-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Syi/Vm05A5q+Yq5VjuZ52TIshLoEm9j8mcQxQKYFhUCuh8hGX2NiFNpk08BucObI knFwlqucRKU8i0HAG9CR/A== /in/edgar/work/20000725/0001010521-00-000355/0001010521-00-000355.txt : 20000921 0001010521-00-000355.hdr.sgml : 20000921 ACCESSION NUMBER: 0001010521-00-000355 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20000725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN SOVEREIGN BOND FUND CENTRAL INDEX KEY: 0000045288 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 042528977 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02402 FILM NUMBER: 678554 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVE STREET 2: JOHN HANCOCK FUNDS CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 6173751702 MAIL ADDRESS: STREET 1: JOHN HANCOCK FUNDS STREET 2: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: HANCOCK JOHN BOND FUND DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HANCOCK JOHN BOND TRUST DATE OF NAME CHANGE: 19910704 FORMER COMPANY: FORMER CONFORMED NAME: HANCOCK JOHN BOND FUND INC DATE OF NAME CHANGE: 19841225 N-30D 1 0001.txt JOHN HANCOCK SOVEREIGN BOND --------------------------- The latest report from your Fund's management team --------------------------- ANNUAL REPORT - -------------------------------------------------------------------------------- [GRAPHIC] Bond Fund MAY 31, 2000 [LOGO] JOHN HANCOCK FUNDS A Global Investment Management Firm ================================================================================ TRUSTEES DENNIS S. ARONOWITZ* STEPHEN L. BROWN RICHARD P. CHAPMAN, JR. WILLIAM J. COSGROVE* LELAND O. ERDAHL RICHARD A. FARRELL GAIL D. FOSLER WILLIAM F. GLAVIN DR. JOHN A. MOORE PATTI MCGILL PETERSON JOHN W. PRATT* RICHARD S. SCIPIONE *Members of the Audit Committee OFFICERS STEPHEN L. BROWN Chairman MAUREEN R. FORD Vice Chairman, President and Chief Executive Officer OSBERT M. HOOD Executive Vice President and Chief Financial Officer WILLIAM L. BRAMAN Executive Vice President and Chief Investment Officer SUSAN S. NEWTON Vice President and Secretary JAMES J. STOKOWSKI Vice President and Treasurer THOMAS H. CONNORS Vice President and Compliance Officer CUSTODIAN INVESTORS BANK & TRUST COMPANY 200 CLARENDON STREET BOSTON, MASSACHUSETTS 02116 TRANSFER AGENT JOHN HANCOCK SIGNATURE SERVICES, INC. 1 JOHN HANCOCK WAY, SUITE 1000 BOSTON, MASSACHUSETTS 02217-1000 INVESTMENT ADVISER JOHN HANCOCK ADVISERS, INC. 101 HUNTINGTON AVENUE BOSTON, MASSACHUSETTS 02199-7603 PRINCIPAL DISTRIBUTOR JOHN HANCOCK FUNDS, INC. 101 HUNTINGTON AVENUE BOSTON, MASSACHUSETTS 02199-7603 LEGAL COUNSEL HALE AND DORR LLP 60 STATE STREET BOSTON, MASSACHUSETTS 02109-1803 INDEPENDENT AUDITORS ERNST &YOUNG LLP 200 CLARENDON STREET BOSTON, MASSACHUSETTS 02116-5072 ================================== CEO CORNER ================================== DEAR FELLOW SHAREHOLDERS: Over the last 12 months, New Economy technology stocks dominated the business-news headlines and the stock market's performance. Red-hot tech stocks pushed the NASDAQ Composite Index to the stratosphere, as investors single-mindedly pursued anything technology related. But after setting a new high on March 10 amid significantly heightened volatility, the tables started to turn rapidly. Concerns about Microsoft's antitrust ruling and out-of-sight valuation levels finally triggered waves of selling that sent the index down 32% from its March high by the end of May. In this same period, fixed-income-type securities, including bonds and preferred stocks, struggled as interest rates rose on fears that the roaring U.S. economy and the rebound of many others around the world would spark an inflation outbreak. - -------------------------------------------------------------------------------- [A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief Executive Officer, flush right next to second paragraph.] - -------------------------------------------------------------------------------- While the battle between old and new rages on, a couple of things are clear: More than ever, diversification and a long-term investment perspective are two of an investor's best allies. Since not all parts of your portfolio will perform equally well all the time, we believe it is important to allocate your assets among different types of investments and funds that target a variety of stock- and bond-market segments. This strategy, executed under the guidance of a seasoned investment professional, could provide you with a better chance of both realizing longer-term results and weathering the market's changing conditions. Sincerely, /s/ Maureen R. Ford - ------------------- MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER 2 ================================================================================ BY JAMES K. HO, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND BENJAMIN A. MATTHEWS, PORTFOLIO MANAGER John Hancock Bond Fund Rising interest rates and inflation fears keep bonds under pressure A combination of technical and market factors made the past 12 months one of the roughest rides bonds have had in a long time. While pockets of strength occurred among the various fixed-income sectors, they were short-lived. With the economy booming, inflation remained a worry throughout the year, and the Federal Reserve Board raised interest rates six times starting last June, so that by the end of the period the federal funds rate stood at 6.50%, up from 4.75% a year ago. The anticipation of an eventual economic slowdown due to the Fed's actions made investors wary of the future creditworthiness of corporate issuers. A rise in defaults cast further aspersions on high-yield bonds. The buildup of concerns prior to Y2K contributed to the downturn, as did a glut of new corporate issuance last summer. Longer-term U.S. Treasury bonds fared somewhat better as the result of the U.S. Treasury's announced buy-back program. The stock market's volatility in recent months further bolstered the demand for long-term Treasury bonds at the expense of other bond sectors as a "flight-to-quality" took place. Credit quality spreads (the difference in yield between bonds of different credit quality) widened dramatically to levels last seen in the 1990 recession. Fund performance John Hancock Bond Fund produced a modest gain for the 12 months ended May 31, 2000. The Fund's Class A, Class B and Class C shares posted total returns of 0.97%, 0.27% and 0.28%, respectively, at net asset value. By comparison, the average corporate debt A-rated fund returned 0.14%, 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. Longer-term performance information can be found on pages six and seven. Defensive duration stance The Fund began the year last June with a duration, or interest-rate sensitivity, that was relatively short. As you may know, the shorter the duration, the less price volatility a portfolio is likely to experience when interest rates rise or fall. Conversely, "...the Federal Reserve Board raised interest rates six times starting last June..." - -------------------------------------------------------------------------------- [A 3" x 2" photo at bottom right side of page of John Hancock Bond Fund. Caption below reads "Fund management team members (l-r): Ben Matthews and Jim Ho."] - -------------------------------------------------------------------------------- 3 ================================================================================ John Hancock Funds - Bond Fund "...heavy exposure to corporate issues throughout the year helped overall." - -------------------------------------------------------------------------------- [Table at top left hand column entitled "Top Five Bond Sectors." The first listing is U.S. Government & Agencies 36%, the second is Utilities 12%, the third Telecommunications 5%, the fourth Media 5% and the fifth U.S. Banks 4%. A note below the table reads "As a percentage of net assets on May 31, 2000."] - -------------------------------------------------------------------------------- the longer the duration, the greater price appreciation or depreciation possibilities a fund may experience as interest rates change. Within the past few months, we moved away from the shorter, more defensive, duration posture toward a more neutral orientation. Recent economic numbers seem to suggest slower growth, which may temper the Fed's tightening. Treasuries barbelled For most of the period, we had the Fund's U.S. Treasury holdings anchored at both the short- and long-end of the maturity spectrum, graphically represented by what's known as the yield curve. This allowed the portfolio to benefit from the yield curve's flattening through the end of calendar 1999. With the announcement of the Treasury's intention to buy back securities, investors bid up the price of 30-year bonds, causing yields on longer-term bonds to fall below those of shorter-term issues, inverting the yield curve. The Fund's holdings in long-term Treasury bonds benefited as a result. Quite recently, we began to shift our focus somewhat to intermediate-term securities, believing that once the Fed's actions take effect and slow the economy, the yield curve should steepen again. When a steepening occurs, intermediate-term securities tend to perform well. Adding shorter-maturity corporates Although there was a significant downturn in corporate bond prices this past spring, the Fund's heavy exposure to corporate issues throughout the year helped overall. We added to and pared back the Fund's weighting in this sector several times during the year, participating in the brief run-ups while avoiding the worst of the declines. Since February, we tried to position the Fund's corporate holdings for the credit widening we believed would soon follow the Fed's continued rate increases. Whenever an opportunity presented itself to move out of a longer-term bond and purchase a shorter-term security by the same issuer we did so. For example, we trimmed back some exposure in 30-year bonds issued by Lockheed Martin and DaimlerChrysler and moved into the five-year debt of the same name. We also looked to upgrade the portfolio in terms of adding to mortgage-backed and agency securities, such as Ginnie Mae and Fannie Mae. The Fannie Mae issues, however, suffered a setback when the Clinton Administration supported eliminating government financial support. We quickly sold these issues and avoided the brunt of the ensuing price declines. We have recently begun adding back to them, as prices have become quite attractive. We also avoided emerging-market debt, believing this sector's limited liquidity presents undue risk at this time. - -------------------------------------------------------------------------------- [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 Verio followed by an up arrow with the phrase "Pending merger with NTT Japan." The second listing is Dillards followed by a down arrow with the phrase "Acquisition integration problems." The third listing is Goldman Sachs followed by a sideways arrow with the phrase "Impact of rising interest rates." A note below the table reads "See `Schedule of Investments.' Investment holdings are subject to change."] - -------------------------------------------------------------------------------- 4 ================================================================================ John Hancock Funds - Bond Fund - -------------------------------------------------------------------------------- [Bar chart at top of left hand column with heading "Fund Performance". Under the heading is a note that reads "For the year ended May 31, 2000." The chart is scaled in increments of 1% with -1% at the bottom and 1% at the top. The first bar represents the 0.97% total return for John Hancock Bond Fund Class A. The second bar represents the 0.27% total return for John Hancock Bond Fund Class B. The third bar represents the 0.28% total return for John Hancock Bond Fund Class C. The fourth bar represents the 0.14% total return for Average corporate debt A-rated fund. A note below the chart reads "Total returns for John Hancock Bond Fund are at net asset value with all distributions reinvested. The average corporate debt A-rated fund is tracked by Lipper, Inc.1 See the following two pages for historical performance information."] - -------------------------------------------------------------------------------- "New economy" holdings boost performance Together, telecommunication, media/cable and wireless companies have been one of our main focuses in the corporate arena. The rapid evolution of technology, brisk merger and acquisition activity globally and increased corporate profitability of this sector have not only propelled the stock prices of many companies, but also bolstered the performance of their debt obligations. Holdings that have performed well for the Fund include Orange Plc, a wireless operator in the United Kingdom, Verio, a web hoster, and SFX Entertainment, the world's largest entertainment operator. These three holdings benefited from credit upgrades on the heels of announced acquisitions by Mannesmann, NTT and Clear Channel, respectively. Other noteworthy holdings include Adelphia Communications, Continental Cablevision, Metromedia Fiber Network, Clearnet Communications and Nextel Communications. Through extensive credit research, we were able to avoid many of the defaults and downgradings that occurred. We were also able to maneuver relatively early on out of disappointing holdings such as Conseco, Integrated Health Services and Dillards. Outlook Recent economic indicators suggest that perhaps the Fed's aggressive counters to inflation may have peaked, and corporate bond prices have responded favorably. We are not, however, ruling out the possibility of further rate hikes in the near term, the uncertainty of which may cause some volatility. While the jury is still out on whether or not the Fed successfully engineered a soft landing -- slowing down the economy to just the right degree -- we shall view the market with cautious optimism, vigilantly pursuing high current income that's consistent with prudent investment risk. "We are not... ruling out the possibility of further rate hikes in the near term..." - -------------------------------------------------------------------------------- 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. (1)Figures from Lipper, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. 5 ================================================================================ John Hancock Funds - Bond 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 Bond Fund. Total return measures the change in value of an investment from the beginning to the end of a period, assuming that all distributions were reinvested. For Class A shares, total return figures include an up-front maximum applicable sales charge of 4.5%. Class B performance reflects a maximum contingent deferred sales charge (maximum 5% and declining to 0% over six years). Class C performance includes an up-front sales charge of 1% and a contingent deferred sales charge (1% declining to 0% after one year). All figures represent past performance and are no guarantee of future results. Keep in mind that the total return and share price of the Fund's investments will fluctuate. As a result, your Fund's shares may be worth more or less than their original cost, depending on when you sell them. Please read your prospectus carefully before you invest or send money. - -------------------------------------------------------------------------------- CLASS A - -------------------------------------------------------------------------------- For the period ended March 31, 2000 ONE FIVE TEN YEAR YEARS YEARS ---- ----- ----- Cumulative Total Returns (3.47%) 33.68% 105.81% Average Annual Total Returns (3.47%) 5.98% 7.48% - -------------------------------------------------------------------------------- CLASS B - -------------------------------------------------------------------------------- For the period ended March 31, 2000 SINCE ONE FIVE INCEPTION YEAR YEARS (11/23/93) ---- ----- ---------- Cumulative Total Returns (4.34%) 33.19% 38.25% Average Annual Total Returns (4.34%) 5.90% 5.23% - -------------------------------------------------------------------------------- CLASS C - -------------------------------------------------------------------------------- For the period ended March 31, 2000 SINCE ONE INCEPTION YEAR (10/1/98) ---- --------- Cumulative Total Returns (1.53%) (1.73%) Average Annual Total Returns (1.53%) (1.16%) - -------------------------------------------------------------------------------- YIELDS - -------------------------------------------------------------------------------- As of May 31, 2000 SEC 30-DAY YIELD ----- John Hancock Bond Fund: Class A 6.56% John Hancock Bond Fund: Class B 6.23% John Hancock Bond Fund: Class C 6.11% 6 ================================================================================ John Hancock Funds - Bond Fund - -------------------------------------------------------------------------------- WHAT HAPPENED TO A $10,000 INVESTMENT... - -------------------------------------------------------------------------------- The charts on the right show how much a $10,000 investment in the John Hancock Bond Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 investment in the Lehman Brothers Corporate Bond Index, an unmanaged index that mirrors the investment objectives and characteristics of the Fund. It is not possible to invest in an index. Past performance is not indicative of future results. - -------------------------------------------------------------------------------- Line chart with the heading John Hancock 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 Lehman Brothers Corporate Bond Index and is equal to $21,108 as of May 31, 2000. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Bond Fund on May 31, 1990, before sales charge, and is equal to $21,018 as of May 31, 2000. The third line represents the value of the same hypothetical investment made in the John Hancock Bond Fund, after sales charge, and is equal to $20,072 as of May 31, 2000. Line chart with the heading John Hancock 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 Lehman Brothers Corporate Bond Index and is equal to $14,217 as of May 31, 2000. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Bond Fund on November 23, 1993, before sales charge, and is equal to $13,770 as of May 31, 2000. Line chart with the heading John Hancock Bond Fund Class C*, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are three lines. The first line represents the Lehman Brothers Corporate Bond Index and is equal to $10,118 as of May 31, 2000. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Bond Fund on October 1, 1998, before sales charge, and is equal to $9,832 as of May 31, 2000. The third line represents the value of the same hypothetical investment made in the John Hancock Bond Fund, after sales charge, and is equal to $9,734 as of May 31, 2000. *No contingent deferred sales charge applicable. - -------------------------------------------------------------------------------- 7 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - 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 May 31, 2000. You'll also find the net asset value and the maximum offering price per share as of that date. Statement of Assets and Liabilities May 31, 2000 - -------------------------------------------------------------------------------- Assets: Investments at value - Note C: Bonds (cost - $1,286,508,828) .......................... $1,223,802,256 Preferred stocks and warrants (cost - $14,682,838) ..... 14,114,711 Short-term investments (cost - $44,975,663) ............ 44,975,663 Joint repurchase agreement (cost - $26,095,000) ........ 26,095,000 Corporate savings account .............................. 9,130 -------------- 1,308,996,760 Receivable for investments sold ......................... 64,052,038 Receivable for shares sold .............................. 491,485 Dividends and interest receivable ....................... 22,811,987 Other assets ............................................ 127,318 -------------- Total Assets .......................... 1,396,479,588 ----------------------------------------------------------- Liabilities: Payable for investments purchased ....................... 75,599,438 Payable for shares repurchased .......................... 600,590 Dividend payable ........................................ 11,873 Payable to John Hancock Advisers, Inc. and affiliates - Note B ................................ 1,068,276 Accounts payable and accrued expenses ................... 118,475 -------------- Total Liabilities ..................... 77,398,652 ----------------------------------------------------------- Net Assets: Capital paid-in ......................................... 1,452,941,523 Accumulated net realized loss on investments and financial futures contracts ........................ (70,494,857) Net unrealized depreciation of investments .............. (63,274,699) Distributions in excess of net investment income ........ (91,031) -------------- Net Assets ............................ $1,319,080,936 =========================================================== 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 - $1,097,992,715/78,795,871 ..................... $13.93 ============================================================================= Class B - $197,188,632/14,150,959 ....................... $13.93 ============================================================================= Class C - $23,899,589/1,715,120 ......................... $13.93 ============================================================================= Maximum Offering Price Per Share Class A* - ($13.93/0.955) ............................... $14.59 ============================================================================= Class C - ($13.93/0.99) ................................. $14.07 ============================================================================= * 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 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 Operations Year ended May 31, 2000 - -------------------------------------------------------------------------------- Investment Income: Interest .................................................. $111,410,668 Dividends ................................................. 1,119,076 ------------ 112,529,744 ------------ Expenses: Investment management fee - Note B ....................... 7,206,180 Distribution and service fee - Note B Class A ................................................ 3,587,881 Class B ................................................ 2,206,940 Class C ................................................ 228,348 Transfer agent fee - Note B .............................. 3,661,129 Accounting and legal services fee - Note B ............... 276,177 Custodian fee ............................................ 263,155 Trustees' fees ........................................... 79,520 Printing ................................................. 73,066 Miscellaneous ............................................ 68,807 Registration and filing fees ............................. 41,818 Auditing fee ............................................. 37,000 Legal fees ............................................... 13,754 ------------ Total Expenses .......................... 17,743,775 ----------------------------------------------------------- Net Investment Income ................... 94,785,969 ----------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts: Net realized loss on investments sold ..................... (40,641,098) Net realized loss on financial futures contracts .......... (479,491) Change in net unrealized appreciation/depreciation of investments ........................................... (42,692,133) Change in net unrealized appreciation/depreciation of financial futures contracts ........................... 51,294 ------------ Net Realized and Unrealized Loss on Investments and Financial Futures Contracts ............. (83,761,428) ----------------------------------------------------------- Net Increase in Net Assets Resulting from Operations ............... $11,024,541 =========================================================== SEE NOTES TO FINANCIAL STATEMENTS. 8 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund Statement of Changes in Net Assets - --------------------------------------------------------------------------------
YEAR ENDED MAY 31, -------------------------------- 1999 2000 -------------- -------------- Increase (Decrease) in Net Assets: From Operations: Net investment income .............................................................. $96,302,405 $94,785,969 Net realized loss on investments sold and financial futures contracts .............. (2,592,599) (41,120,589) Change in net unrealized appreciation/depreciation of investments and financial futures contracts ................................................................. (49,119,200) (42,640,839) -------------- -------------- Net Increase in Net Assets Resulting from Operations ............................. 44,590,606 11,024,541 -------------- -------------- Distributions to Shareholders: Distributions from net investment income Class A - ($0.9665 and $0.9569 per share, respectively) .......................... (83,968,102) (80,052,771) Class B - ($0.8597 and $0.8580 per share, respectively) .......................... (11,887,365) (13,337,325) Class C** - ($0.5512 and $0.8542 per share, respectively) ........................ (446,938) (1,395,873) -------------- -------------- Total Distributions to Shareholders .............................................. (96,302,405) (94,785,969) -------------- -------------- From Fund Share Transactions - Net: * ................................................. 96,541,466 (135,698,460) -------------- -------------- Net Assets: Beginning of period ................................................................ 1,493,711,157 1,538,540,824 -------------- -------------- End of period (including distributions in excess of net investment income of $284,853 and $91,031, respectively) ........................................... $1,538,540,824 $1,319,080,936 ============== ==============
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous period. The difference reflects earnings less expenses, any investment gains and losses, distributions paid to shareholders and any increase or decrease in money shareholders invested in the Fund. The footnote illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. SEE NOTES TO FINANCIAL STATEMENTS. 9 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund Statement of Changes in Net Assets (continued) - -------------------------------------------------------------------------------- * Analysis of Fund Share Transactions:
YEAR ENDED MAY 31, ----------------------------------------------------------- 1999 2000 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------ ----------- ------------- CLASS A Shares sold ................ 33,840,928 $513,805,047 16,180,316 $230,911,081 Shares reinvested .......... 4,291,217 65,236,811 4,427,262 63,104,859 ----------- ------------ ----------- ------------- 38,132,145 579,041,858 20,607,578 294,015,940 Less shares repurchased .... (38,555,126) (585,265,951) (28,432,224) (405,098,642) ----------- ------------ ----------- ------------- Net decrease ............... (422,981) ($6,224,093) (7,824,646) ($111,082,702) =========== ============ =========== ============= CLASS B Shares sold ................ 8,756,754 $133,473,644 3,416,464 $49,024,555 Shares reinvested .......... 440,757 6,690,223 554,800 7,907,679 ----------- ------------ ----------- ------------- 9,197,511 140,163,867 3,971,264 56,932,234 Less shares repurchased .... (3,915,180) (59,486,821) (5,984,221) (85,404,315) ----------- ------------ ----------- ------------- Net increase (decrease) .... 5,282,331 $80,677,046 (2,012,957) ($28,472,081) =========== ============ =========== ============= CLASS C** Shares sold ................ 1,510,673 $23,046,624 586,098 $8,361,864 Shares reinvested .......... 24,293 365,237 78,808 1,122,359 ----------- ------------ ----------- ------------- 1,534,966 23,411,861 664,906 9,484,223 Less shares repurchased .... (87,365) (1,323,348) (397,387) (5,627,900) ----------- ------------ ----------- ------------- Net increase ............... 1,447,601 $22,088,513 267,519 $3,856,323 =========== ============ =========== =============
** Class C shares commenced operations on October 1, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 10 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond 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: - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM ---------------------------- JANUARY 1, 1997 TO 1995 1996 MAY 31, 1997(1) ---------- ---------- ------------------ CLASS A Per Share Operating Performance Net Asset Value, Beginning of Period ...................... $13.90 $15.40 $14.90 ---------- ---------- ---------- Net Investment Income ..................................... 1.12 1.09 0.44 Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts ......................... 1.50 (0.50) (0.12) ---------- ---------- ---------- Total from Investment Operations ........................ 2.62 0.59 0.32 ---------- ---------- ---------- Less Distributions: Dividends from Net Investment Income ...................... (1.12) (1.09) (0.44) ---------- ---------- ---------- Net Asset Value, End of Period ............................ $15.40 $14.90 $14.78 ========== ========== ========== Total Investment Return at Net Asset Value(3) ............. 19.40% 4.11% 2.22%(4) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) .................. $1,535,204 $1,416,116 $1,361,924 Ratio of Expenses to Average Net Assets ................... 1.13% 1.14% 1.11%(5) Ratio of Net Investment Income to Average Net Assets ...... 7.58% 7.32% 7.38%(5) Portfolio Turnover Rate ................................... 103%(6) 123% 58% YEAR ENDED MAY 31, -------------------------------------------- 1998 1999 2000 ---------- ---------- ---------- CLASS A Per Share Operating Performance Net Asset Value, Beginning of Period ...................... $14.78 $15.25 $14.76 ---------- ---------- ---------- Net Investment Income ..................................... 1.05(2) 0.97(2) 0.96(2) Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts ......................... 0.47 (0.49) (0.83) ---------- ---------- ---------- Total from Investment Operations ........................ 1.52 0.48 0.13 ---------- ---------- ---------- Less Distributions: Dividends from Net Investment Income ...................... (1.05) (0.97) (0.96) ---------- ---------- ---------- Net Asset Value, End of Period ............................ $15.25 $14.76 $13.93 ========== ========== ========== Total Investment Return at Net Asset Value(3) ............. 10.54% 3.11% 0.97% Ratios and Supplemental Data Net Assets, End of Period (000s omitted) .................. $1,327,728 $1,278,582 $1,097,993 Ratio of Expenses to Average Net Assets ................... 1.08% 1.07% 1.11% Ratio of Net Investment Income to Average Net Assets ...... 6.90% 6.35% 6.69% Portfolio Turnover Rate ................................... 198% 228% 162%
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net investment income, gains (losses), distributions and total investment return of the Fund. It shows how the Fund's net asset value for a share has changed since the end of the previous period. Additionally, important relationships between some items presented in the financial statements are expressed in ratio form. SEE NOTES TO FINANCIAL STATEMENTS. 11 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund Financial Highlights (continued) - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM ----------------------- JANUARY 1, 1997 TO 1995 1996 MAY 31, 1997(1) ------- -------- --------------- CLASS B Per Share Operating Performance Net Asset Value, Beginning of Period ...................... $13.90 $15.40 $14.90 ------- -------- -------- Net Investment Income ..................................... 1.02 0.98 0.40 Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts ......................... 1.50 (0.50) (0.12) ------- -------- -------- Total from Investment Operations ........................ 2.52 0.48 0.28 ------- -------- -------- Less Distributions: Dividends from Net Investment Income ...................... (1.02) (0.98) (0.40) ------- -------- -------- Net Asset Value, End of Period ............................ $15.40 $14.90 $14.78 ======= ======== ======== Total Investment Return at Net Asset Value(3) ............. 18.66% 3.38% 1.93%(4) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) .................. $98,739 $134,112 $132,885 Ratio of Expenses to Average Net Assets ................... 1.75% 1.84% 1.81%(5) Ratio of Net Investment Income to Average Net Assets ...... 6.87% 6.62% 6.68%(5) Portfolio Turnover Rate ................................... 103%(6) 123% 58% YEAR ENDED MAY 31, -------------------------------------- 1998 1999 2000 -------- -------- -------- CLASS B Per Share Operating Performance Net Asset Value, Beginning of Period ...................... $14.78 $15.25 $14.76 -------- -------- -------- Net Investment Income ..................................... 0.95(2) 0.86(2) 0.86(2) Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts ......................... 0.47 (0.49) (0.83) -------- -------- -------- Total from Investment Operations ........................ 1.42 0.37 0.03 -------- -------- -------- Less Distributions: Dividends from Net Investment Income ...................... (0.95) (0.86) (0.86) -------- -------- -------- Net Asset Value, End of Period ............................ $15.25 $14.76 $13.93 ======== ======== ======== Total Investment Return at Net Asset Value(3) ............. 9.78% 2.39% 0.27% Ratios and Supplemental Data Net Assets, End of Period (000s omitted) .................. $165,983 $238,591 $197,189 Ratio of Expenses to Average Net Assets ................... 1.78% 1.77% 1.81% Ratio of Net Investment Income to Average Net Assets ...... 6.18% 5.65% 6.00% Portfolio Turnover Rate ................................... 198% 228% 162%
SEE NOTES TO FINANCIAL STATEMENTS. 12 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund Financial Highlights (continued) - --------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED MAY 31, 1999(7) MAY 31, 2000 --------------- ------------ CLASS C Per Share Operating Performance Net Asset Value, Beginning of Period ............................................... $15.61 $14.76 ------- ------- Net Investment Income(2) ........................................................... 0.55 0.85 Net Realized and Unrealized Loss on Investments and Financial Futures Contracts .... (0.85) (0.83) ------- ------- Total from Investment Operations .................................................. (0.30) 0.02 ------- ------- Less Distributions: Dividends from Net Investment Income ............................................... (0.55) (0.85) ------- ------- Net Asset Value, End of Period ..................................................... $14.76 $13.93 ======= ======= Total Investment Return at Net Asset Value(3) ...................................... (1.95%)(4) 0.28% Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ........................................... $21,368 $23,900 Ratio of Expenses to Average Net Assets ............................................ 1.77%(5) 1.80% Ratio of Net Investment Income to Average Net Assets ............................... 5.65%(5) 6.01% Portfolio Turnover Rate ............................................................ 228% 162%
(1) Effective May 31, 1997, the fiscal year end changed from December 31 to May 31. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) Not annualized. (5) Annualized. (6) Portfolio turnover rate excludes merger activity. (7) Class C shares began operations on October 1, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 13 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund Schedule of Investments May 31, 2000 - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by Bond Fund on May 31, 2000. It's divided into three main categories: bonds, preferred stocks and warrants, and short-term investments. The bonds are further broken down by industry group. Short-term investments, which represent the Fund's "cash" position, are listed last.
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- BONDS Aerospace (1.02%) Jet Equipment Trust, Equipment Trust Cert Ser 95B2 08-15-14 (R) .................................. 10.910% BBB $5,800 $6,078,980 Lockheed Martin Corp., Note 12-01-05 ............................................................... 7.950 BBB- 3,115 3,044,850 Raytheon Co., Note 03-01-03 (R) ........................................................... 7.900 BBB- 4,335 4,274,353 ------------- 13,398,183 ------------- Automobile/Trucks (1.10%) Chrysler Financial Co. LLC, Med Term Note Ser S 11-15-01 ................................................ 5.690 A+ 4,575 4,458,383 DaimlerChrysler North America Holding Corp., Note 01-20-05 ............................................................... 7.400 A+ 4,215 4,126,949 ERAC USA Finance Co., Note 02-15-05 (R) ........................................................... 6.625 BBB+ 6,250 5,870,813 ------------- 14,456,145 ------------- Banks - Foreign (2.88%) Abbey National First Capital, B.V., Sub Note (United Kingdom) 10-15-04 (Y) ...................................... 8.200 AA- 10,000 10,136,600 African Development Bank, Sub Note (Supra National) 12-15-03 (Y) ...................................... 9.750 AA- 8,000 8,554,880 International Bank for Reconstruction & Development, Deb (Supra National) 09-01-16 (Y) ........................................... 8.250 AAA 5,000 5,385,200 Royal Bank of Scotland Plc, Bond (United Kingdom) 03-31-05 (Y) .......................................... 8.817 A- 3,130 3,171,191 Scotland International Finance No. 2 B.V., Gtd Sub Note (Netherlands) 11-01-06 (R) (Y) ................................. 8.850 A+ 10,335 10,790,567 ------------- 38,038,438 ------------- Banks - United States (4.44%) Bank of America Corp., Jr Sub Note 02-15-10 ........................................................ 7.800 A 2,960 2,888,220 Bank of New York, Cap Security 12-01-26 (R) ................................................... 7.780 A- 5,750 5,227,382 Barclays North American Capital Corp., Gtd Cap Note 05-15-21 ....................................................... 9.750 AA- 8,925 9,389,635
SEE NOTES TO FINANCIAL STATEMENTS. 14 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Banks - United States (continued) FleetBoston Financial Corp., Sub Note 12-01-05 ........................................................... 6.625% A- $4,480 $4,247,712 National Westminster Bank Plc - New York Branch, Sub Note 05-01-01 ........................................................... 9.450 A+ 10,000 10,183,200 NB Capital Trust IV, Gtd Cap Security 04-15-27 ................................................... 8.250 A- 2,915 2,608,750 RBSG Capital Corp., Gtd Cap Note 03-01-04 ....................................................... 10.125 A 10,605 11,364,212 Security Pacific Corp., Medium Term Sub Note 05-09-01 ............................................... 10.360 A 6,000 6,156,240 Sub Note 11-15-00 ........................................................... 11.500 A 6,400 6,521,344 ------------- 58,586,695 ------------- Beverages (0.30%) Canandaigua Brands, Inc., Sr Sub Note Ser C 12-15-03 .................................................. 8.750 B+ 4,140 3,974,400 ------------- Broker Services (0.62%) Bear Stearns Co., Inc., Sr Note 02-01-05 ............................................................ 7.625 A 3,045 2,956,543 Goldman Sachs Group, Inc., Med Term Note Ser B 10-01-09 ................................................ 7.350 A+ 5,665 5,279,893 ------------- 8,236,436 ------------- Chemicals (0.50%) Akzo Nobel, Inc., Bond 11-15-03 (R) ........................................................... 6.000 A 2,860 2,712,710 Equistar Chemicals L.P., Note 02-15-04 ............................................................... 8.500 BBB- 3,985 3,915,262 ------------- 6,627,972 ------------- Computers (0.87%) Ceridian Corp., Sr Note 06-01-04 ............................................................ 7.250 BBB 3,860 3,645,037 Exodus Communications, Inc., Sr Note 12-15-09 ............................................................ 10.750 B- 1,755 1,737,450 PSINet, Inc., Sr Note 11-01-08 ............................................................ 11.500 B- 1,565 1,424,150 Verio, Inc., Sr Note 04-01-05 ............................................................ 10.375 B- 4,375 4,604,687 ------------- 11,411,324 ------------- Electronics (0.04%) Amkor Technologies, Inc., Sr Sub Note 05-01-09 ........................................................ 10.500 B 605 589,875 ------------- Energy (1.25%) AES Corp., Sr Note 06-01-09 ............................................................ 9.500 BB 1,565 1,488,706 Sr Sub Note 07-15-06 ........................................................ 10.250 B+ 6,005 5,839,862
SEE NOTES TO FINANCIAL STATEMENTS. 15 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Energy (continued) MidAmerican Energy Holdings, Sr Note 09-15-05 ............................................................ 7.230% BBB- $2,345 $2,219,613 Sr Bond 09-15-28 ............................................................ 8.480 BBB- 3,440 3,339,002 P&L Coal Holdings Corp., Sr Sub Note Ser B 05-15-08 .................................................. 9.625 B 4,065 3,628,012 ------------- 16,515,195 ------------- Fiber Optics (0.14%) Williams Communications Group, Inc., Sr Note 10-01-09 ............................................................ 10.875 BB- 1,880 1,880,000 ------------- Finance (3.76%) Bombardier Capital, Inc., Note 01-15-02 (R) ........................................................... 6.000 A- 4,675 4,531,478 CIT Group Holdings, Inc., Deb 03-15-01 ................................................................ 9.250 A 5,000 5,052,250 Note 10-15-01 ............................................................... 5.500 A+ 5,555 5,408,626 Ford Motor Credit Co., Note 04-28-03 ............................................................... 6.125 A 5,540 5,272,861 Note 10-28-09 ............................................................... 7.375 A 3,660 3,477,183 General Motors Acceptance Corp., Note 12-01-01 ............................................................... 6.375 A 5,515 5,393,229 Note 01-19-10 ............................................................... 7.750 A 3,640 3,534,404 Household Finance Corp., Note 11-01-02 ............................................................... 5.875 A 6,925 6,591,007 Sr Note 02-01-09 ............................................................ 5.875 A 3,005 2,538,233 Marlin Water Trust & Marlin Water Capital Corp., Sr Sec Note 12-15-01 (R) .................................................... 7.090 BBB 4,460 4,393,546 Yanacocha Receivables Master Trust, Pass Thru Cert Ser 1997-A 06-15-04 (R) ...................................... 8.400 BBB- 3,792 3,431,692 ------------- 49,624,509 ------------- Government - Foreign (1.07%) Nova Scotia, Province of, Deb (Canada) 04-01-22 (Y) ................................................... 8.750 A- 7,500 8,344,500 Saskatchewan, Province of, Bond (Canada) 12-15-20 (Y) .................................................. 9.375 A 5,000 5,792,750 ------------- 14,137,250 ------------- Government - U.S. (21.61%) United States Treasury, Bond 08-15-17 ............................................................... 8.875 AAA 38,707 48,474,324 Bond 05-15-18 ............................................................... 9.125 AAA 47,075 60,498,907 Bond 02-15-23 ............................................................... 7.125 AAA 75,164 82,022,715 Note 05-15-02 ............................................................... 7.500 AAA 4,612 4,673,985 Note 08-15-03 ............................................................... 5.750 AAA 5,885 5,727,753 Note 02-15-05 ............................................................... 7.500 AAA 26,500 27,419,285
SEE NOTES TO FINANCIAL STATEMENTS. 16 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Government - U.S. (continued) United States Treasury (continued), Note 07-15-06 ............................................................... 7.000% AAA $23,587 $24,088,224 Note 05-15-08 ............................................................... 5.625 AAA 33,860 32,130,093 ------------- 285,035,286 ------------- Government - U.S. Agencies (14.01%) Federal Home Loan Mortgage Corp., 20 Yr Pass Thru Ctf 01-01-16 ................................................ 11.250 AAA 513 556,060 Federal National Mortgage Assn., 15 Yr Pass Thru Ctf 01-25-05 ................................................ 8.000 AAA 5,107 5,131,162 15 Yr Pass Thru Ctf 02-01-08 ................................................ 7.500 AAA 1,135 1,125,046 15 Yr Pass Thru Ctf 09-01-10 to 08-01-14 .................................... 7.000 AAA 2,778 2,703,098 15 Yr Pass Thru Ctf 12-01-12 ................................................ 6.500 AAA 8,380 7,971,015 30 Yr Pass Thru Ctf 10-01-23 ................................................ 7.000 AAA 4,866 4,651,639 30 Yr Pass Thru Ctf 11-01-28 to 06-14-30** .................................. 6.500 AAA 17,945 16,615,246 Bond 02-15-05 ............................................................... 7.125 AAA 28,605 28,278,617 Note 08-15-04 ............................................................... 6.500 AAA 7,635 7,380,907 Note 09-15-09 ............................................................... 6.625 AAA 28,740 27,029,108 Note 01-15-30 ............................................................... 7.125 AAA 7,380 7,166,644 Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ................................ 6.940 AAA 3,160 3,084,162 Financing Corp., Bond 02-08-18 ............................................................... 9.400 AAA 7,000 8,327,830 Government National Mortage Assn., 30 Yr Pass Thru Ctf 01-15-16 ................................................ 10.500 AAA 55 59,488 30 Yr Pass Thru Ctf 01-15-16 ................................................ 11.000 AAA 117 127,582 30 Yr Pass Thru Ctf 07-15-16 to 01-15-25 .................................... 9.000 AAA 6,273 6,504,347 30 Yr Pass Thru Ctf 11-15-19 to 05-15-21 .................................... 9.500 AAA 1,582 1,659,184 30 Yr Pass Thru Ctf 06-15-20 to 03-15-25 .................................... 10.000 AAA 710 756,229 30 Yr Pass Thru Ctf 11-15-22 ................................................ 8.000 AAA 2,588 2,603,419 30 Yr Pass Thru Ctf 06-15-28 to 06-22-30** .................................. 7.000 AAA 31,554 30,269,417 30 Yr Pass Thru Ctf 10-15-29 to 05-15-30 .................................... 7.500 AAA 16,224 15,925,230 30 Yr Pass Thru Ctf 06-22-30** .............................................. 6.500 AAA 7,380 6,902,588 ------------- 184,828,018 ------------- Insurance (2.40%) Equitable Life Assurance Society of the United States, Surplus Note 12-01-05 (R) ................................................... 6.950 A+ 6,100 5,910,351 Massachusetts Mutual Life Insurance Co., Surplus Note 11-15-23 (R) ................................................... 7.625 AA 3,970 3,629,771 New York Life Insurance Co., Surplus Note 12-15-23 (R) ................................................... 7.500 AA- 15,000 12,370,500 Sun Canada Financial Co., Gtd Sub Note 12-15-07 (R) ................................................... 6.625 AA- 7,250 6,561,250 URC Holdings Corp., Sr Note 06-30-06 (R) ........................................................ 7.875 A- 3,110 3,127,665 ------------- 31,599,537 -------------
SEE NOTES TO FINANCIAL STATEMENTS. 17 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Leasing Companies (0.13%) United Rentals, Inc., Sr Sub Note Ser B 04-01-09 .................................................. 9.000% BB- $2,070 $1,687,050 ------------- Leisure (1.04%) Harrah's Operating Co., Inc., Sr Note 01-15-09 ............................................................ 7.500 BBB- 2,475 2,222,129 HMH Properties, Inc., Gtd Sr Sec Note Ser A 08-01-05 .............................................. 7.875 BB 3,455 3,083,588 Premier Parks, Inc., Sr Note 06-15-07 ............................................................ 9.750 B- 2,280 2,171,700 SFX Entertainment, Inc., Gtd Sr Sub Note 12-01-08 .................................................... 9.125 B- 4,465 4,420,350 Waterford Gaming LLC, Sr Note 03-15-10 (R) ........................................................ 9.500 B+ 1,890 1,786,050 ------------- 13,683,817 ------------- Manufacturing (0.09%) AXIA, Inc., Gtd Sr Sub Note 07-15-08 .................................................... 10.750 B- 1,625 1,235,000 ------------- Media (4.87%) Adelphia Communications Corp., Sr Note Ser B 10-01-02 ...................................................... 9.250 B+ 4,750 4,619,375 Sr Note Ser B 07-15-03 ...................................................... 8.125 B+ 2,250 2,047,500 Sr Note 11-15-09 ............................................................ 9.375 B+ 2,415 2,197,650 AMFM, Inc., Sr Sub Note 10-01-08 ........................................................ 9.000 B 2,935 2,979,025 Century Communications Corp., Sr Note 08-15-00 ............................................................ 9.500 BB- 2,545 2,525,912 Clear Channel Communications, Inc., Sr Deb 06-15-18 ............................................................. 6.875 BBB- 1,710 1,381,013 Comcast Cable Communications, Inc., Note 11-15-08 ............................................................... 6.200 BBB 2,945 2,563,210 Continental Cablevision, Inc., Sr Note 05-15-06 ............................................................ 8.300 BBB 3,820 3,841,392 CSC Holdings, Inc., Sr Note Ser B 07-15-09 ...................................................... 8.125 BB+ 4,745 4,412,850 Sr Sub Deb 05-15-16 ......................................................... 10.500 BB- 2,910 3,026,400 EchoStar DBS Corp., Sr Note 02-01-09 ............................................................ 9.375 B 1,825 1,706,375 Garden State Newspapers, Inc., Sr Sub Note 07-01-11 ........................................................ 8.625 B+ 2,485 2,137,100 Mediacom LLC/Mediacom Capital Corp., Sr Note Ser B 04-15-08 ...................................................... 8.500 B+ 2,895 2,634,450 News America Holdings, Inc., Gtd Sr Deb 08-10-18 ......................................................... 8.250 BBB- 2,090 1,905,557
SEE NOTES TO FINANCIAL STATEMENTS. 18 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Media (continued) Rogers Cablesystems Ltd., Sr Note Ser B (Canada) 03-15-05 (Y) ......................................... 10.000% BB+ $4,880 $4,916,600 J Seagram & Sons, Inc., Gtd Deb 09-15-11 ............................................................ 8.875 BBB- 3,125 3,087,375 TCI Communications, Inc., Sr Deb 02-15-26 ............................................................. 7.875 AA- 4,715 4,497,733 Telewest Communications Plc, Sr Note (United Kingdom) 02-01-10 (R) (Y) ................................... 9.875 B+ 2,095 1,979,775 Time Warner, Inc., Deb 01-15-13 ................................................................ 9.125 BBB 6,775 7,150,538 TV Guide, Inc., Sr Sub Note Ser B 03-01-09 .................................................. 8.125 B+ 3,255 3,181,763 United Pan-Europe Communications N.V., Sr Note (Netherlands) 11-01-09 (R) (Y) ...................................... 11.250 B 1,705 1,432,200 ------------- 64,223,793 ------------- Medical (0.99%) Dynacare, Inc., Sr Note (Canada) 01-15-06 (Y) ............................................... 10.750 B+ 5,070 4,563,000 Fresenius Medical Care Capital Trust II, Gtd Trust Preferred Security 02-01-08 ....................................... 7.875 B+ 3,480 3,079,800 IASIS Healthcare Corp., Sr Sub Note 10-15-09 (R) .................................................... 13.000 B- 2,100 2,089,500 Quest Diagnostics, Inc., Sr Sub Note 12-15-06 ........................................................ 10.750 B+ 3,205 3,365,250 ------------- 13,097,550 ------------- Metal (0.19%) Golden Northwest Aluminum, Inc., 1st Mtg Note 12-15-06 ....................................................... 12.000 BB- 2,470 2,568,800 ------------- Mortgage Banking (4.08%) Citibank Credit Card Master Trust I, Pass Thru Ctf Ser 1997-7 Class A 08-15-02 ................................... 6.350 AAA 3,955 3,950,056 Commercial Mortgage Acceptance Corp., Pass Thru Ctf Ser 1999-C1 Class A-1 08-15-08 ................................ 6.790 Aaa 5,795 5,565,136 ContiMortgage Home Equity Loan Trust, Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ................................. 8.100 AAA 3,880 3,898,794 Credit Suisse First Boston Mortgage Securities Corp., Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class A-1A 12-17-07 ................ 6.260 AAA 4,842 4,600,426 Deutsche Mortgage & Asset Receiving Corp., Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class C 03-15-08 ................... 6.861 A2 3,585 3,275,794 FirstPlus Home Loan Trust, Pass Thru Ctf Ser 1998-4 Class A-5 01-10-18 ................................. 6.380 AAA 6,220 6,033,400 GMAC Commercial Mortgage Securities, Inc., Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 ................................ 6.566 Aaa 6,025 5,548,648
SEE NOTES TO FINANCIAL STATEMENTS. 19 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Mortgage Banking (continued) IMC Home Equity Loan Trust, Pass Thru Ctf Ser 1996-1 Class A-5 12-25-13 ................................. 6.290% AAA $4,424 $4,387,608 LB Commercial Conduit Mortgage Trust, Pass Thru Ctf Ser 1999-C1 Class A-1 08-15-07 ................................ 6.410 Aaa 5,804 5,507,541 Salomon Brothers Mortgage Securities VII, Inc., Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 .......................... 6.750 Aaa 3,940 3,889,095 UCFC Home Equity Loan Trust, Pass Thru Ctf Ser 1996-D1 Class A6 02-15-25 ................................. 7.180 AAA 7,260 7,148,831 ------------- 53,805,329 ------------- Oil & Gas (1.93%) Amerada Hess Corp., Note 10-01-09 ............................................................... 7.375 BBB 2,960 2,731,222 Ocean Energy, Inc., Gtd Sr Sub Note Ser B 07-15-07 .............................................. 8.875 BB- 2,220 2,142,300 Panhandle East Pipe Line Co., Sr Note 04-01-10 (R) ........................................................ 8.250 BBB- 3,080 2,971,276 Petroleum Geo-Services, Sr Note (Norway) 03-30-08 (Y) ............................................... 6.625 BBB 4,165 3,651,164 Phillips Petroleum Co., Note 05-25-10 ............................................................... 8.750 BBB 2,960 2,993,152 Santa Fe Snyder Corp., Gtd Sub Note 06-15-07 ....................................................... 8.750 BB+ 2,575 2,542,812 Tosco Corp., Note 02-15-30 ............................................................... 8.125 BBB 4,020 3,812,045 Triton Energy Ltd., Sr Note 04-15-02 ............................................................ 8.750 BB- 4,655 4,608,450 ------------- 25,452,421 ------------- Paper & Paper Products (0.31%) Fort James Corp., Sr Note 09-15-02 ............................................................ 6.500 BBB 4,145 4,017,583 ------------- Real Estate Investment Trust (1.48%) American Health Properties, Inc., Note 01-15-07 ............................................................... 7.500 BBB- 2,350 2,070,937 Cabot Industrial Properties, L.P., Note 05-01-04 ............................................................... 7.125 BBB- 3,455 3,282,526 Camden Property Trust, Note 04-15-04 ............................................................... 7.000 BBB 3,800 3,640,628 Liberty Property, L.P., Med Term Note 06-05-02 ...................................................... 6.600 BBB- 3,030 2,918,496 ProLogis Trust, Sr Note 04-15-04 ............................................................ 6.700 BBB+ 3,555 3,353,112 TriNet Corporate Realty Trust, Inc., Note 05-15-01 ............................................................... 7.300 BB 4,395 4,273,039 ------------- 19,538,738 -------------
SEE NOTES TO FINANCIAL STATEMENTS. 20 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Retail (0.19%) Safeway, Inc., Note 11-15-01 ............................................................... 5.875% BBB $2,515 $2,449,032 ------------- Telecommunications (5.42%) BellSouth Capital Funding Corp., Deb 02-15-30 ................................................................ 7.875 AAA 4,435 4,223,628 Clearnet Communications, Inc., Sr Disc Note, Step Coupon (10.125%, 05-01-04) (Canada) 05-01-09 (A) (Y) ..... Zero B3 3,980 2,248,700 Sr Disc Note, Step Coupon (14.75%, 12-15-00) (Canada) 12-15-05 (A) (Y) ...... Zero B3 1,530 1,560,600 Crown Castle International Corp., Sr Note 05-15-11 ............................................................ 9.000 B 1,610 1,481,200 Focal Communications Corp., Sr Note 01-15-10 (R) ........................................................ 11.875 B 1,290 1,322,250 Global Crossing Holdings Ltd., Sr Note (Bermuda) 11-15-09 (Y) .............................................. 9.500 BB 585 552,825 Sr Note (Bermuda) 11-15-09 (R) (Y) .......................................... 9.500 BB 2,435 2,288,900 GTE North, Inc., Deb Ser H 11-15-08 .......................................................... 5.650 AA- 4,355 3,694,608 Hermes Europe Railtel BV, Sr Note (Netherlands) 01-15-09 (Y) .......................................... 10.375 B 700 581,000 LCI International, Inc., Sr Note 06-15-07 ............................................................ 7.250 BB+ 3,860 3,602,075 Level 3 Communications, Inc., Sr Note 03-15-08 (R) ........................................................ 11.000 B 2,485 2,373,175 McLeodUSA, Inc., Sr Note 11-01-08 ............................................................ 9.500 B+ 2,510 2,384,500 Metromedia Fiber Network, Inc., Sr Note Ser B 11-15-08 ...................................................... 10.000 B+ 3,980 3,790,950 MetroNet Communications Corp., Sr Note (Canada) 08-15-07 (Y) ............................................... 12.000 BBB 2,430 2,733,750 Nextel Communications, Inc., Sr Note 11-15-09 ............................................................ 9.375 B 3,370 3,066,700 NEXTLINK Communications, Inc., Sr Note 11-15-08 ............................................................ 10.750 B 2,415 2,300,287 NTL Communications Corp., Sr Note Ser B 10-01-08 ...................................................... 11.500 B- 3,220 3,236,100 Omnipoint Corp., Sr Note 09-15-09 (R) ........................................................ 11.500 CCC+ 2,640 2,772,000 Sprint Capital Corp., Gtd Note 05-01-19 ........................................................... 6.900 BBB+ 4,735 4,071,390 TeleCorp PCS, Inc., Gtd Sr Sub Disc Note, Step Coupon (11.625%, 04-15-04) 04-15-09 (A) .......... Zero B3 2,940 1,925,700 US West Capital Funding, Inc., Gtd Note 07-15-28 ........................................................... 6.875 A- 3,005 2,495,262 Vodafone AirTouch Plc, Note (United Kingdom) 02-15-10 (R) (Y) ...................................... 7.750 A- 2,980 2,853,827
SEE NOTES TO FINANCIAL STATEMENTS. 21 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Telecommunications (continued) Voicestream Wireless Corp., Sr Note 11-15-09 (R) ........................................................ 10.375% B- $1,515 $1,549,087 WorldCom, Inc., Sr Note 08-15-01 ............................................................ 6.125 A- 6,300 6,204,492 Note 05-15-06 ............................................................... 8.000 A- 3,860 3,863,474 Worldwide Fiber, Inc., Sr Note (Canada) 12-15-05 (Y) ............................................... 12.500 B+ 4,340 4,318,300 ------------- 71,494,780 ------------- Transportation (4.20%) America West Airlines, Inc., Pass Thru Ctf Ser 1996-1B 01-02-08 .......................................... 6.930 A- 3,365 3,163,406 Continental Airlines, Inc., Pass Thru Ctf Ser 1996-C 10-15-13 ........................................... 9.500 BBB+ 4,436 4,447,364 Pass Thru Ctf Ser 1999-1A 08-02-20 .......................................... 6.545 AA+ 5,522 4,808,899 Note 12-15-05 ............................................................... 8.000 BB- 2,480 2,207,200 Fine Air Services, Inc., Gtd Sr Sub Note 06-01-08 .................................................... 9.875 CC 3,735 2,950,650 Humpuss Funding Corp., Gtd Note (Indonesia) 12-15-09 (R) (Y) ....................................... 7.720 B3 2,006 1,444,538 Northwest Airlines, Inc., Gtd Note 03-15-04 ........................................................... 8.375 BB 2,855 2,624,316 Pass Thru Ctf Ser 1996-1C 01-02-05 .......................................... 10.150 BBB- 2,308 2,238,323 Pass Thru Ctf Ser 1996-1D 01-02-15 .......................................... 8.970 BBB- 3,522 3,444,036 NWA Trust, Sr Note Ser A 12-21-12 ...................................................... 9.250 AA 5,093 5,340,170 Railcar Trust No. 1992-1, Pass Thru Ser 1992-1 Class A 06-01-04 ....................................... 7.750 AAA 10,577 10,535,996 US Airways, Inc., Pass Thru Ctf Ser 1989-A2 01-01-13 .......................................... 9.820 BB- 5,165 4,519,375 Pass Thru Ctf Ser 1990-A1 03-19-05 .......................................... 11.200 BB- 5,308 5,361,057 Wisconsin Central Transportation Corp., Note 04-15-08 ............................................................... 6.625 BBB- 2,525 2,251,315 ------------- 55,336,645 ------------- Utilities (11.85%) AES Eastern Energy, Pass Thru Ctf Ser 1999-A 01-02-17 ........................................... 9.000 BBB- 3,700 3,501,347 Beaver Valley Funding Corp., Sec Lease Oblig Bond 06-01-17 ............................................... 9.000 BB- 3,960 3,865,950 BVPS II Funding Corp., Collateralized Lease Bond 06-01-17 .......................................... 8.890 BB- 6,600 6,517,500 Calpine Corp., Sr Note 05-15-06 ............................................................ 10.500 BB+ 4,650 4,696,500 Cleveland Electric Illuminating Co., 1st Mtg Ser B 05-15-05 ...................................................... 9.500 BB+ 10,220 10,437,175
SEE NOTES TO FINANCIAL STATEMENTS. 22 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Utilities (continued) CMS Energy Corp., Sr Note Ser B 01-15-04 ...................................................... 6.750% BB $3,595 $3,253,475 Sr Note 01-15-09 ............................................................ 7.500 BB 2,070 1,787,962 Connecticut Light & Power Co., 1st Ref Mtg Ser C 06-01-02 .................................................. 7.750 BBB- 1,940 1,933,520 Note 06-05-03 (R) ........................................................... 8.590 BBB- 2,350 2,319,638 East Coast Power LLC, Sr Sec Note 03-31-12 ........................................................ 7.066 BBB- 3,105 2,687,688 EIP Funding-PNM, Sec Fac Bond 10-01-12 ....................................................... 10.250 BBB- 8,831 9,440,604 GG1B Funding Corp., Deb 01-15-11 ................................................................ 7.430 BBB- 3,550 3,277,305 Hydro-Quebec, Gtd Bond (Canada) 02-01-21 (Y) .............................................. 9.400 A+ 3,215 3,653,044 Gtd Deb (Canada) 02-01-03 (Y) ............................................... 7.375 A+ 7,185 7,130,538 Gtd Deb Ser FU (Canada) 02-01-12 (Y) ........................................ 11.750 A+ 5,000 6,450,000 Iberdrola International B.V., Note 10-01-02 ............................................................... 7.500 AA- 8,000 7,966,400 Note (Netherlands) 06-01-03 (R) (Y) ......................................... 7.125 AA- 8,629 8,550,649 Long Island Lighting Co., Deb 03-15-23 ................................................................ 8.200 A- 5,615 5,221,950 Midland Cogeneration Venture L.P., Sec Deb Ser C-91 07-23-02 ................................................... 10.330 BBB- 6,678 6,806,087 Midland Funding Corp. II, Deb Ser A 07-23-05 .......................................................... 11.750 BB 5,165 5,540,134 Deb Ser B 07-23-06 .......................................................... 13.250 BB 1,900 2,210,194 Monterrey Power S.A. de C.V., Sr Sec Bond (Mexico) 11-15-09 (R) (Y) ....................................... 9.625 BB+ 1,320 1,148,400 Niagara Mohawk Power Corp., Deb 01-01-18 ................................................................ 8.770 BBB 6,944 7,165,305 North Atlantic Energy Corp., 1st Mtg Ser A 06-01-02 ...................................................... 9.050 BB+ 2,351 2,365,130 Northeast Utilities, Note Ser A 12-01-06 ......................................................... 8.580 BB+ 1,027 1,023,256 PECO Energy Transition Trust, Pass Thru Ctf Ser 1999-A Class A-6 03-01-09 ................................. 6.050 AAA 4,511 4,164,285 Pass Thru Ctf Ser 2000-A Class A-3 03-01-10 ................................. 7.625 AAA 12,475 12,133,684 PNPP II Funding Corp., Deb 05-30-16 ................................................................ 9.120 BB- 4,120 4,127,581 Sierra Pacific Resources, Note 05-15-05 ............................................................... 8.750 BBB 4,180 4,175,820 System Energy Resources, Inc., 1st Mtg 08-01-01 ............................................................ 7.710 BBB- 5,525 5,483,562
SEE NOTES TO FINANCIAL STATEMENTS. 23 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST CREDIT (000s MARKET ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE - ------------------- -------- ------- --------- ------------- Utilities (continued) Waterford 3 Funding Corp., Sec Lease Obligation Bond 01-02-17 .......................................... 8.090% BBB- $7,741 $7,237,772 ------------- 156,272,455 ------------- TOTAL BONDS (Cost $1,286,508,828) (92.78%) 1,223,802,256 ------- ------------- NUMBER OF SHARES OR WARRANTS ----------- PREFERRED STOCKS AND WARRANTS California Federal Preferred Capital Corp., 9.125%, Ser A, Preferred Stock ........................ 327,190 7,055,035 CSC Holdings, Inc., 11.125%, Ser M, Preferred Stock ............................................... 51,920 5,503,520 CSC Holdings, Inc., 11.750%, Ser H, Preferred Stock ............................................... 9,205 978,031 MetroNet Communications Corp., Warrant (Canada) (R) (Y) ........................................... 4,625 578,125 ------------- TOTAL PREFERRED STOCKS AND WARRANTS (Cost $14,682,838) (1.07%) 14,114,711 ------- -------------
SEE NOTES TO FINANCIAL STATEMENTS. 24 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Bond Fund
PAR VALUE INTEREST (000s MARKET ISSUER, DESCRIPTION RATE OMITTED) VALUE - ------------------- -------- --------- -------------- SHORT-TERM INVESTMENTS Commercial Paper (3.41%) Citicorp, Due 06-06-00 .................................................................... 6.490% $15,000 $14,986,479 General Electric Capital Corp., Due 06-05-00 .................................................................... 6.490 15,000 14,989,184 Due 06-01-00 .................................................................... 6.430 15,000 15,000,000 -------------- 44,975,663 -------------- Joint Repurchase Agreement (1.98%) Investment in a joint repurchase agreement transaction with SBC Warburg, Inc. - Dated 05-31-00, due 06-01-00 (Secured by U.S. Treasury Bonds, 5.500% thru 10.750%, due 02-15-03 thru 08-15-28) - Note A .............................................................. 6.370 26,095 26,095,000 -------------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 5.20% .............................................................. 9,130 -------------- TOTAL SHORT-TERM INVESTMENTS (5.39%) 71,079,793 -------- -------------- TOTAL INVESTMENTS (99.24%) 1,308,996,760 -------- -------------- OTHER ASSETS AND LIABILITIES, NET (0.76%) 10,084,176 -------- -------------- TOTAL NET ASSETS (100.00%) $1,319,080,936 ======== ==============
(A) Cash interest will be paid on this obligation at the stated rate beginning on the stated date. (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 $116,370,448 or 8.82% of net assets as of May 31, 2000. (Y) Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer; however, security is U.S. dollar denominated. * Credit ratings are unaudited and rated by Standard & Poor's where available, or Moody's Investors Service or John Hancock Advisers, Inc. where Standard & Poor's ratings are not available. ** A portion of these securities having an aggregate value of $33,517,193 or 2.54% of the Fund's net assets, have been purchased on a when-issued basis. The purchase price and the interest rate of these securities are fixed at trade date, although the Fund does not earn any interest on these securities until settlement date. The Fund has instructed its Custodian Bank to segregate assets with a current value at least equal to the amount of its when-issued commitments. Accordingly, the market value of $34,416,321 of United States Treasury Bond, 9.125%, 05-15-18, has been segregated to cover the when-issued commitments. 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. 25 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Bond Fund NOTE A - ACCOUNTING POLICIES John Hancock Bond Fund (the "Fund") is a diversified series of John Hancock Sovereign Bond Fund Trust, an open-end investment management company, registered under the Investment Company Act of 1940. The investment objective of the Fund is to generate a high level of current income, consistent with prudent investment risk, through investment in a diversified portfolio of freely marketable debt securities. The Trustees have authorized the issuance of multiple classes of the Fund, designated as Class A, Class B and Class C. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights to voting, redemption, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class which bears distribution and service expenses under the terms of a distribution plan have exclusive voting rights regarding such distribution plan. Significant accounting policies of the Fund are as follows: VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. 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 repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. FEDERAL INCOME TAXES The Fund 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 $39,087,636 of capital loss carryforwards available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforwards are used by the Fund, no capital gain distributions will be made. The carryforwards expire as follows: May 31, 2001 --$4,066,817, May 31, 2002 -- $9,347,493, May 31, 2004 - -- $8,402,805, May 31, 2005 -- $1,183,431, May 31, 2007 -- $619,870 and May 31, 2008 -- $15,467,220. Availability of a certain amount of these loss carryforwards which were acquired on September 15, 1995 in a merger, may be limited in a given year. Additionally, net capital losses of $26,884,560 are attributable to security transactions incurred after October 31, 1999 and are treated as arising on the first day (June 1, 2000) of the Fund's next taxable year. DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities is recorded on the accrual basis. The Fund records all distributions to shareholders from net investment income and realized gains on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles. Dividends paid by the Fund with respect to each class of shares will be calculated in the same manner, at the same time and will be in the same amount, except for the effect of expenses that may be applied differently to each class. 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. 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 and service fees, if any, are calculated 26 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Bond Fund daily at the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class. USE OF ESTIMATES The preparation of these financial statements in accordance with generally accepted accounting principles incorporates estimates made by management in determining the reported amounts of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks which permit borrowings up to $500 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity for the year ended May 31, 2000. FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures contracts to hedge against the effects of fluctuations in interest 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 future contracts being traded. Each day, the futures contract is valued at the official settlement price of the board of trade or U.S. commodities exchange on which it trades. Subsequent payments, known as "variation margin," to and from the broker are made on a daily basis as the market price of the financial futures contract fluctuates. Daily variation margin adjustments, arising from this "mark to market," are 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 contract may not correlate with changes in the value of the underlying securities. In addition, the Fund could be prevented from opening or realizing the benefits of closing out futures positions because of position limits or limits on daily price fluctuations imposed by an exchange. For federal income tax purposes, the amount, character and timing of the Fund's gains and/or losses can be affected as a result of futures transactions. At May 31, 2000, there were no open positions in financial futures contracts. NOTE B - MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS Under the present investment management contract, the Fund pays a monthly fee to the Adviser for a continuous investment program equivalent on an annual basis to the sum of (a) 0.50% of the first $1,500,000,000 of the Fund's average daily net asset value, (b) 0.45% of the next $500,000,000, (c) 0.40% of the next $500,000,000 and (d) 0.35% of the Fund's average daily net asset value in excess of $2,500,000,000. The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the Adviser. For the year ended May 31, 2000, up-front sales charges received with regard to sales of Class A shares amounted to $825,833. Out of this amount, $72,056 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $203,482 was paid as sales commissions to unrelated broker-dealers and $550,295 was paid as sales commissions to sales personnel of Signator Investors, Inc. ("Signator Investors"), a related broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance Company ("JHLICo"), is the indirect sole shareholder of Signator Investors. 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 27 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Bond Fund time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to defray its expenses related to providing distribution related services to the Fund in connection with the sale of Class B shares. For the year ended May 31, 2000, contingent deferred sales charges received by JH Funds amounted to $837,043. Effective May 1, 2000, all Class C retail purchases are assessed a 1.00% up-front sales charge. For the year ended May 31, 2000, up-front sales charges received with regard to sales of Class C shares amounted to $9,774. Out of this amount $9,709 was paid as sales commissions to unrelated broker-dealers and $64 was paid as sales commissions to sales personnel of Signator Investors. Class C shares which are redeemed within one year of purchase will be subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to defray its expenses related to providing distribution related services to the Fund in connection with the sale of Class C shares. For the year ended May 31, 2000, contingent deferred sales charges received by JH Funds amounted to $7,792. In addition, to reimburse JH Funds for the services it provides as distributor of shares of the Fund, the Fund has adopted Distribution Plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the Investment Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for distribution and service expenses, at an annual rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class B and Class C average daily net assets, to reimburse JH Funds for its distribution and service costs. Up to a maximum of 0.25% of these payments may be service fees as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo. The Fund pays transfer agent fees based on the number of shareholder accounts and certain out-of-pocket expenses. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the year was at an annual rate of less than 0.02% of the average net assets of the Fund. Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S. Scipione are directors and/or officers of the Adviser, and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The investment had no impact on the operations of the Fund. NOTE C - INVESTMENT TRANSACTIONS Purchases and proceeds from sales and maturities of securities, other than obligations of the U.S. government and its agencies and short-term securities, during the year ended May 31, 2000, aggregated $758,419,336 and $938,989,521, respectively. Purchases and proceeds from sales of obligations of the U.S. government and its agencies, during the year ended May 31, 2000, aggregated $1,438,159,310 and $1,386,767,240, respectively. The cost of investments owned at May 31, 2000 (excluding the corporate savings account) for federal income tax purposes was $1,376,784,990. Gross unrealized appreciation and depreciation of investments aggregated $8,237,665 and $76,035,025, respectively, resulting in net unrealized depreciation of $67,797,360. 28 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Bond Fund NOTE D - RECLASSIFICATION OF ACCOUNTS During the year ended May 31, 2000, the Fund has reclassified amounts to reflect a decrease in accumulated net realized loss on investments and financial futures contracts of $18, a decrease in distributions in excess of net investment income of $193,822 and a decrease in capital paid-in of $193,840. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of May 31, 2000. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to the certain differences in the computation of distributable income and capital gains under federal tax rules versus generally accepted accounting principles. The calculation of net investment income per share in the financial highlights excludes these adjustments. 29 ================================================================================ John Hancock Funds - Bond Fund REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Trustees and Shareholders of John Hancock Sovereign Bond Fund - John Hancock Bond Fund: We have audited the accompanying statement of assets and liabilities of the John Hancock Bond Fund (the "Fund"), including the schedule of investments, as of May 31, 2000, 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 auditing standards generally accepted in the United States. 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 May 31, 2000, by correspondence with the custodian and brokers, or other appropriate auditing procedures where 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 Bond Fund at May 31, 2000, 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 accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts July 7, 2000 TAX INFORMATION NOTICE (UNAUDITED) For federal income tax purposes, the following information is furnished with respect to the dividends of the Fund paid during its taxable year ended May 31, 2000. With respect to the ordinary dividends paid by the Fund for the fiscal year ended May 31, 2000, 1.18% of the dividends qualify for the dividends received deduction. Shareholders will be mailed a 2000 U.S. Treasury Department Form 1099-DIV in January 2001. This will reflect the total of all distributions which are taxable for calendar year 2000. 30 ======================================NOTES===================================== John Hancock Funds - Bond Fund 31 ================================================================================ [LOGO] JOHN HANCOCK FUNDS --------------- A Global Investment Management Firm Bulk Rate U.S. Postage 101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID 1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA INTERNET: www.jhfunds.com Permit No. 75 --------------- - -------------------------------------------------------------------------------- This report is for the information of shareholders of the John Hancock 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. [RECYCLE LOGO] Printed on Recycled Paper 2100A 5/00 7/00 -----END PRIVACY-ENHANCED MESSAGE-----