<PAGE> 1
JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
NATIONAL
AVIATION &
TECHNOLOGY
FUND
FINAL REPORT
JULY 28, 1995
<PAGE> 2
DIRECTORS
Edward J. Boudreau, Jr.
James F. Carlin*
Thomas W.L. Cameron
Charles F. Fretz*
Barry J. Gordon
Jack P. Gould *
Harold R. Hiser, Jr. *
Charles L. Ladner*
Patricia P. McCarter *
Steven R. Pruchansky*
Lt. Gen. Norman H. Smith, USMC (Ret.) *
John P. Toolan *
* Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Barry J. Gordon
President
Anne C. Hodsdon
Executive Vice President
Thomas H. Drohan
Senior Vice President and Secretary
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
James B. Little
Senior Vice President and
Chief Financial Officer
Michael P. DiCarlo
Senior Vice President
James K. Ho
Senior Vice President
Marc H. Klee
Senior Vice President
John A. Morin
Vice President
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
<PAGE> 3
FINANCIAL STATEMENTS
John Hancock Funds - National Aviation & Technology Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
FINAL REPORT July 28, 1995 (Unaudited)*
- ---------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common and preferred stocks and warrants (cost - $29,321,369) ...... $71,112,787
Bonds (cost - $1,003,031)........................................... 1,018,180
Joint repurchase agreement (cost - $4,477,000)...................... 4,477,000
Corporate saving account............................................ 199
-----------
76,608,166
Dividends receivable................................................ 15,000
Interest receivable................................................. 33,059
Miscellaneous receivable ........................................... 16,941
-----------
Total Assets......................... 76,673,166
--------------------------------------------------
LIABILITIES:
Payable for shares repurchased...................................... 21,620
Dividend payable.................................................... 417
Payable to John Hancock Advisers, Inc. and affiliates - Note B ..... 78,699
Accounts payable and accrued expenses............................... 65,427
-----------
Total Liabilities.................... 166,163
--------------------------------------------------
NET ASSETS:
Capital paid-in..................................................... 34,700,436
Net unrealized appreciation of investments.......................... 41,806,567
-----------
Net Assets........................... $76,507,003
==================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - 40 million shares authorized
with $1.25 per share par value, respectively)
Class A - $75,930,600/7,308,143................................... $ 10.39
=================================================================================
Class B - $576,403/56,496......................................... $ 10.20
=================================================================================
MAXIMUM OFFERING PRICE PER SHARE**
Class A - ($10.39 x 105.26%)...................................... $ 10.94
=================================================================================
<FN>
* The net assets of the John Hancock National Aviation & Technology Fund were
merged into the John Hancock Global Technology Fund as of the close of
business on July 28, 1995 and the Fund was subsequently terminated. The
Statement of Assets and Liabilities and the Statement of Operations reflect
the Fund's position prior to the transfer of net assets and the termination
of the Fund.
(See Note A to the Notes to Financial Statements).
** On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</TABLE>
See notes to financial statements.
<PAGE> 4
FINANCIAL STATEMENTS
John Hancock Funds - National Aviation & Technology Fund
<TABLE>
STATEMENT OF OPERATIONS
For the period January 1, 1995 to
July 28,1995 (Unaudited)*
- ------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest ................................................................ $ 259,893
Dividends ............................................................... 183,575
-----------
443,468
-----------
Expenses:
Investment management fee - Note B.................................... 310,620
Transfer agent fee - Note B
Class A............................................................. 94,954
Class B............................................................. 693
Administration fee.................................................... 57,922
Distribution/service fee - Note B
Class A............................................................. 39,774
Class B............................................................. 2,566
Custodian fee......................................................... 27,150
Printing.............................................................. 24,293
Registration and filing fees.......................................... 23,235
Legal fees............................................................ 17,893
Directors' fees....................................................... 10,517
Auditing fee.......................................................... 7,333
Miscellaneous......................................................... 1,491
-----------
Total Expenses........................... 618,441
---------------------------------------------------------
Net Investment Loss...................... (174,973)
---------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold................................... 4,132,739
Change in net unrealized appreciation/depreciation
of investments......................................................... 23,435,384
-----------
Net Realized and Unrealized
Gain on Investments...................... 27,568,123
---------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations.......................... $27,393,150
=========================================================
</TABLE>
See notes to financial statements.
<PAGE> 5
FINANCIAL STATEMENTS
John Hancock Funds - National Aviation & Technology Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
JANUARY 1, 1995 TO YEAR ENDED
JULY 28,1995 DECEMBER 31,
(UNAUDITED)** 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss...................................................................... $ (174,973) $ (197,456)
Net realized gain on investments sold and options........................................ 4,132,739 15,731,872
Change in net unrealized appreciation/depreciation of investments........................ 23,435,384 (26,248,652)
----------- ------------
Net Increase (Decrease) in Net Assets Resulting from Operations........................ 27,393,150 (10,714,236)
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments sold and options
Class A - ($0.5550 and $2.4704 per share, respectively)................................ (3,927,934) (15,479,601)
Class B *** - ($0.5550 and $2.4704 per share, respectively)............................ (29,832) (114,033)
----------- ------------
Total Distributions to Shareholders.................................................. (3,957,766) (15,593,634)
----------- ------------
FROM FUND SHARE TRANSACTIONS - NET*........................................................ (2,253,016) 4,071,478
----------- ------------
NET ASSETS:
Beginning of period...................................................................... 55,324,635 77,561,027
----------- ------------
End of period............................................................................ $76,507,003 $ 55,324,635
=========== ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
JANAUARY 1, 1995 TO
JULY 28, 1995 YEAR ENDED
(UNAUDITED)** DECEMBER 31, 1994
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 34,038 $ 222,665 73,479 $ 780,882
Shares issued to shareholders in reinvestment of distributions... 265,925 2,614,149 1,341,271 9,684,264
-------- ----------- --------- -----------
299,963 2,836,814 1,414,750 10,465,146
Less shares repurchased.......................................... (571,416) (5,021,053) (685,600) (7,002,388)
-------- ----------- --------- -----------
Net increase (decrease)........................................ (271,453) $(2,184,239) 729,150 $ 3,462,758
======== =========== ========= ===========
CLASS B ***
Shares sold...................................................... 32,952 $ 247,564 58,006 $ 556,005
Shares issued to shareholders in reinvestment of distributions... 2,586 24,985 16,130 115,006
-------- ----------- --------- -----------
35,538 272,549 74,136 671,011
Less shares repurchased.......................................... (46,863) (341,326) (6,315) (62,291)
-------- ----------- --------- -----------
Net increase (decrease)........................................ (11,325) $ (68,777) 67,821 $ 608,720
======== =========== ========= ===========
<FN>
** The net assets of the Fund were merged with John Hancock Global Technology
Fund as of the close of business on July 28, 1995, and the Fund was
subsequently terminated. The Statement of Changes in Net Assets does not
reflect the merger of the net assets or termination of the Fund. (See Note A
to the Notes to Financial Statements).
*** Class B shares commenced operations on January 3, 1994.
</TABLE>
See notes to financial statements.
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - National Aviation & Technology Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the year
indicated, investment returns, key ratios and supplemental data are as follows:
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1995 TO
JULY 28, 1995 YEAR ENDED DECEMBER 31,
------------------ -------------------------------------
(UNAUDITED) 1994 1993 1992
----------- ------- ------- -------
<S> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period..................... $ 7.24 $ 11.32 $ 10.34 10.91
------- ------- ------- -------
Net Investment Income (Loss)............................. (0.02) (0.03)(a) (0.07) (0.01)(a)
Net Realized and Unrealized Gain (Loss) on Investments
and Options............................................ 3.73 (1.58) 2.22 0.31
------- ------- ------- -------
Total from Investment Operations..................... 3.71 (1.61) 2.15 0.30
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income..................... -- -- -- --
Distributions from Net Realized Gain on Investments
Sold and Options....................................... (0.56) (2.47) (1.17) (0.87)
------- ------- ------- -------
Total Distributions.................................. (0.56) (2.47) (1.17) (0.87)
------- ------- ------- -------
Net Asset Value, End of Period........................... $ 10.39(e) $ 7.24 $ 11.32 10.34
======= ======= ======= =======
Total Investment Return at Net Asset Value............... 51.61%(d) (14.16%) 20.88% 3.02%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................ $75,931 $54,840 $77,561 $71,107
Ratio of Expenses to Average Net Assets.................. 1.68%* 1.60% 1.49% 1.53%
Ratio of Net Investment Income (Loss) to Average
Net Assets............................................ (0.47%)* (0.28%) (0.66%) (0.07%)
Portfolio Turnover Rate.................................. 10% 44% 23% 34%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1991(c) 1990(c)
------- -------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....................... $ 8.84 $ 11.67
------- -------
Net Investment Income (Loss)............................... 0.05 0.10
Net Realized and Unrealized Gain (Loss) on Investments
and Options.............................................. 2.70 (2.33)
------- -------
Total from Investment Operations....................... 2.75 (2.23)
------- -------
Less Distributions:
Dividends from Net Investment Income....................... (0.03) (0.10)
Distributions from Net Realized Gain on Investments
Sold and Options......................................... (0.65) (0.50)
------- -------
Total Distributions.................................... (0.68) (0.60)
------- -------
Net Asset Value, End of Period............................. $ 10.91 $ 8.84
======= =======
Total Investment Return at Net Asset Value................. 31.09% (19.26%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................. $73,344 $62,882
Ratio of Expenses to Average Net Assets ................... 1.64% 1.67%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. 0.42% 0.95%
Portfolio Turnover Rate.................................... 28% 29%
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 1995 TO JANUARY 3, 1994
JULY 28, 1995 (COMMENCEMENT
------------------ OF OPERATIONS)
(UNAUDITED) TO DECEMBER 31, 1994
----------- --------------------
<S> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....................... 7.14 $ 11.23(b)
------ -------
Net Investment Loss........................................ (0.06) (0.09)(a)
Net Realized and Unrealized Gain (Loss) on Investments
Sold and Options.......................................... 3.68 (1.53)
------ -------
Total from Investment Operations....................... 3.62 (1.62)
------ -------
Less Distributions:
Distributions from Net Realized Gain on Investments
Sold and Options.......................................... (0.56) (2.47)
------ -------
Total Distributions.................................... (0.56) (2.47)
------ -------
Net Asset Value, End of Period............................. $10.20 (e) $ 7.14
====== =======
Total Investment Return at Net Asset Value................. 51.06%(d) (14.39%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................. $ 576 $ 485
Ratio of Expenses to Average Net Assets.................... 2.57% * 2.59% *
Ratio of Net Investment Loss to Average Net Assets......... (1.34%)* (1.13%)*
Portfolio Turnover Rate.................................... 10% 44%
<FN>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) Initial price to commence operations.
(c) These periods are covered by the report of other independent
accountants (not included herein).
(d) Not annualized.
(e) Net asset value per share, before the merger of assets to the John
Hancock Global Technology Fund, and the termination of the Fund.
(See Note A to the Notes to Financial Statements).
</TABLE>
See notes to financial statements.
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - National Aviation & Technology Fund
<TABLE>
Schedule of Investments
July 28, 1995 (Unaudited)
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
<S> <C> <C> <C>
COMMON STOCKS
AEROSPACE (8.16%)
Boeing Co. (The).............................................................. 30,000 $ 2,036,250
United Technologies Corp. .................................................... 50,000 4,206,250
-----------
6,242,500
-----------
AUTOMOBILE/TRUCK (0.79%)
Safety Components International, Inc.** ...................................... 35,000 * 603,201
-----------
COMPUTERS (25.38%)
BMC Software, Inc.** ......................................................... 20,000 1,560,000
Computer Associates International, Inc. ...................................... 50,000 3,612,500
Hewlett-Packard Co. .......................................................... 25,000 * 2,006,250
Oracle Systems Corp.** ....................................................... 90,000 3,791,250
Platinum Technology, Inc.** .................................................. 50,000 * 1,237,500
S3, Inc.** ................................................................... 50,000 2,075,000
Silicon Graphics, Inc.** ..................................................... 50,000 2,131,250
Symantec Corp.** ............................................................. 100,000 2,706,250
Telebase Systems, Inc.** (r).................................................. 454,500 295,425
-----------
19,415,425
-----------
DIVERSIFIED OPERATIONS (8.18%)
General Motors Corp. (Class H)................................................ 70,000 2,983,750
Raytheon Co. ................................................................. 40,000 3,270,000
-----------
6,253,750
-----------
ELECTRONICS (20.13%)
Applied Materials, Inc.** .................................................... 60,000 6,112,500
Integrated Device Technologies, Inc.** ....................................... 35,000 2,170,000
Lsi Logic Corp.** ............................................................ 25,000 * 1,193,750
Loral Corp. .................................................................. 30,000 1,691,250
Ramtron International Corp.** ................................................ 55,556 173,612
Teradyne, Inc.** ............................................................. 50,000 4,056,250
-----------
15,397,362
-----------
MACHINERY (6.43%)
Thermo Electron Corp.** ...................................................... 112,500 4,921,875
-----------
TELECOMMUNICATIONS (0.65%)
Worldcomm Systems, Inc.** (r)................................................. 37,510 * 500,001
-----------
TRANSPORTATION (22.77%)
AMR Corp.** .................................................................. 60,000 4,560,000
Northwest Airlines Corp. Class A** ........................................... 100,000 3,975,000
Southwest Airlines Co. ....................................................... 50,000 1,412,500
UAL Corp.** .................................................................. 50,000 7,475,000
-----------
17,422,500
-----------
TOTAL COMMON STOCKS
(COST $29,119,701) (92.49%) 70,756,614
------- -----------
</TABLE>
See notes to financial statements.
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - National Aviation & Technology Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
<S> <C> <C> <C>
PREFERRED STOCK
ELECTRONICS (0.45%)
Ramtron International Corp. Ser C Conv** ........................................ 55,556 $ 347,225
-----------
TOTAL PREFERRED STOCK
(COST $166,668) (0.45%) 347,225
------ -----------
WARRANTS
BIOMEDICS/GENETICS (0.01%)
Scios-Nova Inc.** (r)............................................................ 36,346 8,748
-----------
MEDICAL/DENTAL (0.00%)
Biosearch Medical Products, Inc.** (r).......................................... 20,000 200
-----------
TOTAL WARRANTS
(COST $35,000) (0.01%) 8,948
------ -----------
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS
(COST $29,321,369) (92.95%) 71,112,787
------ -----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST S&P PAR VALUE MARKET
RATE RATING*** (000'S OMITTED) VALUE
-------- --------- --------------- ------
<S> <C> <C> <C> <C>
BONDS
AEROSPACE (0.24%)
Aeronca, Inc., Conv Sub Deb, 01-31-96........................ 12.500% NR $ 240 $ 180,000
-----------
TRANSPORTATION (1.10%)
Northwest Airlines Inc., Bond, 11-30-00 (r)................. 12.092 CCC 329 * 339,120
Piedmont Aviation Inc., Equip Tr Cert 1988 Ser F, 03-28-09.. 10.350 BB+ 500 499,060
-----------
838,180
-----------
TOTAL BONDS
(COST $1,003,031) (1.33%) 1,018,180
-------- -----------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (5.85%)
Investment in a joint repurchase agreement transaction with
Lehman Brothers, Inc. Dated 07-28-95, Due 07-31-95
(secured by U.S. Treasury Bill, 5.45% Due 12-28-95,
and U.S. Treasury Note, 6.875% Due 12-28-95) - Note A...... 6.180 - 4,477 4,477,000
-----------
CORPORATE SAVINGS ACCOUNT
Investors Bank & Trust Company Daily Interest Savings Account
Current Rate 3.00% ........................................ 199
-----------
TOTAL SHORT-TERM INVESTMENTS (5.85%) 4,477,199
-------- -----------
TOTAL INVESTMENTS (100.13%) $76,608,166
======== ===========
</TABLE>
See notes to financial statements.
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - National Aviation & Technology Fund
NOTES TO SCHEDULE OF INVESTMENTS
(r) Direct placement securities are restricted to resale. They have been valued
at fair value by the Trustees after considerations of restrictions as to
resale, financial condition and prospects of the issuer, general market
conditions and pertinent information in accordance with the Fund's By-Laws
and the Investment Company Act of 1940, as amended. The Fund has limited
rights to registration under the Securities Act of 1933 with respect to
these restricted securities.
<TABLE>
Additional information on each restricted security is as follows:
<CAPTION>
VALUE AS A
PERCENTAGE MARKET
AQUISITION AQUISITION OF FUND'S VALUE AT
SECURITY DATE COST NET ASSETS JULY 28, 1995
- -------- ---- ---- ---------- -------------
<S> <C> <C> <C> <C>
Biosearch Medical Products, Inc. - Warrants............. 10-24-90 $ 0 0.00 % 200
Northwest Airlines, Inc. - Bond........................ 06-17-94 298,915 0.44 339,120
Scios-Nova Inc. - Warrants.............................. 06-28-91 35,000 0.01 8,748
Telebase Systems, Inc. - Common Stock................... 11-14-91 636,300 0.39 295,425
Worldcomm Systems, Inc.- Common Stock................... 03-30-95 500,000 0.65 500,001
<FN>
* Securities other than short-term investments, newly added to the portfolio
during the period ended July 28, 1995.
** Non-income producing security.
*** Credit ratings are unaudited.
NR Not Rated by either Standard & Poor's or Moody's Investors Services.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
See notes to financial statements.
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - NATIONAL AVIATION & TECHNOLOGY FUND
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Technology Series, Inc. ( the "Company") is an open-end investment
company registered under the Investment Company Act of 1940. The Company
consists of two series: John Hancock National Aviation & Technology Fund (the
"Fund"), a non-diversified series, and John Hancock Global Technology Fund, a
diversified series. 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 Directors, may be applied differently to each class of
shares in accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class which bears
distribution/service expenses under the terms of a distribution plan, have
exclusive voting rights to such distribution plan.
On July 28, 1995, the shareholders of the Fund approved a plan of
reorganization between the Fund and John Hancock Global Technology Fund
providing for the transfer of substantially all of the assets and liabilities of
the Fund to Global Technology Fund in exchange solely for shares of beneficial
interest of Global Technology Fund. After this transaction and as of the close
of business on July 28, 1995, the Fund was terminated. The financial statements
presented herein reflect the position of the Fund prior to the exchange of net
assets and termination of the Fund. 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, 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's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment
companies. It will not be subject to Federal income tax on taxable earnings
which are distributed to shareholders.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. 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, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Company are directly identifiable
to an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative size of the Funds.
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - NATIONAL AVIATION & TECHNOLOGY FUND
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
OPTIONS Listed options are valued at the last quoted sales price on the exchange
on which they are primarily traded. Purchased put or call over-the-counter
options are valued at the average of the "bid" prices obtained from two
independent brokers. Written put or call over-the-counter options are valued at
the average of the "asked" prices obtained from two independent brokers. Upon
the writing of a call or put option, an amount equal to the premium received by
the Fund is included in the Statement of Assets and Liabilities as an asset and
corresponding liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the written option.
The Fund may use options contracts to manage its exposure to the stock
market. Writing puts and buying calls tend to increase the Fund's exposure to
the underlying instrument and buying puts and writing calls tend to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options is limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value reflects the maximum exposure of
the Fund in these contracts, but the actual exposure is limited to the change in
value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund continuously
monitors the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended July 28,
1995.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on investment
securities from either the date of issue or date of purchase over the life of
the security, as required by the Internal Revenue Code.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND TRANSACTIONS WITH AFFILIATES AND
OTHERS
The Adviser is responsible for managing the Fund's investment business affairs
and overseeing the investment activities of the sub-adviser. The Adviser has a
sub-investment management contract with American Fund Advisors, Inc. (the
"Sub-Adviser"), under which the Sub-Adviser, subject to the review of the
Directors and the overall supervision of the Adviser, provides the Fund with
investment services and advice with respect to investment transactions.
Under the present investment management contract, the Fund paid a monthly
management fee to the Adviser, equivalent on an annual basis, to the sum of (a)
1.00% of the first $100,000,000 of the Fund's average daily net asset value and
(b) 0.75% of the Fund's average daily net asset value in excess of $100,000,000.
Effective January 1, 1995, the Adviser will waive a portion of the management
fee amounting to 0.15% of the average daily net asset value of the first
$100,000,000 of each series of the Fund. Therefore, the Fund will pay a monthly
management fee to the Adviser, equivalent on an annual basis to the sum of 0.85%
of the first $100,000,000 of the Fund's average daily net asset value. The
Adviser pays the Sub-Adviser a monthly management fee, equivalent on an annual
basis, to the sum of (a)
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - NATIONAL AVIATION & TECHNOLOGY FUND
0.40% of the first $100,000,000 of the Fund's average daily net asset value and
(b) 40% of the investment advisory fee received by the Adviser on amounts over
$100,000,000. Effective January 1, 1995, the Sub-Adviser will waive a portion of
the management fee amounting to 0.05% of the average daily net asset value of
the first $100,000,000 of each series of the Fund. Therefore, the Adviser will
pay a monthly management fee to the Sub-Adviser equivalent on an annual basis to
the sum of 0.35% of the first $100,000,000 of the Fund's average daily net asset
value. The Fund is not responsible for payment of the Sub-Adviser's fee. The
Fund pays a monthly administrative fee at the rate of $100,000 per annum to the
Adviser for performance of administrative services to the Fund.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
In the event that the ratio for 1992, 1993, or 1994 of normal operating
expenses of the Fund, exclusive of extraordinary expenses including, but not
limited to litigation, to the Fund's average daily net assets for such year,
exceeds the average expense ratio for the Fund for the three years ended
December 31, 1990 (restated as if the current annual rates for calculating the
management fee and the current expense limitations had been in effect throughout
the three year period), the fees payable to the Adviser will be reduced to the
extent required to eliminate such excess and the Adviser will make any
additional arrangements necessary to eliminate any remaining such excess. No
such reduction in fees was necessary under such arrangement for the period ended
July 28, 1995. At a shareholder meeting on December 8, 1993 the shareholders
approved a proposal which excludes the amounts payable by the Fund under the
Rule 12b-1 distribution plans (effective in January 1994) from the calculation
of the expense limit described above.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended July 28,
1995, JH Funds received net sales charges of $6,140 with regard to sales of
Class A shares. Out of this amount, $943 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, and $4,875 was
paid as sales commissions to unrelated broker-dealers and $322 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"), all of which are broker dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company, is the indirect sole
shareholder of Distributors and John Hancock Freedom Securities Corporation and
its subsidiaries which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase are subject
to a contingent deferred sales charge ("CDSC") at declining rates beginning at
5.0% of the lesser of the current market value at the time of redemption or the
original purchase cost of the shares being redeemed. Proceeds from the CDSC are
paid to JH Funds and are used in whole or in part to defray its expenses related
to providing distribution related services to the Fund in connection with the
sale of Class B shares. For the period ended July 28, 1995 contingent deferred
sales charges received by JH Funds amounted to $384.
In addition, to compensate 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 and Class B 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 average daily net assets, to
reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - NATIONAL AVIATION & TECHNOLOGY FUND
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out of pocket expenses.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser, and
Mr. Barry J. Gordon is a director and officer of the Sub-Adviser. Mr. Thomas
W.L. Cameron is an affiliated Director of the Fund. The compensation of
unaffiliated Directors is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund will make investments into other John Hancock Funds,
as applicable, to cover its liability for the deferred compensation. Investments
to cover the Fund's deferred compensation liability will be recorded on the
Fund's books as an other asset. The deferred compensation liability will be
marked to market on a periodic basis and income earned by the investment will be
recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended July 28, 1995, aggregated $5,589,451 and $14,675,508, respectively. There
were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended July 28, 1995.
The cost of investments owned at July 28, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $34,801,400. Gross
unrealized appreciation and depreciation of investments aggregated $42,389,718
and $583,151, respectively, resulting in net unrealized appreciation of
$41,806,567.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the period ended July 28, 1995, the Fund has reclassified $174,973 from
accumulated net investment loss to accumulated net realized gain on investments.
This represents the amount necessary to report these balances on a tax basis as
of July 28, 1995. These reclassifications, which have no impact on the net asset
value of the Fund, are primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax rules
versus generally accepted accounting principles.
