--------------------------------------------------
The latest report from your Fund's management team
--------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC]
Strategic
Income Fund
MAY 31, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
DENNIS S. ARONOWITZ*
STEPHEN L. BROWN
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
DOUGLAS M. COSTLE
LELAND O. ERDAHL
RICHARD A. FARRELL
GAIL D. FOSLER
WILLIAM F. GLAVIN
ANNE C. HODSDON
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
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[A 1"x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing.
These modifications and replacements are nearly done, and the tests of all our
systems are on schedule for completion by the end of July. The rest of 1999 will
be spent testing with our business partners and continuing to participate in
industry testing. We have also established additional contingency plans beyond
our regular ones to prepare for any challenges that the Year 2000 might present.
In the end, John Hancock will spend approximately $90-$95 million to ensure we
make a successful transition to the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although we
cannot make any ironclad assurances, we are confident that the steps we have
taken will provide shareholders with as smooth a transition as possible. Once
that occurs, we will happily raise our glasses to toast the New Year, future
prosperity and our hopes to serve you well into the 2000's.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
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BY FREDERICK CAVANAUGH, MANAGEMENT TEAM LEADER, AND
ARTHUR N. CALAVRITINOS, CFA, PORTFOLIO MANAGER
John Hancock
Strategic Income Fund
Bonds struggle as interest rates rise
Shareholders of John Hancock World Bond Fund have approved the merger of their
fund into John Hancock Strategic Income Fund, effective at the close of business
on February 19, 1999.
For bonds, the past year was characterized by a series of dramatic twists and
turns. Beginning late last summer, U.S. Treasury bonds started to catch fire on
evidence that growing global economic turmoil was jeopardizing many foreign
markets and cooling off any inflationary pressures building here at home. From
August through mid-October, the Federal Reserve Board added further fuel to the
Treasury rally with a series of interest-rate cuts aimed at warding off a
possible U.S. recession. Given dire expectations of weak economic growth in
1999, investors flocked to the relative safety of U.S. Treasuries and Western
European government bonds, and shunned almost all other types of bonds. The
riskier segments of the bond market -- including high-yield corporate and
emerging-market bonds in Asia and Latin America -- were among the hardest hit
during this "flight to safety."
In early November, however, Treasuries began to lose some of their luster
when stronger-than-expected economic data dashed hopes that interest rates could
move even lower. In February, Fed Chairman Alan Greenspan jolted the
fixed-income markets again by hinting that the Fed was unlikely to cut interest
rates further. In response, U.S. Treasury securities suffered their
"...the past year was characterized by a series of dramatic twists and turns."
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Strategic
Income Fund. Caption below reads "Portfoio management team members (l-r) Lee
Crockett, Roger Hamilton, Fred Cavanaugh and Arthur Calavritinos."]
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3
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John Hancock Funds - Strategic Income Fund
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[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Treasury and Government Agencies 29%, the second is Tele-
communications 17%, the third Foreign Governments 15%, the fourth Media 9% and
the fifth Leisure 5%. A note below the table reads "As a percentage of net
assets on May 31, 1999."]
- --------------------------------------------------------------------------------
worst one-month loss in almost 18 years. After GDP rose 4.1% in the first
quarter of 1999, Greenspan delivered an even sterner warning, indicating that
the Fed's next move was more likely to be an interest-rate hike, rather than an
interest-rate cut. Treasuries and other government bonds weakened in response.
As evidence mounted that global economies were calming down, investors began
to move toward investments with higher yields and better return potential,
including high-yield corporate bonds. While higher interest rates weighed
heavily on all bonds, high-yield corporate securities handily outpaced their
Treasury counterparts from November through April.
During that same six-month period, the performance of foreign bonds was
mixed. Emerging-market bonds staged a significant recovery, encouraged by
Brazil's efforts to hold its economy together this spring and improvements in
the economic fortunes of Korea and Singapore. European bonds performed poorly in
the first couple of months of 1999, as interest rates on the continent rose,
although they have rallied more recently in response to interest-rate cuts.
Performance review
For the 12 months ended May 31, 1999, John Hancock Strategic Income Fund's Class
A, Class B and Class C shares had total returns of 2.77%, 2.06% and 2.04%,
respectively, at net asset value. The Fund's returns were better than the
average multi-sector income fund, which returned -0.89% for the same period,
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. Please see pages six
and seven for longer-term performance information.
High-yield helps
Our relatively large weighting in high-yield corporate bonds was the main reason
for the Fund's outperformance relative to its peers. Throughout the past year,
we kept the Fund's stake in high-yield corporate securities between roughly 30%
and 40% of net assets. Our emphasis on strong performers in the
telecommunications sector also was a plus for performance. MetroNet
Communications, a Canadian competitive local exchange network, surged when it
announced its intention to merge with AT&T Canada. Nextel Communications, a
combination cellular/paging/dispatch company, posted strong gains thanks to
continued good subscriber growth and rumors that it was a takeover target. Other
good high-yield performers included Sheffield Steel Corp., which benefited from
the turnaround in steel prices.
"....weighting in high-yield corporate bonds was the main reason for the Fund's
outperformance..."
- --------------------------------------------------------------------------------
[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 Metro
Communications followed by an up arrow with the phrase "Merges with AT&T
Canada." The second listing is Nextel Communications followed by an up arrow
with the phrase "Continued strong subscriber growth." The third listing is
U.S. Treasury Securities follow by a down arrow with the phrase "Worries over
inflation." A note below the table reads "See 'Schedule of Investments.'
Investment holdings are subject to change."]
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4
<PAGE>
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John Hancock Funds - Strategic Income Fund
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[Bar chart at top of left hand column with the heading "Fund Performance."
Under the heading is a note that reads "For the year ended May 31, 1999." The
chart is scaled in increments of 1% with -1% at the bottom and 3% at the top.
The first bar represents the 2.77% total return for John Hancock Strategic
Income Fund Class A. The second bar represents the 2.06% total return for John
Hancock Strategic Income Fund Class B. The third bar represents the 2.04% total
return for John Hancock Strategic Income Fund Class C. The fourth bar repre-
sents the -0.89% total return for Average multi-sector income fund. A note
below the chart reads "Total returns for John Hancock Strategic Income Fund are
at net asset value with all distrbutions reinvested. The average multi-sector
income fund is tracked by Lipper, Inc. 1 See the following two pages for
historical performance information."]
- --------------------------------------------------------------------------------
Our main disappointment during the period was the performance of U.S.
Treasury securities in 1999. We had built up our Treasury position last fall
when we felt the need to emphasize high-quality bonds in the midst of global
turmoil. That strategy proved beneficial for the Fund's performance. By the end
of last November, however, our view had changed and we began to consider selling
some of our Treasury holdings. A stable or falling interest-rate environment
would have allowed us to sell some of our Treasury positions at attractive
prices and seek better values in the high-yield market. But when interest rates
moved higher and Treasury prices weakened, we postponed our sale of them in
anticipation of more favorable conditions.
Recent changes
Our stake in foreign holdings rose to 26% of net assets by the end of the
period, up from 23% six months earlier. That increase primarily was as a result
of new investments in government debt issued by France and Spain, which we
bought in March after interest rates and bond yields in those countries moved
higher and prices, which move in the opposite direction of yields, were lower.
Generally speaking, however, we avoided government debt of most other Western
European countries because they offered yields significantly below U.S. Treasury
yields. We did, however, maintain our focus on higher-yielding government bonds
from the United Kingdom and Canada. Both performed reasonably well during the
past year in response to falling interest rates in those countries.
Outlook
Over the short-term, the Treasury and high-yield markets could face some
challenges. For the Treasury market, there are still plenty of jitters over
potential inflation and future interest-rate hikes. The high-yield market's
near-term performance may be cramped by a heavy supply of new issues and tepid
demand. But over the long term, we're much more optimistic. Our outlook calls
for slower U.S. economic growth in the second half of 1999, which should keep
inflation in check and drive interest rates lower. What's more, there are still
enough problems remaining in the global economy that could possibly give the Fed
pause before raising rates significantly.
"...still plenty of jitters over potential inflation and future interest-rate
hikes."
- --------------------------------------------------------------------------------
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.
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
(1) Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
5
<PAGE>
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John Hancock Funds - Strategic Income 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 Strategic Income Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.5%. Prior to September 28, 1989, different sales charge schedules
were in effect for Class A shares and are not reflected in the performance
information. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years). Class C shares
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. For a discussion of risks
associated with international investing and high-yield bonds, please see the
Fund's prospectus.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (1.27%) 51.93% 114.72%
Average Annual Total Returns (1.27%) 8.72% 7.94%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/4/93)
---- ----- ---------
Cumulative Total Returns (2.15%) 51.97% 53.82%
Average Annual Total Returns (2.15%) 8.73% 8.16%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
SINCE
INCEPTION
(5/1/98)
--------
Cumulative Total Return 1.43%
Average Annual Total Return 1.43%(1)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of May 31, 1999
SEC 30-DAY
YIELD
-----
John Hancock Strategic Income Fund: Class A 6.64%
John Hancock Strategic Income Fund: Class B 6.23%
John Hancock Strategic Income Fund: Class C 6.22%
Note to Performance
(1) Not annualized.
6
<PAGE>
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John Hancock Funds - Strategic Income Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Strategic Income 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 Government/Corporate Bond Index -- an
unmanaged index that measures the performance of U.S. government bonds, U.S.
corporate bonds and Yankee bonds. Past performance is not indicative of future
results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Stratgic Income Fund Class A, repre-
senting 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 Government/Corporate Bond Index and is equal to $22,620 as of May 31,
1999. The second line represents the value of the hypothetical $10,000 invest-
ment made in the John Hancock Strategic Income Fund on May 31, 1989, before
sales charge, and is equal to $22,181 as of May 31, 1999. The third line repre-
sents the same hypothetical investment made in the John Hancock Strategic
Income Fund, after sales charge, and is equal to $21,190 as of May 31, 1999.
Line chart with the heading John Hancock Stratgic Income Fund Class B, repre-
senting the growth of a hypothetical $10,000 investment over the life of the
fund. Within the chart are three lines. The first line represents the value of
the hypothetical $10,000 investment made in the John Hancock Strategic Income
Fund on October 4, 1993, before sales charge, and is equal to $15,458 as of May
31, 1999. The second line represents the same hypothetical investment made in
the John Hancock Strategic Income Fund, after sales charge, and is equal to
$15,358 as of May 31, 1999. The third line represents the Lehman Brothers
Government/Corporate Bond Index and is equal to $13,905 as of May 31, 1999.
Line chart with the heading John Hancock Stratgic Income Fund Class C, repre-
senting 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 Government/Corporate Bond Index and is equal to $10,518 as of May 31,
1999. The second ine represents value of the hypothetical $10,000 investment
made in the John Hancock Strategic Income Fund on May 1, 1998, before sales
charge, and is equal to $10,224 as of May 31, 1999.
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7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Statement of Assets and Liabilities
May 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments at value - Note C:
Bonds (cost - $1,094,407,237) ........................................ $1,063,219,883
Common and preferred stocks and warrants (cost - $62,916,252) ........ 74,831,522
Joint repurchase agreement (cost - $19,205,000) ..................... 19,205,000
Corporate savings account ............................................ 277
---------------
1,157,256,682
Receivable for investments sold ....................................... 41,952
Receivable for foreign currency exchange contracts sold - Note A ...... 2,140,226
Receivable for shares sold ............................................ 2,421,239
Dividends receivable .................................................. 46,825
Interest receivable ................................................... 23,063,311
Other assets .......................................................... 61,759
---------------
Total Assets ........................................ 1,185,031,994
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Liabilities:
Payable for foreign currency exchange contracts purchased - Note A .... 107,849
Payable for shares repurchased ........................................ 700,517
Dividend payable ...................................................... 421,922
Payable to John Hancock Advisers, Inc. and affiliates - Note B ........ 706,007
Accounts payable and accrued expenses ................................. 259,553
---------------
Total Liabilities ................................... 2,195,848
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Net Assets:
Capital paid-in ....................................................... 1,209,268,846
Accumulated net realized loss on investments, financial futures
contracts and foreign currency transactions ......................... (18,528,658)
Net unrealized depreciation of investments and foreign currency
transactions ........................................................ (17,413,442)
Undistributed net investment income ................................... 9,509,400
---------------
Net Assets .......................................... $1,182,836,146
=======================================================================
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 - $540,956,470/72,523,366 ..................................... $7.46
=========================================================================================
Class B - $619,445,881/83,046,054 ..................................... $7.46
=========================================================================================
Class C - $22,433,795/3,007,588 ....................................... $7.46
=========================================================================================
Maximum Offering Price Per Share*
Class A - ($7.46 x 104.71%) ........................................... $7.81
=========================================================================================
</TABLE>
* 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 Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on May 31, 1999. You'll also
find the net asset value and the maximum offering price per share as of that
date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Statement of Operations
Year ended May 31, 1999
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<TABLE>
<S> <C>
Investment Income:
Interest .............................................................. $87,024,342
Dividends (net of foreign withholding taxes of $26,564) ............... 5,604,746
---------------
92,629,088
---------------
Expenses:
Investment management fee - Note B ................................... 4,078,633
Distribution and service fee - Note B
Class A ............................................................ 1,537,522
Class B ............................................................ 5,537,019
Class C ............................................................ 100,017
Transfer agent fee - Note B .......................................... 1,548,551
Custodian fee ........................................................ 285,677
Accounting and legal services fee - Note B ........................... 157,696
Registration and filing fees ......................................... 138,097
Trustees' fees ....................................................... 56,501
Printing ............................................................. 48,373
Auditing fee ......................................................... 43,963
Miscellaneous ........................................................ 32,718
Legal fees ........................................................... 10,890
---------------
Total Expenses ...................................... 13,575,657
-----------------------------------------------------------------------
Net Investment Income ............................... 79,053,431
-----------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions:
Net realized gain on investments sold ................................. 4,499,534
Net realized loss on financial futures contracts ...................... (2,367,753)
Net realized gain on foreign currency transactions .................... 7,056,179
Change in net unrealized appreciation/depreciation
of investments ...................................................... (60,990,202)
Change in net unrealized appreciation/depreciation
of financial futures contracts ...................................... (4,688)
Change in net unrealized appreciation/depreciation
of foreign currency transactions .................................... (156,077)
---------------
Net Realized and Unrealized Loss on
Investments, Financial Futures Contracts
and Foreign Currency Transactions ................... (51,963,007)
-----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........................... $27,090,424
=======================================================================
</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>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................ $66,376,619 $79,053,431
Net realized gain on investments sold, financial futures contracts
and foreign currency transactions .................................. 9,166,775 9,187,960
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions ...... 24,710,742 (61,150,967)
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ............... 100,254,136 27,090,424
--------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6408 and $0.5869 per share, respectively) ............ (36,925,773) (39,586,497)
Class B - ($0.5860 and $0.5336 per share, respectively) ............ (29,451,246) (38,784,062)
Class C - ($0.0477 and $0.5325 per share, respectively) ............ (1,205) (682,872)
Distributions from net realized gain on investments sold
Class A - ($0.0400 and none per share, respectively) ............... (2,270,669) --
Class B - ($0.0400 and none per share, respectively) ............... (2,027,424) --
--------------- ---------------
Total Distributions to Shareholders ................................ (70,676,317) (79,053,431)
--------------- ---------------
From Fund Share Transactions - Net* ..................................... 188,423,596 271,395,238
--------------- ---------------
Net Assets:
Beginning of period .................................................. 745,402,500 963,403,915
--------------- ---------------
End of period (including undistributed net investment income of
$3,355,304 and $9,509,400, respectively) ........................... $963,403,915 $1,182,836,146
=============== ===============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------------------------
1998 1999
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 16,444,399 $128,645,376 23,723,150 $180,254,633
Shares issued in reorganization - Note E ........................ -- -- 2,798,003 21,151,500
Shares issued to shareholders in reinvestment of distributions .. 3,159,528 24,637,005 3,266,435 24,761,793
------------- ------------- ------------- -------------
19,603,927 153,282,381 29,787,588 226,167,926
Less shares repurchased ......................................... (12,444,274) (97,186,849) (19,695,328) (149,424,723)
------------- ------------- ------------- -------------
Net increase .................................................... 7,159,653 $56,095,532 10,092,260 $76,743,203
============= ============= ============= =============
CLASS B
Shares sold ..................................................... 24,192,186 $189,153,319 34,911,841 $265,229,237
Shares issued in reorganization - Note E ........................ -- -- 1,568,516 11,857,194
Shares issued to shareholders in reinvestment of distributions .. 1,943,551 15,161,471 2,457,330 18,614,521
------------- ------------- ------------- -------------
26,135,737 204,314,790 38,937,687 295,700,952
Less shares repurchased ......................................... (9,287,224) (72,587,321) (16,288,404) (123,285,702)
------------- ------------- ------------- -------------
Net increase .................................................... 16,848,513 $131,727,469 22,649,283 $172,415,250
============= ============= ============= =============
CLASS C**
Shares sold ..................................................... 76,535 $599,897 3,078,916 $23,354,223
Shares issued to shareholders in reinvestment of distributions .. 89 698 49,364 372,713
------------- ------------- ------------- -------------
76,624 600,595 3,128,280 23,726,936
Less shares repurchased ......................................... -- -- (197,316) (1,490,151)
------------- ------------- ------------- -------------
Net increase .................................................... 76,624 $600,595 2,930,964 $22,236,785
============= ============= ============= =============
</TABLE>
** Class C shares commenced operations on May 1, 1998.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================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
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $7.17 $7.15 $7.27 $7.54 $7.84
-------- -------- -------- -------- --------
Net Investment Income ....................................... 0.64 0.66(1) 0.64(1) 0.64(1) 0.59(1)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency
Transactions (0.02) 0.12 0.27 0.34 (0.38)
-------- -------- -------- -------- --------
Total from Investment Operations .......................... 0.62 0.78 0.91 0.98 0.21
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...................... (0.55) (0.66) (0.64) (0.64) (0.59)
Distributions from Net Realized Gain on Investments Sold .. -- -- -- (0.04) --
Distributions from Capital Paid-In ........................ (0.09) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions ....................................... (0.64) (0.66) (0.64) (0.68) (0.59)
-------- -------- -------- -------- --------
Net Asset Value, End of Period .............................. $7.15 $7.27 $7.54 $7.84 $7.46
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) ............... 9.33% 11.37% 12.99% 13.43% 2.77%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $327,876 $369,127 $416,916 $489,375 $540,956
Ratio of Expenses to Average Net Assets ..................... 1.09% 1.03% 1.00% 0.92% 0.89%
Ratio of Net Investment Income to Average Net Assets ........ 9.24% 9.13% 8.61% 8.20% 7.71%
Portfolio Turnover Rate ..................................... 55% 78% 132% 112% 55%(6)
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: 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>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $7.17 $7.15 $7.27 $7.54 $7.84
-------- -------- -------- -------- --------
Net Investment Income ...................................... 0.60(1) 0.61(1) 0.59 0.59(1) 0.53(1)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency
Transactions ........................................... (0.02) 0.12 0.27 0.34 (0.38)
-------- -------- -------- -------- --------
Total from Investment Operations ......................... 0.58 0.73 0.86 0.93 0.15
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ..................... (0.52) (0.61) (0.59) (0.59) (0.53)
Distributions from Net Realized Gain on Investments Sold.. -- -- -- (0.04) --
Distributions from Capital Paid-in ....................... (0.08) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions ...................................... (0.60) (0.61) (0.59) (0.63) (0.53)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................. $7.15 $7.27 $7.54 $7.84 $7.46
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) .............. 8.58% 10.61% 12.21% 12.64% 2.06%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $134,527 $206,751 $328,487 $473,428 $619,446
Ratio of Expenses to Average Net Assets .................... 1.76% 1.73% 1.70% 1.62% 1.59%
Ratio of Net Investment Income to Average Net Assets ....... 8.55% 8.42% 7.90% 7.50% 7.01%
Portfolio Turnover Rate .................................... 55% 78% 132% 112% 55%(6)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED
MAY 31, 1998 MAY 31, 1999
------------- ------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $7.87 $7.84
------------- ------------
Net Investment Income ............................................. 0.05(1) 0.53(1)
Net Realized and Unrealized Loss on Investments,
Financial Futures Contracts and Foreign Currency Transactions ... (0.03)(5) (0.38)
------------- ------------
Total from Investment Operations ................................ 0.02 0.15
------------- ------------
Less Distributions:
Dividends from Net Investment Income ............................ (0.05) (0.53)
------------- ------------
Net Asset Value, End of Period .................................... $7.84 $7.46
============= ============
Total Investment Return at Net Asset Value (2) .................... 0.23%(3) 2.04%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .......................... $601 $22,434
Ratio of Expenses to Average Net Assets ........................... 1.62%(4) 1.59%
Ratio of Net Investment Income to Average Net Assets .............. 7.34%(4) 7.01%
Portfolio Turnover Rate ........................................... 112% 55%(6)
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Not annualized.
(4) Annualized.
(5) The amount shown for a share outstanding does not correspond with the
aggregate net gain/(loss) on investments for the period ended May 31, 1998,
due to the timing of purchases and redemptions of Fund shares in relation to
fluctuating market values of the investments of the Fund.
(6) Portfolio turnover rate excludes merger activity.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Schedule of Investments
May 31, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Strategic Income Fund on May 31, 1999. It has 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 bonds owned by the Fund. 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
Advertising (0.36%)
Outdoor Systems, Inc.,
Sr Sub Note 10-15-06 ................................................... 9.375% B $4,000 $4,280,000
----------
Aerospace (0.15%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R) ............................. 10.910 BBB- 1,500 1,813,650
----------
Banks - United States (0.21%)
CSBI Capital Trust I,
Sec Co Gtd Bond Ser A 06-06-27 ......................................... 11.750 B- 2,340 2,503,800
----------
Beverages (0.54%)
Canandaigua Brands, Inc.,
Sr Sub Note 03-01-09 ................................................... 8.500 B+ 2,300 2,288,500
National Wine & Spirits, Inc.,
Sr Note 01-15-09 (R) ................................................... 10.125 B 4,000 4,140,000
----------
6,428,500
----------
Building (0.08%)
Standard Pacific Corp.,
Sr Note 04-01-09 ....................................................... 8.500 BB 1,000 965,000
----------
Business Services - Misc. (0.48%)
United Rentals, Inc.,
Sr Sub Note Ser B 08-15-08 ............................................. 8.800 BB- 3,900 3,812,250
WESCO International, Inc.,
Sr Disc Note Ser B, Step Coupon (11.125%, 06-01-03) 06-01-08 (A) ...... Zero B 2,500 1,800,000
----------
5,612,250
----------
Chemicals (0.23%)
General Chemical Industrial Products, Inc.,
Sr Sub Note 05-01-09 (R) ............................................... 10.625 B+ 1,000 1,010,000
PCI Chemicals Canada, Inc.,
Sec Note (Canada) 10-15-07 (Y) ......................................... 9.250 B+ 2,000 1,680,000
----------
2,690,000
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Computers (1.68%)
Primark Corp.,
Sr Sub Note 12-15-08 ................................................... 9.250% B+ $5,000 $4,825,000
PSINet, Inc.,
Sr Note 11-01-08 ....................................................... 11.500 B- 4,900 5,145,000
Unisys Corp.,
Sr Note 10-15-04 ....................................................... 11.750 BB- 4,075 4,553,812
Verio, Inc.,
Sr Note 12-01-08 (R) ................................................... 11.250 B- 5,100 5,380,500
----------
19,904,312
----------
Consumer Products Misc. (0.07%)
Diamond Brands Operating Corp.,
Sr Sub Note Ser B 04-15-08 ............................................. 10.125 CCC+ 1,000 780,000
----------
Containers (0.78%)
Berry Plastics Corp.,
Sr Sub Note 04-15-04 ................................................... 12.250 B3 4,000 4,220,000
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Int Cert) 04-01-02 ..................... 12.250 B- 5,000 5,025,000
----------
9,245,000
----------
Diversified Operations (0.78%)
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 # ....................................... 10.000 B- 3,000 5,098,494
Euramax International Plc,
Sr Sub Note (United Kingdom) 10-01-06 (Y) .............................. 11.250 B 4,000 4,160,000
----------
9,258,494
----------
Electronics (0.41%)
Communications Instruments, Inc.,
Sr Sub Note Ser B 09-15-04 ............................................. 10.000 B- 2,900 2,668,000
Viasystems, Inc.,
Sr Sub Note 06-01-07 ................................................... 9.750 B- 2,500 2,187,500
----------
4,855,500
----------
Energy (0.84%)
AEI Resources, Inc./AEI Resources Holdings, Inc.,
Gtd Note 12-15-05 (R) .................................................. 10.500 B 5,000 4,950,000
P & L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 ............................................. 9.625 B 5,000 5,000,000
----------
9,950,000
----------
Finance (0.49%)
Ford Motor Credit Co.,
Bond (Deutsche Mark) 06-16-08 # ........................................ 5.250 A 5,000 2,769,181
Maxxam Group Holdings, Inc.,
Sr Sec Note Ser B 08-01-03 ............................................. 12.000 CCC+ 3,000 3,105,000
----------
5,874,181
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Food (0.21%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 ................................................... 11.875% B $2,400 $2,484,000
------------
Government - Foreign (14.82%)
Argentina, Republic of,
Floating Rate Bond Ser FRB (Argentina) 03-31-05 (Y) .................... 5.9375*** BB 930 776,550
Brazil, Federative Republic of,
Variable Rate Bond Ser A (Brazil) 01-01-01 (Y) ......................... 6.0625*** B+ 369 346,122
Canada, Government of,
Government Bond (Canada) 03-01-01 # .................................... 7.500 AAA 25,000 17,605,682
Government Bond (Canada) 09-01-02 # .................................... 5.500 AAA 15,000 10,224,956
Government Bond (Canada) 12-01-05 # .................................... 8.750 AAA 15,000 12,001,835
Costa Rica, Republic of,
Deb (Costa Rica) 05-01-03 (R) (Y) ...................................... 8.000 BB 225 214,875
France, Republic of,
Deb (France) 04-25-09 (E) .............................................. 4.000 AAA 31,000 31,679,133
Germany, Federal Republic of,
Bond Ser 98 (Germany) 01-04-08 (E) ..................................... 5.250 AAA 3,532 3,995,285
Panama, Republic of,
Note Ser REGS (Panama) 02-13-02 (Y) .................................... 7.875 BB+ 300 288,000
South Africa, Republic of
Note (South Africa) 06-23-17 (Y) ....................................... 8.500 Baa3 7,400 6,438,000
Spain, Kingdom of,
Government Bond (Spain) 01-31-08 (E) ................................... 6.000 AA+ 20,000 23,265,546
United Kingdom of Great Britain Treasury Gilts,
Government Bond (United Kingdom) 12-07-00 # ............................ 8.000 AAA 5,500 9,195,567
Government Bond (United Kingdom) 11-06-01 # ............................ 7.000 AAA 6,000 10,025,755
Government Bond (United Kingdom) 06-07-02 # ............................ 7.000 AAA 13,000 21,932,984
Government Bond (United Kingdom) 06-10-03 # ............................ 8.000 AAA 6,000 10,607,753
Government Bond (United Kingdom) 07-16-07 # ............................ 8.500 AAA 8,000 15,673,861
United Mexican States,
Global Bond (Mexico) 02-06-01 (Y) ...................................... 9.750 BB 1,000 1,030,000
------------
175,301,904
------------
Government - U.S. (27.30%)
United States Treasury,
Bond 08-15-05 .......................................................... 6.500 AAA 19,300 20,005,608
Bond 08-15-05 .......................................................... 10.750 AAA 15,000 18,815,550
Bond 02-15-16 .......................................................... 9.250 AAA 20,300 26,884,711
Bond 08-15-19 .......................................................... 8.125 AAA 75,500 92,782,705
Bond 08-15-23 .......................................................... 6.250 AAA 42,215 43,085,473
Bond 02-15-27 .......................................................... 6.625 AAA 32,000 34,430,080
Note 08-31-02 .......................................................... 6.250 AAA 42,800 43,575,536
Note 08-15-04 .......................................................... 7.250 AAA 17,100 18,248,949
Note 08-15-07 .......................................................... 6.125 AAA 24,600 25,092,000
------------
322,920,612
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Government - U.S. Agencies (1.53%)
Federal Home Loan Mortgage Corp.,
REMIC 44-E 11-15-19 .................................................... 9.000% AAA $331 $338,858
Federal National Mortgage Assn.,
Global Bond (British Pound Sterling) 06-07-02 # ........................ 6.875 AAA 5,000 8,321,913
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 05-15-26 ........................................... 7.500 AAA 9,194 9,401,159
------------
18,061,930
------------
Leisure (5.16%)
Cinemark USA, Inc.,
Sr Sub Note Ser B 08-01-08 ............................................. 9.625 B 4,000 4,095,000
Sr Sub Note Ser D 08-01-08 ............................................. 9.625 B 1,000 1,005,000
Coast Hotels and Casinos, Inc.,
Sr Sub Note 04-01-09 (R) ............................................... 9.500 B- 2,400 2,328,000
Eldorado Resorts LLC,
Sr Sub Note 08-15-06 ................................................... 10.500 B 4,000 4,255,000
Empress Entertainment, Inc.,
Sr Sub Note 07-01-06 ................................................... 8.125 B+ 3,000 3,030,000
Harrah's Operating Co., Inc.,
Sr Sub Note 12-15-05 ................................................... 7.875 BB+ 3,650 3,531,375
Hedstrom Corp.,
Sr Sub Note 06-01-07 ................................................... 10.000 B- 4,000 3,580,000
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 ................................................. 7.875 BB 7,900 7,307,500
Horseshoe Gaming LLC,
Sr Sub Note Ser B 06-15-07 ............................................. 9.375 B+ 2,500 2,543,750
Isle of Capri Casinos, Inc.,
Sr Sub Note 04-15-09 (R) ............................................... 8.750 B 2,200 2,084,500
Jupiters Ltd.,
Sr Note (Australia) 03-01-06 (R) (Y) ................................... 8.500 BB+ 4,000 3,940,000
Production Resource Group LLC,
Sr Sub Note 01-15-08 ................................................... 11.500 B- 3,000 3,000,000
Regal Cinemas, Inc.,
Sr Sub Note 12-15-10 ................................................... 8.875 B 3,900 3,646,500
SFX Entertainment, Inc.,
Sr Sub Note Ser B 02-01-08 ............................................. 9.125 B- 5,000 4,950,000
Sr Sub Note 12-01-08 ................................................... 9.125 B- 2,000 2,000,000
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas) 12-15-07 (Y) ................................. 8.625 B+ 2,000 1,980,000
Waterford Gaming LLC,
Sr Note 03-15-10 (R) ................................................... 9.500 B+ 4,300 4,364,500
William Hill Finance Plc,
Sr Sub Note (United Kingdom) 04-30-08 # ................................ 10.625 B- 2,000 3,334,864
------------
60,975,989
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Machinery (0.59%)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 ................................................... 8.500% B $5,000 $4,900,000
Tokheim Corp.,
Sr Sub Note (United States) 08-01-08 (E) (R) ........................... 11.375 B 2,000 2,064,249
------------
6,964,249
------------
Manufacturing (0.20%)
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 ................................................... 10.000 B2 3,000 2,400,000
------------
Media (8.54%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 ................................................. 9.250 B+ 3,500 3,587,500
American Media Operations, Inc.,
Sr Sub Note 05-01-09 (R) ............................................... 10.250 B- 1,000 1,012,500
Capstar Radio Broadcasting Partners, Inc.,
Sr Sub Note 07-01-07 ................................................... 9.250 B- 4,000 4,135,000
CBS Radio, Inc.,
Sub Deb 01-15-09 ....................................................... 11.375 BB+ 4,738 5,400,864
CEI Citicorp Holdings S.A.,
Bond (Argentina) 02-14-07 (Y) .......................................... 9.750 BB- 3,000 2,385,000
CF Cable TV, Inc.,
Sr Note (Canada) 02-15-05 (Y) .......................................... 11.625 BBB- 2,000 2,176,000
Chancellor Media Corp.,
Sr Sub Note 01-15-07 ................................................... 10.500 Ba3 3,000 3,270,000
Citadel Broadcasting Co.,
Sr Sub Note 07-01-07 ................................................... 10.250 B- 2,000 2,180,000
Sr Sub Note 11-15-08 ................................................... 9.250 B- 1,900 2,004,500
Comcast Corp.,
Sr Sub Note 01-15-08 ................................................... 9.500 BB+ 4,000 4,203,560
Comcast UK Cable,
Sr Disc Deb, Step Coupon (11.20%, 11-15-00)
(United Kingdom) 11-15-07 (A) (Y) .................................... Zero B- 4,000 3,640,000
CSC Holdings, Inc.,
Sr Sub Deb 02-15-13 .................................................... 9.875 BB- 4,000 4,390,000
Digital Television Services LLC,
Sr Sub Note Ser B 08-01-07 ............................................. 12.500 CCC 3,000 3,330,000
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon (12.625%, 03-01-03) 03-01-08 (A) ...... Zero B- 5,165 1,601,150
EchoStar DBS Corp.,
Sr Note 02-01-09 (R) ................................................... 9.375 B 3,000 3,022,500
Emmis Communications Corp.,
Sr Sub Note 03-15-09 (R) ............................................... 8.125 B- 3,000 2,925,000
Falcon Holdings Group L.P./ Falcon Funding Corp.,
Sr Deb Ser B 04-15-10 .................................................. 8.375 B 5,000 4,875,000
Galaxy Telecom L.P.,
Sr Sub Note 10-01-05 ................................................... 12.375 B- 5,000 5,556,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Media (continued)
Garden State Newspapers, Inc.,
Sr Sub Note Ser B 10-01-09 ......................................... 8.750% B+ $3,500 $3,465,000
Sr Sub Note 07-01-11 (R) ........................................... 8.625 B+ 4,000 3,961,880
Granite Broadcasting Corp.,
Sr Sub Note 05-15-08 ............................................... 8.875 B- 2,000 1,977,500
Intermedia Capital Partners,
Sr Note 08-01-06 ................................................... 11.250 B 5,048 5,729,480
Le Groupe Videotron Ltee,
Sr Note (Canada) 02-15-05 (Y) ...................................... 10.625 BBB- 1,250 1,336,862
ONO Finance Plc,
Unit (Note & Equity Value Cert) (United Kingdom) 05-01-09 (E) (R) .. 13.000 CCC+ 2,900 3,038,512
Unit (Note & Equity Value Cert) (United Kingdom) 05-01-09 (R) (Y) .. 13.000 CCC+ 1,450 1,457,250
Radio One, Inc.,
Sr Sub Note Ser B, Step Coupon (12.00%, 05-15-00) 05-15-04 ......... 7.000 B- 2,000 2,080,000
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon (12.875%, 07-01-03)
(United Kingdom) 07-01-08 # (A) .................................. Zero B- 3,750 3,276,744
Sr Note (United Kingdom) 07-01-08 (Y) .............................. 10.500 B- 1,000 1,012,500
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) ................................ 10.000 BB+ 3,000 3,337,500
Sr Sec Deb (Canada) 01-15-14 # ..................................... 9.650 BB+ 2,000 1,474,786
Scandinavian Broadcasting System S.A.,
Sub Deb (Luxembourg) 08-01-05 (Y) .................................. 7.250 B 2,390 2,760,450
Spectrasite Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 04-15-04) 04-15-09 (A) (R) ...... Zero B- 1,400 798,000
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 ............................................... 11.000 B- 2,785 2,931,212
TV Guide, Inc.,
Sr Sub Note 03-01-09 (R) ........................................... 8.125 B+ 2,800 2,716,000
------------
101,048,500
------------
Metal (0.86%)
Centaur Mining & Exploration Ltd.,
Gtd Sr Note (Australia) 12-01-07 (Y) ............................... 11.000 B- 2,500 2,406,250
Great Central Mines Ltd.,
Sr Note (Australia) 04-01-08 (Y) ................................... 8.875 BB 5,100 4,883,250
Haynes International, Inc.,
Sr Note 09-01-04 ................................................... 11.625 B- 2,000 1,850,000
Koppers Industries, Inc.,
Gtd Sr Sub Note 12-01-07 ........................................... 9.875 B- 1,000 1,000,000
------------
10,139,500
------------
Oil & Gas (1.72%)
Cliffs Drilling Co.,
Sr Sec Note Ser B 05-15-03 ......................................... 10.250 BB- 2,250 2,233,125
Comstock Resources, Inc.,
Sr Note 05-01-07 (R) ............................................... 11.250 B 2,200 2,205,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Oil & Gas (continued)
Kelley Oil & Gas Partners Ltd.,
Conv Deb 04-01-00 ...................................................... 8.500% CC $1,100 $896,500
Key Energy Services, Inc.,
Unit (Sr Sub Note & Warrant) 01-15-09 (R) .............................. 14.000 B- 5,000 5,112,500
Parker Drilling Co.,
Gtd Sr Note 11-15-06 ................................................... 9.750 B+ 1,000 895,000
Petroleo Brasileiro S.A.,
Bond (Brazil) 10-17-06 (R) (Y) ......................................... 10.000 B1 500 467,500
R&B Falcon Corp.,
Sr Note 12-15-08 (R) ................................................... 9.500 B+ 3,750 3,337,500
RBF Finance Co.,
Gtd Sr Sec Note 03-15-09 (R) ........................................... 11.375 BB- 3,450 3,484,500
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A) .............. Zero B 2,650 1,696,000
------------
20,328,125
------------
Paper & Paper Products (0.54%)
Packaging Corp. of America,
Sr Sub Note 04-01-09 (R) ............................................... 9.625 B 2,100 2,131,500
Repap New Brunswick, Inc.,
Sr Sec Note (Canada) 06-01-04 (R) (Y) .................................. 11.500 B- 4,150 4,191,500
------------
6,323,000
------------
Printing - Commercial (0.27%)
Sullivan Graphics, Inc.,
Sr Sub Note 08-01-05 ................................................... 12.750 B- 3,000 3,187,500
------------
Retail (0.36%)
SpinCycle, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-01-01) 05-01-05 (A) .............. Zero CCC+ 3,625 1,305,000
United Stationers Supply Co.,
Sr Sub Note 05-01-05 ................................................... 12.750 B 1,334 1,470,735
Sr Sub Note 04-15-08 ................................................... 8.375 B 1,500 1,470,000
------------
4,245,735
------------
Steel (0.72%)
AK Steel Corp.,
Sr Note 02-15-09 (R) ................................................... 7.875 BB- 5,000 4,900,000
Sheffield Steel Corp.,
1st Mtg Note Ser B 12-01-05 ............................................ 11.500 B- 3,875 3,603,750
------------
8,503,750
------------
Telecommunications (17.07%)
Advanced Radio Telecom Corp.,
Sr Note 02-15-07 ....................................................... 14.000 CCC 2,000 1,530,000
Allegiance Telecom, Inc.,
Sr Disc Note, Ser B, Step Coupon (11.75%, 02-15-03) 02-15-08 (A) ...... Zero B- 3,500 2,100,000
AMSC Acquisition Co., Inc.,
Sr Note Ser B 04-01-08 ................................................. 12.250 B- 3,000 2,160,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Telecommunications (continued)
Call-Net Enterprises, Inc.,
Sr Note (Canada) 05-15-09 (Y) .......................................... 9.375% BB- $3,800 $3,648,000
CapRock Communications Corp.,
Sr Note 05-01-09 (R) ................................................... 11.500 B 2,700 2,632,500
Centennial Cellular Operating Co.,
Sr Sub Note 12-15-08 (R) ............................................... 10.750 CCC+ 900 936,000
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon (10.40%, 05-15-03)
(Canada) 05-15-08 (A) # .............................................. Zero B3 6,500 2,553,351
Sr Disc Note, Step Coupon (10.125%, 05-01-04)
(Canada) 05-01-09 (A) (Y) ............................................ Zero B3 3,250 1,722,500
COLT Telecom Group Plc (United Kingdom),
Sr Note (Deutsche Mark) 11-30-07 # ..................................... 8.875 B 10,000 5,543,692
Sr Note (Deutsche Mark) 07-31-08 # ..................................... 7.625 B 10,195 5,488,762
Comunicacion Celular S.A.,
Bond, Step Coupon (14.125%, 09-29-00)
(Colombia) 03-01-05 (A) (R) (Y) ...................................... Zero B+ 5,000 3,500,000
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) ............. Zero B 5,000 3,400,000
Dolphin Telecom Plc,
Sr Disc Note, Step Coupon (11.50%, 06-01-03)
(United Kingdom) 06-01-08 (A) (Y) .................................... Zero B- 6,000 3,090,000
Sr Disc Note, Step Coupon (14.00%, 05-15-04)
(United Kingdom) 05-15-09 (A) (R) (Y) ................................ Zero B- 5,400 2,646,000
DTI Holdings, Inc.,
Sr Disc Note, Step Coupon (12.50%, 03-01-03) 03-01-08 (A) .............. Zero B- 3,600 1,422,000
e.spire Communications, Inc.,
Sr Note 07-15-07 ....................................................... 13.750 B- 2,000 1,760,000
Esprit Telecom Group Plc,
Sr Note (United Kingdom) 12-15-07 (Y) .................................. 11.500 B- 1,550 1,666,250
Sr Note (Deutsche Mark) 06-15-08 # ..................................... 11.000 BB- 4,050 2,288,372
FaciliCom International, Inc.,
Sr Note 01-15-08 ....................................................... 10.500 B- 4,350 3,371,250
Global Crossing Holdings Ltd.,
Sr Note 05-15-08 ....................................................... 9.625 B 4,000 4,380,000
GST Equipment Funding, Inc.,
Sr Sec Note 05-01-07 ................................................... 13.250 B 5,000 5,400,000
Hermes Europe Railtel BV,
Sr Note (Netherlands) 08-15-07 (Y) ..................................... 11.500 B 5,000 5,212,500
Sr Note (Netherlands) 01-15-09 (Y) ..................................... 10.375 B 700 714,000
Intercel, Inc.,
Unit (Sr Disc Note & Warrant), Step Coupon
(12.00%, 02-01-01) 02-01-06 (A) ...................................... Zero B 4,100 3,239,000
Intermedia Communications, Inc.,
Sr Disc Note, Step Coupon (12.50%, 05-15-01) 05-15-06 (A) .............. Zero B 6,000 4,920,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Telecommunications (continued)
International Wireless Communications Holdings, Inc.,
Sr Sec Disc Note 08-15-01 .............................................. Zero B- $3,000 $300,000
Ionica Plc,
Sr Disc Note, Step Coupon (15.00%, 05-01-02)
(United Kingdom) 05-01-07 (A) (Y) .................................... Zero Ca 6,000 180,000
Level 3 Communications, Inc.,
Sr Note 05-01-08 ....................................................... 9.125% B 7,000 6,825,000
McCaw International Ltd.,
Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) .............. Zero B- 7,000 4,270,000
McLeodUSA, Inc.,
Sr Note 07-15-07 ....................................................... 9.250 B+ 4,250 4,303,125
Sr Note 11-01-08 ....................................................... 9.500 B+ 1,000 1,005,000
Sr Note 02-15-09 (R) ................................................... 8.125 B+ 1,000 940,000
Metrocall, Inc.,
Sr Sub Note 09-15-08 (R) ............................................... 11.000 CCC+ 5,000 4,325,000
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 (R) ................................................... 10.000 B 900 929,250
MetroNet Communications Corp.,
Sr Disc Note, Step Coupon (10.75%, 11-01-02)
(Canada) 11-01-07 (A) (Y) ............................................ Zero B 4,400 3,476,000
Sr Note (Canada) 08-15-07 (Y) .......................................... 12.000 B 4,000 4,680,000
Microcell Telecommunications, Inc.,
Sr Disc Note Ser B, Step Coupon (11.125%, 10-15-02)
(Canada) 10-15-07 # .................................................. Zero B- 2,500 1,087,400
Nextel Communications, Inc.,
Sr Disc Note 08-15-04 .................................................. 9.750 B- 5,500 5,665,000
Sr Disc Note, Step Coupon (9.95%, 02-15-03) 02-15-08 (A) ............... Zero B- 8,875 5,901,875
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) (R) .......... Zero CCC+ 2,500 1,343,750
NEXTLINK Communications, Inc.,
Sr Disc Note, Step Coupon (9.45%, 04-15-03) 04-15-08 ................... Zero B 4,000 2,340,000
Sr Note 10-01-07 ....................................................... 9.625 B 1,500 1,417,500
Sr Note 11-15-08 (R) ................................................... 10.750 B 2,900 2,900,000
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 ....................................................... 12.750 B- 2,250 2,317,500
NTL, Inc.,
Sr Note Ser B 04-01-08 ................................................. 9.500 B- 260 412,689
Sr Note, Step Coupon (12.375%, 10-01-03) 10-01-08 (A) (R) .............. Zero B- 8,500 5,525,000
Sr Note 10-01-08 (R) ................................................... 11.500 B- 6,300 6,835,500
Occidente y Caribe Celular S.A.,
Sr Disc Note Ser B, Step Coupon (14.00%, 03-15-01)
(Colombia) 03-15-04 (A) (Y) .......................................... Zero B 4,000 2,880,000
Orange Plc,
Sr Note (United Kingdom) 08-01-08 (E) .................................. 7.625 BB- 400 442,041
Sr Note (United Kingdom) 08-01-08 (Y) .................................. 8.000 B+ 6,000 6,165,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Telecommunications (continued)
Orion Network Systems,
Sr Note 01-15-07 ....................................................... 11.250% B+ $5,000 $3,950,000
Qwest Communications International, Inc.,
Sr Note Ser B 04-01-07 ................................................. 10.875 BB+ 2,867 3,261,528
RCN Corp.,
Sr Disc Note, Step Coupon (11.125%, 10-15-02) 10-15-07 (A) ............. Zero B3 5,000 3,300,000
Sr Note 10-15-07 ....................................................... 10.000 B3 4,900 4,900,000
Sprint Spectrum L.P.,
Sr Note 08-15-06 ....................................................... 11.000 BBB+ 3,750 4,196,438
Telecorp PCS, Inc.,
Sr Disc Note, Step Coupon (11.625%, 04-15-04) 04-15-09 (A) (R) ......... Zero B3 4,535 2,335,525
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.25%, 04-15-04)
(United Kingdom) 04-15-09 (R) (Y) .................................... Zero B+ 3,300 3,465,533
Teligent, Inc.,
Sr Note 12-01-07 ....................................................... 11.500 CCC 5,000 4,862,500
Time Warner Telecom LLC,
Sr Note 07-15-08 ....................................................... 9.750 B- 1,250 1,300,000
Tritel PCS, Inc.,
Sr Disc Note, Step Coupon (12.75, 05-15-04) 05-15-09 (A) (R) ........... Zero B3 2,500 1,268,750
VersaTel Telecom International N.V.,
Sr Note (Netherlands) 05-15-08 (Y) ..................................... 13.250 B- 2,400 2,508,000
Viatel, Inc.,
Sr Note 04-15-08 ....................................................... 11.250 Caa1 5,250 5,250,000
Sr Note (United States) 03-15-09 (E) (R) ............................... 11.500 Caa1 2,000 2,105,951
Winstar Communications, Inc.,
Sr Disc Note, Step Coupon (14.00%, 10-15-00) 10-15-05 (A) .............. Zero Caa1 2,600 2,158,000
Winstar Equipment Corp.,
Gtd Sec Note 03-15-04 .................................................. 12.500 CCC+ 1,400 1,407,000
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (R) (Y) ...................................... 12.500 B- 3,750 3,862,500
------------
201,922,532
------------
Transportation (0.93%)
Continental Airlines, Inc.,
Note 12-15-05 .......................................................... 8.000 BB- 4,400 4,290,000
Fine Air Services Corp.,
Sr Sub Note 06-01-08 ................................................... 9.875 B 3,900 3,432,000
Pacific & Atlantic Holdings, Inc.,
1st Mtg Note (Greece) 05-30-08 (Y) ..................................... 11.500 CCC+ 3,000 1,185,000
RailWorks Corp.,
Sr Sub Note 04-15-09 (R) ............................................... 11.500 B 2,000 2,030,000
------------
10,937,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Utilities (1.97%)
Calpine Corp.,
Sr Note 04-01-08 ....................................................... 7.875% BB $2,000 $1,950,000
Sr Note 04-15-09 ....................................................... 7.750 BB 2,300 2,233,300
Midland Funding Corp. II,
Deb Ser A 07-23-05 ..................................................... 11.750 BB 4,000 4,580,000
Deb Ser B 07-23-06 ..................................................... 13.250 BB 4,000 4,813,920
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) .................................. 9.625 BB 2,900 2,465,000
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 .................................................. 8.770 BBB- 7,000 7,272,650
-------------
23,314,870
-------------
TOTAL BONDS
(Cost $1,094,407,237) (89.89%) 1,063,219,883
------ -------------
<CAPTION>
NUMBER OF
SHARES
OR WARRANTS
-----------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
Advanced Radio Telecom Corp., Warrant ** ............................................. 60,000 660,000
Allegiance Telecom, Inc., Warrant ** ................................................. 3,500 154,000
American Mobile Satellite Corp., Warrant (R) ** ...................................... 3,000 --
American Telecasting, Inc., Warrant ** ............................................... 4,000 40
AVI Holdings, Inc., Warrant (R) ** ................................................... 1,500 15
Capstar Broadcasting Partners, Inc., 12.00%, Preferred Stock ......................... 16,028 1,666,912
Chancellor Media Corp., 7.00%, Conv Preferred Stock .................................. 20,000 2,860,000
COLT Telecom Plc, Warrant (United Kingdom) (R) ** .................................... 5,000 2,375,000
Comunicacion Celular S.A., Warrant (Colombia) ** ..................................... 50,000 250,000
Core Cap, Inc., Common Stock (r) ** .................................................. 45,000 729,000
Core Cap, Inc., Ser A/I, 10.00%, Preferred Stock (r) ................................. 45,000 1,077,300
Credit Lyonnais Capital S.C.A., American Depositary Receipt (ADR),
9.50%, Ser DTC, Preferred Stock (France) (R) ........................................ 100,000 2,587,500
Decorative Home Accents, Inc., Common Stock ** ....................................... 1,000 1
DIVA Systems Corp., Warrant ** ....................................................... 15,495 30,990
DTI Holdings, Inc., Warrant ** ....................................................... 18,000 180
EarthWatch, Inc., 12.00%, Ser C, Conv Preferred Stock (R) ............................ 88,232 948,494
Granite Broadcasting Corp., 12.75%, Preferred Stock .................................. 51,200 5,120,000
Hyperion Telecommunications, Inc., 12.875%, Ser B, Preferred Stock ................... 3,513 3,302,220
ICG Holdings, Inc., 14.00%, Preferred Stock .......................................... 2,730 2,730,000
Intermedia Communications, Inc., 13.50%, Ser B, Preferred Stock ...................... 1,973 2,071,650
Intermedia Communications, Inc., Common Stock ** ..................................... 30,000 759,375
International Wireless, Inc., Warrant ** ............................................. 3,000 30
Ionica Plc, Warrant (United Kingdom) (R) # ** ........................................ 8,500 85
Kelley Oil & Gas Corp., $2.625, Conv Preferred Stock ................................. 40,000 202,500
KLM Royal Dutch Airlines N.V., Common Stock (Netherlands) ............................ 25,893 750,897
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
NUMBER OF
SHARES MARKET
ISSUER, DESCRIPTION OR WARRANTS VALUE
- ------------------- ----------- -----
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS (continued)
Lasmo Plc, 10.00%, Ser A, ADS, Preferred Stock (United Kingdom) ...................... 50,000 $1,243,750
Loral Space & Communications Ltd., Warrant ** ........................................ 5,000 50,000
McCaw International Ltd., Warrant ** ................................................. 7,000 17,500
MetroNet Communications Corp., Warrant (Canada) (R) ** ............................... 2,250 225,000
Nextel Communications, Inc., 13.00%, Ser D, Preferred Stock .......................... 2,493 2,767,230
Nextel Communications, Inc., 11.125%, Ser E, Preferred Stock ......................... 1,915 1,943,725
Nextel Communications, Inc. (Class A), Common Stock ** ............................... 12,394 457,029
NEXTLINK Communications, Inc., Warrant (R) ** ........................................ 30,000 --
NEXTLINK Communications, Inc., 14.00%, Preferred Stock ............................... 115,323 5,939,135
Northeast Utilities, Common Stock ** ................................................. 75,000 1,321,875
Northwest Airlines Corp., Common Stock ............................................... 150,000 4,987,500
NTL, Inc., 13.00%, Ser B, Preferred Stock ............................................ 5,003 5,503,300
Occidente y Caribe Celular S.A., Warrant (R) ** ...................................... 16,000 272,000
Packaging Corp. of America, 12.375%, Preferred Stock (R) ............................. 11,500 1,201,750
PG&E Corp., Common Stock ............................................................. 25,622 864,743
Powertel, Inc., Warrant ** ........................................................... 2,880 23,040
PRIMEDIA, Inc., 8.625%, Ser H, Preferred Stock ....................................... 25,000 2,362,500
Qantas Airways Ltd. (ADR) (Australia) (R) ............................................ 13,800 406,025
QUALCOMM Financial Trust, 5.75%, Preferred Stock ..................................... 60,000 8,160,000
RCN Corp., Common Stock ** ........................................................... 40,000 1,662,500
Renaissance Cosmetics, Warrant ** .................................................... 4,000 4
Rite Aid Corp., Common Stock ......................................................... 14,820 370,500
Rural Cellular Corp., 11.375%, Ser B, Preferred Stock ................................ 1,957 1,957,000
SFX Broadcasting, Inc., 12.625%, Ser E, Preferred Stock .............................. 5,405 654,005
SFX Entertainment, Inc. (Class A), Common Stock ** ................................... 27,467 1,495,235
SpinCycle, Inc., Warrant (R) * ....................................................... 3,625 36
Station Casinos, Inc., 7.00%, Conv Preferred Stock ................................... 5,000 285,000
Teletrac, Inc., Warrant ** ........................................................... 2,000 --
TLC Beatrice International Holdings (Class A), Common Stock (r) ** ................... 20,000 1,040,000
Valero Energy Corp., Common Stock .................................................... 46,250 927,891
VersaTel Telecom B.V., Warrant (R) ** ................................................ 2,400 144,000
Viatel, Inc., Common Stock ** ........................................................ 6,068 273,060
------------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $62,916,252) (6.33%) 74,831,522
----- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.62%)
Investment in a joint repurchase
agreement transaction with
ABN AMRO Securities, Inc. - Dated 05-28-99,
due 06-01-99 (Secured by U.S. Treasury Bonds,
5.500% thru 12.000%, due 11-15-03 thru
08-15-28 and U.S. Treasury Notes, 7.875% due
11-15-04 and 6.500% due 10-15-06)- Note A ................................ 4.790% $19,205 $19,205,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%........................................................ 277
--------------
TOTAL SHORT-TERM INVESTMENTS (1.62%) 19,205,277
-------- --------------
TOTAL INVESTMENTS (97.84%) 1,157,256,682
-------- --------------
OTHER ASSETS AND LIABILITIES, NET (2.16%) 25,579,464
-------- --------------
TOTAL NET ASSETS (100.00%) $1,182,836,146
======== ==============
</TABLE>
* 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.
*** Represents rate in effect on May 31, 1999.
# Par value of foreign bonds or warrants is expressed in local currency, as
shown parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(E) Parenthetical disclosure of a country in the security description represents
country of issuer; however, security is euro denominated.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $135,258,580 or 11.44% of the Fund's net assets as of
May 31, 1999.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issue; however, security is U.S. dollar
denominated.
(r) Direct placement securities are restricted as 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>
MARKET
VALUE AS A
PERCENTAGE MARKET
ACQUISITION ACQUISITION OF FUND'S VALUE AS OF
DATE COST NET ASSETS MAY 31, 1999
-------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Core Cap, Inc., Common Stock................................... 10-31-97 $900,000 0.06% $729,000
Core Cap, Inc., Ser A/I, 10.00%, Preferred Stock............... 10-31-97 1,125,000 0.09 1,077,300
TLC Beatrice International Holdings (Class A), Common Stock ... 11-25-87 1,006,000 0.09 1,040,000
</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.
26
<PAGE>
==============================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 in which 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, the concentration of investments can be aggregated by various
countries. The table below shows the percentages of the Fund's investments at
May 31, 1999 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ----------
Argentina .................................................... 0.27%
Australia .................................................... 0.98
Brazil ....................................................... 0.07
Canada ....................................................... 6.36
Colombia ..................................................... 0.56
Costa Rica ................................................... 0.02
France ....................................................... 2.90
Germany ...................................................... 0.34
Greece ....................................................... 0.10
Luxembourg ................................................... 0.23
Mexico ....................................................... 0.30
Netherlands .................................................. 0.78
Panama ....................................................... 0.02
South Africa ................................................. 0.54
Spain ........................................................ 1.97
United Kingdom ............................................... 10.62
United States ................................................ 71.78
-----
TOTAL INVESTMENTS 97.84%
=====
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION NET ASSETS
- -------------------- ----------
AAA ......................................................... 40.91%
AA .......................................................... 1.97
A ........................................................... 0.23
BBB ......................................................... 1.96
BB .......................................................... 9.07
B ........................................................... 33.59
CCC ......................................................... 2.14
CC .......................................................... 0.02
-----
TOTAL BONDS 89.89%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
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 one series: John Hancock Strategic Income Fund (the "Fund"). The investment
objective of the Fund is a high level of current income.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, 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
terms of a distribution plan have exclusive voting rights to that 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,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more large 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. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
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 $15,375,362 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized capital gains. To the extent such carryforwards are used by the
Fund, no capital gains distributions will be made. The carryforwards expire as
follows: May 31, 2003 -- $15,108,354 and May 31, 2004 -- $267,008. Additionally,
net capital losses of $3,759,669 attributable to security transactions incurred
after October 31, 1998 are treated as arising on the first day (June 1, 1999) of
the Fund's next taxable year.
DIVIDENDS, INTEREST AND DISTRIBUTIONS 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 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
28
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
amount, except for the effect of expenses that may be applied differently to
each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issuance or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee is charged 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, 1999.
FOREIGN CURRENCY TRANSLATION All assets and 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 or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
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
29
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
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 if they are offset by the
currency amount of the underlying transaction.
Open forward foreign currency exchange contracts at May 31, 1999 were as
follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ----- --------------
BUYS
British Pound Sterling 6,008,750 JUNE 99 ($160,774)
Canadian Dollar 17,204,805 JUNE 99 57,622
Euro Currency 3,995,708 JUNE 99 (4,697)
-----------
($107,849)
===========
SELLS
British Pound Sterling 40,639,375 JUNE 99 $238,189
British Pound Sterling 12,768,014 JULY 99 104,303
British Pound Sterling 9,693,000 AUG 99 142,490
Canadian Dollar 62,609,097 JUNE 99 (1,073,791)
Canadian Dollar 3,876,500 JULY 99 (38,464)
Canadian Dollar 4,143,750 AUG 99 33,933
Canadian Dollar 15,480,000 SEPT 99 (37,447)
Euro Currency 34,085,429 JUNE 99 2,013,998
Euro Currency 31,467,000 JULY 99 720,154
Euro Currency 5,892,250 AUG 99 33,334
Euro Currency 3,982,000 OCT 99 3,527
-----------
$2,140,226
===========
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. 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
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 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," 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
fluctuation 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 May 31, 1999, there were no open positions in financial futures contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Over-the-counter options are valued
at the mean between the last bid and asked prices. Upon the writing of a call or
put option, an amount equal to the premium received by the Fund 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.
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
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 contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
At May 31, 1999, there were no open written option transactions.
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.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended May 31,
1999, net sales charges received with regard to sales of Class A shares amounted
to $2,771,216. Out of this amount, $222,827 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $1,577,005 was
paid as sales commissions to unrelated broker-dealers and $971,384 was paid as
sales commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% 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 B shares. For the year ended May 31, 1999,
contingent deferred sales charges paid to JH Funds amounted to $976,496.
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,
1999, contingent deferred sales charges paid to JH Funds amounted to $6,904.
In addition, to reimburse the JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan 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 its distribution and service
costs. Up to a maximum of 0.25% of such 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.
31
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Mr. Richard S. Scipione
and Ms. Anne C. Hodsdon 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 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
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 of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the year
ended May 31, 1999, aggregated $620,489,222 and $514,226,811, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $196,219,189 and $52,366,659, respectively, during the year
ended May 31, 1999.
The cost of investments owned at May 31, 1999 (including the joint repurchase
agreement) for federal income tax purposes was $1,170,235,488. Gross unrealized
appreciation and depreciation of investments aggregated $35,135,227 and
$48,114,310, respectively, resulting in net unrealized depreciation of
$12,979,083.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended May 31, 1999, the Fund has reclassified amounts to reflect
an increase in accumulated net realized loss on investments of $6,151,401, an
increase in undistributed net investment income of $6,154,096 and a decrease in
capital paid-in of $2,695. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of May 31,
1999. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to the treatment of foreign currency gains and
losses in the computation of distributable income and capital gains under
federal tax rules versus generally accepted accounting principles.
NOTE E -
REORGANIZATION
On February 10, 1999, the shareholders of John Hancock World Bond Fund ("World
Bond Fund") approved a plan of reorganization between World Bond Fund and the
Fund providing for the transfer of substantially all of the assets and
liabilities of the World Bond Fund to the Fund in exchange solely for Class A
and Class B shares of the Fund. The acquisition was accounted for as a tax free
exchange of 2,798,003 Class A shares and 1,568,516 Class B shares of the Fund
for the net assets of World Bond Fund, which amounted to $21,151,500 and
$11,857,194 for Class A and Class B shares, respectively, including $263,975 of
unrealized depreciation, after the close of business on February 19, 1999.
32
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John Hancock Funds - Strategic Income Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
John Hancock Strategic Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments (except for Moody's and Standard & Poor's ratings),
and the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of John Hancock Strategic Income Fund (the "Fund") at May 31, 1999, and
the results of its operations for the year then ended, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at May 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 2, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended May 31, 1999.
Shareholders will be mailed a 1999 U.S. Treasury Department Form 1099-DIV in
January of 2000. This will reflect the tax character of all distributions for
calendar year 1999.
With respect to the Fund's ordinary taxable income for the fiscal year ended
May 31, 1999, 6.53% of the distributions qualify for the dividends received
deduction available to corporations.
33
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John Hancock Funds - Strategic Income Fund
34
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John Hancock Funds - Strategic Income Fund
35
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