------------------------------
The latest report from your
Fund's management team
------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC]
Strategic
Income Fund
NOVEMBER 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------------
TRUSTEES
DENNIS S. ARONOWITZ*
STEPHEN L. BROWN
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
LELAND O. ERDAHL
RICHARD A. FARRELL
MAUREEN R. FORD
GAIL D. FOSLER
WILLIAM F. GLAVIN
ANNE C. HODSDON
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
----------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
The best thing about this massive mailing is that it can serve as a wake-up call
to encourage families to focus more on planning for their financial future.
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy, making sure your annual
earnings history and amounts you have contributed over the years are correct.
Keep in mind that the estimated benefits are precisely that, and that rules and
regulations may change by the time you retire. Also remember that they are not
inflation adjusted, so it would be unrealistic to expect them to have the same
purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement. Together, you should make sure to maximize your
participation in tax-advantaged programs like IRAs and 401(k)s.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/ Maureen R. Ford
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY FREDERICK CAVANAUGH, CFA, MANAGEMENT TEAM LEADER, AND
ARTHUR N. CALAVRITINOS, CFA, JANET L. CLAY, CFA, AND DANIEL S. JANIS,
PORTFOLIO MANAGERS
John Hancock
Strategic Income Fund
Bond market slips amid inflation worries
Recently, shareholders of John Hancock Short-Term Strategic Income Fund voted to
merge their fund into John Hancock Strategic Income Fund, effective October 22,
1999.
U.S. Treasury bonds suffered losses during the six-month period ended November
30, 1999, as concerns about the strength of the domestic and global economies
and rising interest rates took their toll. In response to evidence that the U.S.
economy was growing at a much faster-than-anticipated clip and that many
previously sluggish foreign economies were on the mend, the Federal Reserve
Board raised interest rates three times between June and November to stave off
any brewing inflationary pressures. In response, Treasuries posted their worst
returns since 1994, a year when the Fed hiked rates six times.
Since high-yield bonds carry higher levels of income that help partially
cushion them against rising interest rates, they outpaced Treasuries. That said,
high-yield bond returns were muted by a host of other challenges. Demand for
high-yield bonds was rather anemic given the red-hot stock market and concerns
that some markets might freeze up at year end in response to potential
Y2K-related problems. Meanwhile, the supply of high-yield securities expanded.
Many corporations rushed to issue debt in the summer and fall to lock in
relatively low interest rates, while others accelerated issuance in order
"...the Federal Reserve Board raised interest rates to stave off any brewing
inflationary pressures."
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" 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>
================================================================================
John Hancock Funds - Strategic Income Fund
"Among our best performers were telecommunications companies..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Bond Sectors." The first
listing is U.S. Treasury & Government Agencies 31%, the second is
Telecommunications 20%, the third Foreign Governments 10%, the fourth Media 7%
and the fifth Leisure 5%. A note below the table reads "As a percentage of net
assets on November 30, 1999."]
- --------------------------------------------------------------------------------
to sidestep potential fourth-quarter Y2K-related bumps. Finally, the number of
high-yield companies unable or unwilling to honor their debt payments crept up a
bit during the period.
Signs of a strengthening European economy and rising interest rates
contributed to the poor performance of government bonds across much of that
continent as well. Perhaps the most notable exceptions were U.K. government
bonds, which performed reasonably well thanks to the fact that the economy there
remained rather sluggish and interest rates remained relatively stable. Among
the foreign markets, emerging-market bonds from Asia and Latin America fared the
best, as parts of Asia showed signs of being on the mend and more investment
dollars flowed into the region.
Performance review
For the six months ended November 30, 1999, John Hancock Strategic Income Fund's
Class A, Class B and Class C shares had total returns of 1.14%, 0.79% and 0.78%,
respectively, at net asset value. The Fund's returns were in line with the
average multi-sector income fund, which returned 0.72% for the same period,
according to Lipper, Inc.(1) Keep in mind that your net asset value return will
be different from the Fund's performance if you were not invested in the Fund
for the entire period and did not reinvest all distributions. Please see pages
six and seven for longer-term performance information.
High-yield corporate bonds
Throughout the period, we continued to maintain a relatively large weighting in
high-yield corporate bonds, reflecting our view that they continue to offer an
attractive combination of value and high income. At the end of the period,
high-yield bonds made up roughly 36% of the Fund's net assets. Among our best
performers were telecommunications companies such as Telecorp PCS, a wireless
telecommunications provider, which continued to enjoy good subscriber growth.
Another strong performer was FaciliCom International, a leading provider of
European- and U.S.-originated long-distance voice, data and Internet services.
It got a boost from its merger with long-distance company World Access. Finally,
RCN Corp., a provider of communications services to the residential market, was
boosted by expansion of its service area. On the flip side, our disappointments
included movie theater chain Regal Cinemas, which posted worse-than-expected
earnings after failing to execute its aggressive expansion plan, and coal
company AEI Resources, which suffered from weak coal prices and rising
transportation costs.
- --------------------------------------------------------------------------------
[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 FaciliCom
International followed by an up arrow with the phrase "Merger boosts prospects."
The second listing is RCN followed by an up arrow with the phrase "Service area,
customer base expand." The third listing is AEI Resources followed by a down
arrow with the phrase "Weak coal prices; transport costs soar." A note below the
table reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
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4
<PAGE>
================================================================================
John Hancock Funds - 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 six months ended November 30, 1999." The
chart is scaled in increments of 1% with 0% at the bottom and 2% at the top. The
first bar represents the 1.14% total return for John Hancock Strategic Income
Fund Class A. The second bar represents the 0.79% total return for John Hancock
Strategic Income Fund Class B. The third bar represents the 0.78% total return
for John Hancock Strategic Income Fund Class C. The fourth bar represents the
0.72% 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. See the following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
Government-bond choices
Our stake in high-quality government bonds was overwhelmingly tilted in favor of
U.S. Treasuries during the period. Although they had a tough go of it during the
period, we continued to hold on to Treasuries because they offered yields well
in excess of most high-quality government bonds elsewhere, including Europe.
That said, we also had holdings in higher-yielding government bonds from the
United Kingdom and Canada. They were two spots that offered competitive yields
and performed well relative to their U.S. counterparts.
Despite their recent run-up, we did not increase our stake in emerging-market
bonds, which made up less than 3% of the Fund's total net assets at the end of
the period. Arguably, the Fund's results may have been enhanced by owning more
emerging-market bonds during the period. However, we think that the potential
risks of owning them over the long term far outweigh the potential rewards.
Granted, parts of emerging Asia -- including Malaysia and Korea -- have shown
signs of a rebound. However, it's still uncertain whether Japan's recent
economic strength is sustainable. Likewise, it's questionable whether China's
government-sponsored economic growth can continue. Latin American countries --
some of which peg their currencies to the U.S. dollar -- may be facing higher
interest rates at a time when their economies are just beginning to show
strength. Given the breadth of our concerns, we chose to invest in emerging
markets on a very selective basis only.
Outlook
Our view is that high-quality foreign government bonds -- aside from the U.K.
and Canada -- offer little value, with yields well below U.S. Treasury yields.
And with all the uncertainty clouding emerging markets, we're likely to keep our
stake in them relatively small even though they're attractive from a yield
standpoint. We believe the high-yield corporate market still offers very good
value. The U.S. economy has recently shown some signs of slowing, which would
likely be a positive for high-yield bonds since interest rates could stabilize
or fall as a result. As long as economic growth doesn't slow too much, companies
that issue high-yield debt will likely fare well.
"...with all the uncertainty clouding emerging markets, we're likely to keep our
stake in them relatively small..."
- --------------------------------------------------------------------------------
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 a maximum applicable sales
charge of 4.5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years). Class C shares
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. For a discussion of risks
associated with international investing and high-yield bonds, please see the
Fund's prospectus.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (1.36%) 52.64% 107.25%
Average Annual Total Returns (1.36%) 8.83% 7.56%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/4/93)
---- ----- --------
Cumulative Total Returns (2.16%) 52.46% 52.46%
Average Annual Total Returns (2.16%) 8.80% 7.30%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE INCEPTION
YEAR (5/1/98)
---- --------
Cumulative Total Returns 1.67% 1.46%
Average Annual Total Returns 1.67% 1.03%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1999
SEC 30-DAY
YIELD
-----
John Hancock Strategic Income Fund: Class A 7.83%
John Hancock Strategic Income Fund: Class B 7.49%
John Hancock Strategic Income Fund: Class C 7.48%
6
<PAGE>
================================================================================
John Hancock Funds - Strategic Income Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
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 Lehman
Brothers Government/Corporate Bond Index and is equal to $22,717 as of November
30, 1999. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Strategic Income Fund on May 31, 1989,
before sales charge, and is equal to $22,434 as of November 30, 1999. The third
line represents the same hypothetical investment made in the John Hancock
Strategic Income Fund, after sales charge, and is equal to $21,432 as of
November 30, 1999.
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 $15,581 as of
November 30, 1999. The second line represents the Lehman Brothers
Government/Corporate Bond Index and is equal to $13,965 as of November 30, 1999.
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 two lines. The first line represents the Lehman
Brothers Government/Corporate Bond Index and is equal to $10,564 as of November
30, 1999. 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 $10,304 as of November 30, 1999.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Statement of Assets and Liabilities
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments at value - Note C:
Bonds (cost - $1,157,969,353) ....................................... $1,095,381,224
Common and preferred stocks and warrants (cost - $62,263,622) ....... 71,029,667
Joint repurchase agreement (cost - $24,044,000) ..................... 24,044,000
Corporate savings account ........................................... 730
---------------
1,190,455,621
Receivable for investments sold ...................................... 24,279
Receivable for foreign currency exchange contracts sold - Note A ..... 3,549,363
Receivable for shares sold ........................................... 822,614
Dividends receivable ................................................. 26,042
Foreign tax receivable ............................................... 31,799
Interest receivable .................................................. 24,668,276
Other assets ......................................................... 62,434
---------------
Total Assets ....................................... 1,219,640,428
------------------------------------------------------------------------
Liabilities:
Payable for foreign currency exchange contracts purchased - Note A ... 453,127
Payable for shares repurchased ....................................... 204,229
Payable to John Hancock Advisers, Inc. and affiliates - Note B ....... 950,289
Accounts payable and accrued expenses ................................ 260,916
---------------
Total Liabilities .................................. 1,868,561
------------------------------------------------------------------------
Net Assets:
Capital paid-in ...................................................... 1,278,530,883
Accumulated net realized loss on investments, financial
futures contracts and foreign currency transactions ................ (19,453,182)
Net unrealized depreciation of investments and foreign
currency transactions .............................................. (50,815,234)
Undistributed net investment income .................................. 9,509,400
---------------
Net Assets ......................................... $1,217,771,867
========================================================================
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 - $560,919,531/77,371,264 .................................... $7.25
==========================================================================================
Class B - $625,335,954/86,256,638 .................................... $7.25
==========================================================================================
Class C - $31,516,382/4,347,259 ...................................... $7.25
==========================================================================================
Maximum Offering Price Per Share:*
Class A - ($7.25 x 104.71%) .......................................... $7.59
==========================================================================================
</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 November 30, 1999. You'll
also find the net asset value and the maximum offering price per share as of
that date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Statement of Operations
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest ...................................................... $49,358,819
Dividends (net of foreign withholding taxes of $52,357) ....... 2,873,264
------------
52,232,083
------------
Expenses:
Investment management fee - Note B ........................... 2,199,035
Distribution and service fee - Note B
Class A .................................................... 803,806
Class B .................................................... 3,100,956
Class C .................................................... 133,269
Transfer agent fee - Note B .................................. 1,104,910
Custodian fee ................................................ 199,237
Accounting and legal services fee - Note B ................... 116,939
Registration and filing fees ................................. 75,487
Printing ..................................................... 42,627
Trustees' fees ............................................... 40,871
Miscellaneous ................................................ 27,655
Auditing fee ................................................. 26,997
Legal fees ................................................... 5,116
------------
Total Expenses .............................. 7,876,905
--------------------------------------------------------------
Net Investment Income ....................... 44,355,178
--------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions:
Net realized gain on investments sold ......................... 125,016
Net realized gain on financial futures contracts .............. 673,694
Net realized loss on foreign currency transactions ............ (1,723,234)
Change in net unrealized appreciation/depreciation
of investments ............................................... (33,225,880)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ............................. 1,148,208
------------
Net Realized and Unrealized Loss on
Investments, Financial Futures Contracts
and Foreign Currency Transactions ........... (33,002,196)
---------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................... $11,352,982
===============================================================
</TABLE>
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ...................................... $79,053,431 $44,355,178
Net realized gain (loss) on investments sold,
financial futures contracts and foreign currency
transactions ............................................. 9,187,960 (924,524)
Change in net unrealized appreciation/depreciation
of investments and foreign currency transactions ......... (61,150,967) (32,077,672)
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ..... 27,090,424 11,352,982
--------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.5869 and $0.2914 per share, respectively) .. (39,586,497) (21,128,531)
Class B - ($0.5336 and $0.2653 per share, respectively) .. (38,784,062) (22,271,635)
Class C - ($0.5325 and $0.2715 per share, respectively) .. (682,872) (955,012)
--------------- ---------------
Total Distributions to Shareholders ...................... (79,053,431) (44,355,178)
--------------- ---------------
From Fund Share Transactions - Net: * ......................... 271,395,238 67,937,917
--------------- ---------------
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 $9,509,400, respectively) ....... $1,182,836,146 $1,217,771,867
=============== ===============
</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>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 23,723,150 $180,254,633 9,687,440 $71,021,482
Shares issued in reorganization - Note D ........................ 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 1,853,026 13,491,302
----------- ------------ ------------ ------------
29,787,588 226,167,926 16,711,185 121,616,312
Less shares repurchased ......................................... (19,695,328) (149,424,723) (11,863,287) (86,826,517)
----------- ------------ ------------ ------------
Net increase .................................................... 10,092,260 $76,743,203 4,847,898 $34,789,795
=========== ============ ============ ============
CLASS B
Shares sold ..................................................... 34,911,841 $265,229,237 10,396,067 $76,128,122
Shares issued in reorganization - Note D ........................ 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 1,601,167 11,652,136
----------- ------------ ------------ ------------
38,937,687 295,700,952 13,719,409 100,138,071
Less shares repurchased ......................................... (16,288,404) (123,285,702) (10,508,825) (76,784,468)
----------- ------------ ------------ ------------
Net increase .................................................... 22,649,283 $172,415,250 3,210,584 $23,353,603
=========== ============ ============ ============
CLASS C
Shares sold ..................................................... 3,078,916 $23,354,223 1,694,546 $12,386,783
Shares issued in reorganization - Note D ........................ -- -- 8,131 58,348
Shares issued to shareholders in reinvestment of distributions .. 49,364 372,713 76,638 557,355
----------- ------------ ------------ ------------
3,128,280 23,726,936 1,779,315 13,002,486
Less shares repurchased ......................................... (197,316) (1,490,151) (439,644) (3,207,967)
----------- ------------ ------------ ------------
Net increase .................................................... 2,930,964 $22,236,785 1,339,671 $9,794,519
=========== ============ ============ ============
</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, SIX MONTHS ENDED
--------------------------------------------------------- NOVEMBER 30, 1999
1995 1996 1997 1998 1999 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............ $7.17 $7.15 $7.27 $7.54 $7.84 $7.46
-------- -------- -------- -------- -------- --------
Net Investment Income ........................... 0.64 0.66(1) 0.64(1) 0.64(1) 0.59(1) 0.29(1)
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions ................. (0.02) 0.12 0.27 0.34 (0.38) (0.21)
-------- -------- -------- -------- -------- --------
Total from Investment Operations .............. 0.62 0.78 0.91 0.98 0.21 0.08
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .......... (0.55) (0.66) (0.64) (0.64) (0.59) (0.29)
Distributions from Net Realized Gain on
Investments Sold ............................ -- -- -- (0.04) -- --
Distributions from Capital Paid-In ............ (0.09) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions ........................... (0.64) (0.66) (0.64) (0.68) (0.59) (0.29)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period .................. $7.15 $7.27 $7.54 $7.84 $7.46 $7.25
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) ... 9.33% 11.37% 12.99% 13.43% 2.77% 1.14%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........ $327,876 $369,127 $416,916 $489,375 $540,956 $560,920
Ratio of Expenses to Average Net Assets ......... 1.09% 1.03% 1.00% 0.92% 0.89% 0.94%(4)
Ratio of Net Investment Income to Average Net
Assets ........................................ 9.24% 9.13% 8.61% 8.20% 7.71% 7.86%(4)
Portfolio Turnover Rate ......................... 55% 78% 132% 112% 55%(6) 17%(6)
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
---------------------------------------------------------- NOVEMBER 30, 1999
1995 1996 1997 1998 1999 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........... $7.17 $7.15 $7.27 $7.54 $7.84 $7.46
-------- -------- -------- -------- -------- --------
Net Investment Income .......................... 0.60(1) 0.61(1) 0.59 0.59(1) 0.53(1) 0.27(1)
Net Realized and Unrealized Gain (Loss)
on Investments, Financial Futures Contracts
and Foreign Currency Transactions ............ (0.02) 0.12 0.27 0.34 (0.38) (0.21)
-------- -------- -------- -------- -------- --------
Total from Investment Operations ............. 0.58 0.73 0.86 0.93 0.15 0.06
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ......... (0.52) (0.61) (0.59) (0.59) (0.53) (0.27)
Distributions from Net Realized Gain on
Investments Sold ........................... -- -- -- (0.04) -- --
Distributions from Capital Paid-in ........... (0.08) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions .......................... (0.60) (0.61) (0.59) (0.63) (0.53) (0.27)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ................. $7.15 $7.27 $7.54 $7.84 $7.46 $7.25
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) .. 8.58% 10.61% 12.21% 12.64% 2.06% 0.79%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....... $134,527 $206,751 $328,487 $473,428 $619,446 $625,336
Ratio of Expenses to Average Net Assets ........ 1.76% 1.73% 1.70% 1.62% 1.59% 1.64%(4)
Ratio of Net Investment Income to Average Net
Assets ....................................... 8.55% 8.42% 7.90% 7.50% 7.01% 7.16%(4)
Portfolio Turnover Rate ........................ 55% 78% 132% 112% 55%(6) 17%(6)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1998 MAY 31, 1999 (UNAUDITED)
------------ ------------ -----------
<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 0.27
Net Realized and Unrealized Loss on Investments,
Financial Futures Contracts and Foreign Currency Transactions .. (0.03)(5) (0.38) (0.21)
------- ---------- ----------
Total from Investment Operations ............................... 0.02 0.15 0.06
------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ........................... (0.05) (0.53) (0.27)
------- ---------- ----------
Net Asset Value, End of Period ................................... $7.84 $7.46 $7.25
======= ========== ==========
Total Investment Return at Net Asset Value (2) ................... 0.23%(3) 2.04% 0.78%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......................... $601 $22,434 $31,516
Ratio of Expenses to Average Net Assets .......................... 1.62%(4) 1.59% 1.64%(4)
Ratio of Net Investment Income to Average Net Assets ............. 7.34%(4) 7.01% 7.16%(4)
Portfolio Turnover Rate .......................................... 112% 55%(6) 17%(6)
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Not annualized.
(4) Annualized.
(5) The amount shown for a share outstanding does not correspond with the
aggregate net gain/(loss) on investments for the period ended May 31, 1998,
due to the timing of purchases and redemptions of Fund shares in relation to
fluctuating market values of the investments of the Fund.
(6) Portfolio turnover rate excludes merger activity.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
Schedule of Investments
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Strategic Income Fund on November 30, 1999. It has three main categories: bonds,
common and preferred stocks and warrants, and short-term investments. The bonds
are further broken down by industry groups. Under each industry group is a list
of bonds owned by the Fund. Short-term investments, which represent the Fund's
"cash" position, are listed last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
BONDS
Advertising (0.49%)
Go Outdoor Systems Holding S.A.,
Sr Sub Note (France) 07-15-09 (E) (R) ......... 10.500% B- $1,800 $1,902,947
Outdoor Systems, Inc.,
Sr Sub Note 10-15-06 .......................... 9.375 B 4,000 4,120,000
-----------
6,022,947
-----------
Aerospace (0.14%)
Jet Equipment Trust,
Equipment Trust Cert Ser 95B2 08-15-14 (R) .... 10.910 BBB 1,500 1,673,610
-----------
Banks - Foreign (0.13%)
Banco de Galicia y Buenos Aires S.A. de C.V.,
Unsub Deb (Argentina) 12-15-00 (R) (Y) ........ 10.000 BB 1,500 1,522,650
-----------
Banks - United States (0.21%)
CSBI Capital Trust I,
Sec Co Gtd Bond Ser A 06-06-27 ................ 11.750 B- 2,340 2,503,800
-----------
Beverages (0.72%)
Canandaigua Brands, Inc.,
Sr Sub Note 03-01-09 .......................... 8.500 B+ 5,000 4,762,500
National Wine & Spirits, Inc.,
Sr Note 01-15-09 .............................. 10.125 B 4,000 4,000,000
-----------
8,762,500
-----------
Building (0.08%)
Standard Pacific Corp.,
Sr Note 04-01-09 .............................. 8.500 BB 1,000 915,000
-----------
Business Services - Misc. (0.82%)
Primark Corp.,
Sr Sub Note 12-15-08 .......................... 9.250 B+ 5,000 4,725,000
United Rentals, Inc.,
Sr Sub Note Ser B 08-15-08 .................... 8.800 BB- 3,900 3,539,250
Worldwide Flight Services,
Unit (Sr Note & Warrant) 08-15-07 (R) ......... 12.250 B 1,800 1,764,000
-----------
10,028,250
-----------
</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>
Chemicals (0.35%)
General Chemical Industrial Products, Inc.,
Sr Sub Note 05-01-09 .......................................... 10.625% B+ $1,000 $980,000
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 (R) ...................................... 10.125 B+ 1,700 1,738,250
PCI Chemicals Canada, Inc.,
Sec Note (Canada) 10-15-07 (Y) ................................ 9.250 B+ 2,000 1,520,000
-----------
4,238,250
-----------
Consumer Products Misc. (0.11%)
Diamond Brands Operating Corp.,
Sr Sub Note Ser B 04-15-08 .................................... 10.125 CCC+ 1,000 770,000
Hedstrom Corp.,
Sr Sub Note 06-01-07 .......................................... 10.000 B- 4,000 600,000
-----------
1,370,000
-----------
Containers (0.43%)
Berry Plastics Corp.,
Sr Sub Note 04-15-04 .......................................... 12.250 B- 4,000 4,060,000
Consolidated Container Co. LLC/Cons. Container Capital, Inc.,
Sr Sub Note 07-15-09 (R) ...................................... 10.125 B 1,200 1,221,000
-----------
5,281,000
-----------
Diversified Operations (0.49%)
Tenneco, Inc.,
Sr Sub Note 10-15-09 (R) ...................................... 11.625 B+ 6,000 6,000,000
-----------
Electronics (0.20%)
Communications Instruments, Inc.,
Sr Sub Note Ser B 09-15-04 .................................... 10.000 B- 2,900 2,407,000
-----------
Energy (0.73%)
AEI Resources, Inc./AEI Resources Holdings, Inc.,
Gtd Note 12-15-05 (R) ......................................... 10.500 CCC- 5,000 3,950,000
P & L Coal Holdings Corp.,
Sr Sub Note Ser B 05-15-08 .................................... 9.625 B 5,000 4,950,000
-----------
8,900,000
-----------
Finance (0.82%)
CEI Citicorp Holdings S.A.,
Bond (Argentina) 02-14-07 (Y) ................................. 9.750 BB- 3,000 2,520,000
Maxxam Group Holdings, Inc.,
Sr Sec Note Ser B 08-01-03 .................................... 12.000 CCC+ 3,000 2,700,000
PTC International Finance II S.A.,
Sr Sub Note (Luxembourg) 12-01-09 (E) (R) ..................... 11.250 B+ 2,400 2,404,358
Sovereign Bancorp, Inc.,
Sr Note 11-15-06 .............................................. 10.500 BB+ 2,400 2,424,000
-----------
10,048,358
-----------
</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>
Food (0.19%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 ................................... 11.875% B $2,400 $2,304,000
------------
Government - Foreign (10.04%)
Argentina, Republic of,
Floating Rate Bond (Argentina) 07-21-03 (Y) ............ 10.020*** BB 1,000 910,000
Floating Rate Bond Ser FRB (Argentina) 03-31-05 (Y) .... 6.8125*** BB 3,520 3,092,320
Brazil, Federative Republic of,
Variable Rate Bond Ser A (Brazil) 01-01-01 (Y) ......... 6.500*** B2 923 905,895
Canada, Government of,
Government Bond (Canada) 03-01-01 # .................... 7.500 AAA 28,000 19,399,376
Government Bond (Canada) 09-01-02 # .................... 5.500 AAA 16,500 11,038,811
Government Bond (Canada) 12-01-05 # .................... 8.750 AAA 15,000 11,489,687
Costa Rica, Republic of,
Note (Costa Rica) 05-01-03 (R) (Y) ..................... 8.000 BB 700 693,000
Panama, Republic of,
Floating Rate Note (Panama) 05-10-02 (Y) ............... 7.0013*** BB+ 1,058 1,033,958
Note (Panama) 02-13-02 (Y) ............................. 7.875 BB+ 375 364,688
South Africa, Republic of,
Note (South Africa) 06-23-17 (Y) ....................... 8.500 BB+ 7,400 6,604,500
United Kingdom of Great Britain Treasury Gilts,
Government Bond (United Kingdom) 12-07-00 # ............ 8.000 AAA 6,150 9,992,913
Government Bond (United Kingdom) 11-06-01 # ............ 7.000 AAA 6,000 9,695,580
Government Bond (United Kingdom) 06-07-02 # ............ 7.000 AAA 13,650 22,122,774
Government Bond (United Kingdom) 06-10-03 # ............ 8.000 AAA 6,000 10,098,566
Government Bond (United Kingdom) 07-16-07 # ............ 8.500 AAA 8,000 14,894,188
------------
122,336,256
------------
Government - U.S. (29.56%)
United States Treasury,
Bond 08-15-05 .......................................... 6.500 AAA 19,300 19,547,233
Bond 08-15-05 .......................................... 10.750 AAA 33,000 39,867,960
Bond 02-15-16 .......................................... 9.250 AAA 35,600 44,722,500
Bond 08-15-19 .......................................... 8.125 AAA 75,500 87,898,610
Bond 08-15-23 .......................................... 6.250 AAA 42,215 40,810,085
Bond 02-15-27 .......................................... 6.625 AAA 41,450 42,032,787
Note 08-31-02 .......................................... 6.250 AAA 42,800 43,007,152
Note 08-15-04 .......................................... 7.250 AAA 17,100 17,829,486
Note 08-15-07 .......................................... 6.125 AAA 24,600 24,342,438
------------
360,058,251
------------
Government - U.S. Agencies (1.33%)
Federal Home Loan Mortgage Corp.,
REMIC 44-E 11-15-19 .................................... 9.000 AAA 215 218,198
Federal National Mortgage Assn.,
Global Bond (British Pound Sterling) 06-07-02 # ........ 6.875 AAA 5,000 7,992,225
</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>
Government - U.S. Agencies (continued)
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 05-15-26 ............... 7.500% AAA $8,040 $8,027,060
-----------
16,237,483
-----------
Leisure (5.12%)
Cinemark USA, Inc.,
Sr Sub Note Ser B 08-01-08 ................. 9.625 B 4,000 3,740,000
Sr Sub Note Ser D 08-01-08 ................. 9.625 B 1,000 935,000
Coast Hotels and Casinos, Inc.,
Sr Sub Note 04-01-09 ....................... 9.500 B- 2,400 2,304,000
Eldorado Resorts LLC,
Sr Sub Note 08-15-06 ....................... 10.500 B 4,000 4,130,000
Empress Entertainment, Inc.,
Sr Sub Note 07-01-06 ....................... 8.125 B+ 3,000 3,000,000
Harrah's Operating Co., Inc.,
Sr Sub Note 12-15-05 ....................... 7.875 BB+ 3,650 3,526,813
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 ..................... 7.875 BB 7,900 7,110,000
Hollywood Casino Shreveport,
1st Mtg 08-01-06 (R) ....................... 13.000 B 2,700 2,862,000
Horseshoe Gaming LLC,
Sr Sub Note Ser B 06-15-07 ................. 9.375 B+ 2,500 2,475,000
Isle of Capri Casinos, Inc.,
Sr Sub Note 04-15-09 ....................... 8.750 B 4,200 3,895,500
Jupiters Ltd.,
Sr Note (Australia) 03-01-06 (Y) ........... 8.500 BB+ 4,000 3,920,000
Premier Parks, Inc.,
Sr Note 06-15-07 ........................... 9.750 B- 3,000 2,992,500
Production Resource Group LLC,
Sr Sub Note 01-15-08 ....................... 11.500 B- 3,000 2,640,000
Regal Cinemas, Inc.,
Sr Sub Deb 12-15-10 ........................ 8.875 B- 3,900 2,925,000
SFX Entertainment, Inc.,
Sr Sub Note Ser B 02-01-08 ................. 9.125 B- 5,000 4,712,500
Sr Sub Note 12-01-08 ....................... 9.125 B- 2,000 1,880,000
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas) 12-15-07 (Y) ......... 8.625 B+ 2,000 1,860,000
Waterford Gaming LLC,
Sr Note 03-15-10 (R) ....................... 9.500 B+ 4,202 4,175,738
William Hill Finance Plc,
Sr Sub Note (United Kingdom) 04-30-08 # .... 10.625 B- 2,000 3,206,654
-----------
62,290,705
-----------
Machinery (0.60%)
Better Minerals & Aggregates Co.,
Sr Sub Note 09-15-09 (R) ................... 13.000 B- 3,000 2,962,500
</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>
Machinery (continued)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 ................................................ 8.500% B $5,000 $4,300,000
----------
7,262,500
----------
Media (6.74%)
Adelphia Communications Corp.,
Sr Note 11-15-09 .................................................... 9.375 B+ 4,800 4,788,000
Sr Note Ser B 10-01-02 .............................................. 9.250 B+ 3,500 3,535,000
American Media Operations, Inc.,
Sr Sub Note 05-01-09 ................................................ 10.250 B- 1,000 1,005,000
AMFM Operating, Inc.,
Sr Sub Deb 10-31-06 ................................................. 12.625 B- 575 689,640
CBS Radio, Inc.,
Sub Deb 01-15-09 .................................................... 11.375 BB+ 4,738 5,306,112
Chancellor Media Corp.,
Sr Sub Note 01-15-07 ................................................ 10.500 B 3,000 3,225,000
Sr Sub Note 10-01-08 ................................................ 9.000 B- 2,000 2,100,000
Citadel Broadcasting Co.,
Sr Sub Note 07-01-07 ................................................ 10.250 B- 2,000 2,100,000
Sr Sub Note 11-15-08 ................................................ 9.250 B- 1,900 1,914,250
Comcast UK Cable,
Sr Disc Deb, Step Coupon (11.20%, 11-15-00)
(United Kingdom) 11-15-07 (A) (Y) ................................. Zero B- 4,000 3,760,000
CSC Holdings, Inc.,
Sr Sub Deb 02-15-13 ................................................. 9.875 BB- 4,000 4,170,000
Diamond Holdings Plc,
Bond (United Kingdom) 02-01-08 # .................................... 10.000 B- 3,000 4,774,085
Digital Television Services LLC,
Sr Sub Note Ser B 08-01-07 .......................................... 12.500 CCC+ 3,000 3,210,000
DIVA Systems Corp.,
Sr Disc Note Ser B, Step Coupon (12.625%, 03-01-03) 03-01-08 (A) ... Zero B- 5,165 1,342,900
Echostar DBS Corp.,
Sr Note 02-01-09 .................................................... 9.375 B 3,000 3,015,000
Emmis Communications Corp.,
Sr Sub Note, Ser B 03-15-09 ......................................... 8.125 B- 3,000 2,880,000
Falcon Holdings Group L.P./Falcon Funding Corp.,
Sr Deb Ser B 04-15-10 ............................................... 8.375 B 5,000 5,012,500
Galaxy Telecom L.P.,
Sr Sub Note 10-01-05 ................................................ 12.375 B- 5,000 5,287,500
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 ................................................ 8.625 B+ 4,000 3,600,000
Sr Sub Note Ser B 10-01-09 .......................................... 8.750 B+ 3,500 3,272,500
Radio One, Inc.,
Sr Sub Note Ser B, Step Coupon (12.00%. 05-15-00) 05-15-04 .......... Zero B- 2,000 2,105,000
</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>
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 $3,828,840
Sr Note (United Kingdom) 07-01-08 (Y) ........... 10.500% B- 1,000 970,000
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 (Y) ............. 10.000 BB+ 3,000 3,210,000
Sr Sec Deb (Canada) 01-15-14 # .................. 9.650 BB+ 2,000 1,414,710
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 ............................ 11.000 B- 2,785 2,771,075
TV Guide, Inc.,
Sr Sub Note 03-01-09 ............................ 8.125 B+ 2,800 2,758,000
-----------
82,045,112
-----------
Metal (1.12%)
Centaur Mining & Exploration Ltd.,
Gtd Sr Note (Australia) 12-01-07 (Y) ............ 11.000 B- 2,500 2,456,250
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 4,590,000
Haynes International, Inc.,
Sr Note 09-01-04 ................................ 11.625 B- 2,000 1,735,000
Koppers Industries, Inc.,
Gtd Sr Sub Note 12-01-07 ........................ 9.875 B- 1,000 890,000
-----------
13,671,250
-----------
Oil & Gas (2.24%)
Cliffs Drilling Co.,
Sr Sec Note Ser B 05-15-03 ...................... 10.250 BB- 2,250 2,205,000
Comstock Resources, Inc.,
Sr Note 05-01-07 ................................ 11.250 B 2,950 3,023,750
Frontier Oil Corp.,
Sr Note 11-15-09 ................................ 11.750 B+ 4,600 4,554,000
Kelley Oil & Gas, Corp.,
Conv Deb 04-01-00 ............................... 8.500 CC 1,100 968,000
Key Energy Services, Inc.,
Sr Sub Note Ser B 01-15-09 ...................... 14.000 B- 5,000 5,450,000
Parker Drilling Co.,
Gtd Sr Note 11-15-06 ............................ 9.750 B+ 1,000 970,000
PEMEX Finance Ltd.,
Note Ser 1A (Cayman Islands) 11-15-03 (Y) ....... 5.720 AAA 1,000 975,680
R&B Falcon Corp.,
Sr Note 12-15-08 ................................ 9.500 B+ 3,750 3,731,250
RBF Finance Co.,
Sr Sec Note 03-15-09 ............................ 11.375 BB- 3,450 3,726,000
</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>
Oil & Gas (continued)
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A) .............. Zero B $2,650 $1,643,000
-----------
27,246,680
-----------
Paper & Paper Products (1.30%)
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) ............................................. 12.625% BB- 2,600 2,577,250
Kappa Beheer BV,
Sr Sub Note (Netherlands) 07-15-09 (E) (R) ............................. 10.625 B 5,700 5,982,954
Packaging Corp. of America,
Sr Sub Note 04-01-09 ................................................... 9.625 B 2,100 2,168,250
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Int Cert) 04-01-02 ..................... 12.250 B- 5,000 5,100,000
-----------
15,828,454
-----------
Printing - Commercial (0.25%)
Sullivan Graphics, Inc.,
Sr Sub Note 08-01-05 ................................................... 12.750 B- 3,000 3,060,000
-----------
Real Estate Investment Trust (0.04%)
Regency Centers L.P.,
Note 04-01-04 .......................................................... 7.400 BBB- 500 481,500
-----------
Retail (0.28%)
SpinCycle, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-01-01) 05-01-05 (A) .............. Zero CCC+ 3,625 543,750
United Stationer Supply Co.,
Sr Sub Note 05-01-05 ................................................... 12.750 B 1,334 1,437,385
Sr Sub Note 04-15-08 ................................................... 8.375 B 1,500 1,376,250
-----------
3,357,385
-----------
Steel (0.65%)
AK Steel Corp.,
Sr Note 02-15-09 ....................................................... 7.875 BB 5,000 4,687,500
Sheffield Steel Corp.,
1st Mtg Note Ser B 12-01-05 ............................................ 11.500 B- 3,875 3,216,250
-----------
7,903,750
-----------
Technology (0.16%)
ChipPAC International Ltd.,
Sr Sub Note 08-01-09 (R) ............................................... 12.750 B- 1,950 1,998,750
-----------
Telecommunications (19.51%)
Advanced Radio Telecom Corp.,
Sr Note 02-15-07 ....................................................... 14.000 CCC 2,000 1,720,000
Allegiance Telecom, Inc.,
Sr Disc Note, Ser B, Step Coupon (11.75%, 02-15-03) 02-15-08 (A) ...... Zero B 3,500 2,485,000
AMSC Acquisition Co., Inc.,
Sr Note Ser B 04-01-08 ................................................. 12.250 B- 3,000 2,385,000
</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)
Call-Net Enterprises, Inc.,
Sr Note (Canada) 05-15-09 (Y) ................................ 9.375% B+ $3,800 $3,154,000
CapRock Communications Corp.,
Sr Note 05-01-09 ............................................. 11.500 B 2,700 2,727,000
Centennial Cellular Co.,
Sr Sub Note 12-15-08 ......................................... 10.750 Caa+ 900 958,500
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon (10.40%, 05-15-03)
(Canada) 05-15-08 (A) # .................................... Zero B3 6,500 2,789,558
Sr Disc Note, Step Coupon (10.125%, 05-01-04)
(Canada) 05-01-09 (A) (Y) .................................... Zero B3 3,250 1,990,625
COLT Telecom Group Plc (United Kingdom),
Sr Note (Deutsche Mark) 11-30-07 # ........................... 8.875 B 10,000 5,405,339
Sr Note (Deutsche Mark) 07-31-08 # ........................... 7.625 B 5,490 2,840,351
Comunicacion Celular S.A.,
Bond, Step Coupon (13.125%, 11-15-00)
(Colombia) 11-15-03 (A) (R) (Y) ............................ Zero B 5,000 3,350,000
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) ... Zero B 5,000 3,750,000
Dolphin Telecom Plc,
Sr Disc Note, Step Coupon (11.50%, 06-01-03)
(United Kingdom) 06-01-08 (A) (Y) .......................... Zero CCC+ 6,000 2,730,000
Sr Disc Note, Step Coupon (14.00%, 05-15-04)
(United Kingdom) 05-15-09 (A) (Y) .......................... Zero CCC+ 5,400 2,430,000
Energis Plc,
Sr Note (United Kingdom) 06-15-09 (R) # ...................... 9.500 B 2,600 4,386,415
Esat Telecom Group Plc,
Sr Note (Ireland) 11-01-09 (E) # ............................. 11.875 B+ 2,200 2,392,276
Esprit Telecom Group Plc,
Sr Note (United Kingdom) 12-15-07 (Y) ........................ 11.500 B- 1,550 1,561,625
Sr Note (Deutsche Mark) 06-15-08 # ........................... 11.000 BB- 4,050 2,095,341
FaciliCom International, Inc.,
Sr Note 01-15-08 ............................................. 10.500 B- 4,350 3,828,000
Global Crossing Holdings Ltd.,
Sr Note 05-15-08 ............................................. 9.625 BB 4,000 4,000,000
GST Equipment Funding, Inc.,
Sr Sec Note 05-01-07 ......................................... 13.250 B 5,000 5,000,000
Hermes Europe Railtel BV,
Sr Note (Netherlands) 08-15-07 (Y) ........................... 11.500 B 5,000 5,137,500
Sr Note (Netherlands) 01-15-09 (Y) ........................... 10.375 B 700 689,500
Intercel, Inc.,
Unit (Sr Discount Note & Warrant), Step Coupon
(12.00%, 02-01-01) 02-01-06 (A) ............................ Zero B 4,100 3,628,500
Intermedia Communications, Inc.,
Sr Disc Note, Step Coupon (12.50%, 05-15-01) 05-15-06 (A) .... Zero B 6,000 5,100,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
Telecommunications (continued)
International Wireless Communications Holdings, Inc.,
Sr Sec Disc Note 08-15-01 .................................................. Zero B- $3,000 $300,000
Ionica Plc,
Sr Disc Note, Step Coupon (15.00%, 05-01-02)
(United Kingdom) 05-01-07 (A) (Y) ........................................ Zero Ca 6,000 180,000
Level 3 Communications, Inc.,
Sr Note 05-01-08 ........................................................... 9.125% B 7,000 6,615,000
McCaw International Ltd.,
Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) .................. Zero B- 7,000 4,655,000
McLeodUSA, Inc.,
Sr Note 07-15-07 ........................................................... 9.250 B+ 4,250 4,260,625
Sr Note 11-01-08 ........................................................... 9.500 B+ 1,000 1,007,500
Metrocall, Inc.,
Sr Sub Note 09-15-08 ....................................................... 11.000 CCC+ 5,000 3,050,000
Metromedia Fiber Network, Inc.,
Sr Note (United States) 12-15-09 (E) ....................................... 10.000 B+ 1,900 1,939,319
Sr Note 11-15-08 ........................................................... 10.000 B+ 900 909,000
MetroNet Communications Corp.,
Sr Disc Note, Step Coupon (10.75%, 11-01-02)
(Canada) 11-01-07 (A) (Y) ................................................ Zero BBB 4,400 3,668,720
Sr Note (Canada) 08-15-07 (Y) .............................................. 12.000 BBB 4,000 4,620,000
Microcell Telecommunications, Inc.,
Sr Disc Note Ser B, Step Coupon (11.125%, 10-15-02)
(Canada) 10-15-07 # ...................................................... Zero B- 2,500 1,119,555
Nextel Communications, Inc.,
Sr Disc Note 08-15-04 ...................................................... 9.750 B 5,500 5,692,500
Sr Disc Note, Step Coupon (9.95%, 02-15-03) 02-15-08 (A) ................... Zero B 8,875 6,256,875
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) .................. Zero CCC+ 2,500 1,618,750
NEXTLINK Communications, Inc.,
Sr Disc Note, Step Coupon (9.45%, 04-15-03) 04-15-08 ....................... Zero B2 4,000 2,480,000
Sr Disc Note, Step Coupon (12.125%, 12-01-04) 12-01-09 (R) ................. Zero B 2,900 1,638,500
Sr Note 11-15-08 ........................................................... 10.750 B 4,500 4,612,500
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 ........................................................... 12.750 B- 2,250 2,385,000
NTL Communications Corp.,
Sr Note Ser B 10-01-08 ..................................................... 11.500 B- 6,300 6,835,500
Sr Note Ser B, Step Coupon (12.375%, 10-01-03) 10-01-08 (A) ................ Zero B- 8,500 5,928,750
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 2,000,000
Omnipoint Corp.,
Sr Note 09-15-09 (R) ....................................................... 11.500 CCC+ 2,000 2,160,000
ONO Finance Plc,
Sr Note (United Kingdom) 05-01-09 (R) (Y) .................................. 13.000 CCC+ 1,450 1,580,500
Sr Note (United Kingdom) 05-01-09 (E) (R) .................................. 13.000 CCC+ 2,900 3,182,653
</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>
Telecommunications (continued)
Orange Plc,
Sr Note (United Kingdom) 08-01-08 (E) ...................................... 7.625% BBB $400 $427,911
Sr Note (United Kingdom) 08-01-08 (Y) ...................................... 8.000 BBB 6,000 6,090,000
Orion Network Systems,
Sr Note 01-15-07 ........................................................... 11.250 B+ 5,000 3,700,000
Primus Telecommunications Group, Inc.,
Sr Note 10-15-09 (R) ....................................................... 12.750 B- 5,500 5,527,500
Qwest Communications International, Inc.,
Sr Note Ser B 04-01-07 ..................................................... 10.875 BB+ 2,867 3,190,398
RCN Corp.,
Sr Disc Note, Step Coupon (11.125%, 10-15-02) 10-15-07 (A) ................. Zero B- 8,400 5,964,000
Sr Note 10-15-07 ........................................................... 10.000 B- 2,700 2,700,000
Spectrasite Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 04-15-04) 04-15-09 (A) .................. Zero B- 1,400 714,000
Telecomunicaciones de Puerto Rico,
Sr Note 05-15-02 ........................................................... 6.150 BBB 1,000 980,200
Telecorp PCS, Inc.,
Sr Disc Note, Step Coupon (11.625%, 04-15-04) 04-15-09 (A) (R) ............. Zero B3 4,535 2,925,075
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.25%, 04-15-04)
(United Kingdom) 04-15-09 (A) (R) (Y) .................................... Zero B+ 3,300 3,316,733
Teligent, Inc.,
Sr Note 12-01-07 ........................................................... 11.500 CCC 5,000 4,800,000
Time Warner Telecom LLC,
Sr Note 07-15-08 ........................................................... 9.750 B 1,250 1,287,500
Tritel PCS, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-15-04) 05-15-09 (A) (R) .............. Zero B3 2,500 1,600,000
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 3,311,781
Sr Note (Netherlands) 11-01-07 (E) (R) ..................................... 10.875 B- 3,900 4,073,967
Sr Note (Netherlands) 11-01-09 (E) (R) ..................................... 11.250 B- 3,400 3,543,105
VersaTel Telecom International N.V.,
Sr Note (Netherlands) 05-15-08 (Y) ......................................... 13.250 B- 2,400 2,520,000
Sr Note Ser EU (Netherlands) 07-15-09 (E) .................................. 11.875 B- 2,800 2,938,995
Viatel, Inc.,
Sr Note Ser B (United States) 03-15-09 (E) ................................. 11.500 B- 2,000 2,023,769
Sr Note 04-15-08 ........................................................... 11.250 B- 5,250 5,197,500
Williams Communications Group, Inc.,
Sr Note 10-01-09 ........................................................... 10.875 BB- 7,500 7,837,500
Winstar Communications, Inc.,
Sr Disc Note, Step Coupon (14.00%, 10-15-00) 10-15-05 (A) .................. Zero CCC+ 2,600 2,366,000
Winstar Equipment Corp.,
Sec Note 03-15-04 .......................................................... 12.500 CCC+ 1,400 1,463,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<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)
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (Y) .............................................. 12.500% B $3,750 $3,890,625
-------------
237,620,336
-------------
Telecommunications/Internet Service Providers (0.86%)
PSINet, Inc.,
Sr Note 11-01-08 ........................................................... 11.500 B- 4,900 5,096,000
Verio, Inc.,
Sr Note 12-01-08 ........................................................... 11.250 B- 5,100 5,329,500
-------------
10,425,500
-------------
Transport (1.12%)
Continental Airlines, Inc.,
Sr Note 12-15-05 ........................................................... 8.000 BB- 5,100 4,679,250
Fine Air Services Corp.,
Sr Note 06-01-08 ........................................................... 9.875 B 3,900 3,315,000
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) ................................................... 13.375 B- 4,500 4,511,250
Pacific & Atlantic Holdings, Inc.,
1st Mtg Note (Greece) 05-30-08 (Y) ......................................... 11.500 CC 3,000 1,140,000
-------------
13,645,500
-------------
Utilities (3.12%)
Calpine Corp.,
Sr Note 04-01-08 ........................................................... 7.875 BB+ 2,000 1,890,000
Sr Note 04-15-09 ........................................................... 7.750 BB+ 2,300 2,146,590
CMS Energy Corp.,
Sr Note Ser B 11-15-00 ..................................................... 7.375 Ba3 4,500 4,479,885
Connecticut Light & Power Co.,
Sec Note 06-05-03 (R) ...................................................... 8.590 BBB- 2,300 2,315,502
Midland Funding Corp. I,
Deb 07-23-02 ............................................................... 10.330 BBB- 5,357 5,533,908
Midland Funding Corp. II,
Deb Ser A 07-23-05 ......................................................... 11.750 BB 4,000 4,372,360
Deb Ser B 07-23-06 ......................................................... 13.250 BB 5,500 6,551,050
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) (Y) ...................................... 9.625 BB 2,900 2,479,500
Niagara Mohawk Power Corp.,
Sec Fac Bond 01-01-18 ...................................................... 8.770 BBB 6,910 7,196,281
PECO Energy Transition Trust,
Pass Thru Ctf Ser 1999-A Class A-2 03-01-02 ................................ 5.630 AAA 1,000 969,375
-------------
37,934,451
-------------
TOTAL BONDS
(Cost $1,157,969,353) (89.95%) 1,095,381,224
------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<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
Adelphia Business Solutions, Inc., Ser B, 12.875%, Preferred Stock ................... 3,742 $3,554,900
Advanced Radio Telecom Corp., Warrant ** ............................................. 60,000 1,011,480
Allegiance Telecom, Inc., Warrant ** ................................................. 3,500 280,000
American Mobile Satellite Corp., Warrant (R) ** ...................................... 3,000 --
American Telecasting, Inc., Warrant ** ............................................... 4,000 40
AMFM, Inc., 7.00%, Preferred Stock ................................................... 20,000 3,995,000
Capstar Broadcasting Partners, Inc., 12.00%, Preferred Stock ......................... 16,989 1,987,713
COLT Telecom Plc, Warrant (United Kingdom) (R) ** .................................... 5,000 4,000,000
Comunicacion Celular S.A., Warrant (Colombia) ** ..................................... 5,000 250,000
Contour Energy Co., $2.625, Conv Preferred Stock ..................................... 40,000 130,000
Core Cap, Inc., Common Stock (r) ** .................................................. 45,000 729,000
Core Cap, Inc., Ser A/I, 10.00%, Preferred Stock (r) ................................. 45,000 1,077,300
Credit Lyonnais Capital S.C.A., American Depository Receipt (ADR),
9.50%, Ser DTC, Preferred Stock (France) (R) ........................................ 100,000 2,475,000
Decorative Home Accents, Inc., Common Stock ** ....................................... 1,000 1
DIVA Systems Corp., Warrant ** ....................................................... 15,495 30,990
EarthWatch, Inc., 12.00%, Ser C, Conv Preferred Stock (R) ............................ 89,836 808,524
Granite Broadcasting Corp., 12.75%, Preferred Stock .................................. 5,446 5,446,000
ICG Holdings, Inc., 14.00%, Preferred Stock .......................................... 2,827 2,516,030
Intermedia Communications, Inc., 13.50%, Ser B, Preferred Stock ...................... 2,107 2,001,650
Intermedia Communications, Inc., Common Stock ** ..................................... 30,000 836,250
International Wireless Inc., Warrant ** .............................................. 3,000 30
Ionica Plc, Warrant (United Kingdom) (R) # ** ........................................ 8,500 85
Key Energy Services, Inc., Warrant ** ................................................ 5,000 125,000
KLM Royal Dutch Airlines, N.V. Common Stock (Netherlands) ............................ 19,930 495,759
Lasmo Plc, 10.00%, Ser A, ADS, Preferred Stock (United Kingdom) ...................... 50,000 1,168,750
Loral Space & Communications Ltd., Warrant ** ........................................ 5,000 50,000
LTV Corp., 8.25%, Conv Preferred Stock (R) ........................................... 44,000 2,398,000
McCaw International Ltd., Warrant ** ................................................. 7,000 17,500
MetroNet Communications Corp., Warrant (Canada) (R) ** ............................... 2,250 258,750
Nextel Communications, Inc. (Class A), Common Stock ** ............................... 12,394 1,228,555
Nextel Communications, Inc., 11.125%, Ser E, Preferred Stock ......................... 2,022 2,042,220
Nextel Communications, Inc., 13.00%, Ser D, Preferred Stock .......................... 2,657 2,842,990
NEXTLINK Communications, Inc., 14.00%, Preferred Stock ............................... 123,536 6,115,032
Northeast Utilities, Common Stock ** ................................................. 75,000 1,584,375
Northwest Airlines Corp., Common Stock ............................................... 150,000 3,515,625
NTL, Inc., 13.00%, Ser B, Preferred Stock ............................................ 5,332 5,545,280
Occidente y Caribe Celular S.A., Warrant (R) ** ...................................... 16,000 240,000
ONO Finance Plc, Warrant (United Kingdom) (R) ** ..................................... 1,450 10,150
ONO Finance Plc, Warrant (United Kingdom) (R) ** ..................................... 2,900 20,439
Packaging Corp. of America, 12.375%, Preferred Stock ................................. 12,168 1,326,312
PG&E Corp., Common Stock ............................................................. 25,622 573,292
Powertel, Inc., Warrant ** ........................................................... 2,880 23,040
PRIMEDIA, Inc., 8.625%, Ser H, Preferred Stock ....................................... 25,000 2,175,000
Qantas Airways Ltd., ADR (Australia) Common Stock .................................... 13,800 362,301
RCN Corp., Common Stock ** ........................................................... 40,000 1,805,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<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)
Renaissance Cosmetics, Warrant ** .................................................... 4,000 $4
Rural Cellular Corp., 11.375%, Ser B, Preferred Stock ................................ 2,069 2,110,380
SFX Entertainment, Inc. (Class A), Common Stock ** ................................... 41,200 1,390,500
SpinCycle, Inc., Warrant (R) ......................................................... 3,625 36
Station Casinos, Inc., Common Stock .................................................. 16,210 389,040
Teletrac, Inc., Warrant ** ........................................................... 2,000 --
TLC Beatrice International Holdings (Class A), Common Stock (r) ** ................... 20,000 175,800
Valero Energy Corp., Common Stock .................................................... 46,250 959,688
VersaTel Telecom B.V., Warrant (R) ** ................................................ 2,400 696,000
Viatel, Inc., Common Stock ** ........................................................ 6,068 254,856
--------------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $62,263,622) (5.83%) 71,029,667
----- --------------
<CAPTION>
PAR VALUE
INTEREST (000s
RATE OMITTED)
-------- ----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.98%)
Investment in a joint repurchase agreement transaction with Barclay's, Inc. -
Dated 11-30-99, due 12-01-99 (Secured by U.S. Treasury Bonds, 7.500% thru
11.625%, due 11-15-04 thru 11-15-22 and U.S. Treasury Notes, 6.625% thru
7.500%, due 03-31-02 thru 02-15-05) - Note A................................ 5.690% $24,044 24,044,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.50%........................................................ 730
--------------
TOTAL SHORT-TERM INVESTMENTS (1.98%) 24,044,730
--------- --------------
TOTAL INVESTMENTS (97.76%) 1,190,455,621
--------- --------------
OTHER ASSETS AND LIABILITIES, NET (2.24%) 27,316,246
--------- --------------
TOTAL NET ASSETS (100.00%) $1,217,771,867
========= ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Strategic Income Fund
NOTES TO THE SCHEDULE OF INVESTMENTS
* 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 November 30, 1999.
# Par value of foreign bonds or warrants is expressed in local currency, as
shown parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(E) Parenthetical disclosure of a country in the security description represents
country of issuer; however, security is euro denominated.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $100,080,722 or 8.22% of the fund's net assets as of
November 30, 1999.
(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 NOVEMBER 30, 1999
------------------- ----------- ----------- ------------ -----------------
<S> <C> <C> <C> <C>
Core Cap, Inc., Common Stock................................... 10-31-97 $900,000 0.06% $729,000
Core Cap, Inc., Ser A/I 10.00%, Preferred Stock................ 10-31-97 1,125,000 0.09 1,077,300
TLC Beatrice International Holdings (Class A), Common Stock ... 11-25-87 166,000 0.01 175,800
</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.
28
<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
November 30, 1999 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ------------------
Argentina.............................................. 0.66%
Australia.............................................. 0.93
Brazil................................................. 0.07
Canada................................................. 5.71
Cayman Islands......................................... 0.08
Colombia............................................... 0.46
Costa Rica............................................. 0.06
France................................................. 0.16
Greece................................................. 0.09
Ireland................................................ 0.20
Luxembourg............................................. 0.20
Mexico................................................. 0.42
Netherlands............................................ 2.36
Panama................................................. 0.11
South Africa........................................... 0.54
United Kingdom......................................... 10.57
United States.......................................... 75.14
--------
TOTAL INVESTMENTS 97.76%
========
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION NET ASSETS
- -------------------- ------------------
AAA..................................................... 40.69%
BBB.................................................... 2.52
BB..................................................... 8.98
B...................................................... 34.35
CCC.................................................... 3.14
CC..................................................... 0.27
--------
TOTAL BONDS 89.95%
========
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Strategic Series (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of one series: John Hancock Strategic Income Fund (the "Fund"). The investment
objective of the Fund is a high level of current income.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below. The Fund may invest in indexed securities, whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $15,375,362 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized capital gains. To the extent such carryforwards are used by the
Fund, no capital gains distributions will be made. The carryforwards expire as
follows: May 31, 2003 -- $15,108,354 and May 31, 2004 -- $267,008. Additionally,
net capital losses of $3,759,669 attributable to security transactions incurred
after October 31, 1998 are treated as arising on the first day (June 1, 1999) of
the Fund's next taxable year.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be
30
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
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 entered into a
syndicated line of credit agreement with various banks that enables the Fund to
participate with other funds managed by the Adviser in an unsecured line of
credit with banks which permit borrowings up to $500 million, collectively.
Interest is charged to each fund, based on its borrowing. In addition, a
commitment fee 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 period ended November 30, 1999.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
At November 30, 1999, open forward foreign currency exchange contracts were
as follows:
31
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ----- --------------
BUYS
British Pound Sterling 1,636,813 DEC 99 ($79,336)
British Pound Sterling 1,585,542 FEB 00 (21,563)
Canadian Dollar 63,955,815 DEC 99 64,697
Canadian Dollar 3,791,500 JAN 00 24,180
Euro Currency 12,839,625 FEB 00 (441,105)
---------------
($453,127)
===============
SELLS
British Pound Sterling 42,407,624 DEC 99 $718,011
British Pound Sterling 18,622,686 JAN 00 1,109,540
British Pound Sterling 29,991,458 FEB 00 1,188,483
British Pound Sterling 1,572,743 MAR 00 46,181
Canadian Dollar 63,955,815 DEC 99 (321,568)
Canadian Dollar 3,791,500 JAN 00 (11,400)
Euro Currency 12,839,625 FEB 00 820,116
---------------
$3,549,363
===============
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 to and from the broker, known as "variation
margin," are made on a daily basis as the market price of the financial futures
contract fluctuates. Daily variation margin adjustments, arising from this "mark
to market," 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 November 30, 1999, there were no open positions in financial futures
contracts.
OPTIONS The Fund may purchase or sell option contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Over-the-counter options are valued at the mean between the
last bid and asked prices. Upon the writing of a call or put option, an amount
equal to the premium received by the Fund will be included in the Statement of
Assets and Liabilities as an asset and corresponding liability. The amount of
the liability will be subsequently marked to market to reflect the current
market value of the written option.
The Fund may use option contracts to manage its exposure to the stock market.
Writing puts and buying calls will tend to increase the Fund's exposure to the
underlying instrument and buying puts and writing calls will tend to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in
32
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
highly unusual market conditions. To minimize credit and liquidity risks in
over-the-counter option contracts, the Fund will continuously monitor the
creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
At November 30, 1999, there were no open written option transactions.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of: (a) 0.60% of the first $100,000,000 of the
Fund's average daily net asset value, (b) 0.45% of the next $150,000,000, (c)
0.40% of the next $250,000,000, (d) 0.35% of the next $150,000,000 and (e) 0.30%
of the Fund's average daily net asset value in excess of $650,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended November
30, 1999, net sales charges received with regard to sales of Class A shares
amounted to $566,368. Out of this amount, $62,188 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$202,712 was paid as sales commissions to unrelated broker-dealers and $301,468
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended November 30,
1999, contingent deferred sales charges paid to JH Funds amounted to $882,082.
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 period ended
November 30, 1999, contingent deferred sales charges paid to JH Funds amounted
to $8,667.
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. 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 JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford, Ms. Anne C. Hodsdon and Mr.
Richard S. Scipione are 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
33
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Strategic Income Fund
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 period
ended November 30, 1999, aggregated $152,828,395 and $178,600,538, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $51,145,242 and $17,469,766, respectively, during the period
ended November 30, 1999.
The cost of investments owned at November 30, 1999 (including the joint
repurchase agreement) for federal income tax purposes was $1,237,983,974. Gross
unrealized appreciation and depreciation of investments aggregated $26,596,689
and $74,125,772, respectively, resulting in net unrealized depreciation of
$47,529,083.
NOTE D -
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 the World Bond Fund to the Fund in exchange solely for Class A
and Class B shares of the Fund. The acquisition was accounted for as a tax-free
exchange of 2,798,003 Class A shares and 1,568,516 Class B shares of the Fund
for the net assets of World Bond Fund, which amounted to $21,151,500 and
$11,857,194 for Class A and Class B shares, respectively, including $263,975 of
unrealized depreciation, after the close of business on February 19, 1999.
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 the
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.
34
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Strategic Income Fund
35
<PAGE>
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