 0.44
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... 1.50 (0.50) (0.12)
---------- ---------- ----------
Total from Investment Operations ........................ 2.62 0.59 0.32
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ...................... (1.12) (1.09) (0.44)
---------- ---------- ----------
Net Asset Value, End of Period ............................ $15.40 $14.90 $14.78
========== ========== ==========
Total Investment Return at Net Asset Value(3) ............. 19.40% 4.11% 2.22%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $1,535,204 $1,416,116 $1,361,924
Ratio of Expenses to Average Net Assets ................... 1.13% 1.14% 1.11%(5)
Ratio of Net Investment Income to Average Net Assets ...... 7.58% 7.32% 7.38%(5)
Portfolio Turnover Rate ................................... 103%(6) 123% 58%
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------
1998 1999 2000
---------- ---------- ----------
<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) 0.96(2)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... 0.47 (0.49) (0.83)
---------- ---------- ----------
Total from Investment Operations ........................ 1.52 0.48 0.13
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ...................... (1.05) (0.97) (0.96)
---------- ---------- ----------
Net Asset Value, End of Period ............................ $15.25 $14.76 $13.93
========== ========== ==========
Total Investment Return at Net Asset Value(3) ............. 10.54% 3.11% 0.97%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $1,327,728 $1,278,582 $1,097,993
Ratio of Expenses to Average Net Assets ................... 1.08% 1.07% 1.11%
Ratio of Net Investment Income to Average Net Assets ...... 6.90% 6.35% 6.69%
Portfolio Turnover Rate ................................... 198% 228% 162%
</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
1995 1996 MAY 31, 1997(1)
------- -------- ---------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $13.90 $15.40 $14.90
------- -------- --------
Net Investment Income ..................................... 1.02 0.98 0.40
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... 1.50 (0.50) (0.12)
------- -------- --------
Total from Investment Operations ........................ 2.52 0.48 0.28
------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (1.02) (0.98) (0.40)
------- -------- --------
Net Asset Value, End of Period ............................ $15.40 $14.90 $14.78
======= ======== ========
Total Investment Return at Net Asset Value(3) ............. 18.66% 3.38% 1.93%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $98,739 $134,112 $132,885
Ratio of Expenses to Average Net Assets ................... 1.75% 1.84% 1.81%(5)
Ratio of Net Investment Income to Average Net Assets ...... 6.87% 6.62% 6.68%(5)
Portfolio Turnover Rate ................................... 103%(6) 123% 58%
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
<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) 0.86(2)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... 0.47 (0.49) (0.83)
-------- -------- --------
Total from Investment Operations ........................ 1.42 0.37 0.03
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.95) (0.86) (0.86)
-------- -------- --------
Net Asset Value, End of Period ............................ $15.25 $14.76 $13.93
======== ======== ========
Total Investment Return at Net Asset Value(3) ............. 9.78% 2.39% 0.27%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $165,983 $238,591 $197,189
Ratio of Expenses to Average Net Assets ................... 1.78% 1.77% 1.81%
Ratio of Net Investment Income to Average Net Assets ...... 6.18% 5.65% 6.00%
Portfolio Turnover Rate ................................... 198% 228% 162%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1999(7) MAY 31, 2000
--------------- ------------
<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 0.85
Net Realized and Unrealized Loss on Investments and Financial Futures Contracts .... (0.85) (0.83)
------- -------
Total from Investment Operations .................................................. (0.30) 0.02
------- -------
Less Distributions:
Dividends from Net Investment Income ............................................... (0.55) (0.85)
------- -------
Net Asset Value, End of Period ..................................................... $14.76 $13.93
======= =======
Total Investment Return at Net Asset Value(3) ...................................... (1.95%)(4) 0.28%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................................... $21,368 $23,900
Ratio of Expenses to Average Net Assets ............................................ 1.77%(5) 1.80%
Ratio of Net Investment Income to Average Net Assets ............................... 5.65%(5) 6.01%
Portfolio Turnover Rate ............................................................ 228% 162%
</TABLE>
(1) Effective May 31, 1997, the fiscal year end changed from December 31 to May
31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Portfolio turnover rate excludes merger activity.
(7) Class C shares began operations on October 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bond Fund
Schedule of Investments
May 31, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Bond
Fund on May 31, 2000. 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 (1.02%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R) .................................. 10.910% BBB $5,800 $6,078,980
Lockheed Martin Corp.,
Note 12-01-05 ............................................................... 7.950 BBB- 3,115 3,044,850
Raytheon Co.,
Note 03-01-03 (R) ........................................................... 7.900 BBB- 4,335 4,274,353
-------------
13,398,183
-------------
Automobile/Trucks (1.10%)
Chrysler Financial Co. LLC,
Med Term Note Ser S 11-15-01 ................................................ 5.690 A+ 4,575 4,458,383
DaimlerChrysler North America Holding Corp.,
Note 01-20-05 ............................................................... 7.400 A+ 4,215 4,126,949
ERAC USA Finance Co.,
Note 02-15-05 (R) ........................................................... 6.625 BBB+ 6,250 5,870,813
-------------
14,456,145
-------------
Banks - Foreign (2.88%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom) 10-15-04 (Y) ...................................... 8.200 AA- 10,000 10,136,600
African Development Bank,
Sub Note (Supra National) 12-15-03 (Y) ...................................... 9.750 AA- 8,000 8,554,880
International Bank for Reconstruction & Development,
Deb (Supra National) 09-01-16 (Y) ........................................... 8.250 AAA 5,000 5,385,200
Royal Bank of Scotland Plc,
Bond (United Kingdom) 03-31-05 (Y) .......................................... 8.817 A- 3,130 3,171,191
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (Netherlands) 11-01-06 (R) (Y) ................................. 8.850 A+ 10,335 10,790,567
-------------
38,038,438
-------------
Banks - United States (4.44%)
Bank of America Corp.,
Jr Sub Note 02-15-10 ........................................................ 7.800 A 2,960 2,888,220
Bank of New York,
Cap Security 12-01-26 (R) ................................................... 7.780 A- 5,750 5,227,382
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ....................................................... 9.750 AA- 8,925 9,389,635
</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)
FleetBoston Financial Corp.,
Sub Note 12-01-05 ........................................................... 6.625% A- $4,480 $4,247,712
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 ........................................................... 9.450 A+ 10,000 10,183,200
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ................................................... 8.250 A- 2,915 2,608,750
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 ....................................................... 10.125 A 10,605 11,364,212
Security Pacific Corp.,
Medium Term Sub Note 05-09-01 ............................................... 10.360 A 6,000 6,156,240
Sub Note 11-15-00 ........................................................... 11.500 A 6,400 6,521,344
-------------
58,586,695
-------------
Beverages (0.30%)
Canandaigua Brands, Inc.,
Sr Sub Note Ser C 12-15-03 .................................................. 8.750 B+ 4,140 3,974,400
-------------
Broker Services (0.62%)
Bear Stearns Co., Inc.,
Sr Note 02-01-05 ............................................................ 7.625 A 3,045 2,956,543
Goldman Sachs Group, Inc.,
Med Term Note Ser B 10-01-09 ................................................ 7.350 A+ 5,665 5,279,893
-------------
8,236,436
-------------
Chemicals (0.50%)
Akzo Nobel, Inc.,
Bond 11-15-03 (R) ........................................................... 6.000 A 2,860 2,712,710
Equistar Chemicals L.P.,
Note 02-15-04 ............................................................... 8.500 BBB- 3,985 3,915,262
-------------
6,627,972
-------------
Computers (0.87%)
Ceridian Corp.,
Sr Note 06-01-04 ............................................................ 7.250 BBB 3,860 3,645,037
Exodus Communications, Inc.,
Sr Note 12-15-09 ............................................................ 10.750 B- 1,755 1,737,450
PSINet, Inc.,
Sr Note 11-01-08 ............................................................ 11.500 B- 1,565 1,424,150
Verio, Inc.,
Sr Note 04-01-05 ............................................................ 10.375 B- 4,375 4,604,687
-------------
11,411,324
-------------
Electronics (0.04%)
Amkor Technologies, Inc.,
Sr Sub Note 05-01-09 ........................................................ 10.500 B 605 589,875
-------------
Energy (1.25%) AES Corp.,
Sr Note 06-01-09 ............................................................ 9.500 BB 1,565 1,488,706
Sr Sub Note 07-15-06 ........................................................ 10.250 B+ 6,005 5,839,862
</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 (continued)
MidAmerican Energy Holdings,
Sr Note 09-15-05 ............................................................ 7.230% BBB- $2,345 $2,219,613
Sr Bond 09-15-28 ............................................................ 8.480 BBB- 3,440 3,339,002
P&L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 .................................................. 9.625 B 4,065 3,628,012
-------------
16,515,195
-------------
Fiber Optics (0.14%)
Williams Communications Group, Inc.,
Sr Note 10-01-09 ............................................................ 10.875 BB- 1,880 1,880,000
-------------
Finance (3.76%)
Bombardier Capital, Inc.,
Note 01-15-02 (R) ........................................................... 6.000 A- 4,675 4,531,478
CIT Group Holdings, Inc.,
Deb 03-15-01 ................................................................ 9.250 A 5,000 5,052,250
Note 10-15-01 ............................................................... 5.500 A+ 5,555 5,408,626
Ford Motor Credit Co.,
Note 04-28-03 ............................................................... 6.125 A 5,540 5,272,861
Note 10-28-09 ............................................................... 7.375 A 3,660 3,477,183
General Motors Acceptance Corp.,
Note 12-01-01 ............................................................... 6.375 A 5,515 5,393,229
Note 01-19-10 ............................................................... 7.750 A 3,640 3,534,404
Household Finance Corp.,
Note 11-01-02 ............................................................... 5.875 A 6,925 6,591,007
Sr Note 02-01-09 ............................................................ 5.875 A 3,005 2,538,233
Marlin Water Trust & Marlin Water Capital Corp.,
Sr Sec Note 12-15-01 (R) .................................................... 7.090 BBB 4,460 4,393,546
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A 06-15-04 (R) ...................................... 8.400 BBB- 3,792 3,431,692
-------------
49,624,509
-------------
Government - Foreign (1.07%)
Nova Scotia, Province of,
Deb (Canada) 04-01-22 (Y) ................................................... 8.750 A- 7,500 8,344,500
Saskatchewan, Province of,
Bond (Canada) 12-15-20 (Y) .................................................. 9.375 A 5,000 5,792,750
-------------
14,137,250
-------------
Government - U.S. (21.61%)
United States Treasury,
Bond 08-15-17 ............................................................... 8.875 AAA 38,707 48,474,324
Bond 05-15-18 ............................................................... 9.125 AAA 47,075 60,498,907
Bond 02-15-23 ............................................................... 7.125 AAA 75,164 82,022,715
Note 05-15-02 ............................................................... 7.500 AAA 4,612 4,673,985
Note 08-15-03 ............................................................... 5.750 AAA 5,885 5,727,753
Note 02-15-05 ............................................................... 7.500 AAA 26,500 27,419,285
</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)
United States Treasury (continued),
Note 07-15-06 ............................................................... 7.000% AAA $23,587 $24,088,224
Note 05-15-08 ............................................................... 5.625 AAA 33,860 32,130,093
-------------
285,035,286
-------------
Government - U.S. Agencies (14.01%)
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 ................................................ 11.250 AAA 513 556,060
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 01-25-05 ................................................ 8.000 AAA 5,107 5,131,162
15 Yr Pass Thru Ctf 02-01-08 ................................................ 7.500 AAA 1,135 1,125,046
15 Yr Pass Thru Ctf 09-01-10 to 08-01-14 .................................... 7.000 AAA 2,778 2,703,098
15 Yr Pass Thru Ctf 12-01-12 ................................................ 6.500 AAA 8,380 7,971,015
30 Yr Pass Thru Ctf 10-01-23 ................................................ 7.000 AAA 4,866 4,651,639
30 Yr Pass Thru Ctf 11-01-28 to 06-14-30** .................................. 6.500 AAA 17,945 16,615,246
Bond 02-15-05 ............................................................... 7.125 AAA 28,605 28,278,617
Note 08-15-04 ............................................................... 6.500 AAA 7,635 7,380,907
Note 09-15-09 ............................................................... 6.625 AAA 28,740 27,029,108
Note 01-15-30 ............................................................... 7.125 AAA 7,380 7,166,644
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ................................ 6.940 AAA 3,160 3,084,162
Financing Corp.,
Bond 02-08-18 ............................................................... 9.400 AAA 7,000 8,327,830
Government National Mortage Assn.,
30 Yr Pass Thru Ctf 01-15-16 ................................................ 10.500 AAA 55 59,488
30 Yr Pass Thru Ctf 01-15-16 ................................................ 11.000 AAA 117 127,582
30 Yr Pass Thru Ctf 07-15-16 to 01-15-25 .................................... 9.000 AAA 6,273 6,504,347
30 Yr Pass Thru Ctf 11-15-19 to 05-15-21 .................................... 9.500 AAA 1,582 1,659,184
30 Yr Pass Thru Ctf 06-15-20 to 03-15-25 .................................... 10.000 AAA 710 756,229
30 Yr Pass Thru Ctf 11-15-22 ................................................ 8.000 AAA 2,588 2,603,419
30 Yr Pass Thru Ctf 06-15-28 to 06-22-30** .................................. 7.000 AAA 31,554 30,269,417
30 Yr Pass Thru Ctf 10-15-29 to 05-15-30 .................................... 7.500 AAA 16,224 15,925,230
30 Yr Pass Thru Ctf 06-22-30** .............................................. 6.500 AAA 7,380 6,902,588
-------------
184,828,018
-------------
Insurance (2.40%)
Equitable Life Assurance Society of the United States,
Surplus Note 12-01-05 (R) ................................................... 6.950 A+ 6,100 5,910,351
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ................................................... 7.625 AA 3,970 3,629,771
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ................................................... 7.500 AA- 15,000 12,370,500
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ................................................... 6.625 AA- 7,250 6,561,250
URC Holdings Corp.,
Sr Note 06-30-06 (R) ........................................................ 7.875 A- 3,110 3,127,665
-------------
31,599,537
-------------
</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>
Leasing Companies (0.13%)
United Rentals, Inc.,
Sr Sub Note Ser B 04-01-09 .................................................. 9.000% BB- $2,070 $1,687,050
-------------
Leisure (1.04%)
Harrah's Operating Co., Inc.,
Sr Note 01-15-09 ............................................................ 7.500 BBB- 2,475 2,222,129
HMH Properties, Inc.,
Gtd Sr Sec Note Ser A 08-01-05 .............................................. 7.875 BB 3,455 3,083,588
Premier Parks, Inc.,
Sr Note 06-15-07 ............................................................ 9.750 B- 2,280 2,171,700
SFX Entertainment, Inc.,
Gtd Sr Sub Note 12-01-08 .................................................... 9.125 B- 4,465 4,420,350
Waterford Gaming LLC,
Sr Note 03-15-10 (R) ........................................................ 9.500 B+ 1,890 1,786,050
-------------
13,683,817
-------------
Manufacturing (0.09%) AXIA, Inc.,
Gtd Sr Sub Note 07-15-08 .................................................... 10.750 B- 1,625 1,235,000
-------------
Media (4.87%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 ...................................................... 9.250 B+ 4,750 4,619,375
Sr Note Ser B 07-15-03 ...................................................... 8.125 B+ 2,250 2,047,500
Sr Note 11-15-09 ............................................................ 9.375 B+ 2,415 2,197,650
AMFM, Inc.,
Sr Sub Note 10-01-08 ........................................................ 9.000 B 2,935 2,979,025
Century Communications Corp.,
Sr Note 08-15-00 ............................................................ 9.500 BB- 2,545 2,525,912
Clear Channel Communications, Inc.,
Sr Deb 06-15-18 ............................................................. 6.875 BBB- 1,710 1,381,013
Comcast Cable Communications, Inc.,
Note 11-15-08 ............................................................... 6.200 BBB 2,945 2,563,210
Continental Cablevision, Inc.,
Sr Note 05-15-06 ............................................................ 8.300 BBB 3,820 3,841,392
CSC Holdings, Inc.,
Sr Note Ser B 07-15-09 ...................................................... 8.125 BB+ 4,745 4,412,850
Sr Sub Deb 05-15-16 ......................................................... 10.500 BB- 2,910 3,026,400
EchoStar DBS Corp.,
Sr Note 02-01-09 ............................................................ 9.375 B 1,825 1,706,375
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 ........................................................ 8.625 B+ 2,485 2,137,100
Mediacom LLC/Mediacom Capital Corp.,
Sr Note Ser B 04-15-08 ...................................................... 8.500 B+ 2,895 2,634,450
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 ......................................................... 8.250 BBB- 2,090 1,905,557
</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)
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) ......................................... 10.000% BB+ $4,880 $4,916,600
J Seagram & Sons, Inc.,
Gtd Deb 09-15-11 ............................................................ 8.875 BBB- 3,125 3,087,375
TCI Communications, Inc.,
Sr Deb 02-15-26 ............................................................. 7.875 AA- 4,715 4,497,733
Telewest Communications Plc,
Sr Note (United Kingdom) 02-01-10 (R) (Y) ................................... 9.875 B+ 2,095 1,979,775
Time Warner, Inc.,
Deb 01-15-13 ................................................................ 9.125 BBB 6,775 7,150,538
TV Guide, Inc.,
Sr Sub Note Ser B 03-01-09 .................................................. 8.125 B+ 3,255 3,181,763
United Pan-Europe Communications N.V.,
Sr Note (Netherlands) 11-01-09 (R) (Y) ...................................... 11.250 B 1,705 1,432,200
-------------
64,223,793
-------------
Medical (0.99%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) ............................................... 10.750 B+ 5,070 4,563,000
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security 02-01-08 ....................................... 7.875 B+ 3,480 3,079,800
IASIS Healthcare Corp.,
Sr Sub Note 10-15-09 (R) .................................................... 13.000 B- 2,100 2,089,500
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ........................................................ 10.750 B+ 3,205 3,365,250
-------------
13,097,550
-------------
Metal (0.19%)
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 ....................................................... 12.000 BB- 2,470 2,568,800
-------------
Mortgage Banking (4.08%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A 08-15-02 ................................... 6.350 AAA 3,955 3,950,056
Commercial Mortgage Acceptance Corp.,
Pass Thru Ctf Ser 1999-C1 Class A-1 08-15-08 ................................ 6.790 Aaa 5,795 5,565,136
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ................................. 8.100 AAA 3,880 3,898,794
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class A-1A 12-17-07 ................ 6.260 AAA 4,842 4,600,426
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class C 03-15-08 ................... 6.861 A2 3,585 3,275,794
FirstPlus Home Loan Trust,
Pass Thru Ctf Ser 1998-4 Class A-5 01-10-18 ................................. 6.380 AAA 6,220 6,033,400
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 ................................ 6.566 Aaa 6,025 5,548,648
</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)
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-1 Class A-5 12-25-13 ................................. 6.290% AAA $4,424 $4,387,608
LB Commercial Conduit Mortgage Trust,
Pass Thru Ctf Ser 1999-C1 Class A-1 08-15-07 ................................ 6.410 Aaa 5,804 5,507,541
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 .......................... 6.750 Aaa 3,940 3,889,095
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-D1 Class A6 02-15-25 ................................. 7.180 AAA 7,260 7,148,831
-------------
53,805,329
-------------
Oil & Gas (1.93%)
Amerada Hess Corp.,
Note 10-01-09 ............................................................... 7.375 BBB 2,960 2,731,222
Ocean Energy, Inc.,
Gtd Sr Sub Note Ser B 07-15-07 .............................................. 8.875 BB- 2,220 2,142,300
Panhandle East Pipe Line Co.,
Sr Note 04-01-10 (R) ........................................................ 8.250 BBB- 3,080 2,971,276
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) ............................................... 6.625 BBB 4,165 3,651,164
Phillips Petroleum Co.,
Note 05-25-10 ............................................................... 8.750 BBB 2,960 2,993,152
Santa Fe Snyder Corp.,
Gtd Sub Note 06-15-07 ....................................................... 8.750 BB+ 2,575 2,542,812
Tosco Corp.,
Note 02-15-30 ............................................................... 8.125 BBB 4,020 3,812,045
Triton Energy Ltd.,
Sr Note 04-15-02 ............................................................ 8.750 BB- 4,655 4,608,450
-------------
25,452,421
-------------
Paper & Paper Products (0.31%)
Fort James Corp.,
Sr Note 09-15-02 ............................................................ 6.500 BBB 4,145 4,017,583
-------------
Real Estate Investment Trust (1.48%)
American Health Properties, Inc.,
Note 01-15-07 ............................................................... 7.500 BBB- 2,350 2,070,937
Cabot Industrial Properties, L.P.,
Note 05-01-04 ............................................................... 7.125 BBB- 3,455 3,282,526
Camden Property Trust,
Note 04-15-04 ............................................................... 7.000 BBB 3,800 3,640,628
Liberty Property, L.P.,
Med Term Note 06-05-02 ...................................................... 6.600 BBB- 3,030 2,918,496
ProLogis Trust,
Sr Note 04-15-04 ............................................................ 6.700 BBB+ 3,555 3,353,112
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ............................................................... 7.300 BB 4,395 4,273,039
-------------
19,538,738
-------------
</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>
Retail (0.19%)
Safeway, Inc.,
Note 11-15-01 ............................................................... 5.875% BBB $2,515 $2,449,032
-------------
Telecommunications (5.42%)
BellSouth Capital Funding Corp.,
Deb 02-15-30 ................................................................ 7.875 AAA 4,435 4,223,628
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon (10.125%, 05-01-04) (Canada) 05-01-09 (A) (Y) ..... Zero B3 3,980 2,248,700
Sr Disc Note, Step Coupon (14.75%, 12-15-00) (Canada) 12-15-05 (A) (Y) ...... Zero B3 1,530 1,560,600
Crown Castle International Corp.,
Sr Note 05-15-11 ............................................................ 9.000 B 1,610 1,481,200
Focal Communications Corp.,
Sr Note 01-15-10 (R) ........................................................ 11.875 B 1,290 1,322,250
Global Crossing Holdings Ltd.,
Sr Note (Bermuda) 11-15-09 (Y) .............................................. 9.500 BB 585 552,825
Sr Note (Bermuda) 11-15-09 (R) (Y) .......................................... 9.500 BB 2,435 2,288,900
GTE North, Inc.,
Deb Ser H 11-15-08 .......................................................... 5.650 AA- 4,355 3,694,608
Hermes Europe Railtel BV,
Sr Note (Netherlands) 01-15-09 (Y) .......................................... 10.375 B 700 581,000
LCI International, Inc.,
Sr Note 06-15-07 ............................................................ 7.250 BB+ 3,860 3,602,075
Level 3 Communications, Inc.,
Sr Note 03-15-08 (R) ........................................................ 11.000 B 2,485 2,373,175
McLeodUSA, Inc.,
Sr Note 11-01-08 ............................................................ 9.500 B+ 2,510 2,384,500
Metromedia Fiber Network, Inc.,
Sr Note Ser B 11-15-08 ...................................................... 10.000 B+ 3,980 3,790,950
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ............................................... 12.000 BBB 2,430 2,733,750
Nextel Communications, Inc.,
Sr Note 11-15-09 ............................................................ 9.375 B 3,370 3,066,700
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 ............................................................ 10.750 B 2,415 2,300,287
NTL Communications Corp.,
Sr Note Ser B 10-01-08 ...................................................... 11.500 B- 3,220 3,236,100
Omnipoint Corp.,
Sr Note 09-15-09 (R) ........................................................ 11.500 CCC+ 2,640 2,772,000
Sprint Capital Corp.,
Gtd Note 05-01-19 ........................................................... 6.900 BBB+ 4,735 4,071,390
TeleCorp PCS, Inc.,
Gtd Sr Sub Disc Note, Step Coupon (11.625%, 04-15-04) 04-15-09 (A) .......... Zero B3 2,940 1,925,700
US West Capital Funding, Inc.,
Gtd Note 07-15-28 ........................................................... 6.875 A- 3,005 2,495,262
Vodafone AirTouch Plc,
Note (United Kingdom) 02-15-10 (R) (Y) ...................................... 7.750 A- 2,980 2,853,827
</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)
Voicestream Wireless Corp.,
Sr Note 11-15-09 (R) ........................................................ 10.375% B- $1,515 $1,549,087
WorldCom, Inc.,
Sr Note 08-15-01 ............................................................ 6.125 A- 6,300 6,204,492
Note 05-15-06 ............................................................... 8.000 A- 3,860 3,863,474
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (Y) ............................................... 12.500 B+ 4,340 4,318,300
-------------
71,494,780
-------------
Transportation (4.20%)
America West Airlines, Inc.,
Pass Thru Ctf Ser 1996-1B 01-02-08 .......................................... 6.930 A- 3,365 3,163,406
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1996-C 10-15-13 ........................................... 9.500 BBB+ 4,436 4,447,364
Pass Thru Ctf Ser 1999-1A 08-02-20 .......................................... 6.545 AA+ 5,522 4,808,899
Note 12-15-05 ............................................................... 8.000 BB- 2,480 2,207,200
Fine Air Services, Inc.,
Gtd Sr Sub Note 06-01-08 .................................................... 9.875 CC 3,735 2,950,650
Humpuss Funding Corp.,
Gtd Note (Indonesia) 12-15-09 (R) (Y) ....................................... 7.720 B3 2,006 1,444,538
Northwest Airlines, Inc.,
Gtd Note 03-15-04 ........................................................... 8.375 BB 2,855 2,624,316
Pass Thru Ctf Ser 1996-1C 01-02-05 .......................................... 10.150 BBB- 2,308 2,238,323
Pass Thru Ctf Ser 1996-1D 01-02-15 .......................................... 8.970 BBB- 3,522 3,444,036
NWA Trust,
Sr Note Ser A 12-21-12 ...................................................... 9.250 AA 5,093 5,340,170
Railcar Trust No. 1992-1,
Pass Thru Ser 1992-1 Class A 06-01-04 ....................................... 7.750 AAA 10,577 10,535,996
US Airways, Inc.,
Pass Thru Ctf Ser 1989-A2 01-01-13 .......................................... 9.820 BB- 5,165 4,519,375
Pass Thru Ctf Ser 1990-A1 03-19-05 .......................................... 11.200 BB- 5,308 5,361,057
Wisconsin Central Transportation Corp.,
Note 04-15-08 ............................................................... 6.625 BBB- 2,525 2,251,315
-------------
55,336,645
-------------
Utilities (11.85%)
AES Eastern Energy,
Pass Thru Ctf Ser 1999-A 01-02-17 ........................................... 9.000 BBB- 3,700 3,501,347
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ............................................... 9.000 BB- 3,960 3,865,950
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 .......................................... 8.890 BB- 6,600 6,517,500
Calpine Corp.,
Sr Note 05-15-06 ............................................................ 10.500 BB+ 4,650 4,696,500
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 ...................................................... 9.500 BB+ 10,220 10,437,175
</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)
CMS Energy Corp.,
Sr Note Ser B 01-15-04 ...................................................... 6.750% BB $3,595 $3,253,475
Sr Note 01-15-09 ............................................................ 7.500 BB 2,070 1,787,962
Connecticut Light & Power Co.,
1st Ref Mtg Ser C 06-01-02 .................................................. 7.750 BBB- 1,940 1,933,520
Note 06-05-03 (R) ........................................................... 8.590 BBB- 2,350 2,319,638
East Coast Power LLC,
Sr Sec Note 03-31-12 ........................................................ 7.066 BBB- 3,105 2,687,688
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ....................................................... 10.250 BBB- 8,831 9,440,604
GG1B Funding Corp.,
Deb 01-15-11 ................................................................ 7.430 BBB- 3,550 3,277,305
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) .............................................. 9.400 A+ 3,215 3,653,044
Gtd Deb (Canada) 02-01-03 (Y) ............................................... 7.375 A+ 7,185 7,130,538
Gtd Deb Ser FU (Canada) 02-01-12 (Y) ........................................ 11.750 A+ 5,000 6,450,000
Iberdrola International B.V.,
Note 10-01-02 ............................................................... 7.500 AA- 8,000 7,966,400
Note (Netherlands) 06-01-03 (R) (Y) ......................................... 7.125 AA- 8,629 8,550,649
Long Island Lighting Co.,
Deb 03-15-23 ................................................................ 8.200 A- 5,615 5,221,950
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 ................................................... 10.330 BBB- 6,678 6,806,087
Midland Funding Corp. II,
Deb Ser A 07-23-05 .......................................................... 11.750 BB 5,165 5,540,134
Deb Ser B 07-23-06 .......................................................... 13.250 BB 1,900 2,210,194
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) ....................................... 9.625 BB+ 1,320 1,148,400
Niagara Mohawk Power Corp.,
Deb 01-01-18 ................................................................ 8.770 BBB 6,944 7,165,305
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 ...................................................... 9.050 BB+ 2,351 2,365,130
Northeast Utilities,
Note Ser A 12-01-06 ......................................................... 8.580 BB+ 1,027 1,023,256
PECO Energy Transition Trust,
Pass Thru Ctf Ser 1999-A Class A-6 03-01-09 ................................. 6.050 AAA 4,511 4,164,285
Pass Thru Ctf Ser 2000-A Class A-3 03-01-10 ................................. 7.625 AAA 12,475 12,133,684
PNPP II Funding Corp.,
Deb 05-30-16 ................................................................ 9.120 BB- 4,120 4,127,581
Sierra Pacific Resources,
Note 05-15-05 ............................................................... 8.750 BBB 4,180 4,175,820
System Energy Resources, Inc.,
1st Mtg 08-01-01 ............................................................ 7.710 BBB- 5,525 5,483,562
</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)
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17 .......................................... 8.090% BBB- $7,741 $7,237,772
-------------
156,272,455
-------------
TOTAL BONDS
(Cost $1,286,508,828) (92.78%) 1,223,802,256
------- -------------
<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 7,055,035
CSC Holdings, Inc., 11.125%, Ser M, Preferred Stock ............................................... 51,920 5,503,520
CSC Holdings, Inc., 11.750%, Ser H, Preferred Stock ............................................... 9,205 978,031
MetroNet Communications Corp., Warrant (Canada) (R) (Y) ........................................... 4,625 578,125
-------------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $14,682,838) (1.07%) 14,114,711
------- -------------
</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
Commercial Paper (3.41%)
Citicorp,
Due 06-06-00 .................................................................... 6.490% $15,000 $14,986,479
General Electric Capital Corp.,
Due 06-05-00 .................................................................... 6.490 15,000 14,989,184
Due 06-01-00 .................................................................... 6.430 15,000 15,000,000
--------------
44,975,663
--------------
Joint Repurchase Agreement (1.98%)
Investment in a joint repurchase agreement transaction with
SBC Warburg, Inc. - Dated 05-31-00, due 06-01-00 (Secured by
U.S. Treasury Bonds, 5.500% thru 10.750%, due 02-15-03 thru
08-15-28) - Note A .............................................................. 6.370 26,095 26,095,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.20% .............................................................. 9,130
--------------
TOTAL SHORT-TERM INVESTMENTS (5.39%) 71,079,793
-------- --------------
TOTAL INVESTMENTS (99.24%) 1,308,996,760
-------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.76%) 10,084,176
-------- --------------
TOTAL NET ASSETS (100.00%) $1,319,080,936
======== ==============
</TABLE>
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $116,370,448 or 8.82% of net assets as of May 31,
2000.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
* Credit ratings are unaudited and rated by Standard & Poor's where available,
or Moody's Investors Service or John Hancock Advisers, Inc. where Standard &
Poor's ratings are not available.
** A portion of these securities having an aggregate value of $33,517,193 or
2.54% of the Fund's net assets, have been purchased on a when-issued basis.
The purchase price and the interest rate of these securities are fixed at
trade date, although the Fund does not earn any interest on these securities
until settlement date. The Fund has instructed its Custodian Bank to
segregate assets with a current value at least equal to the amount of its
when-issued commitments. Accordingly, the market value of $34,416,321 of
United States Treasury Bond, 9.125%, 05-15-18, has been segregated to cover
the when-issued commitments.
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
NOTE A -
ACCOUNTING POLICIES
John Hancock Bond Fund (the "Fund") is a diversified series of John Hancock
Sovereign Bond Fund Trust, an open-end investment management company, registered
under the Investment Company Act of 1940. 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 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 $39,087,636 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, May 31, 2007 -- $619,870 and May 31,
2008 -- $15,467,220. Availability of a certain amount of these loss
carryforwards which were acquired on September 15, 1995 in a merger, may be
limited in a given year. Additionally, net capital losses of $26,884,560 are
attributable to security transactions incurred after October 31, 1999 and are
treated as arising on the first day (June 1, 2000) of the Fund's next taxable
year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST 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 has entered into
a syndicated line of credit agreement with various banks. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee is charged to each fund based on the average daily
unused portion of the line of credit and is allocated among the participating
funds. The Fund had no borrowing activity for the year ended May 31, 2000.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the value of the
financial future contracts being traded. Each day, the futures contract is
valued at the official settlement price of the board of trade or U.S.
commodities exchange on which it trades. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market," are recorded by the Fund
as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures transactions.
At May 31, 2000, there were no open positions in financial futures contracts.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly fee to
the Adviser for a continuous investment program equivalent on an annual basis to
the sum of (a) 0.50% of the first $1,500,000,000 of the Fund's average daily net
asset value, (b) 0.45% of the next $500,000,000, (c) 0.40% of the next
$500,000,000 and (d) 0.35% of the Fund's average daily net asset value in excess
of $2,500,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended May 31,
2000, up-front sales charges received with regard to sales of Class A shares
amounted to $825,833. Out of this amount, $72,056 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$203,482 was paid as sales commissions to unrelated broker-dealers and $550,295
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Life Insurance Company ("JHLICo"), is the indirect sole shareholder
of Signator Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the
27
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
time of redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of Class B shares. For the year ended May 31,
2000, contingent deferred sales charges received by JH Funds amounted to
$837,043.
Effective May 1, 2000, all Class C retail purchases are assessed a 1.00%
up-front sales charge. For the year ended May 31, 2000, up-front sales charges
received with regard to sales of Class C shares amounted to $9,774. Out of this
amount $9,709 was paid as sales commissions to unrelated broker-dealers and $64
was paid as sales commissions to sales personnel of Signator Investors. Class C
shares which are redeemed within one year of purchase will be subject to a CDSC
at a rate of 1.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class C shares. For the year ended May 31, 2000,
contingent deferred sales charges received by JH Funds amounted to $7,792.
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 Conduct Rules of the National Association of Securities Dealers. Under
the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could
occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S. Scipione are
directors and/or officers of the Adviser, and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. The investment had no impact on the operations of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of securities, other than
obligations of the U.S. government and its agencies and short-term securities,
during the year ended May 31, 2000, aggregated $758,419,336 and $938,989,521,
respectively. Purchases and proceeds from sales of obligations of the U.S.
government and its agencies, during the year ended May 31, 2000, aggregated
$1,438,159,310 and $1,386,767,240, respectively.
The cost of investments owned at May 31, 2000 (excluding the corporate
savings account) for federal income tax purposes was $1,376,784,990. Gross
unrealized appreciation and depreciation of investments aggregated $8,237,665
and $76,035,025, respectively, resulting in net unrealized depreciation of
$67,797,360.
28
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Bond Fund
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended May 31, 2000, the Fund has reclassified amounts to reflect
a decrease in accumulated net realized loss on investments and financial futures
contracts of $18, a decrease in distributions in excess of net investment income
of $193,822 and a decrease in capital paid-in of $193,840. This represents the
amount necessary to report these balances on a tax basis, excluding certain
temporary differences, as of May 31, 2000. Additional adjustments may be needed
in subsequent reporting periods. These reclassifications, which have no impact
on the net asset value of the Fund, are primarily attributable to the certain
differences in the computation of distributable income and capital gains under
federal tax rules versus generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
excludes these adjustments.
29
<PAGE>
================================================================================
John Hancock Funds - Bond Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Sovereign Bond Fund -
John Hancock Bond Fund:
We have audited the accompanying statement of assets and liabilities of the John
Hancock Bond Fund (the "Fund"), including the schedule of investments, as of May
31, 2000, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 2000, by correspondence with the custodian and brokers, or
other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
John Hancock Bond Fund at May 31, 2000, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the indicated
periods, in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 7, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the dividends of the Fund paid during its taxable year ended May 31,
2000.
With respect to the ordinary dividends paid by the Fund for the fiscal year
ended May 31, 2000, 1.18% of the dividends qualify for the dividends received
deduction.
Shareholders will be mailed a 2000 U.S. Treasury Department Form 1099-DIV in
January 2001. This will reflect the total of all distributions which are taxable
for calendar year 2000.
30
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======================================NOTES=====================================
John Hancock Funds - Bond Fund
31
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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.
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