<PAGE> 1
John Hancock Funds
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
STRATEGIC INCOME FUND
SEMI - ANNUAL REPORT
November 30, 1995
<PAGE> 2
CHAIRMAN'S MESSAGE
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Bayard Henry*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice-Chairman and Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and Chief Financial Officer
Susan S. Newton
Vice President, Assistant Secretary and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corp.
P.O. Box 9116
Boston, Massachusetts 02205-9116
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
60 State Street
Boston, Massachusetts 02109
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Investors around the world have been watching Wall Street in awe for
the better part of 1995. Through November, the Standard & Poor's 500-Stock
Index, a widely-used barometer of stock performance, had grown by 32%. Investors
who stayed in the market after a disappointing 1994 have been rewarded.
On another street, Pennsylvania Avenue, one of the hot topics many
people are watching is Medicare reform. While there's no clear-cut solution on
the horizon, today's Medicare debate should serve as another wake-up call to all
Americans about the need to have a financial plan and to save for retirement.
Whether or not the government changes the way health-care benefits are allotted
to senior citizens, the message is clear: your future security and well-being
lies in your own hands -- not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them will
perhaps scare you or make you think that the task of saving for retirement is
just too daunting. But take heart. We don't believe that and neither do many
financial experts.
Yet retirement planning is not to be taken lightly. To live the way you
want to -- the way you deserve to after all those years of hard work -- you need
to plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial
adviser about establishing your retirement planning roadmap, if you haven't
already. And educate yourself by reading some of the many articles about how to
save for retirement. Take control of your future by saving today. That way, when
it comes time for retirement, you shouldn't have to think about any street but
Easy Street.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY FREDERICK CAVANAUGH,
SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
JOHN HANCOCK STRATEGIC INCOME FUND
U.S. BONDS CONTINUE TO RALLY;
FOREIGN BONDS HOLD OPPORTUNITY FOR THE FUTURE
Falling U.S. interest rates and moderating global economic growth
provided a favorable climate for bonds over the past six months. From May
through November, U.S. interest rates continued their year-long decline which
ultimately helped to boost the prices of corporate and government bonds alike.
Overseas, many foreign bond markets moved higher based on sluggish economic
growth, declining inflation and the expectation for cuts in short-term interest
rates.
For the six-month period ended November 30, 1995, John Hancock
Strategic Income Fund's Class A and B shares posted total returns of 7.30% and
6.93%, respectively, at net asset value. Both classes outpaced the average
general bond fund's total return of 5.58%, according to Lipper Analytical
Services.(1)
The Fund seeks to attain a high level of current income, with relative
price stability, through a flexible investment strategy that allows us to invest
across three bond categories -- higher-yielding, lower rated corporate bonds,
foreign bonds and U.S. government securities. That level of diversity helps the
Fund in its efforts to maximize income and manage interest rate, credit and
currency risk.
HIGH-YIELD SECTOR STRONG
Throughout the period, we kept our stake in high-yield bonds relatively steady
at 42%. This
[A 2 1/4" x 3" photo of Frederick Cavanaugh, bottom right. Caption reads:
"Frederick Cavanaugh, Portfolio Manager."]
[CAPTION]
"FALLING U.S. INTEREST RATES AND MODERATING GLOBAL ECONOMIC GROWTH
PROVIDED A FAVORABLE CLIMATE"
3
<PAGE> 4
John Hancock Funds - Strategic Income Fund
[A pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into four sections. Going from top left to right:
Foreign Bonds 37%, US Treasury & Government Agency Bonds 9%, High-Yield, US
Corporate Bonds 42%, Short-Term Investments & Other 12%. A footnote states: "As
a percentage of net assets on November 30, 1995."]
market offered the best opportunities to add income to the Fund. Supply and
demand fundamentals for high-yield bonds remained very favorable. Demand was
strong as yield-hungry investors moved toward the high-yield market in the face
of declining yields on U.S. government securities. Meanwhile, the supply of new
issues was light and at the same time, many investors held onto the high-yield
bonds they already owned for their added yield. The result of tighter supply and
healthy demand was rising prices. However, the high-yield market experienced an
increase in its default rate toward the end of the period. As those events
unfolded, investors tended to move toward higher-quality bonds in an effort to
upgrade the credit quality of their portfolios.
Several of our high-yield bonds performed extremely well during this period.
Jet Equipment Trust, the leasing and financing arm of United Airlines, rose
about 9% during the period in part due to the strengthening airline industry.
Mohegan Tribal Gaming, which is constructing a casino in Connecticut, and
Showboat, an Atlantic City-based gaming facility, also did quite well.
The Fund also has the flexibility to buy stocks on a case-by-case basis as we
believe market conditions warrant. We took advantage of that flexibility to buy
Northwest Airlines stock, and it proved to be one of our best performers during
the period. We've held bonds issued by Northwest for some time and they have
been good performers. So we capitalized on our knowledge of Northwest and that
success by augmenting our bond holdings with the purchase of the company's
stock. The stock rose to $50 a share at the end of the period, from $28 when we
bought it in May. Concessions on the part of its labor unions helped reduce
Northwest's cost structure, making it one of the lowest cost operators in the
industry.
FOREIGN BONDS: EMPHASIS ON QUALITY
We continued to emphasize investments in high-quality bonds from established
markets like Canada, Denmark, the U.K., Australia and Norway. In our view, these
markets could benefit from interest rate declines next year. We sought
individual bonds that offered the potential for capital appreciation from
improving fundamentals as well as interest rate declines. For instance, the
quickly growing cable television industry in the U.K. makes companies including
Bell Cablemedia, Telewest and Diamond Cable attractive.
During the period, we steadily increased our hedges against currency
fluctuations on
[Table entitled "Scorecard" at bottom left hand column. The header for the left
column is "Investment" the header for the right column is "Recent
performance...and what's behind the numbers." The first listing is "Jet
Equipment Trust " followed by an up arrow and the phrase "Airline leasing
industry strengthens". The second listing is "Showboat" followed by an up arrow
and the phrase "Steady Atlantic City revenues". The third listing is "Dan River"
followed by a down arrow and the phrase "Weakness in household textiles".
Footnote below reads: "See '"Schedule of Investments." Investment holdings are
subject to change."]
[CAPTION]
"...WE KEPT OUR STAKE IN HIGH-YIELD BONDS RELATIVELY STEADY..."
4
<PAGE> 5
John Hancock Funds - Strategic Income Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote "For the six months ended November 30, 1995." The chart
is scaled in increments of 2% from top to bottom with 8% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 7.30% total return for John Hancock Strategic Income Fund, Class A. The
second represents the 6.93% total return for John Hancock Strategic Income Fund,
Class B. The third represents the 5.58% total return for the average general
bond fund. Footnote below reads: "Total returns for John Hancock Strategic
Income Fund are at net asset value with all distributions reinvested. The
average general bond fund is tracked by Lipper Analytical Services. (1) See
following page for historical performance information.]
foreign-denominated bonds. That's because the rising U.S. dollar would have
eroded the value of our foreign holdings without the hedge. That strategy is not
intended to shoot for gains tied to currency swings. Rather, our goal is to add
value on the bond side and to minimize the Fund's share price volatility.
At the end of the period, we began to add to our holdings in emerging
markets. In our view, the key to success in these markets is to identify those
with political, economic, fiscal and currency stability. We think those markets
can provide attractive returns to bond holders over the long term. So we've
added holdings in Brazil, South Africa and Indonesia. During a brief period of
currency stability, we bought some short-term Mexican bonds, but did not roll
them over at maturity because of a new round of peso instability late in the
period. Going forward, Mexico and other Latin American markets could offer some
attractive values if their respective currencies stabilize.
U.S. TREASURIES CONTINUE TO RALLY
For the last 12 months, U.S. Treasuries have rallied, fueled by falling interest
rates, low inflation and moderating economic growth. We kept our Treasury
holdings to between 7 and 11 percent of net assets during the period because
Treasury yields, which fell as interest rates did, were insufficient to maintain
our desired level of income. We looked for other higher yielding opportunities
in the high-yield corporate and the foreign markets.
FOREIGN MARKETS MAY OFFER BEST OPPORTUNITIES
We're cautiously optimistic about the high yield market going forward. In our
view, the U.S. economy will continue to grow in 1996, but at a slower pace than
we've seen this year. A slower growing economy may curtail the recent strong
performance of some high yield bonds. So we'll try to avoid issues susceptible
to falling revenues and cash flows and concentrate on buying higher-quality
companies. However, the supply and demand factors for high-yield bonds should
remain favorable and support the market for the first half of the year.
Meanwhile, we'll be looking for opportunities in foreign markets where there's a
reasonable chance that interest rates will decline. If that happens, we'll most
likely pare our high-yield holdings and put more money to work in foreign bonds,
leaving our Treasury allocation unchanged.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
This commentary reflects the views of the portfolio manager through the end
of the Fund's period discussed on this report. Of course, the manager's
views are subject to change as market and other conditions warrant.
[CAPTION]
"...WE'LL BE LOOKING FOR OPPORTUNITIES IN FOREIGN MARKETS..."
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Strategic Income Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's average net assets.
Performance figures include the maximum applicable sales charge of 4.50% for
Class A shares. Different sales charge schedules for Class A shares were in
effect prior to September 28, 1989 and are not reflected in the performance
information. The effect of the maximum contingent deferred sales charge for
Class B shares (maximum 5% and declining to 0% over six years) is included in
Class B performance. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, 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 see the prospectus for a
discussion of risks associated with international investing and high-yield
bonds.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
<S> <C> <C> <C>
John Hancock Strategic Income Fund: Class A 8.92% 72.74% 86.15%(1)
John Hancock Strategic Income Fund: Class B 8.34% 8.54%(2) N/A
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
<S> <C> <C> <C>
John Hancock Strategic Income Fund: Class A 8.92% 11.55% 7.05%(1)
John Hancock Strategic Income Fund: Class B 8.34% 4.20%(2) N/A
</TABLE>
<TABLE>
<CAPTION>
YIELDS
As of November 30, 1995
SEC 30-DAY
YIELD
-----
<S> <C>
John Hancock Strategic Income Fund: Class A 7.58%
John Hancock Strategic Income Fund: Class B 7.22%
</TABLE>
NOTES TO PERFORMANCE
(1) Class A shares started on August 19, 1986.
(2) Class B shares started on October 4, 1993.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in John Hancock
Strategic Income Fund would be worth on November 30, 1995, assuming you had
invested on the day each class of shares started and have reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Lehman Government/Corporate Bond Index -- an unmanaged index that measures the
performance of U.S. government bonds, U.S. corporate bonds, and Yankee bonds.
Strategic Income Fund
Class A shares
Line chart with the heading Strategic Income Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Lehman Government/Corporate Bond
Index and is equal to $22,366 as of November 30, 1995. The second line
represents the value of the hypothetical $10,000 investment made in the
Strategic Income Fund on August 19, 1986, before sales charge, and is equal to
$20,188 as of November 30, 1995. The third line represents the Strategic Income
Fund after sales charge and is equal to $19,282 as of November 30, 1995.
Strategic Income Fund
Class B shares
Line chart with the heading Strategic Income Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Strategic Income Fund on October 4, 1993, before contingent deferred
sales charge, and is equal to $11,639 as of November 30, 1995. The second line
represents the Strategic Income Fund after contingent deferred sales charge and
is equal to $11,340 as of November 30, 1995. The third line represents the value
of the Lehman Government/Corporate Bond Index and is equal to $11,306 as of
November 30, 1995
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Bonds (cost - $426,283,470) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $434,730,753
Common and preferred stocks and warrants (cost - $28,287,201) . . . . . . . . . . . . . . . 35,749,700
Joint repurchase agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,002,000
Corporate savings account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,960
------------
490,508,413
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,929,961
Receivable for shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768,474
Receivable for investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,417,313
Receivable for forward foreign currency exchange contracts sold - Note A . . . . . . . . . . . 1,356,600
Receivable for futures variation margin - Note A . . . . . . . . . . . . . . . . . . . . . . . 271,875
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,747,779
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,906
Foreign tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,301
------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513,456,622
--------------------------------------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,647
Payable for investments purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,798,325
Dividend payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,111
Payable to John Hancock Advisers, Inc. and affiliates - Note B . . . . . . . . . . . . . . . . 181,570
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,991
------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,510,644
--------------------------------------------------------------------------------------------
NET ASSETS:
Capital paid-in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532,687,030
Accumulated net realized loss on investments, foreign currency transactions,
and financial futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,570,833)
Net unrealized appreciation of investments, foreign currency transactions
and financial futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,665,400
Distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . . . .
( 3,835,619)
------------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $508,945,978
============================================================================================
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, respectively)
Class A - $349,781,747/47,778,840 . . . . . . . . . . . . . . . . . . . . . $ 7.32
============================================================================================
Class B - $159,164,231/21,743,457 . . . . . . . . . . . . . . . . . . . . . $ 7.32
============================================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($7.32 x 104.71%) . . . . . . . . . . . . . . . . . . . . . . . . $ 7.66
============================================================================================
* 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.
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON NOVEMBER 30, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
STATEMENT OF OPERATIONS
Six months ended November 30, 1995 (Unaudited)
- ------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $25,983) . . . . . . . . . . . . . . . . . . . . $24,166,785
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960,089
-----------
25,126,874
-----------
Expenses:
Investment management fee - Note B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,098,194
Distribution/service fee - Note B
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506,397
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713,890
Transfer agent fee - Note B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440,033
Custodian fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,003
Registration and filing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,296
Auditing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,548
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,445
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,085
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,246
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,312
-----------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,964,449
--------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,162,425
--------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY TRANSACTIONS AND FINANCIAL FUTURES CONTRACTS
Net realized loss on investments sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (517,235)
Net realized gain on financial futures contracts . . . . . . . . . . . . . . . . . . . . . . . 2,610,475
Net realized gain on foreign currency transactions . . . . . . . . . . . . . . . . . . . . . . 421,352
Change in net unrealized appreciation/depreciation of investments . . . . . . . . . . . . . . . 6,411,096
Change in net unrealized appreciation/depreciation of financial futures contracts . . . . . . . 440,625
Change in net unrealized appreciation/depreciation of foreign currency transactions . . . . . . 2,400,182
-----------
Net Realized and Unrealized Gain on Investments,
Foreign Currency Transactions and Financial Futures Contracts . . . . . . . . 11,766,495
--------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . . . . . . . . . . . . $33,928,920
============================================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30, 1995 YEAR ENDED
(UNAUDITED) MAY 31, 1995
----------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,162,425 $ 39,282,084
Net realized gain (loss) on investments sold,
foreign currency transactions and financial futures contracts . . . . . . . . . 2,514,592 (28,439,885)
Change in net unrealized appreciation/depreciation of investments,
foreign currency transactions and financial futures contracts . . . . . . . . . 9,251,903 27,919,122
------------ ------------
Net Increase in Net Assets Resulting from Operations . . . . . . . . . . . . . 33,928,920 38,761,321
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.3770 and $0.5563 per share, respectively) . . . . . . . . . . . . (15,918,514) (26,071,776)
Class B - ($0.3495 and $0.5151 per share, respectively) . . . . . . . . . . . . (6,244,308) (7,895,442)
Distributions from capital paid-in
Class A - (none and $0.0870 per share, respectively) . . . . . . . . . . . . . - (4,079,463)
Class B - (none and $0.0806 per share, respectively) . . . . . . . . . . . . . - (1,235,403)
------------ ------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . (22,162,822) (39,282,084)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* . . . . . . . . . . . . . . . . . . . . . . . 34,777,194 49,971,675
------------ ------------
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462,402,686 412,951,774
------------ ------------
End of period (including distributions in excess of net investment
income of $3,835,619 and $3,835,222, respectively) . . . . . . . . . . . . . . $508,945,978 $462,402,686
============ ============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
SIX MONTHS ENDED
NOVEMBER 30, 1995 YEAR ENDED
(UNAUDITED) MAY 31, 1995
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . 4,978,703 $35,901,660 8,980,711 $ 62,660,103
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . 1,470,438 10,597,458 2,633,453 18,333,201
----------- ----------- ------------ ------------
6,449,141 46,499,118 11,614,164 80,993,304
Less shares repurchased . . . . . . . . . . . . . . . . . . (4,549,932) (32,836,344) (12,502,115) (86,921,900)
----------- ----------- ------------ ------------
Net increase (decrease) . . . . . . . . . . . . . . . . . . 1,899,209 $13,662,774 (887,951) $ (5,928,596)
=========== =========== ============ ============
CLASS B
Shares sold . . . . . . . . . . . . . . . . . . . . . . . . 5,601,269 $40,489,536 9,883,638 $ 69,070,960
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . . . . . . 437,969 3,157,512 600,041 4,173,148
----------- ----------- ------------ ------------
6,039,238 43,647,048 10,483,679 73,244,108
Less shares repurchased . . . . . . . . . . . . . . . . . . (3,121,780) (22,532,628) (2,496,190) (17,343,837)
----------- ----------- ------------ ------------
Net increase . . . . . . . . . . . . . . . . . . . . . . . 2,917,458 $21,114,420 7,987,489 $ 55,900,271
=========== =========== ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MAY 31,
NOVEMBER 30, 1995 --------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
----------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period . . . . . . . . . . $ 7.15 $ 7.17 $ 7.55 $ 7.78 $ 7.20 $ 7.33
-------- -------- -------- -------- -------- -------
Net Investment Income . . . . . . . . . . . . . . . . . . 0.38 0.64 0.68 0.71 0.80 0.93
Net Realized and Unrealized Gain (Loss)
on Investments, Foreign Currency Transactions
and Financial Futures Contracts . . . . . . . . . . . 0.17 (0.02) (0.33) (0.22) 0.52 (0.13)
-------- -------- -------- -------- -------- -------
Total from Investment Operations . . . . . . . . . . . 0.55 0.62 0.35 0.49 1.32 0.80
-------- -------- -------- -------- -------- -------
Less Distributions:
Dividends from Net Investment Income . . . . . . . . . . (0.38) (0.55) (0.58)+ (0.72) (0.74)+ (0.93)
Distributions in Excess of Net Investment Income . . . . - - (0.05) - - -
Distributions from Capital Paid-in . . . . . . . . . . . - (0.09) (0.10) - - -
-------- -------- -------- -------- -------- -------
Total Distributions . . . . . . . . . . . . . . . . . . . . (0.38) (0.64) (0.73) (0.72) (0.74) (0.93)
-------- -------- -------- -------- -------- -------
Net Asset Value, End of Period . . . . . . . . . . . . . . $ 7.32 $ 7.15 $ 7.17 $ 7.55 $ 7.78 $ 7.20
======== ======== ======== ======== ======== =======
Total Investment Return at Net Asset Value (c) . . . . . . 7.30%(d) 9.33% 4.54% 6.81% 19.92% 12.31%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) . . . . . . . . $349,782 $327,876 $335,261 $262,137 $153,568 $79,272
Ratio of Expenses to Average Net Assets . . . . . . . . . 1.03%* 1.09% 1.32% 1.58% 1.69% 1.75%
Ratio of Net Investment Income to Average Net Assets . . 9.40%* 9.24% 8.71% 9.63% 10.64% 13.46%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . 44% 55% 91% 97% 80% 60%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
OCTOBER 4, 1993
SIX MONTHS ENDED (COMMENCEMENT OF
NOVEMBER 30, 1995 YEAR ENDED OPERATIONS) TO
(UNAUDITED) MAY 31, 1995 MAY 31, 1994
----------- ------------ ------------
<S> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period . . . . . . . . . . . . . . . . . . . . $ 7.15 $ 7.17 $ 7.58(a)
-------- -------- -------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.36 0.60(b) 0.40
Net Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency Transactions and Financial Futures Contracts . . . . . . . 0.16 (0.02) (0.41)
-------- -------- -------
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . 0.52 0.58 (0.01)
-------- -------- -------
Less Distributions:
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . (0.35) (0.52) (0.32)
Distributions in Excess of Net Investment Income . . . . . . . . . . . . . - - (0.03)
Distributions from Capital Paid-in . . . . . . . . . . . . . . . . . . . . - (0.08) (0.05)
-------- -------- -------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.35) (0.60) (0.40)
-------- -------- -------
Net Asset Value, End of Period . . . . . . . . . . . . . . . . . . . . . . . $ 7.32 $ 7.15 $ 7.17
======== ======== =======
Total Investment Return at Net Asset Value (c) . . . . . . . . . . . . . . . 6.93%(d) 8.58% (0.22%)(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) . . . . . . . . . . . . . . . . . . $159,164 $134,527 $77,691
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . 1.71%* 1.76% 1.91%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . 8.72%* 8.55% 8.12%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 44% 55% 91%
</TABLE>
* On an annualized basis
(a) Initial price at commencement of operations.
(b) On average month end shares outstanding.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
+ The dividend policy of the Fund was changed, effective August 1, 1991, from
one which utilized daily dividend declarations to one which declares
dividends monthly. Additionally, the dividend policy of the Fund was
changed, effective October 1, 1993, from one which declared dividends
monthly to daily dividend declarations.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
SCHEDULE OF INVESTMENTS
November 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
STRATEGIC INCOME FUND ON NOVEMBER 30, 1995. IT'S DIVIDED INTO THREE MAIN
CATEGORIES: BONDS, COMMON AND PREFERRED STOCKS AND WARRANTS, AND SHORT-TERM
INVESTMENTS. THE BONDS ARE FURTHER BROKEN DOWN BY INDUSTRY GROUPS. UNDER EACH
INDUSTRY GROUP IS A LIST OF THE BONDS OWNED BY THE FUND. SHORT-TERM INVESTMENTS,
WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- ------ ------- -----
<S> <C> <C> <C> <C>
BONDS
AEROSPACE (0.47%)
*Howmet Corp., Sr Sub Notes 12-01-03 (R) . . . . . . . . . . . . . . . . . 10.000% B $ 500 $ 515,000
Rohr Inc., Sr Note 05-15-03 . . . . . . . . . . . . . . . . . . . . . . . 11.625 BB - 1,750 1,876,875
-----------
2,391,875
-----------
AIRLINES (1.91%)
*Jet Equipment Trust, Equipment Trust 08-15-14 (R) . . . . . . . . . . . . 10.910 BB+ 1,500 1,628,850
NWA, Inc., Note 08-01-96 . . . . . . . . . . . . . . . . . . . . . . . . 8.625 B+ 5,000 5,025,000
*Northwest Airlines, Inc., Sr Notes 12-31-00 . . . . . . . . . . . . . . . 12.092 B+ 2,477 2,560,830
USAfrica Airways Inc., Sr Note 05-31-99, (r) . . . . . . . . . . . . . . . 12.000 D 2,000 500,000
-----------
9,714,680
-----------
AUTOMOBILE/TRUCK (1.37%)
Harvard Industries, Inc., Sr Note 07-15-04 . . . . . . . . . . . . . . . 12.000 B+ 2,500 2,631,250
JPS Automotive Products Corp., Sr Note 06-15-01 . . . . . . . . . . . . . 11.125 B 3,500 3,500,000
Venture Holdings Trust, Sr Sub Note 04-01-04 . . . . . . . . . . . . . . . 9.750 B 1,000 845,000
-----------
6,976,250
-----------
BROADCASTING (2.08%)
Australis Media Ltd., (Australia), Unit
(Sr Sub Disc Note 05-15-03 and Warrant) (Y) . . . . . . . . . . . . . . . Zero CCC 3,000 2,175,000
Chancellor Broadcasting Co., Sr Sub Note 10-01-04 . . . . . . . . . . . . 12.500 B - 1,500 1,590,000
Outlet Broadcasting Inc., Sr Sub Note 07-15-03 . . . . . . . . . . . . . . 10.875 B - 2,000 2,202,500
*Scandinavian Broadcasting System, (Luxembourg), Sub Debs 08-01-05 (Y) . . 7.250 B - 1,390 1,462,975
SFX Broadcasting, Inc., Sr Sub Note 10-01-00 . . . . . . . . . . . . . . 11.375 B 3,000 3,172,500
-----------
10,602,975
-----------
BUILDING PRODUCTS (0.81%)
P.T. Semen Cibinong, (Indonesia), Deb 12-15-98 (R), (Y) . . . . . . . . . 9.000 B 3,000 3,060,000
Tarkett International, (Germany), Sr Sub Note 03-01-02 (Y) . . . . . . . . 9.000 BBB - 1,000 1,060,000
-----------
4,120,000
-----------
CABLE TV (7.45%)
Adelphia Communications Corp., Sr Note 05-15-02 . . . . . . . . . . . . . 12.500 B 3,000 2,970,000
*American Telecasting, Unit (Sr Disc Note 08-15-05 and Warrant) (R) . . . . Zero CCC+ 2,500 1,475,000
Bell Cablemedia PLC, (United Kingdom), Sr Discount Note 07-15-04 (Y) . . . Zero BB - 4,000 2,740,000
CF Cable TV Inc., (Canada), Sr Note 02-15-05 (Y) . . . . . . . . . . . . . 11.625 BB+ 1,000 1,090,000
Cablevision Systems Corp., Sr Sub Deb 04-01-23 . . . . . . . . . . . . . . 9.875 B 2,000 2,070,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
CABLE TV (CONTINUED)
Comcast Corp., Sr Sub Deb 05-15-05 ................................................. 9.375% B + $ 4,000 $ 4,180,000
*Comcast UK Cable, (Bermuda), Debs 11-15-07 (Y) ..................................... Zero B 2,500 1,437,500
Diamond Cable Communications Co., (United Kingdom), Sr Discount Note 09-30-04 (Y) .. Zero B - 3,000 2,028,750
Falcon Holdings Group, L.P., Payment-In-Kind Sr Sub Note 09-15-03 .................. 11.000 B - 3,716 3,567,815
*Galaxy Telecom, L.P., Sr Sub Note 10-01-05 ......................................... 12.375 B - 2,000 1,970,000
International Cabletel, Sr Note 04-15-05 ........................................... Zero B 1,500 915,000
Jones Intercable, Inc., Sr Sub Deb 07-15-04 ........................................ 11.500 B+ 3,000 3,330,000
Le Groupe Videotron (Canada), Sr Note 02-15-05 (Y) ................................. 10.625 BB+ 1,250 1,321,875
*Marcus Cable Co., Sr Disc Notes 12-15-05 ........................................... Zero B 2,000 1,260,000
Rogers Cablesystems, (Canada), Sr Note 03-15-05 (Y) ................................ 10.000 BB+ 3,000 3,150,000
*Telewest PLC, (United Kingdom), Debs 10-01-07 (Y) .................................. Zero BB 3,000 1,740,000
Videotron Holdings PLC, (United Kingdom), Sr Discount Note 07-01-04 (Y) ............ Zero B+ 4,000 2,690,000
----------
37,935,940
----------
CHEMICALS (0.36%)
NL Industries, Inc., Sr Note 10-15-03 .............................................. 11.750 B 1,750 1,855,000
----------
COMPUTERS (1.58%)
Computervision Corp., Sr Sub Note 08-15-99 ......................................... 11.375 B - 4,000 4,200,000
*Unisys Corp., Deb 07-01-97 ......................................................... 13.500 BB - 4,000 3,840,000
----------
8,040,000
----------
CONTAINERS (0.97%)
Crown Packaging Ltd., Sr Note 11-01-00 ............................................. 10.750 B 2,000 1,905,000
Stone Container Corp., Sr Note 10-01-04 ............................................ 11.500 B+ 3,000 3,030,000
----------
4,935,000
----------
COSMETICS & TOILETRIES (0.39%)
Renaissance Cosmetics, Sr Note 08-15-01 ............................................ 13.750 B - 2,000 1,990,000
----------
DIVERSIFIED MANUFACTURING (0.57%)
*Alpine Group, Inc., Sr Note 07-15-03 (R) ........................................... 12.250 B 3,000 2,910,000
----------
ELECTRONICS (0.50%)
Alliant Techsystems, Inc., Sr Sub Note 03-01-03 .................................... 11.750 B 1,375 1,505,625
Tracor, Inc., Sr Sub Note 08-15-01 ................................................. 10.875 B 1,000 1,030,000
----------
2,535,625
----------
FINANCE (1.11%)
Norgeskreditt, (Norway), Foreign Corp Bond 06-19-96# ............................... 10.750 A 35,000 5,652,990
----------
FOODS (0.20%)
PMI Acquisition Corp., Sr Sub Note 09-01-03 ........................................ 10.250 B 1,000 1,027,500
----------
GOVERNMENTAL - FOREIGN (24.77%)
*Government of Australia, (Australia), Government Bond 07-15-05# .................... 7.500 AAA 10,000 7,101,629
*Government of New Zealand, (New Zealand), Government Bond 11-15-96# ................ 9.000 AAA 10,000 6,597,161
*Government of Poland, (Poland), Government Bond 10-27-24# .......................... 2.750 BB 5,000 2,175,000
Kingdom of Denmark, (Denmark), Government Bond-Bullet 11-10-24# .................... 7.000 AAA 65,000 10,229,791
*Kingdom of Denmark, (Denmark), Government Bond-Bullet 03-15-06# .................... 8.000 AAA 60,000 11,115,834
Kingdom of Denmark, (Denmark), Government Bond-Bullet 11-15-96# .................... 9.000 AAA 25,000 4,624,008
*Kingdom of Denmark, (Denmark), Government Bond-Bullet 11-15-98# .................... 9.000 AAA 30,000 5,799,588
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
GOVERNMENTAL - FOREIGN (CONTINUED)
*Kingdom of Norway, (Norway), Government Bond 01-31-99#................. 9.000% AAA $ 30,000 $ 5,171,064
Kingdom of Spain, (Spain), Government Bond 04-15-96#................... 13.450 AAA 1,400,000 11,480,000
*Kingdom of Spain, (Spain), Government Bond 03-25-00#................... 12.250 AAA 600,000 5,249,520
*Kingdom of Spain, (Spain), Government Bond 08-30-98#................... 11.450 AAA 750,000 6,324,000
*Kingdom of Sweden, (Sweden), Government Bond 01-21-99#................. 11.000 AAA 30,000 4,882,278
*Mexican Cetes, (Mexico), Government Bond 12-14-95#..................... Zero BB+ 3,000 3,904,734
Republic of Brazil, (Brazil), Government Bond 04-15-24 (Y)............. 4.250 B+ 10,000 4,987,500
*Republic of South Africa, (South Africa), Government Bond 02-28-05# ... 12.000 BBB 18,000 4,309,945
*United Kingdom of Great Britain Treasury Gilts, (United Kingdom),
Government Bond 08-06-97#............................................ 7.000 AAA 3,000 4,645,949
*United Kingdom Treasury, (United Kingdom), Government Bond 12-07-00#... 8.000 AAA 3,000 4,792,346
United Kingdom of Great Britain Treasury Gilts, (United Kingdom),
Government Bond 11-06-01#............................................ 7.000 AAA 3,000 4,556,963
United Kingdom of Great Britain Treasury Gilts, (United Kingdom),
Government Bond 08-27-02#............................................ 9.750 AAA 4,000 6,898,835
United Kingdom of Great Britain Treasury Gilts, (United Kingdom),
Government Bond 10-13-08#............................................ 9.000 AAA 3,000 5,057,870
United Mexican States Series A, (Mexico), Deb 12-31-19 (Y)............. 6.250 BB 7,000 4,305,000
United Mexican States Series B, (Mexico), Deb 12-31-19 (Y)............. 6.250 BB 3,000 1,837,500
-----------
126,046,515
-----------
GOVERNMENTAL - FOREIGN AGENCY (1.99%)
*Land & Agricultural Bank, (South Africa), Government Bond 11-15-96# ... 16.000 BBB 17,000 4,678,831
Treasury Corp. of Victoria, (Australia), Government Bond 10-15-03#..... 8.250 AA 7,300 5,427,112
-----------
10,105,943
-----------
GOVERNMENTAL - U.S. (8.39%)
United States Treasury, Bond 02-15-16++ ............................... 9.250 AAA 11,000 14,808,750
United States Treasury, Bond 08-15-19++ ............................... 8.125 AAA 5,500 6,752,130
United States Treasury, Note 05-15-01++ ............................... 8.000 AAA 19,000 21,134,460
-----------
42,695,340
-----------
GOVERNMENTAL - U.S. AGENCIES (0.32%)
Federal Home Loan Mortgage Corp., Remic 44-E 11-15-19 ................. 9.000 AAA 1,334 1,395,734
Federal National Mortgage Association, Multicurrency
PERLS 07-10-96+ (r) ................................................. 11.450 AAA 500 146,250
Student Loan Marketing Association, Multicurrency PERLS 11-19-96+ (r) . 10.000 AAA 500 75,000
-----------
1,616,984
-----------
INSURANCE (0.77%)
American Life Holding Co., Sr Sub Note 09-15-04 ....................... 11.250 BB - 1,000 1,060,000
Bankers Life Holdings Corp., Sr Sub Note Ser B 11-01-02 ............... 13.000 BB - 2,500 2,850,000
-----------
3,910,000
-----------
LEASING (0.30%)
Scotsman Group, Sr Sec Note 12-15-00 .................................. 9.500 BB - 1,500 1,507,500
-----------
LEATHER (0.25%)
United States Leather, Inc., Sr Note 07-31-03 ......................... 10.250 B - 1,500 1,260,000
-----------
LEISURE & RECREATION (3.63%)
Act III Theatres, Inc., Sr Sub Note 02-01-03 .......................... 11.875 B - 1,550 1,658,500
Bally's Grand, 1st Mtg Note Ser B 12-15-03 ............................ 10.375 BB 3,000 3,007,500
GB Property Funding, 1st Mtg Note 01-15-04 ............................ 10.875 B+ 3,000 2,595,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
LEISURE & RECREATION (CONTINUED)
*Hollywood Casino Corp., Sr Note 11-01-03 . . . . . . . . . . . . . . 12.750% B+ $ 3,000 $ 2,760,000
*Mohegan Tribal Gaming Authority, Sr Note 11-15-02 (R) . . . . . . . . 13.500 B 1,400 1,505,000
*Showboat, Inc. Sr Sub Note 08-01-09 . . . . . . . . . . . . . . . . . 13.000 B 3,000 3,330,000
Station Casinos, Inc., Sr Sub Note 06-01-03 . . . . . . . . . . . . . 9.625 B+ 2,000 1,940,000
Stratosphere Corp., 1st Mtg Note 05-15-02 . . . . . . . . . . . . . . 14.250 B 1,500 1,687,500
-----------
18,483,500
-----------
MEDIA (0.90%)
News America Holdings, Inc., (Australia), Deb 02-07-14# . . . . . . . 8.625 BBB 7,000 4,592,490
-----------
METALS (2.14%)
Easco Corp., Sr Note 03-15-01 . . . . . . . . . . . . . . . . . . . . 10.000 B 3,000 2,940,000
Horsehead Industries, Inc., Sub Note 06-01-99 . . . . . . . . . . . . 14.000 CCC - 3,500 3,570,000
Kaiser Aluminum, Sr Sub Note 02-01-03 . . . . . . . . . . . . . . . . 12.750 B - 4,000 4,380,000
-----------
10,890,000
-----------
OFFICE EQUIPMENT & SUPPLIES (0.43%)
*United Stationer Supply, Sr Sub Note 05-01-05 . . . . . . . . . . . . 12.750 B - 2,000 2,170,000
-----------
OIL & GAS (2.52%)
Dual Drilling Co., Sr Sub Note 01-15-04 . . . . . . . . . . . . . . . 9.875 B - 1,000 950,000
Falcon Drilling Company Inc., Sr Sub Note 03-15-05 . . . . . . . . . 12.500 B 1,500 1,620,000
Mobil North Sea, Inc., (United Kingdom), Foreign Corp
Bond 07-15-99# . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.625 AA 1,000 1,640,717
Petroleum Heat & Power Company, Inc., Sub Deb 02-01-05 . . . . . . . 12.250 B+ 3,000 3,307,500
*TransTexas Gas Corp., Sr Note 06-15-02 . . . . . . . . . . . . . . . 11.500 BB - 3,000 3,097,500
Wilrig AS, (Norway), Sr Sec Note 03-15-04 (Y) . . . . . . . . . . . . 11.250 B 2,000 2,180,000
-----------
12,795,717
-----------
PAPER (2.44%)
*APP International Finance Co., (Indonesia), Company
Guaranty 10-01-05 (Y) . . . . . . . . . . . . . . . . . . . . . . . 11.750 BB 750 742,500
Data Documents Inc., Sr Note 07-15-02 . . . . . . . . . . . . . . . . 13.500 B+ 1,435 1,556,975
*Indah Kiat International Finance, (Indonesia), Company
Guaranty 06-15-06 (Y) . . . . . . . . . . . . . . . . . . . . . . . 12.500 BB 6,000 6,060,000
SD Warren Co., Sr Sub Note 12-15-04 . . . . . . . . . . . . . . . . . 12.000 B+ 2,000 2,210,000
*Williamhouse-Regency, Sr Sub Note 11-15-05 (R) . . . . . . . . . . . 13.000 B - 1,800 1,858,500
-----------
12,427,975
-----------
PIPELINE (0.54%)
*Columbia Gas System, Notes Ser A 11-28-00 . . . . . . . . . . . . . . 6.390 BBB 395 397,591
*Columbia Gas System, Notes Ser B 11-28-02 . . . . . . . . . . . . . . 6.610 BBB 394 397,558
*Columbia Gas System, Notes Ser C 11-28-05 . . . . . . . . . . . . . . 6.800 BBB 394 398,208
*Columbia Gas System, Notes Ser D 11-28-07 . . . . . . . . . . . . . . 7.050 BBB 394 392,727
*Columbia Gas System, Notes Ser E 11-28-10 . . . . . . . . . . . . . . 7.320 BBB 394 395,040
*Columbia Gas System, Notes Ser F 11-28-15 . . . . . . . . . . . . . . 7.420 BBB 394 391,538
*Columbia Gas System, Notes Ser G 11-28-25 . . . . . . . . . . . . . . 7.620 BBB 394 391,045
-----------
2,763,707
-----------
POLLUTION CONTROL (0.45%)
ICF Kaiser International, Sr Sub Note 12-31-03 . . . . . . . . . . . 12.000 B - 2,500 2,300,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
PRECIOUS METALS/JEWELRY (0.58%)
Finlay Fine Jewelry, Sr Note 05-01-03 . . . . . . . . . . . . . . . . 10.625% B $ 3,000 $ 2,962,500
------------
RETAIL (2.75%)
*Apparel Retailer, Deb Ser B 08-15-05 . . . . . . . . . . . . . . . . Zero B - 3,960 2,415,600
*Apparel Ventures, Sr Note 12-31-00 . . . . . . . . . . . . . . . . . 12.250 B - 1,350 1,059,750
*Decorative Home Accents, Unit (Sr Note 06-30-02 and
Class F Common Stock) (R) . . . . . . . . . . . . . . . . . . . . . 13.000 B - 1,000 1,000,000
Petro PSC Properties, Sr Note 06-01-02 . . . . . . . . . . . . . . . 12.500 B 2,500 2,493,750
Specialty Retailers, Inc., Sr Sub Note 08-15-03 . . . . . . . . . . . 11.000 B - 3,000 2,730,000
Thrifty Payless, Inc., Sr Sub Note 04-15-04 . . . . . . . . . . . . . 12.250 B - 4,000 4,270,000
------------
13,969,100
------------
REFINING (0.89%)
Transamerican Refining Corp., Unit (1st Mtg Note
02-15-02 and Warrant) . . . . . . . . . . . . . . . . . . . . . . . 16.500 B - 2,000 2,120,000
Wainoco Oil Corp., Sr Note 08-01-02 . . . . . . . . . . . . . . . . . 12.000 B - 2,500 2,412,500
------------
4,532,500
------------
STEEL (3.62%)
AK Steel Corp., Sr Note 04-01-04 . . . . . . . . . . . . . . . . . . 10.750 BB - 2,000 2,210,000
Acme Metals, Inc., Sr Note 08-01-02 . . . . . . . . . . . . . . . . . 12.500 B 3,000 2,947,500
*GS Technologies Operating Co., Inc., Sr Note 10-01-05 . . . . . . . 12.250 B 2,000 1,985,000
Inland Steel Industries, Inc., Note 12-15-02 . . . . . . . . . . . . 12.750 B+ 2,000 2,222,500
WCI Steel Inc., Sr Note Ser B 03-01-02 . . . . . . . . . . . . . . . 10.500 B+ 3,000 2,876,250
*Weirton Steel Corp., Sr Note 06-01-05 . . . . . . . . . . . . . . . 10.750 B 3,650 3,394,500
Wheeling-Pittsburgh Steel Corp., Sr Note 11-15-03 . . . . . . . . . . 9.375 BB - 3,000 2,790,000
------------
18,425,750
------------
TELECOMMUNICATIONS (3.13%)
*A+ Network, Inc., Sr Sub Note 11-01-05 . . . . . . . . . . . . . . . 11.875 CCC+ 2,000 2,005,000
*Comunicacion Cellular, (Colombia), Unit (Sr Deferred
Bond 11-15-03 and Warrant) (Y) (R) . . . . . . . . . . . . . . . . Zero B+ 3,250 1,746,875
*Dictaphone Corp., Sr Sub Note 08-01-05 . . . . . . . . . . . . . . . 11.750 B - 2,500 2,437,500
*Echostar Communications, Unit (Sr Disc Note 06-01-04 and Warrants). . Zero B - 4,000 2,760,000
MFS Communications, Sr Note, Stepped Coupon (9.375%, 1-15-99)
01-15-04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Zero B 2,400 1,857,000
Nextel Communications, Inc. Sr Discount Note 08-15-04 . . . . . . . . Zero CCC - 6,000 3,105,000
*Winstar Communications, Unit (2 Sr Disc Notes and 1 Conv Sr Sub
Disc Note 10-15-05) (R) . . . . . . . . . . . . . . . . . . . . . . Zero B - 1,300 2,015,000
------------
15,926,375
------------
TEXTILES (0.71%)
CMI Industries, Inc., Sr Sub Note 10-01-03 . . . . . . . . . . . . . 9.500 B+ 2,000 1,710,000
Dan River, Inc., Sr Sub Note 12-15-03 . . . . . . . . . . . . . . . . 10.125 B 2,000 1,900,000
------------
3,610,000
------------
TRUCKING/FREIGHT (0.82%)
TNT Transport PLC/TNT USA, Sr Note 04-15-04 . . . . . . . . . . . . . 11.500 B+ 4,000 4,170,000
------------
UTILITIES (1.62%)
*CE Casecnan Water & Energy, (Philippines), Sr Notes 11-15-05 (Y) . . 11.450 BB 2,000 2,012,500
Calpine Corp., Sr Note 02-01-04 . . . . . . . . . . . . . . . . . . . 9.250 B 2,000 1,770,000
Cleveland Electric Illuminating Co., 1st Mtg Note 05-15-05 . . . . . 9.500 BB 2,625 2,697,188
Midland Cogeneration Venture, Deb 07-23-02 . . . . . . . . . . . . . 10.330 BB - 1,732 1,809,588
------------
8,289,276
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 18
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
VEHICLE MANUFACTURER (1.51%)
Am General Corp., Sr Note 05-01-02 . . . . . . . . . . . . . . . . . 12.875% B+ $ 2,000 $ 2,020,000
Fruehauf Trailer Corp., Sr Sec Note 04-30-02 . . . . . . . . . . . . 14.750 B - 3,791 3,800,478
*Johnstown America Industries, Inc., Sr Sub Note 08-15-05 . . . . . . 11.750 B 2,000 1,840,000
------------
7,660,478
------------
OTHER (0.18%)
Collateralized Mortgage Obligation, Trust 63, Class D 04-20-97 . . . 9.000 Aaa 932 931,268
------------
TOTAL BONDS
(Cost $426,283,470) (85.42%) 434,730,753
------ ------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNITS OR WARRANTS
-----------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
Apparel Ventures Inc., Warrants (r) ............................................................... 1,500 7,500
California Federal Bank, 10.625% Ser B Pref Stock ................................................. 6,667 725,036
*Columbia Gas System, 5.22% Convertible Pref Stock ................................................ 11,473 454,618
*Columbia Gas System, 7.89% Pref Stock ............................................................ 18,734 456,641
Credit Lyonnais Capital S.C.A., American Depositary Shares, 9.50% Ser DTC Pref Stock (R) .......... 100,000 2,482,500
*Data Documents, Warrants ......................................................................... 2,000 170,000
Finlay Enterprises, Inc., Common Stock*** ......................................................... 4,000 63,000
First Nationwide Bank, 11.50% Pref Stock .......................................................... 5,000 557,500
Grand Union Holdings Corp., 12.00% Ser C Pref Stock*** ............................................ 8,500 0
Greater New York Savings Bank, Inc., 12.00% Ser B Pref Stock ...................................... 80,000 2,240,000
ICF Kaiser International, Inc., Warrants (r)*** ................................................... 12,000 6,000
K-III Communications Corp., $2.875 Sr Pref Stock .................................................. 60,000 1,620,000
Lasmo PLC , 10.00% Ser A Pref Stock ............................................................... 50,000 1,231,250
Maxus Energy Corp., $2.50 Pref Stock .............................................................. 40,000 1,015,000
Northwest Airlines Corp., Cl A, Common Stock*** ................................................... 173,000 8,714,875
Panamsat Corp., 12.75% Pref Stock ................................................................. 1,859 2,063,490
Petro PSC Properties, LP, Warrants (r) ............................................................ 2,000 64,000
*Qantas Airways Ltd., American Depository Shares (ADS) (R) ........................................ 13,800 232,875
Renaissance Cosmetics, Warrants ................................................................... 4,000 90,000
St Johnsbury Trucking Co Inc., Common Stock (r)*** ................................................ 47,224 472
Sun Carriers Inc., Common Stock (r)*** ............................................................ 195,600 1,956
TLC Beatrice International Holdings, Common Stock (Class A) (r) ................................... 20,000 1,000,000
Thrifty Payless Holdings, Common Stock (Class C) (r)*** ........................................... 38,000 161,500
TransTexas Gas Corp., Common Stock*** ............................................................. 10,000 160,000
*UAL Corp., Common Stock*** ....................................................................... 9,577 2,003,987
UAL Corp., 12.25% Ser B Pref Stock ................................................................ 280,000 8,890,000
USAfrica Airways Inc., Warrants (r)*** ............................................................ 388,056 0
Valero Energy Corp., $3.125, Pref Stock ........................................................... 25,000 1,337,500
----------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $28,287,201) (7.02%) 35,749,700
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 19
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ---------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (3.93%)
Investment in a joint repurchase agreement transaction with
SBC Capital Markets - Dated 11-30-95, Due 12-01-95 (secured by
U.S. Treasury Bonds, 7.25% Due 05-15-16) . . . . . . . . . . . . . . . . . . . . 5.91% $20,002 $ 20,002,000
------------
CORPORATE SAVINGS ACCOUNT (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.25% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,960
------------
TOTAL SHORT TERM INVESTMENTS (3.94%) 20,027,960
------- ------------
TOTAL INVESTMENTS (96.38%) $490,508,413
======= ============
</TABLE>
* Securities, other than short-term investments, newly added to the portfolio
during the period ended November 30, 1995.
** Credit ratings are unaudited and rated by Moody's Investors Service or John
Hancock Advisers, Inc. where Standard & Poor's ratings are not available.
*** Non-income producing security.
+ Principal Exchange Rate Linked Securities (PERLS). PERLS are debt
instruments that are denominated in U.S. dollars and pay interest in U.S.
dollars, but whose principal repayments are linked to the performance of
the U.S. dollar versus a foreign currency. If the foreign currency gains
value against the U.S. dollar when the PERLmatures, redemption will be at a
premium. The redemption will be at a discount if the foreign dollar loses
value against the U.S. dollar. As of 11/30/95, the Fund has PERLS with a
total cost of $1,022,850 and a total value of $221,250, or 0.04% of the
Fund's total net assets.
++ U.S. Treasury Securities with a value of $42,695,340 owned by the Fund were
designated as margin deposits for future contracts at November 30, 1995.
# Par value of foreign bonds is expressed in local currency, as shown
parenthetically in security description.
(R) Security is exempt from registration under rule 144A of the Securities Act
of 1933. Such securities may be resold, normally to qualified institutional
buyers, in transactions exempt from registration. See Note A of the Notes
to Financial Statements for valuation policy. Rule 144A securities amounted
to $20,429,600 as of November 30, 1995.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer, however, security is U.S. dollar
denominated.
(r) Direct placement securities are restricted to resale. They have been valued
at fair value by the Trustees after considerations of restrictions as to
resale, financial condition and prospects of the issuer, general market
conditions and pertinent information in accordance with the Fund's By-Laws
and the Investment Company Act of 1940, as amended. The Fund has limited
rights to registration under the Securities Act of 1933 with respect to
these restricted securities.
Additional information on each restricted security is as follows:
<TABLE>
<CAPTION>
VALUE AS A
PERCENTAGE
ACQUISITION ACQUISITION OF FUND'S VALUE AT
DATE COST NET ASSETS NOVEMBER 30,1995
----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Apparel Ventures, Warrants ......................................... 10-27-94 $ 1,125 0.00% $7,500
Federal National Mortgage Association, Multicurrency
PERLS 07-10-96 ................................................... 11-05-91 522,850 0.03 146,250
ICF Kaiser International, Inc., Warrants ........................... 01-04-94 15,000 0.00 6,000
Petro PSC Properties, LP, Warrants ................................. 05-17-94 73,140 0.01 64,000
St. Johnsbury Trucking Co., Inc., Common Stock ..................... 01-19-93 1,301,659 0.00 472
Student Loan Marketing Association, Multicurrency PERLS 11-19-96 ... 11-05-91 500,000 0.01 75,000
Sun Carriers Inc., Common Stock .................................... 11-23-88 218,247 0.00 1,956
TLC Beatrice International Holdings, Common Stock (Class A) ........ 11-25-87 1,006,000 0.20 1,000,000
Thrifty Payless Holdings, Common Stock (Class C) ................... 07-22-94 213,334 0.03 161,500
USAfrica Airways Inc., Sr Note 05-31-99 ............................ 10-13-94 2,000,000 0.10 500,000
USAfrica Airways Inc., Warrants .................................... 10-13-94 0 0.00 0
</TABLE>
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 20
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
PORTFOLIO CONCENTRATION (Unaudited)
- --------------------------------------------------------------------------------
THE STRATEGIC INCOME FUND INVESTS PRIMARILY IN SECURITIES ISSUED IN THE UNITED
STATES OF AMERICA. THE PERFORMANCE OF THIS FUND IS CLOSELY TIED TO THE ECONOMIC
AND FINANCIAL CONDITIONS WITHIN THE COUNTRIES IT INVESTS. THE CONCENTRATION OF
INVESTMENTS BY INDUSTRY CATEGORY FOR INDIVIDUAL SECURITIES HELD BY THE FUND IS
SHOWN IN THE SCHEDULE OF INVESTMENTS.
IN ADDITION, CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
COUNTRIES. THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS AT
NOVEMBER 30, 1995 ASSIGNED TO COUNTRY CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION: NET ASSETS
- ----------------------- ---------------
<S> <C>
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.84%
Bermuda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.28
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.98
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.09
Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.34
Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.24
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.21
Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.94
Luxembourg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.29
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.97
New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.30
Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.55
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.43
South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.77
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.53
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.96
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.23
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.03
-----
TOTAL INVESTMENTS 96.38%
=====
</TABLE>
ADDITIONALLY, THE CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY THE QUALITY
RATING FOR EACH DEBT SECURITY.
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION: NET ASSETS
- --------------------- ---------------
<S> <C>
AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.43%
AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.39
A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.11
BAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.42
BA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.68
B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.87
CAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.42
D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.10
-----
TOTAL BONDS 85.42%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
(UNAUDITED)
NOTE A-
ACCOUNTING POLICIES
John Hancock Strategic Series (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series of portfolios: John Hancock Strategic Income Fund (the "Fund"),
John Hancock Utilities Fund and John Hancock Independence Diversified Core
Equity Fund.
The Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemption, dividends, and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution/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. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below. The Fund may invest in indexed securities whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
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,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies. It
will not be subject to Federal income tax on taxable earnings which are
distributed to shareholders. For Federal income tax purposes, net currency
exchange gains and losses from sales of foreign debt securities may be treated
as ordinary income even though such items are capital gains and losses for
accounting purposes. The Fund has $36,343,494 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 gains distributions will be made. The carryforwards expire as follows:
May 31, 1998 -- $2,471,816, May 31, 1999 -- $13,103,961, May 31, 2002 --
$454,810 and May 31, 2003 -- $20,312,907. Expired capital loss carryforwards are
reclassified to capital paid-in, in the year of expiration. Additionally, net
capital losses of $1,474,240 attributable to security transactions incurred
after October 31, 1994 are treated as arising on the first day (June 1, 1995) of
the Fund's current taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund 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 as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
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/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
Open foreign currency forward sell contracts at November 30, 1995 were as
follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH APPRECIATION(DEPRECIATION)
- -------- ------------------- ---------- --------------------------
<S> <C> <C> <C>
GERMAN MARK 43,247,000 DECEMBER 95 $ (337,190)
GERMAN MARK 43,509,000 JANUARY 96 654,640
GERMAN MARK 63,131,000 FEBRUARY 96 1,065,483
NEW ZEALAND DOLLAR 10,300,000 FEBRUARY 96 (26,333)
-----------
$1,356,600
===========
</TABLE>
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m. London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
assets and liabilities other than investments in securities resulting from
changes in the exchange rate.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended November 30,
1995.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin," equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract is valued at the official settlement price on the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
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 contracts.
At November 30, 1995, open positions in financial futures contracts were as
follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION APPRECIATION
- ---------- -------------- -------- ------------
<S> <C> <C> <C>
MARCH, 1996 300 U.S. TREASURY BOND LONG $440,625
========
</TABLE>
At November 30, 1995, the Fund has deposited in a segregated account
$11,000,000 par value of U.S. Treasury Bond, 9.250%,
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
02-15-16, $3,000,000 par value of U.S. Treasury Bond, 8.125%, 08-15-19 and
$19,000,000 par value of U.S. Treasury Note, 8.000%, 5-15-01, to cover margin
requirements on open financial futures contracts.
DISCOUNTS ON SECURITIES The Fund accretes discounts from par value on securities
purchased from either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of: (a) 0.60% of the first $100,000,000 of the
Fund's average daily net asset value, (b) 0.45% of the next $150,000,000, (c)
0.40% of the next $250,000,000, (d) 0.35% of the next $150,000,000, and (e)
0.30% of the Fund's average daily net asset value in excess of $650,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended November
30, 1995, JH Funds received net sales charges of $756,427 with regard to sales
of Class A shares. Out of this amount, $89,911 was retained and used for
printing of prospectuses, advertising, sales literature and other purposes,
$254,900 was paid as sales commissions and service fees to unrelated
broker-dealers and $411,616 was paid as sales commissions and service fees to
sales personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker
Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of
which are broker dealers. The Adviser's indirect parent, John Hancock Mutual
Life Insurance Company, is the indirect sole shareholder of Distributors and
John Hancock Freedom Securities Corporation and its subsidiaries, which include
Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended November 30,
1995, contingent deferred sales charges received by JH Funds amounted to
$228,861.
In addition, to compensate 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 and Class B shares 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 average daily net
assets, to reimburse JH Funds for its distribution and service costs. Up to a
maximum of 0.25% of these payments may be service fees as defined by the amended
Rules of Fair Practice of the National Association of Securities Dealers. Under
the amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to October 1, 1995, the Fund paid transfer agent fees as
a class specific expense based on the number of shareholder accounts and certain
out-of-pocket expenses. For the four months ended September 30, 1995 the
transfer expense, calculated as a class specific expense, was $232,215 for Class
A and $82,235 for Class B, respectively. Effective October 1, 1995,
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - STRATEGIC INCOME FUND
transfer agent expense is being treated as a fund expense based on the number of
shareholder accounts and certain out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors and
officers of the Adviser and its affiliates, as well as Trustees of the Fund. The
Adviser owns 10,000 shares of beneficial interest in the Fund. The compensation
of unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, 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 will make 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 will be recorded on the
Fund's books as an other asset. The deferred compensation liability will be
marked to market on a periodic basis and income earned by the investment will be
recorded on the Fund's books.
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 investments,
during the period ended November 30, 1995, aggregated $226,596,580 and
$207,724,008, respectively. Purchases and proceeds from sales of obligations of
the U.S. government and its agencies during the period ended November 30, 1995,
aggregated none and $7,253,203 respectively.
The cost of investments owned at November 30, 1995 (including the joint
repurchase agreement), for Federal income tax purposes was $474,572,671. Gross
unrealized appreciation and depreciation of investments aggregated $34,948,881
and $19,039,099, respectively, resulting in net unrealized appreciation of
$15,909,782.
25
<PAGE> 26
NOTES
JOHN HANCOCK FUNDS - STRATEGIC INCOME FUND
26
<PAGE> 27
NOTES
JOHN HANCOCK FUNDS - STRATEGIC INCOME FUND
27
<PAGE> 28
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FUND U.S. Postage
101 Huntington Avenue Boston, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A GLOBAL INVESTMENT MANAGEMENT FIRM."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Strategic
Income 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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PAPER."]
