<PAGE> 1
JOHN HANCOCK FUNDS
- -------------------------------------------------------------------------------
HIGH YIELD
BOND
FUND
ANNUAL REPORT
October 31, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles L. Ladner*
Leo E. Linbeck*
Patricia P. McCarter*
Steven R. Pruchansky*
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Investors around the world have been watching Wall Street in awe for the better
part of 1995. Through October, the Standard & Poor's 500-Stock Index, a
widely-used barometer of stock performance, had grown by more than 25%.
Investors who stayed in the market after a disappointing 1994 have been
rewarded.
On another street, Pennsylvania Avenue, one of the hot topics many people
are watching is Medicare reform. While there's no clear-cut solution on the
horizon, today's Medicare debate should serve as another wake-up call to all
Americans about the need to have a financial plan and to save for retirement.
Whether or not the government changes the way health-care benefits are allotted
to senior citizens, the message is clear: your future security and well-being
lies in your own hands -- not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them will
perhaps scare you or make you think that the task of saving for retirement is
just too daunting. But take heart. We don't believe that and neither do many
financial experts.
Yet retirement planning is not to be taken lightly. To live the way you
want to -- the way you deserve to after all those years of hard work -- you need
to plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial adviser
about establishing your retirement planning roadmap, if you haven't already. And
educate yourself by reading some of the many articles about how to save for
retirement. Take control of your future by saving today. That way, when it comes
time for retirement, you shouldn't have to think about any street but Easy
Street.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY FREDERICK CAVANAUGH AND ARTHUR CALAVRITINOS,
FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
HIGH YIELD BOND FUND
HIGH-YIELD BONDS MAINTAIN COMPETITIVE POSITION
IN 1995 BOND MARKET RALLY
Bond investors have seen their fortunes improve dramatically in 1995 after a
difficult 1994. Interest rates have fallen on news of slower economic growth and
tame inflation. As a result, bond prices and the market have rallied throughout
the year. High-yield bonds were no exception. Their performance was near the
head of the pack from November 1994 through April 1995 as measured by Merrill
Lynch's government and high-quality corporate bond indexes. And while they
lagged behind the 30- and 10-year Treasury bonds' results in the second
half of the Fund's fiscal year, overall high-yield issues continued to be strong
performers throughout the fiscal year ending October 31, 1995.
A few favorable factors continue to propel the high-yield bond market.
Investors seeking higher yields kept pumping more money into high-yield bonds.
Shareholders have grown increasingly comfortable with this more aggressive
sector of the bond market because of its strong and consistent showing over the
last four years. At the same time, the supply of high yield bonds dropped
significantly in 1995 because commercial banks are more willing to lend money to
companies with lower credit ratings, reducing the need for companies to issue
new bonds. This supply/demand imbalance has fueled high-yield bond prices.
By mid-year, we finished the Fund restructuring we began in January when we
assumed management of John Hancock High Yield Bond Fund. The Fund's improved
results in the last six months reflect the changes, but that
[A 2 1/2" x 3" photo of Arthur Calavritinos and Frederick Cavanaugh at bottom
right. Caption reads: "Arthur Calavritinos and Frederick Cavanaugh."]
[CAPTION]
"...HIGH-YIELD ISSUES CONTINUED TO BE STRONG PERFORMERS..."
3
<PAGE> 4
John Hancock Funds - High Yield Bond Fund
"WE'VE HAD SOME SUCCESS WITHIN A CATEGORY WE CALL "SPECIAL SITUATIONS."
Chart with heading "Top Five Holdings" at top of left hand column. The chart
lists five holdings: 1) Gaylord Container 2.8% 2) Grand Union 2.3%v 3)
Northwest Air 2.3% 4) NWA Trust 2.3% 5) Nuevo Energy 2.1%. A footnote below
reads "As a percentage of net assets on October 31, 1995."
Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance... and what's behind the numbers. The first listing is
Computervision followed by an up arrow and the phrase "Good focus in Europe."
The second listing is Columbia Gas followed by an up arrow and the phrase
"Favorable reorganization plan." The third listing is Burlington Motor Holdings
followed by a down arrow and the phrase "Decline in trucking rates" Footnote
below reads: See "Schedule of Investments." Investment holdings are subject to
change."
See "Schedule of Investments." Investment holdings are subject to change.
improvement was not enough to make up the ground we lost in the first six months
while we changed course. For the twelve months ending October 31, 1995, the
Fund's Class A and B shares posted total returns of 8.83% and 7.97%,
respectively, at net asset value. By comparison, the average high current yield
fund returned 12.73%, according to Lipper Analytical Services.(1) Despite the
underperformance during this period, we believe the Fund is now well positioned
to realize a better blend of current high yield and total return going forward.
BOTTOM-UP APPROACH TO RISK-REWARD CHOICES
Our current strategy focuses on the broad high-yield market. Instead of
designating certain industry sectors and then looking within them for good
companies, we are searching for individual companies across all categories. We
devote our research to determining which companies represent the best value
relative to the investment risk we're taking. We may sometimes find more
companies to our liking within a specific sector, but we won't eliminate any
sector from our search for value. We particularly don't want to restrict our
parameters at a time when the supply of high-yield securities is so limited.
We'll keep this broad market view for as long as we believe the economy is
strong enough to enable the companies we choose to pay their debts -- even the
"cyclical" companies whose fortunes are closely tied to economic swings.
Currently, the Fund's average bond holding has a credit rating of B, which
is a rating below investment grade, but still in the middle of the high-yield
bond market. At the end of the period, about 57% of the Fund's holdings were in
B-rated bonds, and these bonds were some of our best performers during the
period. But we approach credit ratings with the same broad brush that we do
company selection. In our view, the key to success lies in careful company
research to determine the risk/reward tradeoff.
One of our best performers during the period was USAir, whose bonds we
bought in January when the airline was just beginning to rebound from a
difficult 1994 winter and major passenger falloff after two plane crashes. The
airline's fortunes improved with 1995's mild winter and the dropout of a major
East Coast competitor. By October, we realized a 45% return when we sold a large
piece of our USAir position. Another favorite that scored well during the period
was Computervision, maker of computer software that helps engineers design
industrial products. The company has succeeded in winning
4
<PAGE> 5
John Hancock Funds - High Yield Bond Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the fiscal year ended October 31, 1995." The chart
is scaled in increments of 5% from bottom to top, with 15% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first represents
the 8.83% total return for the John Hancock High Yield Bond Fund, Class A. The
second represents the 7.97% total return for John Hancock High Yield Bond Fund,
Class B. The third represents the 12.73% total return for the average high
current yield fund. A footnote below reads: "Total returns for John Hancock High
Yield Bond Fund are at net asset value with all distributions reinvested. The
average high current yield fund is tracked by Lipper Analytical Services.(1)
See following page for historical performance information."]
back its large European customer base, which had fallen away under the company's
former owners. We bought the bonds with coupons of 11 3/8% in May and they have
appreciated almost 10% since then. One disappointment during the period was
Burlington Motor Holdings, a large-parcel, long-haul trucking company. It has
suffered with a decline in trucking rates caused by a weak Mexican economy and
the subsequent falloff in goods shipped by truck.
SPECIAL SITUATIONS PLAY A ROLE
We've had some success within a category we call "special situations." These are
generally companies in the midst of a significant change in their operating or
financial fundamentals which appear to have a strong profit potential for
existing debt and bond holders. These situations require diligent research and
thoughtful analysis to determine the best investment approach. We found several
during the period. One, GPA Corp., is an Irish airplane leasing company that has
suffered during the airline industry downturn of the last several years. They
recently benefited, however, from new leases and the strong possibility of a new
investor coming on board. Another, Columbia Gas, has worked its way through a
Chapter 11 bankruptcy and is awaiting court approval of its reorganization plan.
Barring anything untoward, we expect the Columbia Gas bonds we bought this
summer to return in excess of 11% by year-end as the plan is executed.
OUTLOOK
Our outlook for the high-yield bond market remains positive in the near term.
The economy appears to be growing at a slower, yet steady enough pace for most
businesses, even the cyclicals, to thrive. The supply/demand characteristics of
the high-yield market haven't shown signs of changing either.
As long as the market remains this steady, we'll keep turning the wheels we
put in gear last January. We'll scour the entire high-yield playing field for
values worth their risk and turn our sights to special situations when
warranted. What would prompt us to change course? If the economy slowed to a
point that threatened recession or if the overall credit quality of the
high-yield market began to deteriorate. In those cases, we'd begin to pare back
our cyclical holdings, upgrade the credit quality of the portfolio and look for
more defensive places to find yield and total return.
[CAPTION]
"OUR OUTLOOK FOR THE HIGH-YIELD MARKET REMAINS POSITIVE IN THE NEAR TERM."
- ---------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock High Yield Bond Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's average net assets.
Performance figures include the maximum applicable sales charge of 4.50% for
Class A shares. (Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 4.75%.) The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six years) is
included in Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will performance in the future.
Also, keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- -------
<S> <C> <C> <C>
John Hancock High Yield Bond
Fund: Class A 3.69% 8.10%(1) N/A
John Hancock High Yield Bond
Fund: Class B 2.73% 82.08% 86.48%(2)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- -------
<S> <C> <C> <C>
John Hancock High Yield Bond
Fund: Class A 3.69% 3.52%(1) N/A
John Hancock High Yield Bond
Fund: Class B 2.73% 12.73% 8.18%(2)
</TABLE>
YIELDS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SEC 30-DAY
YIELD
----------
<S> <C>
John Hancock High Yield Bond Fund: Class A 9.35%
John Hancock High Yield Bond Fund: Class B 9.09%
</TABLE>
NOTES TO PERFORMANCE
(1) Class A shares started on June 30, 1993.
(2) Class B shares started on October 26, 1987.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT . . .
The charts on the right show how much a $10,000 investment in the John Hancock
High Yield Bond Fund would be worth on October 31, 1995, assuming you had
invested on the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Lehman Brothers High Yield Bond Index -- an unmanaged index of fixed-income
securities that are similar, but not identical, to the bonds in the Fund's
portfolio.
High Yield Bond Fund
Class A shares
Line chart with the heading High Yield Bond Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Lehman High Yield Bond Index and is
equal to $12,092 as of October 31, 1995. The second line represents the value
of the hypothetical $10,000 investment made in the High Yield Bond Fund on June
30, 1993, before sales charge, and is equal to $11,353 as of October 31, 1995.
The third line represents the High Yield Bond Fund after sales charge and is
equal to $10,844 as of October 31, 1995.
High Yield Bond Fund
Class B shares*
Line chart with the heading High Yield Bond Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Lehman High Yield Bond Index and is
equal to $21,183 as of October 31, 1995. The second line represents the value
of the hypothetical $10,000 investment made in the High Yield Bond Fund on
October 26, 1987, before contingent deferred sales charge, and is equal to
$18,697 as of October 31, 1995.
*No contingent deferred sales charge applicable.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value - Note C:
Bonds (cost - $174,275,586).................................. $174,895,660
Common stocks, preferred stocks
and warrants (cost - $11,926,485).......................... 15,917,273
Joint repurchase agreement (cost - $6,605,000)............... 6,605,000
Corporate savings account.................................... 126,996
------------
197,544,929
Dividends receivable.......................................... 85,076
Receivable for investments sold............................... 6,520,562
Interest receivable........................................... 5,870,417
Receivable for shares sold.................................... 214,328
Other assets.................................................. 69,226
------------
Total Assets................................ 210,304,538
-----------------------------------------------------------
LIABILITIES:
Payable for investments purchased............................. 2,640,800
Payable for shares repurchased................................ 283,098
Dividend payable.............................................. 51,919
Payable for forward foreign currency exchange
contracts bought - Note A.................................... 113,542
Payable to John Hancock Advisers, Inc. and
affiliates - Note B.......................................... 102,933
Accounts payable and accrued expenses......................... 74,193
------------
Total Liabilities........................... 3,266,485
-----------------------------------------------------------
NET ASSETS:
Capital paid-in............................................... 223,773,206
Accumulated net realized loss on investments and
foreign currency transactions................................ ( 21,253,679)
Net unrealized appreciation of investments and
foreign currency transactions................................ 4,497,320
Undistributed net investment income........................... 21,206
------------
Net Assets.................................. $207,038,053
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - 125,000,000 shares
authorized with $0.01 per share par value, respectively)
Class A - $26,452,279/3,674,039............................... $ 7.20
=============================================================================
Class B - $180,585,774/25,087,383............................. $ 7.20
=============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($7.20 x 104.71%)................................... $ 7.54
=============================================================================
</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.
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $43,437)........ $19,807,076
Dividends..................................................... 1,006,279
-----------
20,813,355
-----------
Expenses:
Investment management fee - Note B........................... 1,059,723
Distribution/service fee - Note B
Class A.................................................... 46,932
Class B.................................................... 1,620,766
Transfer agent fee........................................... 305,670
Custodian fee................................................ 77,621
Registration and filing fees................................. 62,478
Auditing fee................................................. 52,671
Printing..................................................... 46,750
Trustees' fees............................................... 28,202
Legal fees................................................... 20,725
Miscellaneous................................................ 16,486
Advisory board fee........................................... 13,213
-----------
Total Expenses.............................. 3,351,237
-----------------------------------------------------------
Net Investment Income....................... 17,462,118
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investments sold......................... ( 11,655,371)
Net realized loss on foreign currency transactions............ ( 353,504)
Change in net unrealized appreciation/depreciation
of investments............................................... 9,416,135
Change in net unrealized appreciation/depreciation
of foreign currency transactions............................. ( 113,542)
-----------
Net Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions............... ( 2,706,282)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations................... $14,755,836
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.......................................................................... $ 17,462,118 $ 15,754,523
Net realized loss on investments sold and foreign currency transactions........................ ( 12,008,875) ( 8,882,766)
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions......................................................................... 9,302,593 ( 9,524,936)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations............................... 14,755,836 ( 2,653,179)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income:
Class A - ($0.7310 and $0.8200 per share, respectively)..................................... ( 1,845,748) ( 821,430)
Class B - ($0.6738 and $0.7600 per share, respectively)..................................... ( 15,681,410) ( 15,331,034)
Distributions from net realized gain on investments
Class A - (none and $0.0465 per share, respectively)........................................ -- ( 18,900)
Class B - (none and $0.0465 per share, respectively)........................................ -- ( 870,444)
------------ ------------
Total Distributions to Shareholders........................................................ ( 17,527,158) ( 17,041,808)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*............................................................. 37,374,759 35,571,332
------------ ------------
NET ASSETS:
Beginning of period............................................................................ 172,434,616 156,558,271
------------ ------------
End of period (including undistributed net investment income of $21,206 and $86,246,
respectively)............................................................................... $207,038,053 $172,434,616
============ ============
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1995 1994
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold......................................................... 6,078,825 $43,382,586 3,865,973 $30,826,064
Shares issued to shareholders in reinvestment of distributions...... 135,872 966,256 56,266 435,342
---------- ----------- ---------- -----------
6,214,697 44,348,842 3,922,239 31,261,406
Less shares repurchased............................................. ( 4,135,476) ( 29,488,564) ( 2,612,061) ( 20,718,136)
---------- ----------- ---------- -----------
Net increase........................................................ 2,079,221 $14,860,278 1,310,178 $10,543,270
========== =========== ========== ===========
CLASS B
Shares sold......................................................... 10,103,871 $71,810,000 10,695,100 $84,645,545
Shares issued to shareholders in reinvestment of distributions...... 1,007,375 7,154,628 949,832 7,453,158
---------- ----------- ---------- -----------
11,111,246 78,964,628 11,644,932 92,098,703
Less shares repurchased............................................. ( 7,937,826) ( 56,450,147) ( 8,472,714) ( 67,070,641)
---------- ----------- ---------- -----------
Net increase........................................................ 3,173,420 $22,514,481 3,172,218 $25,028,062
========== =========== ========== ===========
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE
FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND
REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE CORRESPONDING DOLLAR
VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FROM JUNE 30,
1993
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS)
---------------------- TO OCTOBER 31,
1995(b) 1994 1993
--------- --------- --------------
<S> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................................... $ 7.33 $ 8.23 $ 8.10
------- ------- -------
Net Investment Income ............................................................. 0.72 0.80(a) 0.33
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions..................................................... ( 0.12) ( 0.83) 0.09
------- ------- -------
Total from Investment Operations ................................................. 0.60 ( 0.03) 0.42
------- ------- -------
Less Distributions:
Dividends from Net Investment Income............................................... ( 0.73) ( 0.82) ( 0.29)
Distributions from Net Realized Gain on Investments Sold........................... -- ( 0.05) --
------- ------- -------
Total Distributions .............................................................. ( 0.73) ( 0.87) ( 0.29)
------- ------- -------
Net Asset Value, End of Period..................................................... $ 7.20 $ 7.33 $ 8.23
======= ======= =======
Total Investment Return at Net Asset Value (c)..................................... 8.83% ( 0.59%) 4.96%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted).......................................... $26,452 $11,696 $ 2,344
Ratio of Expenses to Average Net Assets............................................ 1.16% 1.16% 0.91%*
Ratio of Net Investment Income to Average Net Assets............................... 10.23% 10.14% 12.89%*
Portfolio Turnover Rate ........................................................... 98% 153% 204%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1995(b) 1994 1993 1992 1991
---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period......................... $ 7.33 $ 8.23 $ 7.43 $ 7.44 $ 6.45
-------- -------- -------- -------- --------
Net Investment Income ....................................... 0.67 0.74(a) 0.80 0.87 0.98
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions............................... ( 0.13) ( 0.83) 0.75 ( 0.04) 1.06
-------- -------- -------- -------- --------
Total from Investment Operations ........................... 0.54 ( 0.09) 1.55 0.83 2.04
-------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income......................... ( 0.67) ( 0.76) ( 0.75) ( 0.84) ( 0.98)
Distributions from Net Realized Gain on Investments Sold..... -- ( 0.05) -- -- --
Distributions from Capital Paid-in........................... -- -- -- -- ( 0.07)
-------- -------- -------- -------- --------
Total Distributions ........................................ ( 0.67) ( 0.81) ( 0.75) ( 0.84) ( 1.05)
-------- -------- -------- -------- --------
Net Asset Value, End of Period............................... $ 7.20 $ 7.33 $ 8.23 $ 7.43 $ 7.44
======== ======== ======== ======== =========
Total Investment Return at Net Asset Value (c)............... 7.97% ( 1.33%) 21.76% 11.56% 34.21%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................... $180,586 $160,739 $154,214 $ 98,560 $ 72,023
Ratio of Expenses to Average Net Assets...................... 1.89% 1.91% 2.08% 2.25% 2.24%
Ratio of Net Investment Income to Average Net Assets......... 9.42% 9.39% 10.07% 11.09% 13.73%
Portfolio Turnover Rate ..................................... 98% 153% 204% 206% 93%
</TABLE>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
HIGH YIELD BOND FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO THREE MAIN
CATEGORIES: PUBLICLY TRADED BONDS, COMMON AND PREFERRED STOCKS AND WARRANTS, AND
SHORT-TERM INVESTMENTS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S
"CASH" POSITION, ARE LISTED LAST.
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
AEROSPACE (2.42%)
GPA Group PLC
*Loan participation 09-30-97 (Ireland) (F)+...................... 7.180% B $ 1,856 $ 1,785,979
Rohr, Inc.,
*Sr Note 05-15-03................................................ 11.625 BB- 3,000 3,217,500
------------
5,003,479
------------
AUTOMOBILE/TRUCK (4.54%)
Fruehauf Trailer Corp.,
*Sr Note 04-30-02 (R)............................................ 14.750 B 4,000 4,060,000
Great Dane Holdings,
*Sr Sub Deb 08-01-01............................................. 12.750 B- 2,435 2,337,600
*Sub Deb 01-01-06................................................ 14.500 CCC 3,132 3,006,720
------------
9,404,320
------------
CABLE TV (4.99%)
Adelphia Communications Corp.,
*Sr Note 05-15-02................................................ 12.500 B 2,500 2,437,500
Australis Media Ltd.,
*Unit (Sr Sub Disc Note 05-15-03 & Warr.) (Australia) (F)........ Zero CCC 3,000 2,175,000
Cablevision Systems Corp.,
Sr Sub Deb 02-15-13............................................. 9.875 B 2,000 2,080,000
CF Cable TV Inc.,
Sr Sec 2nd Priority Note 02-15-05 (Canada) (F).................. 11.625 BB+ 1,000 1,080,000
Le Groupe Videotron Ltee,
*Sr Note 02-15-05 (Canada) (F)................................... 10.625 BB+ 1,000 1,060,000
Marcus Cable Co., L.P.,
*Sr Disc Note 12-15-05........................................... Zero B 1,500 890,625
Scandinavian Broadcasting System SA,
*Conv Sub Deb 08-01-05 (Netherlands) (F)......................... 7.250 B 555 593,850
------------
10,316,975
------------
COMPUTERS (1.82%)
Computervision Corp.,
*Sr Sub Note 08-15-99............................................ 11.375 CCC+ 2,000 2,090,000
Unisys Corp.,
*Credit Sensitive Note 07-01-97.................................. 13.500 BB- 850 858,500
*Sr Note 10-01-99................................................ 10.625 BB- 900 819,000
------------
3,767,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
CONSTRUCTION (1.24%)
Primeco Inc.,
*Sr Sub Note 03-01-05............................................ 12.750% B $ 2,500 $ 2,575,000
------------
CONTAINERS (3.30%)
Gaylord Container Corp.,
*Sr Sub Disc Deb 05-15-05........................................ Zero B- 6,000 5,850,000
Stone Container Corp.,
*Sr Note 02-01-01................................................ 9.875 B+ 1,000 990,000
------------
6,840,000
------------
COSMETICS & TOILETRIES (0.96%)
Renaissance Cosmetics,
*Sr Note 08-15-01................................................ 13.750 B 2,000 1,990,000
------------
DRUGS (1.06%)
Amerisource Distribution Corp.,
Deb 07-15-05.................................................... 11.250 B 1,116 1,202,127
J.B. Williams Holdings, Inc.,
Sr Note 03-01-04................................................ 12.000 B 1,000 990,000
------------
2,192,127
------------
ELECTRONICS (1.67%)
Alliant Techsystems, Inc.,
*Sr Sub Note 03-01-03............................................ 11.750 B 1,375 1,505,625
Dictaphone Corp.,
*Sr Sub Note 08-01-05............................................ 11.750 B- 2,000 1,950,000
------------
3,455,625
------------
FOODS (1.14%)
Di Giorgio Corp.,
*Sr Note 02-15-03................................................ 12.000 B 3,000 2,370,000
------------
GLASS PRODUCTS (0.84%)
Owens-Illinois, Inc.,
*Sr Sub Note 04-01-99............................................ 10.250 B+ 1,700 1,746,750
------------
GOVERNMENTAL -- FOREIGN (0.94%)
Land & Agricultural Bank of South Africa,
*Bond 11-15-96 (South Africa) #.................................. 16.000 BB 7,000 1,943,437
------------
GOVERNMENTAL -- U.S. (0.97%)
United States Treasury,
*Bond 11-15-95................................................... 11.500 AAA 2,000 2,004,060
------------
INSURANCE (0.85%)
Home Holdings Inc.,
*Sr Note 12-15-98................................................ 7.750 B- 2,000 1,760,000
------------
LEISURE & RECREATION (8.43%)
Alliance Entertainment Corp.,
*Sr Sub Note 07-15-05 (R)........................................ 11.250 B- 500 502,500
GB Property Funding Corp.,
*1st Mtg Note 01-15-04........................................... 10.875 B+ 3,000 2,535,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
LEISURE & RECREATION (CONTINUED)
GNF Corp.,
*1st Mtg 04-01-03................................................ 10.625% BB $ 3,000 $ 2,617,500
Hollywood Casino Corp.,
*Sr Sec Note 11-01-03............................................ 12.750 B+ 2,000 1,875,000
Mohegan Tribal Gaming Authority,
*Sr Sec Note 11-15-02 (R)........................................ 13.500 B 1,800 1,885,500
Showboat, Inc.,
*Sr Sub Note 08-01-09............................................ 13.000 B 2,000 2,200,000
Station Casinos, Inc.,
*Sr Sub Note 06-01-03............................................ 9.625 B+ 1,000 955,000
Stratosphere Corp.,
*1st Mtg Note 05-15-02........................................... 14.250 B 600 640,500
Trump Taj Mahal Funding, Inc.,
*Deb 11-15-99.................................................... 11.350 CAA 5,000 4,250,000
------------
17,461,000
------------
METALS (4.34%)
Alpine Group, Inc., (The),
*Sr Note 07-15-03 (R)............................................ 12.250 B 4,000 3,790,000
Interlake Corp. (The),
*Sr Sub Deb 03-01-02............................................. 12.125 CCC+ 2,000 1,880,000
Kaiser Aluminum & Chemical Corp.,
*Sr Sub Note 02-01-03............................................ 12.750 B- 3,000 3,307,500
------------
8,977,500
------------
MOTION PICTURES (0.52%)
Act III Theaters, Inc.,
*Sr Sub Note 02-01-03............................................ 11.875 B- 1,000 1,070,000
------------
OIL & GAS (11.14%)
Dual Drilling Co.,
Sr Sub Note 01-15-04............................................ 9.875 B- 3,750 3,562,500
Falcon Drilling Co., Inc.,
Sr Note 01-15-01................................................ 9.750 B 2,500 2,550,000
Maxus Energy Corp.,
Deb 11-15-15.................................................... 11.500 BB- 2,000 2,055,000
Mesa Capital Corp.,
Discount Note 06-30-96.......................................... 12.750 CCC 516 482,460
Discount Note 06-30-98.......................................... 12.750 CCC+ 4,000 3,630,000
Nuevo Energy Co.,
Sr Sub Note 06-15-02............................................ 12.500 B- 4,000 4,350,000
TransAmerican Refining Corp.,
*Unit (1st Mtg Note 02-15-05 & Warr.)............................ 16.500 B- 1,500 1,665,000
TransTexas Gas Corp.,
*Sr Sec Note 06-15-02............................................ 11.500 BB- 2,500 2,612,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
OIL & GAS (CONTINUED)
Wilrig AS,
Sr Sec Note 03-15-04 (Norway) (F)............................... 11.250% B $ 2,000 $ 2,160,000
------------
23,067,460
------------
PAPER (4.38%)
APP International Finance Co. B.V.
*Gtd Sec Note 10-01-05 (Indonesia) (F)........................... 11.750 BB 750 763,125
Container Corp. Of America,
Sr Note Ser A 05-01-04.......................................... 11.250 B+ 2,000 2,105,000
Crown Packaging Holdings Ltd.,
Sr Note 11-01-00 (Canada) (F)................................... 10.750 B3 1,500 1,436,250
Data Documents Inc.,
*Sr Sec Note 07-15-02............................................ 13.500 B+ 2,000 2,170,000
Indah Kiat International Finance Co.
Sr Sec Note 06-15-06 (Indonesia) (F)............................ 12.500 BB 2,500 2,600,000
------------
9,074,375
------------
PUBLISHING (1.49%)
American Media Operation, Inc.,
*Sr Sub Note 11-15-04............................................ 11.625 B 3,000 3,090,000
------------
RETAIL (6.38%)
Decorative Home Accents, Inc.,
*Unit (Sr Note 06-30-02 & Common Stock, Class F) (R)............. 13.000 B 1,000 1,000,000
Flagstar Corp.,
*Sr Sub Deb 11-01-04............................................. 11.250 CCC+ 2,750 1,966,250
Grand Union Corp.,
*Sr Note 09-01-04................................................ 12.000 B- 5,000 4,825,000
Petro PSC / Properties, L.P.,
*Sr Note 06-01-02................................................ 12.500 B 950 947,625
Specialty Retailers, Inc.,
*Sr Sub Note 08-15-03............................................ 11.000 B- 2,000 1,870,000
Star Markets Co.,
*Sr Sub Note 11-01-04............................................ 13.000 CCC+ 2,600 2,600,000
------------
13,208,875
------------
STEEL (4.80%)
Geneva Steel Co.,
Sr Note 01-15-04................................................ 9.500 B 2,000 1,450,000
GS Technologies Operating Co., Inc.,
*Sr Note 10-01-05................................................ 12.250 B 1,000 1,010,000
NS Group, Inc.,
*Unit (Sr Sec Note 07-15-03 & Warr.)............................. 13.500 B- 2,000 1,660,000
Sheffield Steel Corp.,
Sr Note 11-01-01................................................ 12.000 B 2,000 1,830,000
Weirton Steel Corp.,
Sr Note 03-01-98................................................ 11.500 B 1,500 1,541,250
*Sr Note 06-01-05 (R)............................................ 10.750 B 2,650 2,444,625
------------
9,935,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS (2.60%)
A+ Communications Inc.,
*Sr Sub Note 11-01-05............................................ 11.875% CCC+ $ 1,500 $ 1,500,000
Century Communications, Corp.,
Sr Sub Deb 10-15-03............................................. 11.875 B+ 700 743,750
NEXTEL Communications, Inc.,
Sr Discount Note 08-15-04....................................... Zero CCC- 2,000 1,010,000
ProNet Inc.,
*Sr Sub Deb 06-15-05 (R)......................................... 11.875 B- 2,000 2,135,000
------------
5,388,750
------------
TEXTILES (0.58%)
Apparel Ventures Inc.,
*Sr Note 12-31-00................................................ 12.250 B- 1,500 1,200,000
------------
TRANSPORTATION (8.39%)
AM General Corp.,
*Sr Note 05-01-02 (R)............................................ 12.875 B+ 2,000 2,000,000
Burlington Motor Holdings Inc.,
*Sr Sub Note 11-01-03............................................ 11.500 CCC- 2,000 640,000
CHC Helicopter Corp.,
Sr Sub Note 07-15-02 (Canada) (F)............................... 11.500 B- 1,250 1,103,125
Jet Equipment Trust Ser. 1995-B,
*Cert 08-15-14 (R)............................................... 10.910 BB+ 1,500 1,581,300
Johnstown America Industries, Inc.,
*Sr Sub Note 08-15-05............................................ 11.750 B 2,000 1,860,000
NWA Trust,
*Sub Note 06-21-08............................................... 13.875 B 4,075 4,686,250
OMI Corp.,
*Sr Note 11-01-03................................................ 10.250 B- 3,000 2,655,000
USAir Inc.,
*Sr Deb 04-01-00................................................. 12.875 CCC+ 1000 1,020,000
*Sr Note 02-01-01................................................ 9.625 CCC+ 2,000 1,820,000
------------
17,365,675
------------
UTILITIES (4.68%)
Columbia Gas System, Inc. (The),
*Deb 08-01-93 (A)................................................ 9.000 D 3,000 4,290,000
Eskom
*Bond 05-01-96 (South Africa) #.................................. 12.000 B 13,000 3,522,627
Petroleum Heat & Power Co., Inc.,
*Sub Deb 02-01-05................................................ 12.250 B+ 1,700 1,874,250
------------
9,686,877
------------
TOTAL PUBLICLY TRADED BONDS
(Cost $174,275,586) (84.47%) 174,895,660
------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
NUMBER OF SHARES MARKET
ISSUER, DESCRIPTION UNITS OR WARRANTS VALUE
- ------------------- ----------------- ------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
*AVI Holdings, Inc., Warrants (R) ***.................................................... 1,500 $ 7,500
Browne Bottling Co., Warrants ***....................................................... 237 237
Casino Magic Finance Corp., Warrants ***................................................ 9,000 90
CHC Helicopter Corp., Warrants (Canada) (F) ***......................................... 16,000 16,000
*Chevy Chase Savings Bank FSB, 13.00% Ser A Pref Stock................................... 35,000 1,054,375
Crown Packaging Holdings Ltd., Common Stock (Canada) (F) ***............................ 2,750 52,250
*Data Documents Inc., Warrants ***....................................................... 2,000 170,000
Farm Fresh Holdings Corp., Common Stock (Class B) ***................................... 1,000 15,000
*Grand Union Co., Common Stock ***....................................................... 37,000 397,750
*Northwest Airlines Corp., Common Stock (Class A) ***.................................... 120,000 4,815,000
*PanAmSat Corp., 12.75% Mandatory Exchangeable Sr Red Pref Stock......................... 1,802 1,964,180
*Qantas Airways Ltd., Common Stock American Depositary Shares (ADS)(Australia) (F)(R).... 32,200 555,450
*Renaissance Cosmetics, Warrants ***..................................................... 4,000 90,000
Sheffield Steel Corp., Warrants ***..................................................... 22,500 67,500
*Swissair Schweizerische Luftverkehr AG Reg Shares, (Switzerland) (F)***................. 3,400 2,139,003
*UAL Corp., 12.25% Ser B Depositary Shares Pref Stock.................................... 75,000 2,259,375
*USX-Delhi Group, Common Stock........................................................... 60,000 532,500
Valero Energy Corp., 6.50% Pref Stock................................................... 35,400 1,781,063
-----------
15,917,273
-----------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $11,926,485) (7.69%) 15,917,273
------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 18
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (3.19%)
Investment in a joint repurchase agreement transaction
with SBC Capital Markets Inc., Dated 10-31-95, Due 11-01-95
(secured by U.S. Treasury Bond, 8.750%, due 05-15-17,
and U.S. Treasury Note, 5.750% , due 09-30-97) - Note A......................... 5.890% $6,605 $ 6,605,000
------------
CORPORATE SAVINGS ACCOUNT (0.06%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%.............................................................. 126,996
------------
TOTAL SHORT-TERM INVESTMENTS ( 3.25%) 6,731,996
------ ------------
TOTAL INVESTMENTS (95.41%) $197,544,929
====== ============
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
(A)Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code and has filed a comprehensive reorganization plan.
(F)Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer, however, security is U.S. dollar
denominated.
#Par value of foreign bonds is expressed in local currency, as shown
parenthetically in security description.
(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 $19,961,875 as of October 31, 1995. See note A of the
Notes to Financial Statements for valuation policy.
+A portion of this security having an aggregate value of $378,435 or 0.18% of
the Fund's net assets, has been purchased on a where required basis.
The Fund has instructed its Custodian Bank to segregate assets with a current
value at least equal to its unfunded commitment. Accordingly, the market
value of $400,812 of U.S. Treasury Bond 11.50%, 11/15/95 has been segregated
to cover the unfunded commitment. The sale of this security has certain
restrictions.
*Securities, other than short-term investments, newly added to the portfolio
during the year ended October 31, 1995.
**Credit ratings are rated by Moody's Investor Services or John Hancock
Advisers, Inc. where Standard and Poors ratings are not available and are
unaudited.
***Non-income producing security.
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.
18
<PAGE> 19
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
PORTFOLIO CONCENTRATION
- -------------------------------------------------------------------------------
THE HIGH YIELD BOND 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 OF THE COUNTRIES WITHIN 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, CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
COUNTRIES. THE TABLE BELOW SHOWS THE PERCENTAGE OF THE FUND'S INVESTMENTS AT
OCTOBER 31, 1995 ASSIGNED TO COUNTRY CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ---------------
<S> <C>
Australia........................................................................................ 1.33%
Canada........................................................................................... 2.29
Indonesia........................................................................................ 1.62
Ireland.......................................................................................... 0.86
Netherlands...................................................................................... 0.29
Norway........................................................................................... 1.04
South Africa..................................................................................... 2.64
Switzerland...................................................................................... 1.03
United States.................................................................................... 84.31
-----
TOTAL INVESTMENTS 95.41%
=====
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION NET ASSETS
- -------------------- ---------------
<S> <C>
AAA.............................................................................................. 0.97%
BAA.............................................................................................. 1.26
BA............................................................................................... 11.17
B................................................................................................ 63.90
CAA.............................................................................................. 7.17
-----
TOTAL BONDS 84.47%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940. The Corporation consists of six series portfolios: John Hancock High
Yield Bond Fund (the "Fund"), John Hancock Emerging Growth Fund, John Hancock
Global Resources Fund, John Hancock Government Income Fund, John Hancock High
Yield Tax-Free Fund, and John Hancock Money Market Fund (collectively the
"Funds"). The Board of Directors may authorize the creation of additional Funds
from time to time to satisfy various investment objectives. Effective December
22, 1994 (see Note B), the Corporation and Funds changed names by replacing the
word Transamerica with John Hancock.
The Board of Directors have authorized the issuance of two classes of the
Fund, designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain expenses,
subject to the approval of the Board of Directors, may be applied differently to
each class of shares in accordance with current regulations of the Securities
and Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution/service expenses under the terms of a
distribution plan have exclusive voting rights regarding such distribution plan.
Class A Shares are subject to an initial sales charge of up to 4.50% and a 12b-1
distribution plan. Prior to May 15, 1995, the maximum sales charge was 4.75%.
Class B Shares are subject to a contingent deferred sales charge and a separate
12b-1 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 Board of Directors. Short-term debt investments maturing within
60 days are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc., (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial
Group, may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
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.
The Fund may also purchase and sell forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under which
it intends to take delivery of the foreign currency. Such contracts normally
involve no market risk other than that offset by the currency amount of the
underlying transaction.
At October 31, 1995, open forward foreign currency buy contracts were as
follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT MONTH DEPRECIATION
- -------- ------------------- ---------- ------------
<S> <C> <C> <C>
SWISS FRANC 3,000,000 NOV 95 (106,769)
SOUTH AFRICAN RAND 988,666 NOV 95 ( 824)
SOUTH AFRICAN RAND 3,967,459 NOV 95 ( 5,949)
-------
(113,542)
=======
</TABLE>
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
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 and 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.
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 for both financial
reporting and federal income tax purposes.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $9,184,252 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforwards are used by the Fund,
no capital gain distribution will be made. The carryforward expires 12/31/2002.
The Fund's tax year end is December 31.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis. Foreign income may be subject to foreign
withholding tax and is 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, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for effect of expenses that
may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Corporation are directly
identifiable to an individual Fund. Expenses which are not readily identifiable
to a specific Fund are allocated in such a manner as deemed equitable, taking
into consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees, if any, are calculated daily at the class level based
on the appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, the Adviser became the investment adviser for the Fund
with approval of the Board of Directors and shareholders of the Fund. The Fund's
former investment manager was Transamerica Fund Management Company ("TFMC").
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.6250% of the first $75,000,000 of the
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
Fund's average daily net asset value, 0.5625% of the next $75,000,000, and
0.5000% of the Fund's average daily net asset value in excess of $150,000,000.
This fee structure is consistent with the former agreement with TFMC. For the
period ended October 31, 1995, the advisory fee earned by the Adviser and TFMC
amounted to $897,349 and $162,374, respectively, resulting in a total fee of
$1,059,723.
The Adviser and TFMC, for their respective periods, provided administrative
services to the Fund pursuant to an administrative service agreement through
January 16, 1995 on which day the agreement was terminated.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a wholly-owned
subsidiary of the Adviser, became the principal underwriter of the Fund. Prior
to this date, Transamerica Fund Distributors, Inc. ("TFD") served as the
principal underwriter and distributor of the Fund. For the period ended October
31, 1995, JH Funds and TFD received net sales charges of $239,378 with regard to
sales of Class A shares. Out of this amount, $19,285 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $93,088
was paid as sales commissions to unrelated broker-dealers and $127,005 was paid
as sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"). The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company, is the indirect sole shareholder of Distributors and John
Hancock Freedom Securities Corporation and its subsidiaries, which include
Tucker Anthony and Sutro, all of which are broker-dealers.
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 4.75% 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, formerly TFD, 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
October 31, 1995, contingent deferred sales charges amounted to $418,834.
In addition, to compensate 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 and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments for
distribution and service expenses which in total will not exceed on an annual
basis 0.25% of the Fund's average daily net assets attributable to Class A
shares and 1.00% of the Fund's average daily net assets attributable to Class B
shares, to reimburse JHFunds for its distribution/service costs. Up to a maximum
of 0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In order to comply with this
rule, the 12b-1 fee on Class B shares were decreased to 0.95% effective July 1,
1995. This fee structure and plan is similar to the former arrangement with TFD.
The Board of Directors approved a shareholder servicing agreement between
the Fund and John Hancock Investor Services Corporation ("Investor Services"), a
wholly owned subsidiary of The Berkeley Financial Group, for the period between
December 22, 1994 and May 12, 1995, inclusive under which Investor Services
processed telephone transactions on behalf of the Fund. As of May 15, 1995, the
Fund entered into a full service transfer agent agreement with Investor
Services. Prior to this date The Shareholder Services Group was the
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
transfer agent. The Fund will pay Investor Services a fee based on the number of
shareholder accounts and certain out-of pocket expenses.
A partner with Baker & Botts was an officer of the Corporation until
December 22, 1994. During the period ended October 31, 1995, legal fees paid to
Baker & Botts amounted to $2,081.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser and
its affiliates as well as Director of the Corporation. The compensation of
unaffiliated Directors is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Directors 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 with regard to the deferred compensation.
Investments to cover the Fund's deferred compensation liability will be recorded
on the Fund's books as an other asset. The deferred compensation liability will
be marked to market on a periodic basis and income earned by the investment will
be recorded on the Fund's books.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Board of Directors in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
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 obligations, during the period
ended October 31, 1995 aggregated $196,154,072 and $172,954,652, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies, during the period ended October 31, 1995 aggregated $15,228,125 and
$13,144,980, respectively.
The cost of investments owned at October 31, 1995 for Federal income tax
purposes was $192,807,071. Gross unrealized appreciation and depreciation of
investments aggregated $9,964,856, and $5,353,994, respectively, resulting in
net unrealized appreciation of $4,610,862.
23
<PAGE> 24
John Hancock Funds - High Yield Bond Fund
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of John Hancock Series, Inc. --
John Hancock High Yield Bond Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock High Yield Bond Fund (the
"Fund"), (formerly the Transamerica High Yield Bond Fund), one of the portfolios
constituting John Hancock Series, Inc. (the "Corporation") (formerly
Transamerica Series, Inc.), as of October 31, 1995, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers, or other
appropriate auditing procedures when replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
John Hancock High Yield Bond Fund portfolio of John Hancock Series, Inc. at
October 31, 1995, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts
December 15, 1995
24
<PAGE> 25
ADDITIONAL INFORMATION
John Hancock Funds - High Yield Bond Fund
On December 16, 1994, a special meeting of John Hancock (formerly Transamerica)
Series, Inc. (the "Corporation") in respect of John Hancock (formerly
Transamerica) High Yield Bond Fund (the "Fund") was held involving the election
of trustees and certain other matters concerning the Fund.
Specifically, shareholder's first approved a new investment management
agreement between the Trust on behalf of the Fund and John Hancock Advisers,
Inc. on substantially similar terms of the prior investment management
agreement, to take effect on December 22, 1994, the date of the consummation of
Transamerica Fund Management Company by The Berkeley Financial Group. The
shareholder votes tallied were 14,073,889 FOR, 246,067 AGAINST and 723,503
ABSTAINING.
The shareholders next approved new Plans of Distribution for each Class A
and Class B shares of the Fund, also effective on December 22, 1994, and also on
substantially the same terms as the prior Plans of Distribution. The Class A
shareholder votes tallied were 916,033 FOR, 1,984 AGAINST and 89,101 ABSTAINING.
The Class B shareholder votes tallied were 12,851,936 FOR, 326,770 AGAINST and
857,636 ABSTAINING.
The shareholders also voted to ratify the selection of Ernst & Young, LLP
as independent auditors for the Fund for the fiscal year ending October 31,
1995, and the votes tallied were 4,311,282 FOR, 46,604 AGAINST and 117,164
ABSTAINING.
Lastly, the following directors were elected to serve until their
respective successors shall become duly elected and qualified, with the votes
tabulated as indicated:
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHOLD
- ---------------- --- --------
<S> <C> <C>
Edward J. Boudreau, Jr........................ 3,082,680 1,392,370
James F. Carlin............................... 3,082,600 1,392,450
William H. Cunningham......................... 3,084,089 1,390,961
Charles L. Ladner............................. 3,082,224 1,392,826
Leo E. Linbeck, Jr............................ 3,084,060 1,390,990
Patricia P. McCarter.......................... 3,082,319 1,392,731
Steven R. Pruchansky.......................... 3,080,793 1,394,259
Norman H. Smith............................... 3,081,938 1,393,112
John P. Toolan................................ 3,081,252 1,393,799
</TABLE>
25
<PAGE> 26
NOTES
John Hancock Funds - High Yield Bond Fund
26
<PAGE> 27
NOTES
John Hancock Funds - High Yield Bond Fund
27
<PAGE> 28
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
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right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
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This report is for the information of shareholders of the John Hancock High
Yield Bond Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
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Paper."]
JHD 5700A 10/95
12/95
