John Hancock Funds
Regional
Bank
Fund
Annual Report
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and
Chief Executive Officer, flush right, next to second
paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to make their
prospectuses more user-friendly. He noted that prospectuses are often
overloaded with technical detail and are hard for most investors to
understand. Many industry observers agreed, and rightly so.
So it is my pleasure to let you know that after being under development
for a year, John Hancock Funds has introduced new simplified and
consolidated prospectuses. The prospectuses feature shorter, clearer
language with a streamlined design, and they incorporate several funds
with similar investment objectives into one document. They cover our
income, growth, growth and income, tax-free income, international/global
and money market funds. We are gratified at the favorable reviews that
our new prospectuses have received from shareholders, financial advisers,
industry analysts and the press. We believe they are a bold but sensible
step forward. And while they are easier to read, they still comply with
all federal and state guidelines.
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page
spread highlighting each fund's goals and investment strategy, the types
of securities it buys, its portfolio management and risk factors, all in
plainer language. Fund expenses and financial highlights are now found
here, too, as is a new bar chart that shows year-to-year volatility for
each fund. Other features include a better presentation of fund services,
a new glossary of investment risks and a discussion about how funds are
organized, including a diagram showing the connection of the various
players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive toward
better mutual fund prospectuses. We hope you will agree because in the
end, we did it for you, our shareholders.
Sincerely,
/S/EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGER
John Hancock
Regional Bank Fund
Bank stocks at head of pack in market rally
"Our returns
have been
helped by
continued
consolidation
in the banking
industry."
The year ending October 31, 1996 was a good one for the equity market as
a whole and an even better one for bank stocks. John Hancock Regional
Bank Fund produced total returns at net asset value of 28.78% and 27.89%
for Class A and Class B shares, respectively, outdistancing the 24.10%
total return of the Standard & Poor's 500-Stock Index. The average
financial services fund gained 28.24%, according to Lipper Analytical
Services.1 Please see pages seven and eight for longer-term performance
information.
Investors have come to embrace an economic outlook of slow growth, low
inflation, and stable interest rates. This is an ideal environment for
banks because they are able to achieve moderate growth in loans and
earnings without taking undue risks. If the economy were growing more
rapidly, earnings would be temporarily inflated, but the stage would be
set for an eventual economic slowdown that would cause a dramatic
increase in loan losses. Banks do not earn enough money during an
economic boom to make up for what they lose during a bust. Slow,
plodding growth of 2-3%, year after year, is what we hope for as bank
investors.
Our returns have been helped by continued consolidation in the banking
industry. During the period, 23 of our holdings announced agreements to
be taken over by other institutions. The Fund's performance was also
bolstered by some specific tactics we engaged in, such as buying thrifts
that are plaintiffs in "goodwill" lawsuits against the U.S.Government,
and investing in commercial banks in California that are benefiting from
recovering real estate values.
A 2 1/4" x 3 1/2" photo of portfolio management team at
bottom right. Caption reads: "James K. Schmidt (seated) and
Regional Bank Fund management team members: Patricia Ouimet
and (l-r) James Boyd, Thomas Finucane, Gerard Cronin".
Chart with heading "Top Five Common Stock Holdings" at top of
left hand column. The chart lists five holdings: 1) Wells
Fargo 2.4%; 2) GreenPoint Financial 2.3%; 3) Bank of Boston
Corp. 2.0%; 4) Union Planters Corp. 1.9%; 5) Bank of New York
1.9%. Footnote below states "As a percentage of total net
assets on October 31, 1996."
"...an
excellent
year for
bank
earnings."
Positive earnings trends
The favorable economic environment has contributed to an excellent year
for bank earnings. With three quarters of the year reported, we believe
earnings gains will average 14%. Several components of the earnings
equation have been slightly better than we had predicted -- loan growth,
credit losses, and non-interest revenues. In addition, many banks have
continued aggressive share repurchase programs, thereby shrinking the
denominator in the earnings-per-share calculation. In 1997, we are
looking for earnings to advance by another 10%. Based on this estimate,
banks and savings and loans are selling for an average of 11 times
earnings. This compares to 17 times 1997 earnings for the S&P 500 and
means that bank stocks are 35% cheaper than the overall market.
Table entitled "Scorecard" at bottom of left hand column. The
header for the left column is "Investments"; the header for
the right column is "Recent performance ... and what's behind
the numbers. The first listing is Commerce Bancshares
followed by an up arrow and the phrase "Stellar fundamentals
being recognized." The second listing is Washington Mutual
Group followed by an up arrow and the phrase "Market applauds
acquisition of American Savings." The third listing is
Roosevelt Financial followed by a down arrow and the phrase
"Sluggish earnings, rate-sensitive balance sheet." Footnote
below reads: "See Schedule of Investments. Investment
holdings are subject to change."
Stock repurchases
Stock repurchases deserve a special mention here because of their
extraordinary importance to bank investors. A string of very profitable
years has left the banking industry with very strong capital ratios (see
chart). This is both a blessing and a curse because while high levels of
equity contribute to safety and soundness, it is difficult for a bank to
earn a satisfactory return on equity unless it is fully leveraged.
Leverage is traditionally accomplished by aggressively booking
additional loans. This could lead to imprudent lending standards, which
would eventually culminate in drastically increased loan charge-offs.
Fortunately, those bank executives that retained their jobs after the
lending debacle in 1989-90 were chastened by the experience and are
opting now to reduce their equity ratios by using capital to buy back
stock. This not only increases earnings-per-share, as noted previously,
but prevents the more risky lending we might otherwise be witnessing at
this point in the economic cycle. The acceptance of share buybacks as a
leverage strategy is an extremely positive development, and it is one we
stress in our meetings with management.
Consolidation continues
Although 1996 has been similar to 1995 in terms of the number of merger
announcements, the size of the transactions declined noticeably. The
drought in large bank acquisitions was broken on August 30, when
NationsBank and Boatmen's Bancshares (a St. Louis based bank with about
$40 billion in assets) announced that they were merging. This deal was
significant for a number of reasons: it marked the return to the merger
wars of a predator bank that had sat out the frenzy of 1995, it set very
high pricing standards when measured by the price-to-book or price-
earnings ratios, and it reinforced the use of purchase (rather than
pooling) accounting for major acquisitions. The issue of accounting
treatment is important because the "purchase" method allows an acquiring
bank to continue the stock buyback programs that we like so much. While
purchase accounting has historically been frowned on by bank investors,
it has gained credibility now that it has been employed successfully
this year by two of the nation's biggest banks, Wells Fargo and
NationsBank. We think merger activity will accelerate over the next
year, although perhaps not to the extreme levels of 1995. Consolidation
will be instrumental in the banking industry's achievement of greater
efficiency and ability to make technological investments. Even if we
were to never own another bank that got taken over, we would still be
big fans of bank consolidation.
Bar chart with heading "Fund Performance" at top of left hand
column. Under the heading is the footnote: "For the year
ended October 31, 1996." The chart is scaled in increments
of 10% from bottom to top, with 30% at the top and 0% at the
bottom. Within the chart there are three solid bars. The
first represents the 28.78% total return for the John Hancock
Regional Bank Fund: Class A. The second represents the 27.89%
total return for John Hancock Regional Bank Fund: Class B.
The third represents the 28.24% total return for the average
financial services fund. A footnote below reads: "Total
returns for John Hancock Regional Bank Fund are at net asset
value with all distributions reinvested. The average
financial services fund is tracked by Lipper Analytical
Services. (1) See pages seven and eight for historical
performance information."
Dateline: Washington, D.C.
Since our last communication in April, several legal and regulatory
issues have been resolved favorably. On July 1, the Supreme Court
affirmed a lower court ruling that one of our holdings, Glendale Federal
Bank, had suffered from a breach of contract when Congress changed the
accounting rules for Supervisory Goodwill in 1989. We own numerous
savings and loans that have similar claims in other "goodwill" suits. It
will now take a year or longer for the courts to determine what the
dollar amount of damages is. The stock market was intensely interested
in these stocks for a few days immediately preceding and following the
Supreme Court ruling, but we feel these stocks are now being overlooked
as the headlines have faded.
More recently, as part of the Omnibus Budget Reconciliation Bill,
Congress and the President enacted legislation to recapitalize the
Savings Association Insurance Fund (SAIF). In return for a one-time
assessment this year, the savings and loan industry will see its FDIC
premiums cut dramatically in 1997 to levels comparable to the banks.
Most of the Fund's thrift holdings accrued these charges in the third
quarter of 1996 and will see a 3-5% earnings pick up in 1997 from the
lower premiums. With this legislation, the road has been paved for a
merging of the bank and savings association insurance funds and
eventually for a single banking charter. This will make it much more
common for commercial banks to merge with thrifts.
"We have
increased our
holdings in
savings and
loans this
year."
Finally, the banks' struggle for expanded powers rages on. Although
repeal of Glass-Steagall was nixed by Congress for this year, the
Federal Reserve has proposed allowing banks to receive a larger portion
of their business from underwriting stocks and bonds. Currently capped
at 10%, the banks would be allowed to derive 25% of revenue from the
securities business after the Fed's recent relaxation proposal is
enacted, most likely in early 1997. Such changes would have an immediate
impact primarily on money center banks, but some of the Fund's larger
superregionals could acquire a regional brokerage under the new
guidelines. We are not particularly excited about the possibility of
banks making an effort to be major players in the brokerage industry.
Most of the banks we own are culturally ill-equipped to succeed in the
securities business and risk cannibalizing profitable banking customers
in the process. The biggest beneficiaries of a movement by banks into
the brokerage business would be shareholders of regional brokerage firms
that would become acquisition targets.
"Our basic
investment
concept has
remained the
same since
the Fund's
inception..."
Portfolio strategy and outlook
Our basic investment concept has remained the same since Fund's
inception 11 years ago. We buy undervalued regional banks and thrifts
that have solid earnings fundamentals and that are likely to be in the
path of industry consolidation. While the Fund remains geographically
diverse, we frequently play on the theme of "battleground" states, those
states that contain important markets, but where superregional banks
have only a minor presence. New Jersey was a battleground state until,
in 1995, three of its four largest banks were acquired by out of state
superregional banks. States that now look to us like New Jersey once did
are Alabama, Tennessee and Virginia, all states where we own numerous
positions in mid-sized banks.
We have increased our holdings in savings and loans this year. Two of
the reasons for this have already been discussed: the "goodwill"
lawsuits and the SAIF insurance resolution. The other area of intrigue
is the conversion of many previously mutual savings and loans to stock
ownership. These recent conversions are the least expensive of all
financial institutions as many trade under their book value. Almost all
of these companies have buyback programs in effect or planned, and the
repurchases increase their book value per share. Eventually, we expect
many of the converted thrifts to be acquired by commercial banks.
We also boosted the number of our California holdings during the period
because of improving banking conditions in that state. As employment
expands and real estate values stabilize, most California banks are (at
last!) seeing their non-performing assets decline. From a consolidation
point of view, the state is still in its infancy -- it reminds us of the
Midwest back when we started the Fund in 1985. We expect mergers among
many of the smaller California banks and, several years from now,
interstate mergers into the state.
At the end of October, cash and equivalents stood at about 18% of total
assets. This level is higher than we would like to see it, and is a
product of the substantial cash flows that the Fund has received during
this record year of mutual fund sales. We continue to have a goal of
reducing our level of cash and equivalents to below 10%. The time frame
over which this will happen is dependent on the level and direction of
cash flows.
Overall, we feel that the basic investment strategy that we have been
employing over the life of the Fund will continue to work in the future.
Bank stocks remain inexpensive, the economy is cooperating, and there
are many years of industry consolidation to look forward to. We would
change our mind about the attractiveness of bank equity investments only
if these driving forces were to evaporate.
- ----------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
Sector investing is subject to different, and sometimes greater, risks
than the market as a whole.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Regional Bank Fund.
Total return is a performance measure that equals the sum of all income
and capital gain distributions, assuming reinvestment of these
distributions and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 5%
for Class A shares. Prior to August 1992, different sales charges were
in effect for Class A shares and are not reflected in the performance
data. The effect of the maximum contingent deferred sales charge for
Class B shares (maximum 5% and declining to 0% over six years) is
included in Class B performance. Remember that all figures represent
past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of
the Fund's investments will fluctuate. As a result, your Fund's shares
may be worth more or less than their original cost, depending on when
you sell them. Please see your prospectus for risks associated with
industry segment investing.
CUMULATIVE TOTAL RETURNS
For the period ended September 30, 1996
MOST
ONE FIVE RECENT
YEAR YEARS TEN YEARS
------ ------- ----------
John Hancock Regional
Bank Fund: Class A 16.68% N/A 193.62%(1)
John Hancock Regional
Bank Fund: Class B 16.97% 224.82% 479.49%(2)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
MOST
ONE FIVE RECENT
YEAR YEARS TEN YEARS
------ ------- ----------
John Hancock Regional Bank
Fund: Class A 16.68% N/A 25.50%(1)
John Hancock Regional
Bank Fund: Class B 16.97% 26.57% 19.21%(2)
Notes to Performance
(1) Class A shares commenced operations on January 3, 1992.
(2) Class B shares commenced operations on October 4, 1985.
WHAT HAPPENS TO A $10,000 INVESTMENT
The charts on the right show how much a $10,000 investment in the John
Hancock Regional Bank Fund would be worth on October 31, 1996, assuming
you either had invested on the day each class of shares started or have
been invested for the most recent ten years and have reinvested all
distributions. For comparison, we've shown the same $10,000 investment
in the Standard & Poor's 500 Stock Index -- an unmanaged index that
includes 500 widely traded common stocks and is a commonly used measure
of stock market performance.
Regional Bank Fund
Class A shares
Line chart with the heading Regional Bank Fund: Class A, representing
the growth of a hypothetical $10,000 investment over the life of the
fund. Within the chart are three lines.
The first line represents the value of the Regional Bank Fund, before
sales charge, and is equal to $32,396 as of October 31, 1996. The
second line represents the value of the hypothetical $10,000 investment
made in the Regional Bank Fund on January 3, 1992, after sales charge,
and is equal to $30,774 as of October 31, 1996. The third line
represents the Standard & Poor's 500 Stock Index and is equal to $19,245
as of October 31, 1996.
Regional Bank Fund
Class B shares
Line chart with the heading Regional Bank Fund: Class B*, representing
the growth of a hypothetical $10,000 investment over the life of the
fund. Within the chart are two lines.
The first line represents the value of the Regional Bank Fund, before
sales charge, and is equal to $60,741 as of October 31, 1996. The
second line represents the value of the hypothetical $10,000 investment
made in the Standard & Poor's 500 Stock Index and is equal to $39,194 as
of October 31, 1996.
* No contingent deferred sales charge.
<TABLE>
<CAPTION>
John Hancock Funds - Regional Bank Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on October 31,
1996. You'll also find the net asset value and the maximum offering price
per share as of that date.
Statement of Assets and Liabilities
October 31, 1996
- -------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks and warrants
(cost - $1,886,288,773) $2,714,877,771
Bonds (cost - $4,856,450) 5,216,000
Joint repurchase agreement (cost - $348,203,000) 348,203,000
Short-term investments (cost - $253,187,982) 253,187,982
Corporate savings account 874,361
--------------
3,322,359,114
Receivable for investments sold 16,075,841
Receivable for shares sold 15,478,581
Dividends receivable 5,139,033
Interest receivable 246,084
Other assets 45,603
--------------
Total Assets 3,359,344,256
- -------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 85,421,313
Payable for shares repurchased 1,393,621
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 2,696,954
Accounts payable and accrued expenses 475,714
--------------
Total Liabilities 89,987,602
- -------------------------------------------------------------------------------
Net Assets:
Capital paid-in $2,403,892,685
Accumulated net realized gain on investments 32,405,772
Net unrealized appreciation of investments 828,950,524
Undistributed net investment income 4,107,673
--------------
Net Assets $3,269,356,654
===============================================================================
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, respectively)
Class A - $860,842,527/25,326,453 $33.99
===============================================================================
Class B - $2,408,514,127/71,195,346 $33.83
===============================================================================
Maximum Offering Price Per Share*
Class A - ($33.99 x 105.26%) $35.78
===============================================================================
* 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>
<TABLE>
<CAPTION>
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 October 31, 1996
- -------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (including $4,900,042 received from
affiliated issuers) $60,784,599
Interest 23,195,312
------------
83,979,911
Expenses:
Investment management fee - Note B 18,308,016
Distribution/service fee - Note B
Class A 1,961,280
Class B 17,539,754
Transfer agent fee - Note B 5,428,743
Registration and filing fees 566,827
Custodian fee 341,564
Trustees' fees 305,536
Printing 286,393
Financial services fee - Note B 176,938
Legal fees 112,554
Miscellaneous 74,976
Auditing fee 39,572
------------
Total Expenses 45,142,153
- -------------------------------------------------------------------------------
Net Investment Income 38,837,758
- -------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 32,654,655
Change in net unrealized appreciation/depreciation
of investments 550,720,765
Net Realized and Unrealized Gain
on Investments 583,375,420
- -------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $622,213,178
===============================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996
-------------- --------------
<S> <C> <C> <C> <C>
Increase in Net Assets:
Net investment income $17,043,670 $38,837,758
Net realized gain on investments sold 14,650,736 32,654,655
Change in net unrealized appreciation/
depreciation of investments 235,518,324 550,720,765
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 267,212,730 622,213,178
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.4773 and $0.6039 per share,
respectively) (5,715,567) (12,903,706)
Class B - ($0.3215 and $0.4021 per share,
respectively) (9,516,354) (23,862,840)
Distributions from net realized gain on
investments sold
Class A - ($0.3413 and $0.2154 per share,
respectively) (3,288,461) (4,107,407)
Class B - ($0.3413 and $0.2154 per share,
respectively) (8,137,395) (10,792,198)
-------------- --------------
Total Distributions to Shareholders (26,657,777) (51,666,151)
-------------- --------------
From Fund Share Transactions - Net*: 743,338,429 975,731,251
-------------- --------------
Net Assets:
Beginning of period 739,184,994 1,723,078,376
-------------- --------------
End of period (including undistributed
net investment income of $2,036,461 and $4,107,673,
respectively) $1,723,078,376 $3,269,356,654
============== ==============
* Analysis of Fund Share Transactions: YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
1995 1996
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A
Shares sold 14,505,492 $363,725,341 31,732,595 $957,001,609
Shares issued to shareholders in
reinvestment of distributions 359,736 7,817,904 470,777 13,828,404
-------------- -------------- -------------- --------------
14,865,228 371,543,245 32,203,372 970,830,013
Less shares repurchased (7,018,102) (171,254,724) (24,808,137) (750,988,300)
-------------- -------------- -------------- --------------
Net increase 7,847,126 $200,288,521 7,395,235 $219,841,713
============== ============== ============== ==============
CLASS B
Shares sold 26,194,033 $658,793,433 33,358,085 $990,153,270
Shares issued to shareholders in
reinvestment of distributions 593,436 12,598,000 757,733 22,085,406
-------------- -------------- -------------- --------------
26,787,469 671,391,433 34,115,818 1,012,238,676
Less shares repurchased (5,396,234) (128,341,525) (8,681,596) (256,349,138)
-------------- -------------- -------------- --------------
Net increase 21,391,235 $543,049,908 25,434,222 $755,889,538
============== ============== ============== ==============
The Statement of Changes in Net Assets shows how the value of the Fund's
net assets has changed since the end of the previous period. The difference
reflects earnings less expenses, any investment and foreign currency gains
and losses, distributions paid to shareholders, if any 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 statments.
</TABLE>
<TABLE>
<CAPTION>
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 OCTOBER 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $13.47 $17.47 $21.62 $21.52 $27.14
------- ------- ------- ------- -------
Net Investment Income 0.21 0.26(2) 0.39(2) 0.52(2) 0.63(2)
Net Realized and Unrealized Gain
on Investments 3.98 5.84 0.91 5.92 7.04
------- ------- ------- ------- -------
Total from Investment
Operations 4.19 6.10 1.30 6.44 7.67
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income (0.19) (0.26) (0.34) (0.48) (0.60)
Distributions from Net Realized
Gain on Investments Sold -- (1.69) (1.06) (0.34) (0.22)
------- ------- ------- ------- -------
Total Distributions (0.19) (1.95) (1.40) (0.82) (0.82)
------- ------- ------- ------- -------
Net Asset Value, End of Period $17.47 $21.62 $21.52 $27.14 $33.99
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value(3) 31.26%(4) 37.45% 6.44% 31.00% 28.78%
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $31,306 $94,158 $216,978 $486,631 $860,843
Ratio of Expenses to Average
Net Assets 1.41%(5) 1.35% 1.34% 1.39% 1.36%
Ratio of Net Investment Income
to Average Net Assets 1.64%(5) 1.29% 1.78% 2.23% 2.13%
Portfolio Turnover Rate 53% 35% 13% 14% 8%
Average Broker Commission Rate(6) N/A N/A N/A N/A $0.0694
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $13.76 $17.44 $21.56 $21.43 $27.02
------- ------- ------- ------- -------
Net Investment Income 0.18 0.15(2) 0.23(2) 0.36(2) 0.42(2)
Net Realized and Unrealized Gain
on Investments 4.56 5.83 0.91 5.89 7.01
------- ------- ------- ------- -------
Total from Investment
Operations 4.74 5.98 1.14 6.25 7.43
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income (0.28) (0.17) (0.21) (0.32) (0.40)
Distributions from Net Realized
Gain on Investments Sold (0.78) (1.69) (1.06) (0.34) (0.22)
------- ------- ------- ------- -------
Total Distributions (1.06) (1.86) (1.27) (0.66) (0.62)
------- ------- ------- ------- -------
Net Asset Value, End of Period $17.44 $21.56 $21.43 $27.02 $33.83
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value(3) 37.20% 36.71% 5.69% 30.11% 27.89%
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $56,016 $171,808 $522,207 $1,236,447 $2,408,514
Ratio of Expenses to Average Net
Assets 1.96% 1.88% 2.06% 2.09% 2.07%
Ratio of Net Investment Income to
Average Net Assets 1.21% 0.76% 1.07% 1.53% 1.42%
Portfolio Turnover Rate 53% 35% 13% 14% 8%
Average Broker Commission Rate(6) N/A N/A N/A N/A $0.0694
(1) Class A shares commenced operations on January 3, 1992.
(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) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
October 31, 1996
- -----------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Regional Bank Fund on October 31, 1996. It's divided into four main categories:
common stocks, warrants and other, preferred stocks, bonds, and short-term
investments. Common stocks are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
MARKET
DESCRIPTION, STATE, ISSUER NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS, WARRANTS AND OTHER
Money Center Banks (2.18%)
Chase Manhattan Corp. (NY) 562,808 $48,260,786
Morgan (J.P.) & Co, Inc. (NY) 266,000 22,975,750
--------------
71,236,536
--------------
Super Regional Banks (14.88%)
Banc One Corp. (OH) 772,268 32,724,856
BankAmerica Corp. (CA) 460,987 42,180,310
Bank of Boston Corp. (MA) 1,033,250 66,128,000
Bank of New York, Inc. (NY) 1,829,449 60,600,498
Barnett Banks, Inc. (FL) 860,000 32,787,500
First Bank Systems, Inc. (MN) 189,865 12,531,090
First Chicago NBD Corp. (IL) 988,213 50,398,863
First Union Corp. (NC) 339,800 24,720,450
Fleet Financial Group, Inc. (MA) 833,648 41,578,194
KeyCorp. (OH) 399,305 18,617,596
Mellon Bank Corp. (PA) 88,201 5,744,090
NationsBank Corp. (NC) 215,918 20,350,272
Norwest Corp. (MN) 520,216 22,824,477
PNC Bank Corp. (PA) 1,421,900 51,543,875
Wachovia Corp. (NC) 70,000 3,762,500
--------------
486,492,571
--------------
Regional Banks (42.35%)
ABC Bancorp. (GA)+ 130,000 2,307,500
American Bancorp. (WV) 74,000 1,831,500
American Bancshares, Inc.*(FL) 60,000 495,000
AmSouth Bancorp. (AL) 237,293 11,004,463
ANB Corp. (IN) 73,000 1,533,000
Atlantic Bank & Trust Co *(MA) 49,500 464,062
BancFirst Corp. (OK) 302,100 7,514,737
BancFirst Ohio Corp. (OH) 50,000 1,412,500
Bancorp Hawaii, Inc. (HI) 670,450 26,566,581
Banknorth Group, Inc. (VT)+ 386,500 13,334,250
BanPonce Corp. (PR) 762,000 20,002,500
B M J Financial Corp. (NJ) 132,632 2,984,220
BNH Bancshares, Inc. *(CT) 136,250 1,226,250
Boatmen's Bancshares, Inc. (MO) 972,234 59,063,215
Boatmen's Bancshares, Inc.
(Dep Shares) (MO) 65,000 3,388,125
Brenton Banks, Inc. (IA) 194,260 4,565,110
Bryn Mawr Bank Corp. (PA)+ 79,200 2,098,800
BT Financial Corp. (PA) 43,285 1,514,975
California Commercial
Bankshares. *(CA) 52,747 421,976
California Community Bancshares. (CA) 5,000 80,625
California State Bank (CA) 99,600 1,618,500
Carnegie Bancorp. (NJ) 49,612 942,628
CB Bancshares, Inc. (HI) 122,600 3,156,950
CCB Financial Corp. (NC) 190,200 10,841,400
Central Fidelity Banks, Inc. (VA) 82,500 2,093,437
Centura Banks, Inc. (NC) 238,325 9,264,884
Citizens Bancorp., Inc. (MD) 36,000 1,845,000
Citizens Banking Corp. ( MI ) 38,400 1,123,200
City National Corp. (CA) 100,000 1,750,000
CNB Bancshares, Inc. (IN) 85,306 2,537,853
Cobancorp, Inc. (OH) 40,000 870,000
Colonial BancGroup, Inc. (AL) 289,600 10,968,600
Comerica, Inc. (MI) 387,798 20,601,769
Commerce Bancshares, Inc. (MO) 183,650 7,965,819
Commercial Bancshares, Inc. (FL) 159,000 2,424,750
Community Bank System, Inc. (NY) 41,000 1,501,625
Community First Bankshares, Inc. (ND) 92,500 2,289,375
Compass Bancshares, Inc. (AL) 676,500 24,438,562
Continental Pacific Bank *(CA) 30,020 484,072
Corestates Financial Corp. (PA) 1,221,124 59,377,155
Crestar Financial Corp. (VA) 619,600 38,105,400
CU Bancorp. (CA) 46,211 456,334
Cullen / Frost Bankers, Inc., (TX) 533,200 16,029,325
Cupertino National Bancorp. (CA) 30,003 472,547
Dauphin Deposit Corp. (PA) 38,000 1,244,500
Deposit Guaranty Corp. (MS) 178,100 8,949,525
Evergreen Bancorp., Inc. (NY) 190,700 2,836,662
F & M National Corp. (VA) 108,150 2,000,775
First American Corp. (TN) 1,052,800 52,376,800
First of America Bank Corp. (MI) 981,205 53,353,022
First Citizens Bancshares, Inc.
(Class A) (NC) 30,844 2,074,259
First Colonial Group, Inc. (PA) 24,150 452,812
First Commerce Corp. (LA) 879,887 31,235,988
First Hawaiian, Inc. (HI) 135,000 4,185,000
First Merchants Corp. (IN) 22,500 568,125
First Patriot Bankshares (VA) 56,100 694,238
First Security Corp. (UT) 395,000 11,603,125
First Source Corp. (IN) 60,001 1,372,523
First State Bancorp. (NM) 87,500 1,290,625
First Tennessee National Corp. (TN) 1,260,300 45,843,412
First Western Bancorp. (PA) 50,000 1,331,250
Firstar Corp. (WI) 202,300 9,912,700
Firstbank Corp. (MI) 47,462 1,566,246
Firstbank of Illinois Co. (IL) 59,775 1,942,687
FirstMerit Corp. (OH) 45,000 1,462,500
FNB Corp. (PA) 52,822 1,247,920
FNB Rochester Corp. *(NY) 168,737 1,961,568
Franklin Bank, NA (MI) 103,881 1,181,646
Fulton Financial Corp. (PA) 197,025 3,989,756
Grand Premier Financial Inc. (IL) 179,118 1,835,960
Hancock Holdings Co. (MS) 238,000 9,460,500
Harleysville National Corp. (PA) 20,000 497,500
Hibernia Corp. (Class A) (LA) 1,345,600 14,969,800
Hubco, Inc. (NJ) 357,563 7,687,615
Huntington Bancshares, Inc. (OH) 51,975 1,247,400
Imperial Bancorp. (CA) 30,000 581,250
Independent Bank Corp. (MA) 480,000 4,200,000
Interchange Financial Services Corp. (NJ) 115,500 2,829,750
Liberty Bancorp., Inc. (OK) 15,000 581,250
LSB Bancshares, Inc. (NC) 13,408 201,120
Magna Group, Inc. (MO) 315,000 8,820,000
Mainstreet Bankgroup, Inc. (VA) 188,700 3,420,188
Mark Twain Bancshares, Inc. (MO) 15,000 688,125
Marshall and Ilsley Corp. (WI) 401,480 12,897,545
Mercantile Bancorp., Inc. (MO) 809,015 40,147,369
Mercantile Bankshares Corp. (MD) 340,000 10,242,500
Merchants Bancorp., Inc. (IL) 30,800 931,700
MetroBanCorp. (IN) 75,000 478,125
Michigan Financial Corp. (MI) 51,552 1,211,472
Mississippi Valley Bancshares, Inc. (MO) 75,500 2,869,000
Mountain Parks Financial Corp. *(CO) 65,000 1,982,500
National City Bancshares, Inc. (IN) 44,666 1,295,314
National City Corp. (OH) 718,646 31,171,270
North Fork Bancorp., Inc. (NY)+ 727,309 23,001,147
North Valley Bancorp. (CA) 76,600 1,689,988
Old Kent Financial Corp. (MI) 549,598 24,800,610
One Valley Bancorp., Inc. (WV) 156,085 5,092,273
Pacific Bank N.A. *(CA) 66,923 1,673,075
Peoples Bank Corp. of Indianapolis (IN) 22,500 787,500
Pinnacle Financial Services, Inc. (MI) 100,000 2,475,000
Premier Bankshares Corp. (VA) 113,333 2,606,659
Princeton National Bancorp., Inc. (IL) 64,500 1,233,563
Provident Bancorp., Inc. (OH) 126,250 5,594,453
Provident Bancshares Corp. (MD) 109,000 3,924,000
Regions Financial Corp. (AL) 190,240 9,512,000
Republic Bancorp., Inc. (MI) 96,691 1,148,207
Republic New York Corp. (NY) 524,600 40,000,750
Riggs National Corp. (DC) 422,500 7,235,313
SC Bancorp. *(CA) 219,051 1,930,387
Seacoast Banking Corp. (Class A) (FL) 118,500 2,873,625
Signet Banking Corp. (VA) 890,600 25,716,075
Simmons First National Corp. (AR)+ 189,000 6,756,750
Southern National Corp. (NC) 1,342,963 46,500,094
Southtrust Corp. (AL) 873,600 28,938,000
Southwest Bancorp., Inc. (OK) 160,500 3,109,688
State Financial Services Corp.
(Class A) (WI) 57,600 1,080,000
State Street Boston Corp. (MA) 25,000 1,584,375
Sterling Bancshares. (TX) 160,725 2,571,600
Summit Bancorp. (NJ) 1,108,750 45,320,156
Surety Capital Corp. *(TX) 120,000 547,500
Susquehanna Bancshares, Inc. (PA) 427,175 12,708,456
Synovus Financial. (GA) 100,000 2,987,500
Texas Regional Bancshares, Inc.
(Class A) (TX) 202,500 6,530,625
Trans Financial, Inc. (KY) 22,500 444,375
Transworld Bancorp.* (CA) 25,000 393,750
TriCo Bancshares. (CA)+ 183,050 3,752,525
Trustmark Corp. (MS) 72,000 1,800,000
UnionBanCal Corp. (CA) 587,800 31,006,450
Union Planters Corp. (TN)+ 1,831,939 63,659,880
United Carolina Bancshares, Inc. (NC) 62,600 1,627,600
US Bancorp. (OR) 1,298,527 51,941,080
USBANCORP., Inc. (PA) 48,000 1,872,000
UST Corp. (MA) 125,000 2,242,188
Vectra Banking Corp. *(CO) 50,000 775,000
Vermont Financial Services Corp. (VT)+ 359,200 12,392,400
Wells Fargo & Co. (CA) 296,966 79,327,043
Westamerica Bancorp. (CA) 67,800 3,440,850
West Coast Bancorp., Inc. (FL) 30,000 480,000
West Coast Bancorp. (OR) 15,937 270,938
Whitney Holding Corp. (LA) 366,300 11,630,025
Zions Bancorp. (UT) 105,000 9,502,500
--------------
1,384,381,464
--------------
Thrifts (20.32%)
Acadiana BancShares, Inc. (LA) 50,000 687,500
Afsala Bancorp., Inc. * (NY) 30,000 363,750
ALBANK Financial Corp. (NY) 14,000 388,500
Ahmanson [H.F.] & Co. (CA) 1,250,000 39,218,750
Ambanc Holding Co., Inc. * (NY) 205,000 2,075,625
American Federal Bank FSB (SC) 245,000 4,501,875
American National Bancorp., Inc. (MD) 152,300 1,789,525
Astoria Financial Corp. (NY) 530,000 18,748,750
Avondale Financial Corp. *(IL) 90,000 1,316,250
Bank Plus Corp. *(CA) 643,644 7,240,995
Bank United Corp. (Class A) * (TX) 63,600 1,693,350
BankUnited Financial Corp.
(Class A) *(FL) 62,000 565,750
Bay View Capital Corp. (CA) 294,000 11,613,000
Bedford Bancshares, Inc. (VA) 30,000 543,750
BostonFed Bancorp., Inc. (MA) 325,700 4,437,662
Cal Fed Bancorp., Inc. *(CA) 58,334 1,356,265
California Financial Holding Co. (CA) 191,000 4,512,375
Calumet Bancorp., Inc. *(IL) 138,000 3,898,500
Camco Financial Corp.(OH) 20,247 318,890
Cameron Financial Corp. (MO) 95,000 1,425,000
Capital Savings Bancorp., Inc. (MO) 25,751 643,775
Catskill Financial Corp. *(NY) 205,000 2,600,937
CB Bancorp., Inc. *(IN) 57,870 1,331,010
CCF Holding Co. (GA) 49,000 695,188
CENFED Financial Corp. (CA) 133,000 3,524,500
Center Banks, Inc. (NY) 46,100 668,450
CFX Corp. (NH) 42,345 656,347
Charter Financial, Inc. (IL) 130,000 1,625,000
Charter One Financial, Inc. (OH) 370,300 16,084,906
Chester Bancorp., Inc. (IL) 30,000 382,500
Coast Savings Financial, Inc *(CA) 296,100 9,734,287
Coastal Bancorp., Inc. (TX) 65,000 1,462,500
Collective Bancorp., Inc. (NJ)+ 1,242,900 37,287,000
Commercial Federal Corp. (NE) 360,200 15,083,375
Commonwealth Bancorp., Inc. (PA) 203,873 2,573,897
Crazy Woman Creek Bancorp., Inc. (WY) 50,000 581,250
CSB Financial Group, Inc. *(IL) 50,000 503,125
Damen Financial Corp. (IL) 70,000 840,000
Dime Bancorp., Inc.*(NY) 1,422,500 21,159,687
Dime Community Bancorp., Inc. * (NY) 315,000 4,291,875
Dime Financial Corp. (CT) 25,000 450,000
Eagle Bancshares. (GA) 174,000 2,610,000
East Texas Financial Services, Inc. (TX) 44,000 671,000
Elmira Savings Bank (NY) 34,950 537,356
Falmouth Co-Operative Bank. (MA) 55,000 680,625
Family Bancorp. (MA) 117,500 3,370,781
Farmers & Mechanics Bank *(CT) 41,300 1,319,019
Fed One Bancorp., Inc. (WV) 25,000 400,000
FFW Corp. (IN) 15,000 313,125
Fidelity Financial of Ohio (OH) 80,000 840,000
Financial Bancorp., Inc. (NY) 45,000 638,437
First Bankshares, Inc. (MO) 48,000 738,000
First Bell Bancorp., Inc. (PA) 322,500 4,918,125
First Colorado Bancorp., Inc. (CO) 635,000 9,921,875
First Defiance Financial Corp. (OH) 495,000 5,506,875
First Federal Bancorp. *(MN) 42,000 693,000
First Federal Bancshares of
Arkansas, Inc. * (AR) 57,500 905,625
First Federal Bancshares of
Eau Claire, Inc. (WI) 91,700 1,650,600
First Federal Capital Corp. (WI) 95,445 2,242,957
First Financial Corp. (WI) 195,150 5,293,444
First Financial Corp. of
Western Maryland (MD) 90,500 2,556,625
First Independence Corp. (KS)+ 35,500 736,625
First Indiana Corp. (IN) 49,399 1,204,101
First Keystone Financial, Inc. *(PA) 43,000 827,750
First Mutual Bancorp., Inc. (IL) 185,000 2,543,750
First Republic Bancorp., Inc. *(CA) 229,162 3,523,366
First Savings Bank of Washington
Bancorp., Inc. (WA) 140,000 2,380,000
First Southern Bancshares. (AL) 35,000 457,187
Flushing Financial Corp. (NY) 105,000 1,903,125
FMS Financial Corp. (NJ) 24,000 402,000
Fort Bend Holdings Corp. (TX) 44,000 858,000
Fort Thomas Financial Corp. (KY) 60,000 813,750
Frankfort First Bancorp. (KY) 145,000 1,676,563
GA Financial, Inc. (PA) 420,000 5,722,500
Glendale Federal Bank *(CA) 851,900 15,653,662
Golden West Financial Corp. (CA) 30,000 1,946,250
Great American Bancorp., Inc. (IL) 10,000 142,500
Great Western Financial Corp. (CA) 360,000 10,080,000
Greenpoint Financial Corp. (NY) 1,642,000 76,353,000
Harbor Federal Bancorp., Inc. (MD) 80,000 1,200,000
Haven Bancorp., Inc. (NY) 20,000 535,000
HF Financial Corp. (SD)+ 150,000 2,418,750
Highland Federal Bank * (CA) 5,000 81,875
HMN Financial, Inc. *(MN) 110,000 1,870,000
Home Bancorp of Elgin, Inc. * (IL) 20,000 250,000
Home Federal Bancorp. (IN) 46,000 1,426,000
Home Financial Corp. (FL) 135,000 2,193,750
IBS Financial Corp. (NJ) 55,000 880,000
Industrial Bancorp., Inc. (OH) 185,000 2,312,500
InterWest Bancorp., Inc. (WA) 13,000 393,250
ISB Financial Corp. (LA) 335,000 5,506,563
Kankakee Bancorp., Inc. (IL) 31,020 697,950
Kentucky First Bancorp., Inc. (KY) 65,000 889,688
Klamath First Bancorp., Inc. (OR) 400,000 5,625,000
Landmark Bancshares, Inc. (KS) 100,000 1,625,000
Life Bancorp., Inc. (VA) 100,000 1,712,500
Little Falls Bancorp., Inc. (NJ) 135,000 1,552,500
Logansport Financial Corp. (IN) 50,000 725,000
Long Island Bancorp., Inc. (NY) 795,800 23,675,050
MAF Bancorp., Inc. (IL) 228,553 6,970,867
Marion Capital Holdings, Inc. (IN) 72,500 1,486,250
Marshalltown Financial Corp. *(IA) 20,000 317,500
MassBank Corp. (MA) 42,800 1,423,100
MFB Corp. (IN) 100,000 1,600,000
Mid Continent Bancshares, Inc. (KS) 18,500 356,125
Mississippi View Holding Co. (MN) 40,000 505,000
ML Bancorp., Inc. (PA) 130,000 1,811,875
Monterey Bay Bancorp., Inc. (CA) 65,000 958,750
MSB Bancorp., Inc. (NY) 15,000 249,375
New Hampshire Thrift
Bancshares, Inc. (NH) 30,000 352,500
North Central Bancshares, Inc. (IA) 135,000 1,687,500
Northeast Indiana Bancorp., Inc. (IN) 55,000 728,750
NS & L Bancorp. (MO) 35,000 468,125
Ocean Financial Corp. *(NJ) 150,000 3,656,250
PALFED, Inc. (SC) 233,600 3,066,000
Pamrapo Bancorp., Inc. (NJ) 89,500 1,778,813
Patriot Bank Corp. (PA) 150,000 2,456,250
Peekskill Financial Corp. (NY) 172,000 2,365,000
Pennfirst Bancorp., Inc. (PA) 81,290 1,122,818
Peoples Heritage Financial
Group, Inc. (ME) 540,400 12,429,200
Permanent Bancorp., Inc. (IN) 93,500 1,636,250
PFF Bancorp., Inc. *(CA) 805,000 10,263,750
Piedmont Bancorp., Inc. (NC) 20,000 312,500
Pittsburgh Home Financial Corp. (PA) 100,000 1,193,750
Potters Financial Corp. (OH) 25,000 446,875
Prestige Bancorp., Inc. *(PA) 40,000 487,500
Primary Bank *(NH)+ 80,000 1,040,000
Progress Financial Corp. (PA) 25,000 187,500
Provident Financial Holdings, Inc. *(CA) 50,000 637,500
PVF Capital Corp. *(OH) 27,225 408,375
QCF Bancorp., Inc. *(MN) 50,000 793,750
Quaker City Bancorp., Inc. *(CA) 65,000 1,056,250
RCSB Financial, Inc. (NY) 400,000 11,600,000
River Bank America *(NY) 220,000 1,980,000
Roosevelt Financial Group, Inc. (MO)+ 1,943,123 33,761,762
St. Paul Bancorp., Inc. (IL) 179,600 4,736,950
Security Bancorp. (MT) 69,500 2,032,875
SFS Bancorp., Inc. (NY) 45,000 697,500
SIS Bancorp., Inc. *(MA) 92,500 2,173,750
Sobieski Bancorp., Inc. *(IN) 40,000 530,000
Southern Banc Co., Inc. (AL) 55,500 679,875
Southern Financial Bancorp. (VA) 64,098 889,360
Southern Missouri Bancorp., Inc.(MO) 80,000 1,140,000
South Street Financial Corp. *(NC) 40,000 490,000
Sovereign Bancorp., Inc. (PA) 213,110 2,504,043
Standard Federal Bancorp. (MI) 131,800 7,051,300
Standard Financial, Inc. (IL) 135,000 2,404,688
Statewide Financial Corp. (NJ) 190,000 2,410,625
Sterling Financial Corp. *(WA) 215,377 3,015,278
Tappan Zee Financial, Inc. (NY) 67,500 894,375
TCF Financial Corp. (MN) 241,826 9,370,758
Teche Holding Co. (LA) 81,000 1,073,250
TeleBanc Financial Corp. *(VA) 100,000 1,125,000
Texarkana First Financial Corp. (AR) 96,800 1,379,400
TF Financial Corp. (PA) 25,000 387,500
Troy Hill Bancorp., Inc. (PA) 40,000 800,000
Virginia First Financial Corp.(VA)+ 260,000 3,575,000
Washington Bancorp. *(IA) 25,000 281,250
Washington Federal, Inc. (WA) 534,850 12,836,400
Washington Mutual, Inc. (WA) 580,000 24,505,000
Wayne Bancorp., Inc. (NJ) 35,000 511,875
Webster Financial Corp. (CT) 65,000 2,242,500
WesterFed Financial Corp. (MT) 230,000 3,938,750
WSFS Financial Corp. *(DE) 79,400 754,300
York Financial Corp. (PA) 55,000 990,000
--------------
664,495,057
--------------
Other - Financial (2.50%)
Ambassador Apartments, Inc. 70,000 1,417,500
Associates First Capital Corp. 32,000 1,388,000
Capital One Financial Corp. 683,100 21,261,487
ContiFinancial Corp. * 11,000 357,500
Donaldson Lufkin & Jenrette, Inc. 20,000 642,500
Enhance Financial Services Group, Inc., 50,000 1,668,750
EVEREN Capital Corp. * 29,500 582,625
Federal National Mortgage Assn. 65,000 2,543,125
Financial Federal Corp. * 44,400 621,600
Financial Security Assurance
Holdings Ltd. 10,000 280,000
First Merchants Acceptance Corp. * 64,000 1,136,000
First Washington Realty Trust.+ 79,470 1,708,605
IMC Mortgage Co. * 69,300 2,598,750
Imperial Credit Industries, Inc. * 59,200 1,073,000
ITLA Capital Corp. * 205,000 2,972,500
Investors Financial Services Corp. * 40,000 1,035,000
Lomas Financial Corp. * 180,000 2,812
Matrix Capital Corp. * 89,500 984,500
Olympic Financial Ltd. * 136,900 2,173,288
Onyx Acceptance Corp. * 89,700 919,425
Penncorp Financial Group, Inc. 36,000 1,246,500
PMC Capital, Inc. 25,000 343,750
Prentiss Properties Trust. * 31,500 649,688
Prime Retail, Inc.+ 340,431 3,957,510
Salomon, Inc. 80,000 3,610,000
Sirrom Capital Corp. 141,600 5,168,400
Southern Pacific Funding Corp. * 69,100 2,176,650
Southwest Gas Corp. 17,700 338,513
Student Loan Marketing Assn. 122,000 10,095,500
Travelers / Aetna Property
Casualty Corp. (Class A) 58,500 1,755,000
Union Acceptance Corp. (Class A) * 141,200 2,488,650
WFS Financial, Inc. * 197,450 4,146,450
Willis Lease Finance Corp. * 34,000 361,250
--------------
81,704,828
--------------
WARRANTS (0.09%)
Carnegie Bancorp. *(NJ) 29,000 170,375
Glendale Federal Savings Bank *(CA) 310,000 2,635,000
--------------
2,805,375
--------------
OTHER (0.00%)
California Federal Bank *(CA)
Goodwill Litigation Security 10,833 117,809
--------------
TOTAL COMMON STOCKS,
WARRANTS AND OTHER
(Cost $1,863,526,342) (82.32%) $2,691,233,640
------- --------------
PREFERRED STOCKS
California Federal Bank, Ser B,
10.625% (CA) 13,333 $1,439,964
Chevy Chase Savings 13.00% (MD) 50,000 1,637,500
Community Bank, Ser B, 13.00% (CA)+ 40,000 1,090,000
Fidelity Federal Bank, Ser A,
12.00% (CA) 40,000 1,110,000
FirstFederal Financial Corp., Ser A,
7.00% (OH) 10,000 866,250
First Nationwide Bank 11.50% (CA) 30,000 3,442,500
First Washington Realty Trust, Ser A,
9.75% (MD)+ 113,498 2,894,199
Glendale Federal Bank, Ser E,
8.75% (CA) 100,000 4,837,500
Prime Retail Inc. Ser B, 8.50% (MD) 19,105 401,205
Riggs National Corp., Ser B,
10.75% (DC) 64,300 1,824,513
Roosevelt Financial Group, Inc.,
Ser F, 6.50% (MO)+ 16,000 1,027,000
Southwest Bancorp., Inc. Ser A,
9.20% (OK) 20,000 525,000
Suncoast Savings and Loan Assn.,
Ser A, 8.00% (FL) 28,000 409,500
Walden Residential, Ser B, 9.16% (TX) 56,000 1,470,000
Washington Mutual Inc, Ser D,
$6.00 (WA) 4,000 669,000
--------------
TOTAL PREFERRED STOCKS
(Cost $22,762,431) (0.72%) $23,644,131
------- --------------
<CAPTION>
INTEREST PAR VALUE MARKET
RATE (000'S OMITTED) VALUE
-------- --------------- ------
<S> <C> <C> <C>
BONDS
Sierra Tahoe Bancorp
Conv Sub Deb 02-01-04 8.50% $500 $685,000
Susquehanna Bancshares, Inc.
Conv Sub Deb 02-01-05 9.00 2,000 2,179,660
Tennessee Valley Authority
Conv Sub Deb 11-15-96 8.25 2,350 2,351,340
--------------
TOTAL BONDS
(Cost $4,856,450) (0.16%) 5,216,000
------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (10.65%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc. Dated
10-31-96, Due 11-01-96
(secured by U.S. Treasury Bonds
10.375% due 11-15-12,
12.00% due 08-15-13, 11.25%
due 02-15-15, and 6.250%
due 08-15-23) - Note A 5.54 348,203 348,203,000
--------------
Short-Term Notes (7.74%)
Bear Stearns Cos., Inc.,
due 11-01-96 5.32 25,200 25,200,000
Bear Stearns Cos., Inc.,
due 11-06-96 5.26 20,000 19,985,389
Bear Stearns Cos., Inc.,
due 11-18-96 5.25 20,000 19,950,417
Federal Home Loan Bank
due 10-30-97 6.11 1,000 1,001,236
Federal Home Loan Bank
due 11-04-97 ++ 5.81 60,000 59,999,750
Federal National Mortgage Assn,
due 11-05-96 5.15 20,000 19,988,556
Ford Motor Credit Co.,
due 11-01-96 5.34 15,000 15,000,000
International Business Machines
due 11-08-96 5.31 20,000 19,979,350
International Business Machines
due 11-19-96 5.27 7,300 7,280,765
Industrial Bank of Japan
due 11-04-96 5.45 10,000 10,000,815
Merrill Lynch & Co., Inc.
due 11-12-96 5.26 15,000 14,975,892
Merrill Lynch & Co., Inc.
due 12-13-96 5.26 20,000 19,877,267
Short-Term Notes (continued)
PNC Bank,
due 12-03-96 5.29% $10,000 $9,952,978
Philip Morris Cos., Inc.,
due 11-04-96 5.32 10,000 9,995,567
--------------
253,187,982
--------------
Corporate Savings Account (0.03%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 874,361
--------------
TOTAL SHORT-TERM INVESTMENTS (18.42%) 602,265,343
------- --------------
TOTAL INVESTMENTS (101.62%) $3,322,359,114
======= ==============
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
+ Denotes an affiliated company which the Fund has ownership of at least 5%
of the voting securities.
++ This security is purchased on a when issued basis.
<CAPTION>
Investments in affiliates at October 31, 1996 were as follows:
AFFILIATE COST DIVIDEND INCOME
- ---------------------------------- -------------- -----------------
<S> <C> <C>
ABC Bancorp. $1,430,000 $52,000
Banknorth Group, Inc. 9,731,388 351,920
Bryn Mawr Bank Corp. 1,518,850 61,284
Collective Bancorp., Inc. 30,890,375 709,200
Community Bank, Ser B, 13.00% 1,412,375 --
First Independence Corp. 421,563 13,313
First Washington Realty Trust,
Ser. A 9.75% 1,549,665 154,967
HF Financial Corp. 1,352,500 50,625
NorthFork Bancorp., Inc. 16,115,327 425,317
Primary Bank 983,750 --
Prime Retail, Inc. 4,155,250 256,167
Roosevelt Financial Group, Inc. 30,283,676 716,324
Simmons First National Corp. 4,905,875 128,520
TriCo Bancshares 2,738,350 81,269
Union Planters Corp. 47,426,804 1,608,997
Vermont Financial Services Corp. 9,351,513 269,339
Virginia First Financial Corp. 1,885,000 20,800
--------------
$4,900,042
--------------
See notes to financial statements.
</TABLE>
John Hancock Funds - Regional Bank Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust consists of four series: John Hancock Regional Bank Fund (the
"Fund"), John Hancock Disciplined Growth Fund, John Hancock Managed Tax-
Exempt Fund and John Hancock Financial Industries Fund (which commenced
operations on March 14, 1996). The other three series of the Trust are
reported in separate financial statements. The investment objective of
the Fund is to achieve long-term capital appreciation by investing
primarily in the stocks of regional banks and financial lending
institutions.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant 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
instruments 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 and to distribute all its taxable income,
including any net realized gain on investments, to its shareholders.
Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS 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 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.
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.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
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 relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities purchased from either the date of issue or the date of
purchase over the life of the security, as required by the Internal
Revenue Code.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser, for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.80% of the
first $500,000,000 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
$500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive
state limit where the Fund is registered to sell shares of beneficial
interest, the fee payable to the Adviser will be reduced to the extent
of such excess, and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current limits
are 2.5% of the first $30,000,000 of the Fund's average daily net asset
value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
John Hancock Funds, Inc. ("JH Funds"), a wholly-owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-
Distributors for shares of the Fund. For the period ended October 31,
1996, JH Funds received net sales of $9,917,365 with regard to sales of
Class A shares. Out of this amount, $1,595,850 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$7,117,039 was paid as sales commissions to unrelated broker-dealers,
and $1,204,476 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 FDC, 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 5.00% 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 the Co-Distributor and are
used in whole or in part to defray its expenses for providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the period ended October 31, 1996, the contingent
deferred sales charges received by JH Funds amounted to $4,802,678.
In addition, to reimburse the Co-Distributors for the services it
provides as distributors 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 the Co-
Distributors 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.
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.
On August 27, 1996, the Board of Trustees approved retroactively to July
1, 1996, an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996 is
estimated to be at an annual rate of 0.01875% of the average net assets
of the Fund.
Mr. Edward J. Boudreau, Jr. , Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and officers of the Adviser, and its affiliates,
as well as Trustees of the Fund. The compensation of unaffiliated
Trustees 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 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. At
October 31, 1996, the Fund's investments to cover the defined
compensation liability had unrealized appreciation of $1,976.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other then obligations
of the U.S. government and its agencies and short-term securities,
during the period ended October 31, 1996, aggregated $1,058,985,379 and
$254,504,995, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended October 31, 1996.
The cost of investments owned at October 31, 1996 (including the joint
repurchase agreement) for Federal income tax purposes was
$2,492,811,589. Gross unrealized appreciation and depreciation of
investments aggregated $833,211,345 and $4,538,181, respectively,
resulting in net unrealized appreciation of $828,673,164.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Regional Bank Fund
and the Trustees of Freedom Investment Trust
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of John
Hancock Regional Bank Fund (the "Fund") (a series of Freedom Investment
Trust) at October 31, 1996, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1996 by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 12, 1996
SHAREHOLDER MEETINGS (UNAUDITED)
On July 23,1996, a special meeting of John Hancock Regional Bank Fund
was held. On a trust-wide basis the Freedom Investment Trust
Shareholders approved the Amended and Restated Declaration of Trust. The
trust-wide votes were 74,840,049 FOR, 2,183,089 AGAINST and 5,858,692
ABSTAINING.
On August 14, 1996, a special meeting of John Hancock Regional Bank Fund
was held.
The Shareholders approved a new investment management contract between
John Hancock Advisers, Inc. and the Fund. The shareholder votes were
37,524,525 FOR, 1,898,439 AGAINST and 2,339,467 ABSTAINING.
The Shareholders approved an Amended and Restated Declaration of Trust.
The shareholder votes were 38,110,248 FOR, 1,105,653 AGAINST, 2,546,531
ABSTAINING.
The Shareholders eliminated the Fund's fundamental investment
restriction on investing in a single class of securities of an issuer.
The shareholder votes were 37,380,520 FOR, 1,554,683 AGAINST and
2,827,228 ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ----------------------- ---------- ---------
Dennis S. Aronowitz 51,160,682 1,046,753
Edward J. Boudreau, Jr. 51,187,024 1,020,411
Richard P. Chapman, Jr. 51,161,906 1,045,530
William J. Cosgrove 51,176,432 1,031,003
Douglas M. Costle 51,177,859 1,029,576
Leland O. Erdahl 51,161,855 1,045,580
Richard A. Farrell 51,170,691 1,036,744
Gail D. Fosler 51,170,445 1,036,991
William F. Glavin 51,180,037 1,027,398
Anne C. Hodsdon 51,164,525 1,042,910
Dr. John A. Moore 51,194,294 1,013,141
Patti McGill Peterson 51,186,761 1,020,674
John W. Pratt 51,199,883 1,007,552
Richard S. Scipione 51,143,154 1,064,281
Edward J. Spellman 51,187,139 1,020,295
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished
with respect to the taxable distributions of the Fund during its fiscal
year ended October 31, 1996.
The Fund designated distributions to shareholders $9,934,452 as a long
term capital gain dividend. These amounts were reported on the 1995 U.S.
Treasury Department Form 1099-DIV. It is anticipated that there will be
a distribution from net realized gains from sales of securities to
shareholders of record on December 23, 1996 and payable December 29,
1996. Shareholders will receive a 1996 U.S. Treasury Department Form
1099-DIV in January 1997 representing their proportionate share.
For the calendar year ended December 31, 1996, 100% of the ordinary
income distributions qualify for the corporate dividends received
deduction.
A 1/2" x 1/2" John Hancock Funds logo in upper left hand
corner of the page. A box sectioned in quadrants with a
triangle in upper left, a circle in upper right, a cube in
lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Regional Bank Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
A recycled logo in lower left hand corner with caption
"Printed on Recycled Paper." 0100A 10/96
12/96
John Hancock Funds
Disciplined
Growth
Fund
Annual Report
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that prospectuses
are often overloaded with technical detail and are hard for most
investors to understand. Many industry observers agreed, and rightly so.
So it is my pleasure to let you know that after being under development
for a year, John Hancock Funds has introduced new simplified and
consolidated prospectuses. The prospectuses feature shorter, clearer
language with a streamlined design, and they incorporate several funds
with similar investment objectives into one document. They cover our
income, growth, growth and income, tax-free income, international/global
and money market funds. We are gratified at the favorable reviews that
our new prospectuses have received from shareholders, financial
advisers, industry analysts and the press. We believe they are a bold
but sensible step forward. And while they are easier to read, they still
comply with all federal and state guidelines.
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page
spread highlighting each fund's goals and investment strategy, the types
of securities it buys, its portfolio management and risk factors, all in
plainer language. Fund expenses and financial highlights are now found
here, too, as is a new bar chart that shows year-to-year volatility for
each fund. Other features include a better presentation of fund
services, a new glossary of investment risks and a discussion about how
funds are organized, including a diagram showing the connection of the
various players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive toward
better mutual fund prospectuses. We hope you will agree because in the
end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and
Chief Executive Officer, flush right, next to second
paragraph.
By John Snyder and Jere Estes, Co-Portfolio Managers
John Hancock
Disciplined Growth Fund
Market's "flight to quality" drives performance;
outlook remains promising for high-quality growth stocks
"The stock
market had
trouble making
up its mind
this year."
The stock market had trouble making up its mind this year. Sentiment
swung sharply as investors tried to figure out where the economy was
headed next. The result was a volatile stock market that has been held
victim to the latest economic news. Throughout the year, stock prices
dropped as weaker economic reports sparked fears of a slowing economy--
and then rallied back as stronger-than-expected news reassured investors
that the economy was still on track. In addition, we have also seen
strong and rapid sector rotation between cyclical and defensive stocks,
as investors have tried to capture the latest hot stock group.
More recently, the market volatility has subsided somewhat as we've
shifted toward what we call the "Goldilocks" economy. That is, an
economy that is not too hot and not too cold, but just right. The
Federal Reserve -- the supreme arbiter of economic growth -- has stuck
by its neutral interest-rate policy, indicating that it believes the
economy is moving along at just the right pace. Despite the turmoil, the
broader market, as measured by the Standard & Poor's 500-Stock Index,
gained a healthy (and atypical) 24.10% for the 12 months ended October
31, 1996.
A 2 1/2" x 3 1/2" photo of Disciplined Growth Fund
management team at bottom right. Caption reads: "Disciplined
Growth Fund management team members: (l-r) Jere Estes, Anne
McDermott, John Snyder".
In search of quality
John Hancock Disciplined Growth Fund also produced strong returns. For
the year ended October 31, 1996, the Fund's Class A and Class B shares
had total returns of 22.78% and 21.89%, respectively, at net asset
value. Those outpaced the average growth fund's return of 18.47% for the
same period, according to Lipper Analytical Services.1 Please see pages
six and seven for longer-term performance information.
Chart with heading "Top Five Common Stock Holdings" at top of
left hand column. The chart lists five holdings: 1) Kimberly
Clark 2.7% 2) Procter & Gamble 2.5% 3) Home Depot 2.3%
4)Century Telephone Enterprises 2.0% 5) Aflac Corp. 2.0%. A
footnote below reads "As a percentage of net assets on
October 31, 1996."
"We have
added more
technology
holdings
to the
portfolio..."
What has driven the Fund's performance is the market's "flight to
quality." Enormous productivity gains and strong economic growth have
resulted in four years of above-average earnings growth in corporate
America. With much of the productivity gains behind us and the economy
slowing, however, the outlook for corporate earnings has become much
less certain. And that uncertainty, which has sent the stock market on
its rollercoaster ride this year, caused investors to flock to large,
high-quality stocks with reliable earnings -- the type of stocks in
which John Hancock Disciplined Growth Fund invests. General Electric is
a perfect example. Investors have been attracted to the company's
consistently improving revenues and profits. Since the start of the
year, the stock is up 36%. Pep Boys was another winner. This auto
repair/service company is rapidly gaining market share through joint
ventures with CarMax, a national used-car chain and Enterprise, a car
leasing company.
Table entitled "Scorecard" at bottom of left hand column. The
header for the left column is "Investments"; the header for
the right column is "Recent performance ... and what's behind
the numbers. The first listing is Pep Boys followed by an up
arrow and the phrase "New ventures build market share." The
second listing is General Electric followed by an up arrow
and the phrase "Consistently growing revenues and earnings."
The third listing is Pepsi followed by a down arrow and the
phrase "Weakness in restaurant and international soft
drinks." Footnote below reads: "See Schedule of
Investments. Investment holdings are subject to change."
Of course, along with the good news, there is usually some bad news.
Electronic Data Systems, for example, has been a disappointment. A
slowing of orders has put a damper on earnings. However, we believe it's
only temporary, so we're holding the stock. PepsiCo has also experienced
some short-term problems, particularly with its restaurant and
international soft drink businesses. We're confident, however, that new
management will turn the situation around.
Investment focus
As we discussed in the semi-annual report six months ago, we have
broadened the Fund's investment strategy. Previously, our focus was on
companies that had increased their dividends consistently for at least
the past five years. Our new strategy, while not a major shift, puts
more emphasis on the predictability of earnings rather than dividends.
We're targeting companies that have achieved predictable earnings, but
not necessarily passed those earnings along to stockholders in the form
of dividends. With a broader universe, we've added more technology
holdings to the portfolio, including Microsoft and Computer Associates.
We've also beefed up our oil and gas stocks such as Mobil, Chevron and
Amoco. Even as we broaden our universe, one thing remains the same and
that's our focus on quality and stability. We believe these new
additions all fit that bill.
Another area where we have found value is the mid-cap sector of the
market. Large-cap stocks have run up nicely in the last several months,
but many mid-cap stocks have been lackluster, despite strong earnings.
We've used this as an opportunity to add to existing positions or pick
up new holdings for the portfolio. Below are two examples.
Bar chart with heading "Fund Performance" at top of left hand
column. Under the heading is the footnote: "For the year
ended October 31, 1996." The chart is scaled in increments of
5% from bottom to top, with 25% at the top and 0% at the
bottom. Within the chart there are three solid bars. The
first represents the 22.78% total return for the John Hancock
Disciplined Growth Fund: Class A. The second represents the
21.89% total return for the John Hancock Disciplined Growth
Fund: Class B. The third represents the 18.47% total return
for the average growth fund. A footnote below reads: "The
total returns for John Hancock Disciplined Growth Fund are at
net asset value with all distributions reinvested. The
average growth fund is tracked by Lipper Analytical Services.
(1) See following two pages for historical performance
information."
PALL. This company manufactures filters and equipment used in fluid
processing, aerospace and medical applications. One of the most exciting
opportunities for Pall is blood filtering. Pall filters greatly reduce
the spread of infection. With all the publicity surrounding blood-borne
infections, it seems likely that filtering will become a standard
procedure. After growing earnings consistently at 12% over the last ten
years, it's entirely possible that this rate could increase to 15%.
PENTAIR. This conglomerate operates three major lines of business:
electrical accessories, portable power tools and water pumps. After a
major restructuring in the early '80s, the company has been able to grow
earnings at a consistent rate of 15% over the past 10 years. We don't
see any reason why Pentair won't be able to keep up that growth rate for
the next several years.
Outlook
Despite the market's most recent calm, we do not believe that the
volatility is over, since there's still some uncertainty currently about
the overall direction of the economy. In addition, worries about
overvalued stock prices could keep investors on edge. It's true that
stock valuations are above their historical norms. Of course, some
stocks, particularly initial public offerings, have reached excessive
levels. But given the low inflation and interest rates, we still believe
that the market is reasonably priced.
"...we still
believe that
the market is
reasonably
priced."
Having said that, we do not expect stocks to match their spectacular
returns of the last few years and investors would be wise to temper
their expectations. Next year, we believe the economy is likely to grow
in the 2.5% to 3% range, and corporate profits are likely to drop back
to more normal levels of 8% to 10% from their unusually high level of
20% in 1995.
We also believe that next year's slower-growth economy will cause
problems for companies who are not leaders of their respective
industries. In fact, we are likely to see the emergence of the New Nifty
Fifty. This term refers to the two-tiered market that developed in the
early '70s. At that time, there were the 50 "great" companies, those
with high earnings reliability, and then there was everybody else. We
are more convinced than ever that this tiering is re-occurring in the
market now. What's more, we are not anywhere near the point where
consistent growth companies are overvalued. This bodes well for the
high-quality growth stocks favored by John Hancock Disciplined Growth
Fund.
- -----------------------------------------------------------------------
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.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Disciplined Growth
Fund. Total return is a performance measure that equals the sum of all
income and capital gain distributions, assuming reinvestment of these
distributions and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 5%
for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six
years) is included in Class B performance. Prior to August 1992,
different sales charges were in effect for Class A shares which are not
reflected in the performance data. Remember that all figures represent
past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of
the Fund's investments will fluctuate. As a result, your Fund's shares
may be worth more or less than their original cost, depending on when
you sell them.
CUMULATIVE TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
----- ------ -------
John Hancock
Disciplined Growth
Fund: Class A(1) 12.19% N/A 47.83%
John Hancock
Disciplined Growth
Fund: Class B(2) 12.30% 70.03% 117.86%
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
----- ------ -------
John Hancock
Disciplined Growth
Fund: Class A(1) 12.19% N/A 8.59%
John Hancock
Disciplined Growth
Fund: Class B(2) 12.30% 11.20% 8.60%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
(2) Class B shares commenced on April 22, 1987.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Disciplined Growth Fund would be worth on October 31, 1996,
assuming you had invested on the day each class of shares started and
reinvested all distributions. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Stock Index -- an
unmanaged index that includes 500 widely traded common stocks and is a
commonly used measure of stock market performance.
Disciplined Growth Fund
Class A shares
Line chart with the heading Disciplined Growth Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock
Index, and is equal to $19,245 as of October 31, 1996. The second line
represents the value of the hypothetical $10,000 investment made in
the Disciplined Growth Fund on January 3, 1992, before sales charge, and
is equal to $15,800 as of October 31, 1996. The third line represents
the Disciplined Growth Fund, after sales charge, and is equal
to $15,015 as of October 31, 1996.
Disciplined Growth Fund
Class B shares
Line chart with the heading Disciplined Growth Fund: Class B*,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock
Index, and is equal to $32,358 as of October 31, 1996. The second line
represents the value of the hypothetical $10,000 investment made in
the Disciplined Growth Fund on April 22, 1987, after sales charge, and
is equal to $22,117 as of October 31, 1996.
* No contingent deferred sales charge applicable.
<TABLE>
<CAPTION>
John Hancock Funds - Disciplined Growth Fund
The Statement of Assets and Liabilities is the Fund's balance sheet
and shows the value of what the Fund owns, is due and owes on October 31, 1996.
You'll also find the net asset value and the maximum offering price per share
as of that date.
Statement of Assets and Liabilities
October 31, 1996
- ----------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Common stocks (cost - $92,263,970) $113,764,313
Joint repurchase agreement (cost - $7,463,000) 7,463,000
Corporate savings account 597
------------
121,227,910
Receivable for investments sold 971,305
Receivable for shares sold 51,294
Dividends receivable 100,250
Interest receivable 1,270
Other assets 4,885
------------
Total Assets 122,356,914
- ----------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 750,594
Payable for shares repurchased 109,450
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 123,470
Accounts payable and accrued expenses 58,425
------------
Total Liabilities 1,041,939
- ----------------------------------------------------------------------------
Net Assets:
Capital paid-in $86,486,024
Accumulated net realized gain on investments 13,328,280
Net unrealized appreciation of investments 21,500,671
------------
Net Assets $121,314,975
============================================================================
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 - $28,759,636/1,848,755 $15.56
============================================================================
Class B - $92,555,339/6,029,029 $15.35
============================================================================
Maximum Offering Price *
Class - A ($15.56 x 105.26%) $16.38
============================================================================
* On a single retail sale of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</TABLE>
<TABLE>
<CAPTION>
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 October 31, 1996
- ----------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $1,274) $1,949,414
Interest 352,852
-----------
2,302,266
-----------
Expenses:
Distribution/service fee - Note B
Class A 86,047
Class B 907,545
Investment management fee - Note B 895,776
Transfer agent fee - Note B 316,323
Printing 43,183
Custodian fee 43,239
Registration and filing fees 32,053
Auditing fee 27,073
Trustees' fees 16,810
Financial services fee - Note B 7,474
Miscellaneous 5,873
Legal 4,865
-----------
Total Expenses 2,386,261
-----------
Net Investment Loss (83,995)
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold 13,412,288
Change in net unrealized appreciation/depreciation
of investments 10,413,875
-----------
Net Realized and Unrealized Gain
on Investments 23,826,163
- ----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $23,742,168
============================================================================
See notes to financial statments
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) $230,696 ($83,995)
Net realized gain on investments sold 890,733 13,412,288
Change in net unrealized appreciation/
depreciation of investments 11,617,034 10,413,875
------------- -------------
Net Increase in Net Assets Resulting
from Operations 12,738,463 23,742,168
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.1015 and none per
share, respectively) (213,064) --
Class B - ($0.0287 and none
per share, respectively) (216,094) --
Distributions from net realized gain
on investments sold
Class A - ($0.5222 and $0.1030
per share, respectively) (999,954) (218,913)
Class B - ($0.5222 and $0.1030
per share, respectively) (4,061,492) (691,213)
------------- -------------
Total Distributions to Shareholders (5,490,604) (910,126)
------------- -------------
From Fund Share Transactions - Net*: (11,101,562) (15,386,732)
------------- -------------
Net Assets:
Beginning of period 117,723,368 113,869,665
------------- -------------
End of period $113,869,665 $121,314,975
============= =============
* Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1995 1996
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
Shares sold 665,977 $8,286,634 1,009,864 $14,846,003
Shares issued to shareholders in
reinvestment of distributions 106,291 1,186,137 15,749 211,679
------------- ------------- ------------- -------------
772,268 9,472,771 1,025,613 15,057,682
Less shares repurchased (542,110) (6,600,356) (1,345,465) (19,632,832)
------------- ------------- ------------- -------------
Net increase (decrease) 230,158 $2,872,415 (319,852) ($4,575,150)
============= ============= ============= =============
CLASS B
Shares sold 531,328 $6,390,883 687,430 $9,579,944
Shares issued to shareholders in
reinvestment of distributions 360,515 3,973,464 48,668 649,722
------------- ------------- ------------- -------------
891,843 10,364,347 736,098 10,229,666
Less shares repurchased (2,003,631) (24,338,324) (1,497,331) (21,041,248)
------------- ------------- ------------- -------------
Net decrease (1,111,788) ($13,973,977) (761,233) ($10,811,582)
============= ============= ============= =============
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since
the end of the previous period. The difference reflects earnings less expenses, any investment and
foreign currency gains and losses if any, 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.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
the period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $12.81 $10.99 $12.39 $12.02 $12.77
-------- -------- -------- -------- --------
Net Investment Income 0.06(2) 0.08(2) 0.10 0.08(2) 0.07(2)
Net Realized and Unrealized Gain (Loss)
on Investments (0.06) 1.34 0.07 1.29 2.82
-------- -------- -------- -------- --------
Total from Investment Operations 0.00 1.42 0.17 1.37 2.89
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.07) (0.02) (0.10) (0.10) --
Distributions in Net Realized Gain
on Investments Sold (1.74) -- (0.44) (0.52) (0.10)
Distributions from Capital Paid-In (0.01) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (1.82) (0.02) (0.54) (0.62) (0.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $10.99 $12.39 $12.02 $12.77 $15.56
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value(3) 0.19%(4) 12.97% 1.35% 12.21% 22.78%
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $1,771 $23,372 $23,292 $27,692 $28,760
Ratio of Expenses to Average Net
Assets 1.73%(5) 1.60% 1.53% 1.46% 1.47%
Ratio of Net Investment Income to
Average Net Assets 0.62%(5) 0.64% 0.83% 0.69% 0.46%
Portfolio Turnover Rate 246% 71% 60% 65% 78%
Average Broker Commission Rate(6) N/A N/A N/A N/A $0.07
The Financial Highlights summarizes the impact of the following factors
on a single share for each period indicated: net investment income, gains
(losses), dividends and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed since the end of the
previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $11.71 $10.97 $12.31 $11.95 $12.69
-------- -------- -------- -------- --------
Net Investment Income (Loss) 0.01(2) 0.02(2) 0.03 0.01(2) (0.03)(2)
Net Realized and Unrealized Gain
on Investments 1.05 1.33 0.07 1.28 2.79
-------- -------- -------- -------- --------
Total from Investment Operations 1.06 1.35 0.10 1.29 2.76
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.03) (0.01) (0.02) (0.03) --
Distributions from Net Realized
Gain on Investments Sold (1.76) -- (0.44) (0.52) (0.10)
Distributions from Capital Paid-In (0.01) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (1.80) (0.01) (0.46) (0.55) (0.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $10.97 $12.31 $11.95 $12.69 $15.35
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value(3) 7.22% 12.34% 0.78% 11.51% 21.89%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $23,525 $93,853 $94,431 $86,178 $92,555
Ratio of Expenses to Average
Net Assets 2.27% 2.09% 2.10% 2.11% 2.17%
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.10% 0.17% 0.25% 0.06% (0.24%)
Portfolio Turnover Rate 246% 71% 60% 65% 78%
Average Broker Commission Rate(6) N/A N/A N/A N/A $0.07
(1) Class A shares commenced operations on January 3, 1992.
(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) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Schedule of Investments is a complete list of all securities owned by
the Disciplined Growth Fund on October 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------------------------- ----------------- -----------
<S> <C> <C>
COMMON STOCKS
Advertising (1.60%)
Interpublic Group of Cos., Inc. (The) 40,000 $1,940,000
------------
Aerospace (0.91%)
Rockwell International Corp. 20,000 1,100,000
------------
Banks - United States (4.17%)
BankAmerica Corp. 25,000 2,287,500
First Tennessee National Corp. 40,000 1,455,000
Norwest Corp. 30,000 1,316,250
------------
5,058,750
------------
Beverages (1.47%)
PepsiCo, Inc. 60,000 1,777,500
------------
Building (1.94%)
Ecolab Inc . 30,000 1,095,000
Masco Corp. 40,000 1,255,000
------------
2,350,000
------------
Chemicals (1.69%)
Sigma-Aldrich Corp. 35,000 2,056,250
------------
Computers (10.68%)
3Com Corp.* 30,000 2,028,750
Automatic Data Processing, Inc. 30,000 1,248,750
Cisco Systems, Inc.* 22,000 1,361,250
Computer Associates International, Inc.* 20,000 1,182,500
Electronic Data Systems Corp. 40,000 1,800,000
Fiserv Inc.* 30,000 1,151,250
Hewlett-Packard Co. 30,000 1,323,750
Microsoft Corp.* 12,000 1,647,000
Sun Microsystems, Inc.* 20,000 1,220,000
------------
12,963,250
------------
Containers (2.05%)
Bemis Co . 30,000 1,050,000
Crown Cork & Seal Co., Inc. 30,000 1,440,000
------------
2,490,000
------------
Diversified Operations (3.53%)
Alco Standard Corp. 30,000 1,391,250
Corning, Inc. 40,000 1,550,000
Lockheed Martin Corp. 15,000 1,344,375
------------
4,285,625
------------
Electronics (3.61%)
Emerson Electric Co. 15,000 1,335,000
General Electric Co. 20,000 1,935,000
W.W. Grainger, Inc. 15,000 1,111,875
------------
4,381,875
------------
Finance (2.45%)
Advanta Corp. (Class A) 25,000 1,207,813
Franklin Resources, Inc. 25,000 1,762,500
------------
2,970,313
------------
Food (3.85%)
ConAgra, Inc. 30,000 1,496,250
CPC International, Inc. 20,000 1,577,500
Sara Lee Corp. 45,000 1,597,500
------------
4,671,250
------------
Furniture (1.23%)
Leggett & Platt, Inc. 50,000 1,493,750
------------
Household (1.17%)
Newell Co. 50,000 1,418,750
------------
Insurance (5.12%)
Aflac Corp 60,000 2,407,500
American International Group, Inc. 20,000 2,172,500
Travelers Group, Inc. 30,000 1,627,500
------------
6,207,500
------------
Linen Supply & Related (0.84%)
G AND K Services Inc. (Class A) 35,000 1,015,000
------------
Machinery (1.89%)
Dover Corp. 20,000 1,027,500
Pentair, Inc. 50,000 1,262,500
------------
2,290,000
------------
Media (0.94%)
Gannett Co., Inc. 15,000 1,138,125
------------
Medical (11.19%)
Abbott Laboratories 40,000 2,025,000
American Home Products Corp. 25,000 1,531,250
Amgen, Inc.* 20,000 1,226,250
Eli Lilly & Co. 15,000 1,057,500
Johnson & Johnson 25,000 1,231,250
Medtronic, Inc. 20,000 1,287,500
Pall Corp. 50,000 1,281,250
Pfizer, Inc. 25,000 2,068,750
Smithkline Beecham PLC,
American Depositary Receipts 30,000 1,878,750
------------
13,587,500
------------
Metal (2.36%)
Illinois Tool Works, Inc. 20,000 1,405,000
Worthington Industries, Inc. 70,000 1,452,500
------------
2,857,500
------------
Mortgage Banking (1.29%)
Federal National Mortgage Association 40,000 1,565,000
------------
Oil & Gas (8.36%)
Amoco Corp. 17,000 1,287,750
Chevron Corp. 18,000 1,183,500
Enron Corp. 35,000 1,627,500
Enron Oil & Gas Co. 50,000 1,287,500
Mobil Corp. 10,000 1,167,500
Sonat, Inc. 30,000 1,477,500
Sonoco Products Co, 30,000 798,750
Williams Companies, Inc. 25,000 1,306,250
------------
10,136,250
------------
Paper & Paper Products (2.69%)
Kimberly-Clark Corp. 35,000 3,263,750
------------
Retail (7.05%)
Arbor Drugs, Inc. 35,000 791,875
Dollar General Corp. 50,000 1,387,500
Home Depot, Inc. 50,000 2,737,500
Pep Boys - Manny, Moe & Jack 65,000 2,275,000
Sysco Corp. 40,000 1,360,000
------------
8,551,875
------------
Soap & Cleaning Preparations (2.45%)
Proctor & Gamble Co. (The) 30,000 2,970,000
------------
Telecommunications (1.49%)
Federal Signal Corp. 70,000 1,802,500
------------
Transport (0.88%)
CSX Corp. 25,000 1,078,125
------------
Utilities (6.88%)
Century Telephone Enterprises, Inc. 75,000 2,409,376
Frontier Corp. 70,000 2,030,000
National Fuel Gas Co. 27,000 1,005,750
Questar Corp 40,000 1,440,000
SBC Communications, Inc. 30,000 1,458,750
------------
8,343,876
------------
TOTAL COMMON STOCKS
(Cost $92,263,970) (93.78%) 113,764,313
--------- ------------
<CAPTION>
INTEREST PAR VALUE MARKET
RATE (000'S OMITTED) VALUE
------------ --------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.15%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 10-31-96, Due 11-01-96
(Secured by U.S. Treasury Bonds,
6.25% thru 12.00% due
11-15-12 thru 8-15-23)
Note A 5.54% $7,463 7,463,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 597
------------
TOTAL SHORT-TERM INVESTMENTS (6.15%) 7,463,597
--------- ------------
TOTAL INVESTMENTS (99.93%) $121,227,910
--------- ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that category as a
percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust (the "Trust") is a diversified open-end
management investment company, registered under the Investment Company
Act of 1940. The Trust consists of four series: John Hancock Disciplined
Growth Fund (the "Fund"), John Hancock Regional Bank Fund, John Hancock
Managed Tax-Exempt Fund, and John Hancock Financial Industries Fund
(which commenced operations on March 14, 1996). Prior to April 1, 1996,
the Fund was known as the John Hancock Sovereign Achievers Fund. The
other three series of the Trust are reported in separate financial
statements. The investment objective of the Fund is to achieve long-term
growth of capital by investing only in established companies that have
demonstrated both earnings growth and stability.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
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. 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 and to distribute all of its taxable
income, including any net realized gain on investments, to its
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Fund is made aware
of the dividend. Interest income on investment securities is recorded on
the accrual basis. Foreign income may be subject to foreign withholding
taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be 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.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
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 amount of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.75% of the
first $500,000,000 of the Fund's average daily net asset value and
(b) 0.65% of the Fund's average daily net asset value in excess of
$500,000,000.
The Adviser had entered into a service agreement with Sovereign Asset
Management Corporation ("SAMCORP") an affiliate of the Adviser, to
provide certain investment research and portfolio management services to
the Fund, for which the Adviser paid SAMCORP 40% of its management fee.
This service agreement was terminated effective April 1, 1996.
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.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-
Distributors for shares of the Fund. For the period ended October 31,
1996, net sales charges received with regard to sales of Class A shares
amounted to $71,634. Of this amount, $10,579 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$28,592 was paid as sales commissions to unrelated broker-dealers and
$32,463 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 FDC, Tucker Anthony and Sutro.
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 5.0% 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 for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended October 31, 1996, the contingent deferred
sales charges paid to JH Funds amounted to $195,017.
In addition, to reimburse the Co-Distributors for the services they
provide as distributors 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 the Co-Distributors 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
the Co-Distributors for their 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.
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 Investor Services a fee
based on the number of shareholder accounts and certain out-of-pocket
expenses.
On August 27, 1996, the Board of Trustees approved retroactively to July
1, 1996, an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996 is
estimated to be at an annual rate of 0.01875% of the average net assets
of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as a Trustees of the Fund. The compensation of
unaffiliated Trustees 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 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. At
October 31, 1996, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $328.
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 October 31, 1996, aggregated $87,724,863 and
$109,699,385, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended October 31, 1996.
The cost of investments owned at October 31, 1996 (excluding the
corporate savings account) for federal income tax purposes was
$99,726,970. Gross unrealized appreciation and depreciation of
investments aggregated $22,146,483 and $646,140, respectively, resulting
in net unrealized appreciation of $21,500,343.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1996, the Fund has reclassified
$83,995 from accumulated net investment loss on investments to
accumulated net realized gain. This represents the amount necessary to
report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1996. 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 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
in the financial highlights excludes these adjustments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Disciplined Growth Fund
(formerly John Hancock Sovereign Achievers Fund)
and the Trustees of Freedom Investment Trust
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of John
Hancock Disciplined Growth Fund (the "Fund") (formerly John Hancock
Sovereign Achievers Fund) (a series of Freedom Investment Trust) at
October 31, 1996, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1996 by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 12, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund during the fiscal year
ended October 31, 1996.
All dividends paid during the fiscal year ended October 31, 1996 are
taxable as ordinary income. These amounts were reported to shareholders
on 1995 U.S. Treasury Department Form 1099-DIV in January 1996. It is
anticipated that there will be a distribution from sales of securities
to shareholders of record on December 23, 1996 and payable December 30,
1996. Shareholders will receive a 1996 U.S. Treasury Department Form
1099-DIV in January 1997 representing their proportionate share. The
fund did not designate a long-term capital gain dividend during the
fiscal year ended October 31, 1996.
None of the distributions qualify for the dividends received deduction
available to corporate shareholders.
SHAREHOLDER MEETING (UNAUDITED)
On July 23, 1996, a special meeting of John Hancock Disciplined Growth
Fund was held.
The Shareholders approved a new investment management contract between
John Hancock Advisers, Inc. and the Fund. The shareholder votes were
3,860,419 FOR, 156,651 AGAINST and 322,327 ABSTAINING.
The Shareholders approved an Amended and Restated Declaration of Trust.
The shareholder votes were 3,844,565 FOR, 160,719 AGAINST and 334,113
ABSTAINING.
The Shareholders eliminated the Fund's fundamental investment
restriction on investing in a single class of securities of an issuer.
The shareholder vote were 3,774,288 FOR, 211,998 AGAINST and 353,111
ABSTAINING.
The Shareholders redesignated as nonfundamental the Fund's fundamental
investment restriction on investment in other investment companies. The
shareholder votes were 3,740,575 FOR, 237,229 AGAINST and 360,892
ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------------- ---------- -------
Dennis S. Aronowitz 5,295,410 184,520
Edward J. Boudreau, Jr. 5,295,975 183,955
Richard P. Chapman, Jr. 5,296,681 183,249
William J. Cosgrove 5,296,743 183,187
Douglas M. Costle 5,296,743 183,187
Leland O. Erdahl 5,296,743 183,187
Richard A. Farrell 5,296,155 183,775
Gail D. Fosler 5,296,743 183,187
William F. Glavin 5,296,681 183,249
Anne C. Hodsdon 5,295,904 184,026
Dr. John A. Moore 5,296,049 183,881
Patti McGill Peterson 5,295,512 184,418
John W. Pratt 5,296,413 183,517
Richard S. Scipione 5,295,803 184,127
Edward J. Spellman 5,296,441 183,489
NOTES
John Hancock Funds - Disciplined Growth Fund
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