---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC]
Strategic
Income Fund
MAY 31, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
================================================================================
TRUSTEES
DENNIS S. ARONOWITZ*
STEPHEN L. BROWN
RICHARD P. CHAPMAN, JR.
WILLIAM J. COSGROVE*
LELAND O. ERDAHL
RICHARD A. FARRELL
MAUREEN R. FORD
GAIL D. FOSLER
WILLIAM F. GLAVIN
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman, President and
Chief Executive Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
WILLIAM L. BRAMAN
Executive Vice President and
Chief Investment Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
================================== CEO CORNER ==================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech stocks
pushed the NASDAQ Composite Index to the stratosphere, as investors
single-mindedly pursued anything technology related. But after setting a new
high on March 10 amid significantly heightened volatility, the tables started to
turn rapidly. Concerns about Microsoft's antitrust ruling and out-of-sight
valuation levels finally triggered waves of selling that sent the index down 32%
from its March high by the end of May.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
In this same period, fixed-income-type securities, including bonds and preferred
stocks, struggled as interest rates rose on fears that the roaring U.S. economy
and the rebound of many others around the world would spark an inflation
outbreak.
While the battle between old and new rages on, a couple of things are clear:
More than ever, diversification and a long-term investment perspective are two
of an investor's best allies. Since not all parts of your portfolio will perform
equally well all the time, we believe it is important to allocate your assets
among different types of investments and funds that target a variety of stock-
and bond-market segments. This strategy, executed under the guidance of a
seasoned investment professional, could provide you with a better chance of both
realizing longer-term results and weathering the market's changing conditions.
Sincerely,
/s/ Maureen R. Ford
-------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY FREDERICK CAVANAUGH, MANAGEMENT TEAM LEADER, AND
ARTHUR N. CALAVRITINOS, CFA, JANET L. CLAY, CFA, AND DANIEL S. JANIS,
PORTFOLIO MANAGERS
John Hancock
Strategic Income Fund
Rate jitters, inflation worries plague global bond markets
The ongoing strength of the U.S. and foreign economies, rising interest rates
and persistent inflation worries cast a pall over global bonds throughout the
past 12 months. In response to evidence that the U.S. economy was growing at a
much faster than anticipated clip, the Federal Reserve Board raised interest
rates six times by a total of 1.75% to stave off inflation pressures. Bond
investors dislike even the hint of inflation because it erodes the returns of
fixed-income investments.
As interest rates moved higher, short-term Treasury yields rose steadily but
longer-term bond yields fell as the Treasury scaled back its auctions and
announced plans to repurchase $30 billion of its outstanding higher-yielding
Treasury bonds to cut financing costs. This caused the Treasury yield curve to
"invert" for the first time since 1990. Investors usually demand higher yields
on longer-term bonds than on shorter-term ones. But because of the reduced
supply of long-term securities, the yield on the 30-year bond fell to 6.01% on
May 31, 2000, while the yield on the 10-year Treasury note was 6.27%.
European government bonds performed slightly better than their U.S.
counterparts, although improving economic conditions and rising interest rates
on that continent muted their returns. Practically the year's only bright spot
was the comeback of emerging-market bonds.
"...the Federal Reserve Board raised interest rates six times..."
--------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock Strategic Income
Fund. Caption below reads "Portfolio management team members (l-r): Janet Clay,
Dan Janis, Arthur Calavritinos and Fred Cavanaugh."]
--------------------------------------------------------------------------------
3
<PAGE>
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John Hancock Funds - Strategic Income Fund
"...move toward a more defensive stance during the second half of the period."
--------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Treasury & Agencies 38%, the second is Telecommunications 20%,
the third Media 6%, the fourth Foreign Governments 6% and the fifth Leisure 4%.
A note below the table reads "As a percentage of net assets on May 31, 2000."]
--------------------------------------------------------------------------------
Beginning the year at depressed levels, emerging-market bonds posted
double-digit gains, as Asian and Latin American economies rebounded, alleviating
fears of a global economic meltdown.
High-yield corporate bonds were among the global bond market's worst
performers for the year. The high amounts of income they carry helped them
outperform Treasuries in the first half, but their performance worsened in 2000.
That's largely due to the fact that demand for high-yield bonds was weak given
the general aversion to bonds in a rising interest-rate environment and
competition from the red-hot stock market.
Fund performance
In a period when global bonds struggled, John Hancock Strategic Income Fund's
return was modest, but still better than many of its peers. For the year ended
May 31, 2000, John Hancock Strategic Income Fund's Class A, Class B and Class C
shares had total returns of 1.37%, 0.65% and 0.65%, respectively, at net asset
value. That compared to the -0.30% return of the average multi-sector income
fund, 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.
More defensive stance
Much of the Fund's outperformance can be attributed to our move toward a more
defensive stance during the second half of the period. We increased our stake in
U.S. Treasury securities by reducing our holdings in both high-yield corporate
and foreign-government bonds. As of May31, 2000, our holdings in Treasuries made
up 36% of net assets, up from 30% just six months earlier. Foreign government
bond holdings fell to 6% of investments, from 10% six months earlier. In that
category, we locked in the gains generated by our holdings in government bonds
issued by the United Kingdom, which had performed relatively well given the
slowing economy in that country. High-yield securities made up 31% of the Fund's
assets at the end of the period, down from 36% at the end of November 1999. Our
sales of high-yield securities were concentrated in those that our research
staff felt might have credit problems if the economy slowed in late 2000.
Although Treasuries weren't immune to the vagaries of higher interest rates,
they held up much better than high-yield securities. In addition, they offered
yields well in excess of most foreign high-quality government bonds,
particularly those issued in Europe. We focused on owning a combination of
shorter- and longer-term Treasury securities, a strategy that proved
--------------------------------------------------------------------------------
[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 DIVA Systems
followed by an up arrow with the phrase "Signs up more cable companies for its
video-on-demand service." The second listing is AEI Resources followed by a down
arrow with the phrase "Challenged by higher costs, lower coal prices." The third
listing is CEI Citicorp followed by an up arrow with the phrase "Outside
investments help fan investor enthusiasm." A note below the table reads "See
`Schedule of Investments.' Investment holdings are subject to change."]
--------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - Strategic Income Fund
--------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended May 31, 2000." The chart is
scaled in increments of 1% with -1% at the bottom and 5% at the top. The first
bar represents the 1.37% total return for John Hancock Strategic Income Fund
Class A. The second bar represents the 0.65% total return for John Hancock
Strategic Income Fund Class B. The third bar represents the 0.65% total return
for John Hancock Strategic Income Fund Class C. The fourth bar represents the
-0.30% 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 distributions reinvested. The average multi-sector income fund is
tracked by Lipper, Inc.1 See the following two pages for historical performance
information."]
--------------------------------------------------------------------------------
more advantageous than emphasizing intermediate-maturity Treasuries as the yield
curve inverted.
High-yield leaders and laggards
Increased volatility and lack of demand help explain why there were clear-cut
winners and losers in the high-yield market over the past 12 months. On the plus
side was DIVA Systems, which operates an on-demand video movie system over cable
networks. Bonds issued by the company performed well as it signed on more cable
operators and announced its intention to do an initial public offering of
equity. Metrocall, a paging company, posted strong returns in part because of
investors' appetite for companies that own bandwidth. Intermedia Communications,
a large Internet service provider, benefited from growing demand for its
services, while Argentina's CEI Citicorp, the second largest media company in
that nation, benefited from large outside investments in the company.
Our main disappointments were companies that didn't achieve expected
financial results. GST Equipment Funding, a competitive local exchange carrier,
filed for bankruptcy and its high-yield bonds suffered sizable losses as a
result. Coal company AEI Resources, for another example, suffered from weak coal
prices and rising transportation costs.
Outlook
In our view, high-yield corporate bonds offer very good value now. Yields on
most high-yield bonds are around 12%, a historically large advantage over
Treasuries. As long as we avoid a recession, which we don't believe is in the
cards, we feel confident that the vast majority of the companies we own will
fare well. Of course, timing is everything, and we can't pinpoint exactly when
investors will embrace the high-yield market again. For that reason, we're
likely to keep our weighting in the high-yield arena lower than we normally
would, given our optimism over valuations. But once we see evidence of money
flowing back into the market, we're likely to increase our weighting there. We
don't believe that high-quality foreign government bonds will offer attractive
value any time soon, so we're likely to keep our holdings in them relatively
small.
"...high-yield corporate bonds offer very good value now."
--------------------------------------------------------------------------------
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.
See the prospectus for the risks of investing in high-yield bonds.
(1)Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
5
<PAGE>
================================================================================
John Hancock Funds - 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 an up-front maximum applicable
sales charge of 4.5%. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes an up-front sales charge of 1% and a contingent deferred
sales charge (1% declining to 0% after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. 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, 2000
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (1.81%) 50.92% 138.55%
Average Annual Total Returns (1.81%) 8.58% 9.08%
--------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------------
For the period ended March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/4/93)
---- ----- ---------
Cumulative Total Returns (2.60%) 50.71% 58.15%
Average Annual Total Returns (2.60%) 8.55% 7.32%
--------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------
For the period ended March 31, 2000
SINCE
ONE INCEPTION
YEAR (5/1/98)
---- --------
Cumulative Total Returns 0.14% 3.54%
Average Annual Total Returns 0.14% 1.84%
--------------------------------------------------------------------------------
YIELDS
--------------------------------------------------------------------------------
As of May 31, 2000
SEC 30-DAY
YIELD
-----
John Hancock Strategic Income Fund: Class A 8.31%
John Hancock Strategic Income Fund: Class B 8.00%
John Hancock Strategic Income Fund: Class C 7.91%
6
<PAGE>
================================================================================
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. It is not possible to invest in an index. Past
performance is not indicative of future results.
--------------------------------------------------------------------------------
Line chart with the heading John Hancock Strategic Income Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Strategic Income
Fund on May 31, 1990, before sales charge, and is equal to $24,311 as of May 31,
2000. The second line represents the value of the same hypothetical investment
made in the John Hancock Strategic Income Fund, after sales charge, and is equal
to $23,217 as of May 31, 2000. The third line represents the Lehman Brothers
Government/Corporate Bond Index and is equal to $21,180 as of May 31, 2000.
Line chart with the heading John Hancock Strategic Income Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the 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 $15,561 as of May
31, 2000. The second line represents the Lehman Brothers Government/Corporate
Bond Index and is equal to $14,171 as of May 31, 2000.
Line chart with the heading John Hancock Strategic Income Fund Class C*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the Lehman
Brothers Government/Corporate Bond Index and is equal to $10,719 as of May 31,
2000. The second line represents the 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 $10,291 as of May 31, 2000. The third line
represents the value of the same hypothetical investment made in the John
Hancock Strategic Income Fund, after sales charge, and is equal to $10,188 as of
May 31, 2000.
*No contingent deferred sales charge applicable.
--------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Statement of Assets and Liabilities
May 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments at value - Note C:
Bonds (cost - $1,063,431,566) ........................................................................... $972,991,264
Common and preferred stocks and warrants (cost - $57,777,923) ............................................ 57,217,608
Joint repurchase agreement (cost - $47,760,000) .......................................................... 47,760,000
Corporate savings account ................................................................................ 829
--------------
1,077,969,701
Receivable for investments sold ........................................................................... 4,947,335
Receivable for foreign currency exchange contracts sold - Note A .......................................... 4,603,454
Receivable for shares sold ................................................................................ 1,153,523
Dividends receivable ...................................................................................... 7,500
Interest receivable ....................................................................................... 24,606,797
Other assets .............................................................................................. 62,432
--------------
Total Assets ............................................................................ 1,113,350,742
---------------------------------------------------------------------------------------------------------
Liabilities:
Payable for foreign currency exchange contracts purchased - Note A ........................................ 807,423
Payable for shares repurchased ............................................................................ 484,135
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............................................ 689,830
Accounts payable and accrued expenses ..................................................................... 251,159
--------------
Total Liabilities ....................................................................... 2,232,547
---------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ........................................................................................... 1,218,817,447
Accumulated net realized loss on investments, financial futures contracts and foreign currency transactions (29,673,177)
Net unrealized depreciation of investments and foreign currency transactions .............................. (87,303,786)
Undistributed net investment income ....................................................................... 9,277,711
--------------
Net Assets .............................................................................. $1,111,118,195
=========================================================================================================
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 - $510,509,188/73,274,065 ......................................................................... $6.97
===========================================================================================================================
Class B - $564,436,851/81,014,374 ......................................................................... $6.97
===========================================================================================================================
Class C - $36,172,156/5,191,838 ........................................................................... $6.97
===========================================================================================================================
Maximum Offering Price Per Share
Class A* - ($6.97/0.955) .................................................................................. $7.30
===========================================================================================================================
Class C - ($6.97/0.99) .................................................................................... $7.04
===========================================================================================================================
</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, 2000. 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, 2000
--------------------------------------------------------------------------------
Investment Income:
Interest ..................................................... $99,688,972
Dividends (net of foreign withholding taxes of $59,514) ...... 5,839,766
------------
105,528,738
------------
Expenses:
Investment management fee - Note B .......................... 4,367,531
Distribution and service fee - Note B
Class A ................................................... 1,602,935
Class B ................................................... 6,079,831
Class C ................................................... 302,156
Transfer agent fee - Note B ................................. 1,886,069
Custodian fee ............................................... 320,201
Accounting and legal services fee - Note B .................. 224,528
Registration and filing fees ................................ 120,223
Printing .................................................... 71,183
Trustees' fees .............................................. 63,081
Miscellaneous ............................................... 55,174
Auditing fee ................................................ 43,964
Legal fees .................................................. 11,505
------------
Total Expenses ............................. 15,148,381
-----------------------------------------------------------
Net Investment Income ...................... 90,380,357
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions:
Net realized loss on investments sold ........................ (13,032,864)
Net realized gain on financial futures contracts ............. 673,694
Net realized gain on foreign currency transactions ........... 2,620,068
Change in net unrealized appreciation/depreciation
of investments .............................................. (70,404,413)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ............................ 1,838,189
------------
Net Realized and Unrealized Loss on
Investments, Financial Futures Contracts
and Foreign Currency Transactions .......... (78,305,326)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .................. $12,075,031
===========================================================
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,
-------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .............................................. $79,053,431 $90,380,357
Net realized gain (loss) on investments sold, financial futures
contracts and foreign currency transactions ..................... 9,187,960 (9,739,102)
Change in net unrealized appreciation/depreciation of investments
and foreign currency transactions ............................... (61,150,967) (68,566,224)
-------------- --------------
Net Increase in Net Assets Resulting from Operations ............. 27,090,424 12,075,031
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.5869 and $0.5859 per share, respectively) .......... (39,586,497) (43,241,094)
Class B - ($0.5336 and $0.5352 per share, respectively) .......... (38,784,062) (44,903,890)
Class C - ($0.5325 and $0.5349 per share, respectively) .......... (682,872) (2,235,373)
-------------- --------------
Total Distributions to Shareholders .............................. (79,053,431) (90,380,357)
-------------- --------------
From Fund Share Transactions - Net * .................................. 271,395,238 6,587,375
-------------- --------------
Net Assets:
Beginning of period ................................................ 963,403,915 1,182,836,146
-------------- --------------
End of period (including undistributed net investment income of
$9,509,400 and $9,277,711, respectively) ......................... $1,182,836,146 $1,111,118,195
============== ==============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency 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
Statement of Changes in Net Assets (continued)
--------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------------------
1999 2000
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 23,723,150 $180,254,633 19,648,522 $142,378,022
Shares issued in reorganization - Note E ........................ 2,798,003 21,151,500 5,170,719 37,103,528
Shares issued to shareholders in reinvestment of distributions .. 3,266,435 24,761,793 3,757,548 27,084,489
----------- ------------ ----------- ------------
29,787,588 226,167,926 28,576,789 206,566,039
Less shares repurchased ......................................... (19,695,328) (149,424,723) (27,826,090) (201,399,222)
----------- ------------ ----------- ------------
Net increase .................................................... 10,092,260 $76,743,203 750,699 $5,166,817
=========== ============ =========== ============
CLASS B
Shares sold ..................................................... 34,911,841 $265,229,237 18,346,486 $133,160,407
Shares issued in reorganization - Note E ........................ 1,568,516 11,857,194 1,722,175 12,357,813
Shares issued to shareholders in reinvestment of distributions .. 2,457,330 18,614,521 3,113,651 22,438,715
----------- ------------ ----------- ------------
38,937,687 295,700,952 23,182,312 167,956,935
Less shares repurchased ......................................... (16,288,404) (123,285,702) (25,213,992) (182,368,221)
----------- ------------ ----------- ------------
Net increase (decrease) ......................................... 22,649,283 $172,415,250 (2,031,680) ($14,411,286)
=========== ============ =========== ============
CLASS C
Shares sold ..................................................... 3,078,916 $23,354,223 3,347,148 $24,236,648
Shares issued in reorganization - Note E ........................ -- -- 8,131 58,348
Shares issued to shareholders in reinvestment of distributions .. 49,364 372,713 174,327 1,253,328
----------- ------------ ----------- ------------
3,128,280 23,726,936 3,529,606 25,548,324
Less shares repurchased ......................................... (197,316) (1,490,151) (1,345,356) (9,716,480)
----------- ------------ ----------- ------------
Net increase .................................................... 2,930,964 $22,236,785 2,184,250 $15,831,844
=========== ============ =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................. $7.15 $7.27 $7.54 $7.84 $7.46
-------- -------- -------- -------- --------
Net Investment Income(1) ......................................... 0.66 0.64 0.64 0.59 0.59
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions .. 0.12 0.27 0.34 (0.38) (0.49)
-------- -------- -------- -------- --------
Total from Investment Operations ............................... 0.78 0.91 0.98 0.21 0.10
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ........................... (0.66) (0.64) (0.64) (0.59) (0.59)
Distributions from Net Realized Gain on Investments Sold ....... -- -- (0.04) -- --
-------- -------- -------- -------- --------
Total Distributions ............................................ (0.66) (0.64) (0.68) (0.59) (0.59)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ................................... $7.27 $7.54 $7.84 $7.46 $6.97
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) .................... 11.37% 12.99% 13.43% 2.77% 1.37%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......................... $369,127 $416,916 $489,375 $540,956 $510,509
Ratio of Expenses to Average Net Assets .......................... 1.03% 1.00% 0.92% 0.89% 0.91%
Ratio of Net Investment Income to Average Net Assets ............. 9.13% 8.61% 8.20% 7.71% 8.09%
Portfolio Turnover Rate .......................................... 78% 132% 112% 55%(3) 36%(3)
</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.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................. $7.15 $7.27 $7.54 $7.84 $7.46
-------- -------- -------- -------- --------
Net Investment Income ............................................ 0.61(1) 0.59 0.59(1) 0.53(1) 0.54(1)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions .. 0.12 0.27 0.34 (0.38) (0.49)
-------- -------- -------- -------- --------
Total from Investment Operations ............................... 0.73 0.86 0.93 0.15 0.05
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ........................... (0.61) (0.59) (0.59) (0.53) (0.54)
Distributions from Net Realized Gain on Investments Sold ....... -- -- (0.04) -- --
-------- -------- -------- -------- --------
Total Distributions ............................................ (0.61) (0.59) (0.63) (0.53) (0.54)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ................................... $7.27 $7.54 $7.84 $7.46 $6.97
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) .................... 10.61% 12.21% 12.64% 2.06% 0.65%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......................... $206,751 $328,487 $473,428 $619,446 $564,437
Ratio of Expenses to Average Net Assets .......................... 1.73% 1.70% 1.62% 1.59% 1.61%
Ratio of Net Investment Income to Average Net Assets ............. 8.42% 7.90% 7.50% 7.01% 7.39%
Portfolio Turnover Rate .......................................... 78% 132% 112% 55%(3) 36%(3)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
PERIOD ENDED ---------------------
MAY 31, 1998(4) 1999 2000
--------------- ------- -------
<S> <C> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................. $7.87 $7.84 $7.46
------- ------- -------
Net Investment Income(1) ......................................... 0.05 0.53 0.53
Net Realized and Unrealized Loss on Investments,
Financial Futures Contracts and Foreign Currency Transactions .. (0.03)(5) (0.38) (0.49)
------- ------- -------
Total from Investment Operations ............................... 0.02 0.15 0.04
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ........................... (0.05) (0.53) (0.53)
------- ------- -------
Net Asset Value, End of Period ................................... $7.84 $7.46 $6.97
======= ======= =======
Total Investment Return at Net Asset Value (2) ................... 0.23%(6) 2.04% 0.65%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......................... $601 $22,434 $36,172
Ratio of Expenses to Average Net Assets .......................... 1.62%(7) 1.59% 1.61%
Ratio of Net Investment Income to Average Net Assets ............. 7.34%(7) 7.01% 7.39%
Portfolio Turnover Rate .......................................... 112% 55%(3) 36%(3)
</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) Portfolio turnover rate excludes merger activity.
(4) Class C shares began operations on May 1, 1998.
(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) Not annualized.
(7) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Schedule of Investments
May 31, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Strategic Income Fund on May 31, 2000. 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 (0.18%)
Go Outdoor Systems Holding S.A.,
Sr Sub Note (France) 07-15-09 (E) ..................................... 10.500% B- 1,900 $1,985,318
--------------
Aerospace (0.14%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R) ............................ 10.910 BBB $1,500 1,572,150
--------------
Banks - Foreign (0.55%)
Banco de Galicia y Buenos Aires S.A. de C.V.,
Unsub Deb (Argentina) 12-15-00 (R) (Y) ................................ 10.000 BB 1,500 1,492,500
HSBC Capital Funding LP,
Perpetual Note (Channel Islands) 12-31-49 (R) (Y) ..................... 9.547 A- 4,700 4,652,248
--------------
6,144,748
--------------
Banks - United States (0.23%)
CSBI Capital Trust I,
Sec Co Gtd Bond Ser A 06-06-27 ........................................ 11.750 B- 2,340 2,503,800
--------------
Beverages (0.42%)
Canandaigua Brands, Inc.,
Sr Sub Note 03-01-09 .................................................. 8.500 B+ 5,100 4,704,750
--------------
Building (0.09%)
Standard Pacific Corp.,
Sr Note 04-01-09 ...................................................... 8.500 BB 1,100 970,750
--------------
Business Services - Misc. (0.70%)
Primark Corp.,
Sr Sub Note 12-15-08 .................................................. 9.250 B+ 5,000 4,500,000
United Rentals, Inc.,
Sr Sub Note Ser B 08-15-08 ............................................ 8.800 BB- 4,000 3,260,000
--------------
7,760,000
--------------
Chemicals (0.28%)
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 .................................................. 10.125 B+ 1,800 1,755,000
PCI Chemicals Canada, Inc.,
Sec Note (Canada) 10-15-07 (Y) ........................................ 9.250 B 2,000 1,400,000
--------------
3,155,000
--------------
</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>
Consumer Products (0.01%)
Hedstrom Corp.,
Sr Sub Note 06-01-07 (B) .............................................. 10.000% D $4,000 $120,000
--------------
Containers (0.46%)
Berry Plastics Corp.,
Sr Sub Note 04-15-04 .................................................. 12.250 B- 4,100 3,854,000
Consolidated Containers Co. LLC/Cons. Container Capital, Inc.,
Sr Sub Note 07-15-09 .................................................. 10.125 B 1,300 1,274,000
--------------
5,128,000
--------------
Electronics (0.21%)
Communications Instruments, Inc.,
Sr Sub Note Ser B 09-15-04 ............................................ 10.000 B- 2,900 2,276,500
--------------
Energy (0.09%)
AEI Resources, Inc./AEI Resources Holdings, Inc.,
Note 12-15-05 (R) ..................................................... 10.500 CCC- 5,100 1,020,000
--------------
Finance (0.99%) CEI Citicorp Holdings S.A.,
Bond (Argentina) 02-14-07 (Y) ......................................... 9.750 BB- 3,000 2,910,000
Maxxam Group Holdings, Inc.,
Sr Note Ser B 08-01-03 ................................................ 12.000 CCC+ 3,000 2,752,500
PTC International Finance II S.A.,
Sr Sub Note (Luxembourg) 12-01-09 (E) (R) ............................. 11.250 B+ 2,400 2,356,632
Sovereign Bancorp, Inc.,
Sr Note 07-01-00 ...................................................... 6.750 BB+ 2,900 2,900,087
--------------
10,919,219
--------------
Government - Foreign (5.85%)
Brazil, Federative Republic of,
Variable Rate Bond Ser A (Brazil) 01-01-01 (Y) ........................ 7.000*** BB- 615 598,088
Canada, Government of,
Government Bond (Canada) 09-01-02 # ................................... 5.500 AAA 16,500 10,843,487
Government Bond (Canada) 12-01-05 # ................................... 8.750 AAA 15,000 11,173,347
Government Bond (Canada) 12-01-06 # ................................... 7.000 AAA 13,000 9,051,369
Government Bond (Canada) 06-01-09 # ................................... 5.500 AAA 49,000 31,471,944
Costa Rica, Republic of,
Note (Costa Rica) 05-01-03 (R) (Y) .................................... 8.000 BB 700 696,500
Panama, Republic of,
Floating Rate Note (Panama) 05-10-02 (Y) .............................. 7.930*** BB+ 846 833,534
Note (Panama) 02-13-02 (Y) ............................................ 7.875 BB+ 375 366,563
--------------
65,034,832
--------------
Government - U.S. (36.48%)
United States Treasury,
Bond 08-15-01 ......................................................... 13.375 AAA 41,000 44,043,020
Bond 08-15-05 ......................................................... 6.500 AAA 19,300 19,215,466
Bond 08-15-05 ......................................................... 10.750 AAA 33,000 38,852,220
</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. (continued)
United States Treasury (continued),
Bond 02-15-16 ......................................................... 9.250% AAA $35,600 $45,406,732
Bond 08-15-19 ......................................................... 8.125 AAA 70,500 83,762,460
Bond 08-15-23 ......................................................... 6.250 AAA 40,215 39,775,048
Bond 02-15-27 ......................................................... 6.625 AAA 39,450 41,108,083
Bond 11-15-28 ......................................................... 5.250 AAA 14,000 12,171,180
Note 08-31-02 ......................................................... 6.250 AAA 40,800 40,385,472
Note 08-15-04 ......................................................... 7.250 AAA 17,100 17,487,486
Note 08-15-07 ......................................................... 6.125 AAA 23,600 23,091,184
--------------
405,298,351
--------------
Government - U.S. Agencies (1.38%)
Federal Home Loan Mortgage Corp.,
REMIC 44-E 11-15-19 ................................................... 9.000 AAA 171 173,580
Federal National Mortgage Assn.,
Global Bond (British Pound Sterling) 06-07-02 # ....................... 6.875 AAA 5,000 7,508,233
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 05-15-26 .......................................... 7.500 AAA 7,735 7,602,012
--------------
15,283,825
--------------
Leisure (3.77%)
Cinemark USA, Inc.,
Sr Sub Note Ser D 08-01-08 ............................................ 9.625 B 1,000 620,000
Coast Hotels and Casinos, Inc.,
Sr Sub 04-01-09 ....................................................... 9.500 B- 2,500 2,350,000
Eldorado Resorts LLC,
Sr Sub Note 08-15-06 .................................................. 10.500 B 3,000 2,947,500
Harrah's Operating Co., Inc.,
Sr Sub Note 12-15-05 .................................................. 7.875 BB+ 3,650 3,358,000
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 ................................................ 7.875 BB 7,900 6,754,500
Hollywood Casino Shreveport,
1st Mtg 08-01-06 (R) .................................................. 13.000 B 2,800 2,968,000
Horseshoe Gaming LLC,
Sr Sub Note Ser B 06-15-07 ............................................ 9.375 B+ 2,500 2,387,500
Jupiters Ltd.,
Sr Note (Australia) 03-01-06 (Y) ...................................... 8.500 BB+ 4,100 3,833,500
Premier Parks, Inc.,
Sr Note 06-15-07 ...................................................... 9.750 B- 3,100 2,952,750
Production Resource Group LLC,
Sr Sub Note 01-15-08 .................................................. 11.500 CCC- 3,100 930,000
SFX Entertainment, Inc.,
Sr Sub Note Ser B 02-01-08 ............................................ 9.125 B- 5,100 5,125,500
Sr Sub Note 12-01-08 .................................................. 9.125 B- 2,000 1,980,000
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas) 12-15-07 (Y) .................................... 8.625 B+ 2,000 1,720,000
</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>
Leisure (continued)
Waterford Gaming LLC,
Sr Note 03-15-10 (R) .................................................. 9.500% B+ $4,220 $3,987,900
--------------
41,915,150
--------------
Machinery (0.40%)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 .................................................. 8.500 B 5,100 4,488,000
--------------
Media (6.38%)
Adelphia Communications Corp.,
Sr Note 11-15-09 ...................................................... 9.375 B+ 4,800 4,368,000
Sr Note Ser B 10-01-02 ................................................ 9.250 B+ 3,500 3,403,750
American Media Operations, Inc.,
Sr Sub Note 05-01-09 .................................................. 10.250 B- 1,100 1,042,250
AMFM Operating, Inc.,
Sr Sub Deb 10-31-06 ................................................... 12.625 B- 575 663,779
Capstar Broadcasting Partners, Inc.,
Sub Deb 07-01-09 ...................................................... 12.000 B2 1,699 1,945,240
CBS Radio, Inc.,
Sub Deb 01-15-09 ...................................................... 11.375 BBB 4,738 5,116,608
Chancellor Media Corp.,
Sr Sub Note 10-01-08 .................................................. 9.000 B- 2,000 2,030,000
Citadel Broadcasting Co.,
Sr Sub Note 07-01-07 .................................................. 10.250 B- 2,000 1,960,000
Sr Sub Note 11-15-08 .................................................. 9.250 B- 1,900 1,795,500
Comcast UK Cable,
Sr Disc Deb, Step Coupon (11.20%, 11-15-00)
(United Kingdom) 11-15-07 (A) (Y) ................................... Zero B- 4,000 3,780,000
CSC Holdings, Inc.,
Sr Sub Deb 02-15-13 ................................................... 9.875 BB- 4,000 3,960,000
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 # ...................................... 10.000 B- 3,050 4,268,785
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon
(12.625%, 03-01-03) 03-01-08 (A) ................................... Zero B- 6,000 3,180,000
EchoStar DBS Corp.,
Sr Note 02-01-09 ...................................................... 9.375 B 3,000 2,805,000
Galaxy Telecom L.P.,
Sr Sub Note 10-01-05 .................................................. 12.375 CC 5,000 4,300,000
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 .................................................. 8.625 B+ 4,100 3,526,000
Sr Sub Note Ser B 10-01-09 ............................................ 8.750 B+ 3,500 3,062,500
Pegasus Communications Corp.,
Sr Note Ser B 08-01-07 ................................................ 12.500 CCC+ 3,000 3,120,000
Radio One, Inc.,
Sr Sub Note Ser B, 05-15-04 ........................................... 12.000 B- 2,000 2,135,000
</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)
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 $3,536,426
Sr Note (United Kingdom) 07-01-08 (Y) ................................. 10.500% B- 1,000 1,000,000
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) ................................... 10.000 BB+ 3,000 3,022,500
Sr Sec Deb (Canada) 01-15-14 # ........................................ 9.650 BB+ 2,000 1,409,486
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 .................................................. 11.000 B- 2,785 2,764,112
TV Guide, Inc.,
Sr Sub Note 03-01-09 .................................................. 8.125 B+ 2,800 2,737,000
--------------
70,931,936
--------------
Metal (1.24%)
Centaur Mining & Exploration Ltd.,
Sr Note (Australia) 12-01-07 (Y) ...................................... 11.000 B- 2,500 2,200,000
Euramax International Plc,
Sr Sub Note (United Kingdom) 10-01-06 (Y) ............................. 11.250 B 4,000 4,000,000
Great Central Mines Ltd.,
Sr Note (Australia) 04-01-08 (Y) ...................................... 8.875 BB 5,100 4,564,500
Haynes International, Inc.,
Sr Note 09-01-04 ...................................................... 11.625 B- 2,000 1,200,000
Koppers Industries, Inc.,
Sr Sub Note 12-01-07 .................................................. 9.875 B- 1,000 920,000
PT Alatief Freeport Finance Co., B.V. ,
Sr Note (Netherlands) 04-15-01 ........................................ 9.750 CCC 1,030 885,800
--------------
13,770,300
--------------
Oil & Gas (1.88%)
Cliffs Drilling Co.,
Sr Sec Note Ser B 05-15-03 ............................................ 10.250 BB- 2,250 2,238,750
Comstock Resources, Inc.,
Sr Note 05-01-07 ...................................................... 11.250 B 3,050 3,034,750
Key Energy Services, Inc.,
Sr Sub Note Ser B 01-15-09 ............................................ 14.000 B- 5,000 5,400,000
Parker Drilling Co.,
Sr Note 11-15-06 ...................................................... 9.750 B+ 1,000 940,000
R&B Falcon Corp.,
Sr Note 12-15-08 ...................................................... 9.500 B+ 3,750 3,750,000
RBF Finance Co.,
Sr Sec Note 03-15-09 .................................................. 11.375 BB- 3,550 3,780,750
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03)
02-15-08 (A) ........................................................ Zero B 2,650 1,722,500
--------------
20,866,750
--------------
</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>
Paper & Paper Products (1.38%)
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) ............................................ 12.625% BB- $2,700 $2,679,750
Kappa Beheer BV,
Sr Sub Note (Netherlands) 07-15-09 (E) (R) ............................ 10.625 B 5,850 5,457,757
Packaging Corp. of America,
Sr Sub Note 04-01-09 .................................................. 9.625 B+ 2,200 2,150,500
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Int Cert) 04-01-02 .................... 12.250 B- 5,000 5,062,500
--------------
15,350,507
--------------
Printing - Commercial (0.27%)
Sullivan Graphics, Inc.,
Sr Sub Note 08-01-05 .................................................. 12.750 B- 3,000 3,037,500
--------------
Retail (0.12%)
United Stationers Supply Co.,
Sr Sub Note 04-15-08 .................................................. 8.375 B 1,500 1,357,500
--------------
Steel (0.24%)
Sheffield Steel Corp.,
1st Mtg Note Ser B 12-01-05 ........................................... 11.500 B- 3,875 2,712,500
--------------
Technology (0.19%)
ChipPAC International Ltd.,
Sr Sub Note 08-01-09 (R) .............................................. 12.750 B- 1,950 2,047,500
--------------
Telecommunications (20.09%)
Advanced Radio Telecom Corp.,
Sr Note 02-15-07 ...................................................... 14.000 CCC 2,000 1,760,000
Allegiance Telecom, Inc.,
Sr Disc Note, Ser B, Step Coupon
(11.75%, 02-15-03) 02-15-08 (A) ..................................... Zero B 3,500 2,415,000
AMSC Acquisition Co., Inc.,
Sr Note Ser B 04-01-08 ................................................ 12.250 B- 3,000 1,830,000
Cellco Finance NV,
Sr Note (Netherlands) 08-01-05 (R) (Y) ................................ 12.750 B- 1,300 1,288,625
Clearnet Communications Inc.,
Sr Disc Note, Step Coupon (10.40%, 05-15-03)
(Canada) 05-15-08 (A) # ............................................. Zero B3 6,500 2,616,065
Sr Disc Note, Step Coupon (10.125%, 05-01-04)
(Canada) 05-01-09 (A) (Y) ........................................... Zero B3 3,550 2,005,750
COLT Telecom Group Plc (United Kingdom),
Sr Note (Deutsche Mark) 11-30-07 # .................................... 8.875 B 10,000 4,603,144
Sr Note (Deutsche Mark) 07-31-08 # .................................... 7.625 B 5,490 2,343,811
Comunicacion Celular S.A.,
Bond, Step Coupon (13.125%, 11-15-00) (Colombia)
11-15-03 (A) (R) (Y) ................................................ Zero B 5,000 3,300,000
</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)
Covad Communications Group, Inc.,
Sr Note 02-15-10 (R) .................................................. 12.000% B- $4,700 $4,324,000
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) ............ Zero B 5,000 3,625,000
Dolphin Telecom Plc,
Sr Disc Note, Step Coupon (11.50%, 06-01-03)
(United Kingdom) 06-01-08 (A) (Y) ................................... Zero CCC+ 6,000 1,800,000
Sr Disc Note, Step Coupon (14.00%, 05-15-04)
(United Kingdom) 05-15-09 (A) (Y) ................................... Zero CCC+ 5,600 1,848,000
Energis Plc,
Sr Note (United Kingdom) 06-15-09 # ................................... 9.500 B+ 2,670 3,856,838
Esprit Telecom Group Plc,
Sr Note (United Kingdom) 12-15-07 (Y) ................................. 11.500 B- 1,550 1,302,000
Sr Note (Deutsche Mark) 06-15-08 # .................................... 11.000 BB- 4,050 1,772,509
Exodus Comm., Inc.,
Sr Note (United States) 12-15-09 (E) .................................. 10.750 B- 3,800 3,492,032
Global Crossing Holdings Ltd.,
Sr Note 05-15-08 ...................................................... 9.625 BB 4,000 3,800,000
GST Equipment Funding, Inc.,
Sr Sec Note 05-01-07 (B) .............................................. 13.250 D 5,000 2,325,000
GT Group Telecom, Inc.,
Unit (Sr Disc Note & Warrant), Step Coupon
(13.25%, 02-01-05) (Canada) 02-01-10 (A) (R) ........................ Zero CCC+ 4,500 2,340,000
Hermes Europe Railtel BV,
Sr Note (Netherlands) 08-15-07 (Y) .................................... 11.500 B 5,200 4,186,000
Sr Note (Netherlands) 01-15-09 (Y) .................................... 10.375 B 700 581,000
Intercel, Inc.,
Unit (Sr Discount Note & Warrant), Step Coupon
(12.00%, 02-01-01) 02-01-06 (A) ..................................... Zero B 4,100 3,772,000
Intermedia Communications, Inc.,
Sr Disc Note, Step Coupon (12.50%, 05-15-01) 05-15-06 (A) ............. Zero B 6,000 5,580,000
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
Jazztel Plc,
Sr Note (United Kingdom) 12-15-09 (E) (R) ............................. 13.250 CCC+ 4,300 3,710,809
Level 3 Communications, Inc.,
Sr Note (United States) 03-15-08 (E) (R) .............................. 10.750 B 2,600 2,280,130
Conv Sub Note 03-15-10 ................................................ 6.000 CCC+ 950 798,000
Sr Note 05-01-08 ...................................................... 9.125 B 4,200 3,612,000
Maxcom Telecomunicaciones
Unit (Sr Note & Warrant) (Mexico) 04-01-07 (R) (Y) .................... 13.750 CCC 4,300 4,300,000
McCaw International Ltd.,
Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) ............. Zero B- 7,000 4,900,000
</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) McLeodUSA, Inc.,
Sr Note 07-15-07 ...................................................... 9.250% B+ $4,350 $4,099,875
Sr Note 11-01-08 ...................................................... 9.500 B+ 1,000 950,000
Metrocall, Inc.,
Sr Sub Note 09-15-08 .................................................. 11.000 CCC+ 5,000 3,750,000
Metromedia Fiber Network, Inc.,
Sr Note (United States) 12-15-09 (E) .................................. 10.000 B+ 1,900 1,675,112
Sr Note 11-15-08 ...................................................... 10.000 B+ 900 857,250
MetroNet Communications Corp.,
Sr Discount Note, Step Coupon (10.75%, 11-01-02)
(Canada) 11-01-07 (A) (Y) ........................................... Zero BBB 4,400 3,559,688
Sr Note (Canada) 08-15-07 (Y) ......................................... 12.000 BBB 4,000 4,500,000
Microcell Telecommunications, Inc.,
Sr Disc Note Ser B, Step Coupon (11.125%, 10-15-02)
(Canada) 10-15-07 # ................................................. Zero B- 2,500 1,160,655
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.95%, 02-15-03) 02-15-08 (A) .............. Zero B 8,875 6,123,750
Nextel Partners, Inc.,
Sr Note 03-15-10 (R) .................................................. 11.000 CCC+ 1,300 1,254,500
Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) ............. Zero CCC+ 1,790 1,163,500
NEXTLINK Communications, Inc.,
Sr Disc Note, Step Coupon (9.45%, 04-15-03) 04-15-08 .................. Zero B 4,000 2,400,000
Sr Disc Note, Step Coupon (12.125%, 12-01-04) 12-01-09 (R) ............ Zero B 2,900 1,566,000
Sr Note 11-15-08 ...................................................... 10.750 B 4,500 4,286,250
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 ...................................................... 12.750 B- 2,250 2,115,000
NTL Communications Corp.,
Sr Note Ser B 10-01-08 ................................................ 11.500 B- 6,300 6,331,500
Sr Note Ser B, Step Coupon (12.375%, 10-01-03) 10-01-08 (A) ........... Zero B- 8,500 5,440,000
Nuevo Grupo Iusacell S.A.,
Sr Note (Mexico) 12-01-06 (R) (Y) ..................................... 14.250 B+ 1,400 1,400,000
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 2,080,000
Omnipoint Corp.,
Sr Note 09-15-09 (R) .................................................. 11.500 CCC+ 2,100 2,205,000
ONO Finance Plc,
Sr Note (United Kingdom) 05-01-09 (E) ................................. 13.000 CCC+ 2,950 2,752,202
Sr Note (United Kingdom) 05-01-09 (Y) ................................. 13.000 CCC+ 1,500 1,492,500
Orion Network Systems,
Sr Note 01-15-07 ...................................................... 11.250 B+ 5,000 3,400,000
Primus Telecommunications Group, Inc.,
Sr Note 10-15-09 ...................................................... 12.750 B- 5,500 4,675,000
Qwest Communications International, Inc.,
Sr Note Ser B 04-01-07 ................................................ 10.875 BB+ 2,867 3,067,547
</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)
RCN Corp.,
Sr Disc Note, Step Coupon (11.125%, 10-15-02) 10-15-07 (A) ............ Zero B- $6,800 $3,944,000
Spectrasite Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 04-15-04) 04-15-09 (A) ............. Zero B- 1,600 864,000
Tele 1 Europe B.V.,
Sr Note (Netherlands) 12-01-09 (E) (R) ................................ 11.875% B- 3,800 3,421,128
Telecomunicaciones de Puerto Rico,
Sr Note 05-15-02 ...................................................... 6.150 BBB 1,000 956,840
Telecorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon (11.625%, 04-15-04)
04-15-09 (A) ........................................................ Zero B3 4,710 3,085,050
Telewest Communication Plc,
Sr Disc Note, Step Coupon (9.25%, 04-15-04)
(United Kingdom) 04-15-09 (A) (Y) ................................... Zero B+ 3,400 2,773,756
Sr Note (United Kingdom) 02-01-10 (R) # ............................... 9.875 B+ 2,900 4,123,959
Teligent, Inc.,
Sr Note 12-01-07 ...................................................... 11.500 CCC 5,000 3,850,000
Time Warner Telecom LLC,
Sr Note 07-15-08 ...................................................... 9.750 B 1,250 1,162,500
Tritel PCS, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-15-04) 05-15-09 (A) ............. Zero B3 2,600 1,729,000
United Pan-Europe Communications N.V.,
Sr Disc Note, Step Coupon (13.375%, 11-01-04)
(Netherlands) 11-01-09 (E) (R) ...................................... Zero B- 5,900 2,532,026
Sr Note (Netherlands) 11-01-07 (E) (R) ................................ 10.875 B- 3,900 3,056,344
Sr Note (Netherlands) 11-01-09 (E) (R) ................................ 11.250 B- 3,400 2,696,225
VersaTel Telecom International N.V.,
Sr Note (Netherlands) 05-15-08 (Y) .................................... 13.250 B- 2,400 2,328,000
Sr Note Ser EU (Netherlands) 07-15-09 (E) ............................. 11.875 B- 2,900 2,502,638
Viatel, Inc.,
Sr Note Ser B (United States) 03-15-09 (E) ............................ 11.500 B- 2,000 1,604,674
Sr Note 04-15-08 ...................................................... 11.250 B- 5,250 4,095,000
Williams Communications Group, Inc.,
Sr Note 10-01-09 ...................................................... 10.875 BB- 7,600 7,600,000
Winstar Communications, Inc.,
Sr Note 04-15-08 (R) .................................................. 12.500 B- 4,700 4,371,000
World Access, Inc.,
Sr Note 01-15-08 ...................................................... 13.250 B- 4,350 3,893,250
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (Y) ......................................... 12.500 B+ 3,750 3,731,250
--------------
223,173,682
--------------
Telecommunications/Internet Service Providers (0.51%)
Verio, Inc.,
Sr Note 12-01-08 ...................................................... 11.250 B- 5,100 5,673,750
--------------
</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>
Transportation(0.64%)
Fine Air Services, Corp.,
Sr Note 06-01-08 ...................................................... 9.875% CC $3,900 $3,081,000
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) .............................................. 13.375 B- 3,300 3,102,000
Pacific & Atlantic Holdings, Inc.,
Sr Sec Note 12-31-07 (R) .............................................. 10.500 CC 1,172 914,063
--------------
7,097,063
--------------
Utilities (2.40%)
Calpine Corp.,
Sr Note 04-01-08 ...................................................... 7.875 BB+ 2,000 1,840,000
Sr Note 04-15-09 ...................................................... 7.750 BB+ 2,400 2,198,400
Connecticut Light & Power Co.,
Sec Note 06-05-03 (R) ................................................. 8.590 BBB- 2,300 2,270,284
Midland Funding Corp. I,
Deb 07-23-02 .......................................................... 10.330 BBB- 4,726 4,816,393
Midland Funding Corp. II,
Deb Ser A 07-23-05 .................................................... 11.750 BB 4,250 4,558,677
Deb Ser B 07-23-06 .................................................... 13.250 BB 5,600 6,514,256
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) ................................. 9.625 BB+ 2,900 2,523,000
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 ................................................ 8.770 BBB 1,910 1,970,873
--------------
26,691,883
--------------
TOTAL BONDS
(Cost $1,063,431,566) (87.57%) 972,991,264
-------- -----------
<CAPTION>
NUMBER OF
SHARES
OR WARRANTS
-----------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
Adelphia Business Solutions, Inc., Ser B, 12.875%, Preferred Stock ..................... 3,985 3,626,350
Advanced Radio Telecom Corp., Common Stock ** .......................................... 80,940 829,635
Allegiance Telecom Inc., Warrant ** .................................................... 3,500 280,000
American Telecasting, Inc., Warrant ** ................................................. 4,000 40
COLT Telecom Plc, Warrant (United Kingdom) (R) ** ...................................... 5,000 4,250,000
Comunicacion Celular S.A., Warrant (Colombia) ** ....................................... 5,000 5
Contour Energy Co., $2.625, Conv Preferred Stock ....................................... 40,000 205,000
Core Cap, Inc. (Class A), Common Stock (r) ............................................. 45,000 738,000
Core Cap, Inc., Ser A/I, 10.00%, Preferred Stock (r) ................................... 45,000 1,068,300
Credit Lyonnais Capital S.C.A., American Depositary Receipt (ADR),
9.50%, Ser DTC, Preferred Stock (France) (R) .......................................... 100,000 2,350,000
Decorative Home Accents, Inc., Common Stock ** ......................................... 1,000 1
DIVA Systems Corp., Warrant ** ......................................................... 18,000 36,000
EarthWatch, Inc., 12.00%, Ser C, Conv Preferred Stock (R) .............................. 89,836 718,688
</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)
Granite Broadcasting Corp., 12.75%, Preferred Stock .................................... 5,793 $5,213,700
ICG Holdings, Inc., 14.00%, Preferred Stock ............................................ 3,029 2,423,200
Intermedia Communications, Inc., Common Stock ** ....................................... 30,000 750,000
International Wireless Communications Holdings, Inc., Common Stock ..................... 145,034 270,024
Ionica Plc, Warrant (United Kingdom) (R) # ** .......................................... 8,500 85
Key Energy Services, Inc., Common Stock ** ............................................. 72,448 787,872
KLM Royal Dutch Airlines, N.V. ADR Common Stock (Netherlands) .......................... 19,930 433,478
Loral Space & Communications Ltd., Warrant ** .......................................... 5,000 50,000
McCaw International Ltd., Warrant ** ................................................... 7,000 17,500
MetroNet Communications Corp., Warrant (Canada) (R) ** ................................. 2,250 281,250
Motient Corp., Warrant (R) ** ......................................................... 3,000 75,000
Nextel Communications, Inc. (Class A), Common Stock ** ................................. 12,394 1,147,994
Nextel Communications, Inc., 11.125%, Ser E, Preferred Stock ........................... 2,135 1,985,550
Nextel Communications, Inc., 13.00%, Ser D, Preferred Stock ........................... 2,832 2,973,600
NEXTLINK Communications Inc., 14.00%,, Preferred Stock ................................. 132,335 6,352,080
Northeast Utilities, Common Stock ** ................................................... 75,000 1,659,375
Northwest Airlines Corp., Common Stock ................................................. 150,000 4,265,625
NTL Inc., 13.00%, Ser B, Preferred Stock ............................................... 5,683 5,683,000
Occidente y Caribe Celular S.A., Warrant (R) ** ....................................... 16,000 240,000
ONO Finance Plc, Warrant (United Kingdom) (R) (Y) ** ................................... 1,500 150,000
ONO Finance Plc, Warrant (United Kingdom) (R) (E) ** ................................... 2,950 275,220
Pacific & Atlantic Holdings, Inc., 7.50%, Ser A, Cum Conv Preferred Stock ** ........... 70,313 492,191
PG&E Corp., Common Stock ............................................................... 25,622 664,571
Powertel, Inc., Warrant ** ............................................................. 2,880 23,040
PRIMEDIA Inc., 8.625%, Ser H, Preferred Stock .......................................... 25,000 2,125,000
Qantas Airways Ltd., ADR (Australia) Common Stock ...................................... 13,800 255,081
RCN Corp., Common Stock ** ............................................................. 40,000 922,500
Renaissance Cosmetics, Warrant ** ...................................................... 4,000 4
Rural Cellular Corp., 11.375% Ser B, Preferred Stock ................................... 2,187 2,033,910
SpinCycle, Inc., Warrant (R) ........................................................... 3,625 36
TLC Beatrice International Holdings (Class A), Common Stock (r) ** .................... 20,000 175,800
Versatel Telecom International NV, ADR (Netherlands) Common Stock ** ................... 32,002 1,094,068
Viatel, Inc., Common Stock ** .......................................................... 6,068 151,321
World Access, Inc., Common Stock ** .................................................... 13,668 143,514
-----------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $57,777,923) (5.15%) 57,217,608
-------- -----------
</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 (4.30%)
Investment in a joint repurchase agreement transaction with SBC Warburg, Inc. -
Dated 05-31-00, due 06-01-00 (Secured by U.S. Treasury Bonds, 5.500%
thru 10.750%, due 02-15-03 thru 08-15-28) - Note A............................. 6.370% $47,760 $47,760,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.20%............................................................. 829
--------------
TOTAL SHORT-TERM INVESTMENTS (4.30%) 47,760,829
-------- --------------
TOTAL INVESTMENTS (97.02%) 1,077,969,701
-------- --------------
OTHER ASSETS AND LIABILITIES, NET (2.98%) 33,148,494
-------- --------------
TOTAL NET ASSETS (100.00%) $1,111,118,195
======== ==============
</TABLE>
* Credit ratings are unaudited and rated by Moody's Investor Services or John
Hancock Advisers, Inc. where Standard & Poor's ratings are not available.
** Non-income producing security.
*** Represents rate in effect on May 31, 2000.
# 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.
(B) Non-income producing issuer, filed for protection under the Federal
Bankruptcy Code or is in default on interest payment.
(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 $91,570,559 or 8.24% of the Fund's net assets as of
May 31, 2000.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer; however, security is U. S. dollar
denominated.
(r) Direct placement securities are restricted 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
ISSUER, DESCRIPTION DATE COST NET ASSETS MAY 31, 2000
------------------- ---- ---- ---------- ------------
<S> <C> <C> <C> <C>
Core Cap, Inc. (Class A), Common Stock......................... 10-31-97 $900,000 0.07% $738,000
Core Cap, Inc., Ser A/I, 10%, Preferred Stock.................. 10-31-97 1,125,000 0.10 1,068,300
TLC Beatrice International Holdings (Class A), Common Stock ... 11-25-87 166,000 0.02 175,800
</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, 2000 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
----------------------- ----------
Argentina................................................... 0.40%
Australia................................................... 0.98
Bahamas..................................................... 0.15
Brazil...................................................... 0.05
Canada...................................................... 7.97
Channel Islands............................................. 0.42
Colombia.................................................... 0.48
Costa Rica.................................................. 0.06
France...................................................... 0.39
Luxembourg.................................................. 0.21
Mexico...................................................... 0.98
Netherlands................................................. 2.74
Panama...................................................... 0.11
United Kingdom.............................................. 4.84
United States............................................... 77.24
------
TOTAL INVESTMENTS 97.02%
======
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........................................................ 43.48%
A.......................................................... 0.42
BBB........................................................ 2.23
BB......................................................... 7.51
B.......................................................... 29.19
CCC........................................................ 3.76
CC......................................................... 0.76
D.......................................................... 0.22
------
TOTAL BONDS 87.57%
======
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Strategic Income Fund (the "Fund") is a diversified series of John
Hancock Strategic Series Trust, an open-end management investment company,
registered under the Investment Company Act of 1940. 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 $35,560,535 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 gain distributions will be made. The carryforwards expire as
follows: May 31, 2001 -- $3,127,414, May 31, 2002 -- $2,774,082, May 31, 2003 --
$20,212,296, May 31, 2004 -- $267,008, May 31, 2006 -- $1,008,800, May 31, 2007
-- $1,503,470 and May 31, 2008 -- $6,667,465. Availability of a certain amount
of these loss carryforwards which were acquired on October 22, 1999 in a merger
with John Hancock Short-Term Strategic Income Fund, may be limited in a given
year. Additionally, net currency losses of $2,652,541 and net capital losses of
$5,993,244 attributable to transactions incurred after October 31, 1999 are
treated as arising on the first day (June 1, 2000) 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. The Fund may
place a debt obligation on non-accrual status and reduce related interest income
by ceasing current accruals and writing off interest receivables when the
collection of all or
28
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
a portion of interest has become doubtful. Foreign income may be subject to
foreign withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
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.
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. The Fund has entered into
a syndicated line of credit agreement that enables the Fund to participate with
other funds managed by the Adviser in an unsecured line of credit with banks
which permit borrowings up to $500 million, collectively. Interest is charged to
each fund, based on its borrowing. In addition, a commitment fee 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, 2000.
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 facilitate the settlement
of foreign currency denominated portfolio
29
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
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.
At May 31, 2000, open forward foreign currency exchange contracts were as
follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
-------- ------------------- ----- --------------
BUYS
British Pound Sterling 10,534,636 June 00 ($408,741)
British Pound Sterling 6,171,293 Aug 00 (398,682)
----------
($807,423)
==========
SELLS
British Pound Sterling 29,280,036 June 00 $2,465,333
British Pound Sterling 9,211,847 July 00 845,439
British Pound Sterling 21,841,228 Aug 00 1,299,174
British Pound Sterling 5,078,302 Sept 00 34,635
British Pound Sterling 3,336,448 Nov 00 (41,127)
----------
$4,603,454
==========
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, 2000, there were no open positions in financial futures contracts.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
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,
2000, up-front sales charges received with regard to sales of Class A shares
amounted to $1,143,194. Out of this amount, $106,366 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$454,635 was paid as sales commissions to unrelated broker-dealers and $582,193
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Life Insurance Company ("JHLICo"), is the indirect sole shareholder
of Signator Investors.
30
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
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, 2000,
contingent deferred sales charges paid to JH Funds amounted to $2,047,775.
Effective May 1, 2000, all Class C retail purchases are assessed a 1.00%
up-front sales charge. For the year ended May 31, 2000, up-front sales charges
received with regard to sales of Class C shares amounted to $16,316. Out of this
amount, $15,834 was paid as sales commissions to unrelated broker-dealers and
$482 was paid as sales commissions to sales personnel of Signator Investors.
Class C shares which are redeemed within one year of purchase will be subject to
a CDSC at a rate of 1.00% of the lesser of the current market value at the time
of redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of Class C shares. For the year ended May 31,
2000, contingent deferred sales charges paid to JH Funds amounted to $31,363.
In addition, to reimburse 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 for its distribution and service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the Conduct Rules of the National Association of Securities Dealers. Under
the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could
occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S. Scipione are
directors and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund 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.
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, 2000, aggregated $294,513,329 and $454,836,095, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $107,222,586 and $25,843,754, respectively, during the year
ended May 31, 2000.
The cost of investments owned at May 31, 2000 (excluding the corporate
savings account) for federal income tax purposes was $1,154,772,897. Gross
unrealized appreciation and depreciation of investments aggregated $18,070,381
and $94,874,406, respectively, resulting in net unrealized depreciation of
$76,804,025.
31
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended May 31, 2000, the Fund has reclassified amounts to reflect
an increase in accumulated net realized loss on investments of $1,405,417, a
decrease in undistributed net investment income of $231,689 and an increase in
capital paid-in of $1,637,106. This represents the amount necessary to report
these balances on a tax basis, excluding certain temporary differences, as of
May 31, 2000. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to the 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 -
REORGANIZATIONS
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 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.
On October 13, 1999, the shareholders of John Hancock Short-Term Strategic
Income Fund ("Short-Term Strategic Income Fund") approved a plan of
reorganization between Short-Term Strategic Income Fund and the Fund providing
for the transfer of substantially all of the assets and liabilities of
Short-Term Strategic Income Fund to the Fund in exchange solely for Class A,
Class B and Class C shares of the Fund. The acquisition was accounted for as a
tax free exchange of 5,170,719 Class A shares, 1,722,175 Class B shares and
8,131 Class C shares of the Fund for the net assets of Short-Term Strategic
Income Fund, which amounted to $37,103,528, $12,357,813 and $58,348 for Class A,
Class B and Class C shares, respectively, including $1,324,120 of unrealized
depreciation, after the close of business on October 22, 1999.
32
<PAGE>
================================================================================
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, 2000, the
results of its operations for the year then ended, and the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 5, 2000
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, 2000.
Shareholders will be mailed a 2000 U.S. Treasury Department Form 1099-DIV in
January of 2001. This will reflect the tax character of all distributions for
calendar year 2000.
With respect to the Fund's ordinary taxable income for the fiscal year ended
May 31, 2000, 6.26% of the distributions qualify for the dividends received
deduction available to corporations.
33
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======================================NOTES=====================================
John Hancock Funds - Strategic Income Fund
34
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Strategic Income Fund
35
<PAGE>
================================================================================
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