John Hancock Funds
John Hancock
Gold & Government
Fund
FINAL REPORT
September 6, 1996
<PAGE>
John Hancock Funds - Gold & Government Fund
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
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
<PAGE>
John Hancock Funds - Gold & Government Fund
Statement of Assets and Liabilities
Final Report September 6, 1996* (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
United States government and agencies obligations
(cost - $999,844) $ 999,840
Common stocks (cost - $5,597,115) 7,141,490
Preferred stock (cost - $524,248) 465,750
Short-term notes (cost - $13,974,827) 13,974,827
Joint repurchase agreement (cost - $2,186,000) 2,186,000
Corporate savings account 317
------------
24,768,224
Interest receivable 29,192
Other assets 1,274
------------
Total Assets 24,798,690
----------------------------------------------
Liabilities:
Payable to John Hancock Advisers, Inc. and
and affiliates - Note B 14,243
Accounts payable and accrued expenses 11,033
------------
Total Liabilities 25,276
----------------------------------------------
Net Assets:
Capital paid-in 33,123,061
Accumulated net realized loss on investments
and foreign currency transactions (9,835,665)
Net unrealized appreciation of investments
and foreign currency transactions 1,486,018
============
Net Assets $ 24,773,414
==============================================
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 - $14,013,177 / 991,293 $ 14.14
================================================================================
Class B - $10,760,237 / 762,359 $ 14.11
================================================================================
Maximum Offering Price Per Share**
Class A - ($14.14 x 105.26%) $ 14.88
================================================================================
* The net assets of the John Hancock Gold & Government Fund ("the Fund") were
merged into the John Hancock Special Opportunities Fund as of the close of
business on September 6, 1996 and the Fund was subsequently terminated. The
Statement of Assets and Liabilities reflects the Fund's position prior to the
transfer of net assets and the termination of the Fund. (See Note A to the
Notes to Financial Statements).
** On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
See notes to financial statements.
<PAGE>
John Hancock Funds - Gold & Government Fund
Statement of Operations
For the period November 1, 1995 to
September 6, 1996* (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest $ 942,184
Dividends (net of foreign withholding taxes of $2,025) 63,292
-----------
1,005,476
-----------
Expenses:
Investment management fee - Note B 223,001
Distribution/service fee - Note B
Class A 44,851
Class B 48,616
Transfer agent fee - Note B 76,968
Custodian fee 41,423
Registration and filing fees 22,393
Printing 20,712
Trustees' fees 5,252
Miscellaneous 2,058
Auditing fee 2,030
Legal fees 1,172
-----------
Total Expenses 488,476
-----------
Net Investment Income 517,000
-----------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 2,431,506
Net realized loss on foreign currency transactions (40,827)
Change in net unrealized appreciation/depreciation
of investments 455,228
-----------
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 2,845,907
---------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 3,362,907
=========================================================
* The net assets of the John Hancock Gold & Government Fund ("the Fund") were
merged into the John Hancock Special Opportunities Fund as of the close of
business on September 6, 1996 and the Fund was subsequently terminated. The
Statement of Operations reflects the Fund's position prior to the transfer of
net assets and the termination of the Fund. (See Note A to the Notes to
Financial Statements).
See notes to financial statements.
<PAGE>
John Hancock Funds - Gold & Government Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED NOVEMBER 1, 1995 TO
OCTOBER 31, SEPTEMBER 6, 1996
1995 (UNAUDITED)**
-----------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $961,467 $517,000
Net realized gain (loss) on investments sold and foreign currency transactions (3,740,401) 2,390,679
Change in net unrealized appreciation/depreciation of investments (277,671) 455,228
-----------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (3,056,605) 3,362,907
-----------------------------------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.3546 and $0.2610 per share, respectively) (461,398) (315,786)
Class B - ($0.2571 and $0.2537 per share, respectively) (471,583) (260,401)
-----------------------------------------
Total Distributions to Shareholders (932,981) (576,187)
-----------------------------------------
From Fund Share Transactions - Net* (16,252,479) (13,231,905)
-----------------------------------------
Net Assets:
Beginning of period 55,460,664 35,218,599
End of period (including undistributed net investment income of
$100,015 and none, respectively) =========================================
$35,218,599 $24,773,414
=========================================
* Analysis of Fund Share Transactions:
<CAPTION>
FOR THE PERIOD
YEAR ENDED NOVEMBER 1, 1995 TO
OCTOBER 31, SEPTEMBER 6, 1996
1995 (UNAUDITED)**
------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 910,305 $12,990,091 807,558 $11,652,628
Shares issued to shareholders in reinvestment of
distributions 26,761 375,618 18,300 256,263
------------------------------------------------------------------------
937,066 13,365,709 825,858 11,908,891
Less shares repurchased (698,341) (9,602,941) (1,220,856) (17,566,016)
------------------------------------------------------------------------
Net increase (decrease) 238,725 $3,762,768 (394,998) ($5,657,125)
========================================================================
CLASS B
Shares sold 985,367 $13,372,127 734,719 $10,500,241
Shares issued to shareholders in reinvestment of
distributions 24,145 334,553 12,874 180,237
------------------------------------------------------------------------
1,009,512 13,706,680 747,593 10,680,478
Less shares repurchased (2,446,361) (33,721,927) (1,269,327) (18,255,258)
------------------------------------------------------------------------
Net decrease (1,436,849) ($20,015,247) (521,734) ($7,574,780)
========================================================================
</TABLE>
** The net assets of the John Hancock Gold & Government Fund ("the Fund") were
merged into the John Hancock Special Opportunities Fund as of the close of
business on September 6, 1996 and the Fund was subsequently terminated. The
Statement of Changes in Net Assets reflects the Fund's position prior to the
transfer of net assets and the termination of the Fund. (See Note A to the
Notes to Financial Statements).
See notes to financial statements.
<PAGE>
John Hancock Funds - Gold & Government Fund
Financial Highlights
Selected data for each share of beneficial interest outstanding throughout the
periods indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1995 TO YEAR ENDED OCTOBER 31,
SEPTEMBER 6, 1996 -------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992(a)
----------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 13.20 $ 14.35 $ 16.91 $ 15.19 $ 15.31
--------- --------- --------- --------- ---------
Net Investment Income 0.23** 0.37 0.63 0.76** 0.72
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts,
Foreign Currency Transactions and Written Options 0.97 (1.17) (2.28) 1.76 (0.21)
--------- --------- --------- --------- ---------
Total from Investment Operations 1.20 (0.80) (1.65) 2.52 0.51
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income (0.26) (0.35) (0.67) (0.80) (0.63)
Distributions in excess of Net Realized Gains
on Investments Sold, Written Options and
Financial Futures Contracts -- -- (0.24) -- --
--------- --------- --------- --------- ---------
Total Distributions (0.26) (0.35) (0.91) (0.80) (0.63)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 14.14(e) $ 13.20 $ 14.35 $ 16.91 $ 15.19
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value (c) 9.13%(b) (5.66%) (10.10%) 17.10% 3.44%(b)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 14,013 $ 18,300 $ 16,469 $ 20,385 $ 17,593
Ratio of Expenses to Average Net Assets 1.72%* 1.60% 1.53% 1.59% 1.68%*
Ratio of Net Investment Income to Average Net Assets 1.88%* 2.72% 4.02% 4.84% 5.49%*
Portfolio Turnover Rate 90% 55% 147% 118% 209%
Average Broker Commission Rate (per share of security) (d) $ 0.0396 N/A N/A N/A N/A
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1995 TO YEAR ENDED OCTOBER 31,
SEPTEMBER 6, 1996 -------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 13.18 $ 14.33 $ 16.89 $ 15.17 $ 15.13 $ 14.51
--------- --------- --------- --------- --------- ---------
Net Investment Income 0.23** 0.25 0.53 0.69** 0.83 0.87+
Net Realized and Unrealized Gain (Loss)
on Investments, Financial Futures
Contracts, Foreign Currency Transactions
and Written Options 0.95 (1.14) (2.28) 1.76 0.11 0.76
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 1.18 (0.89) (1.75) 2.45 0.94 1.63
--------- --------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income (0.25) (0.26) (0.57) (0.73) (0.90) (1.01)
Distributions in excess of Net Realized Gains
on Investments Sold, Written Options and
Financial Futures Contracts -- -- (0.24) -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions (0.25) (0.26) (0.81) (0.73) (0.90) (1.01)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 14.11(e) $ 13.18 $ 14.33 $ 16.89 $ 15.17 $ 15.13
========= ========= ========= ========= ========= =========
Total Investment Return at Net Asset Value (c) 9.01%(b) (6.32%) (10.70%) 16.56% 6.42% 11.78%+
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 10,760 $ 16,919 $ 38,992 $ 51,872 $ 36,103 $ 56,928
Ratio of Expenses to Average Net Assets 1.79%* 2.32% 2.18% 2.11% 1.63% 1.82%+
Ratio of Net Investment Income to Average
Net Assets 1.82%* 1.83% 3.41% 4.29% 5.56% 5.96%+
Portfolio Turnover Rate 90% 55% 147% 118% 209% 134%
Average Broker Commission Rate
(per share of security) (d) $ 0.0396 N/A N/A N/A N/A N/A
</TABLE>
* On an annualized basis.
** On average month end shares outstanding.
(a) Class A shares commenced operations on January 3, 1992.
(b) Not annualized.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
+ Reflects expense limitations in effect during the year indicated (see Note
B). As a result of such limitations, expenses of Class B shares for the year
ended, October 31, 1991 reflect reductions of $0.01 per share. Absent of
such reductions, for the year ended October 31, 1991, the ratio of expenses
to average net assets would have been 1.91% and the ratio of net investment
income to average net assets would have been 5.87%. Without the
reimbursement, total investment return would be lower.
(d) Average broker commission rate (per share of security) as required by
amended disclosure requirements effective September 1, 1995.
(e) Net asset value per share, before the merger of assets to the John Hancock
Special Opportunities Fund, and the termination of the Fund (See Note A to
the Notes to Financial Statements).
See notes to financial statements.
<PAGE>
John Hancock Funds - Gold & Government Fund
Schedule of Investments
September 6, 1996 (Unaudited)
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ----------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
US GOVERNMENT AND AGENCY OBLIGATIONS
Governmental - U.S. Agencies (4.04%)
FNMA Med Term Note 5.440% 11-21-96 $ 1,000 $ 999,840
TOTAL US GOVERNMENT
AND AGENCIES OBLIGATIONS
(COST $999,844) (4.04%) 999,840
---------- -----------
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C> <C>
COMMON STOCKS
Gold and Mining Products (28.83%)
Aurora Gold Ltd.(Australia)* 500,000 897,100
Bema Gold Corp.* 115,000 862,500
Compania de Minas Buenaventura S.A.,
American Depositary Receipts* 52,000 981,500
Euro-Nevada Mining Corp.(Canada) 45,000 1,117,890
Greenstone Resources Ltd.* 100,000 1,500,000
Newmont Gold Co. 20,000 1,085,000
Stillwater Mining Co.* 30,000 697,500
-----------
TOTAL COMMON STOCKS
(Cost $5,597,115) (28.83%) 7,141,490
---------- -----------
PREFERRED STOCK
Gold and Mining Products (1.88%)
Freeport-McMoRan Copper & Gold, Inc., Ser SILV 23,000 465,750
TOTAL PREFERRED STOCK
(Cost $524,248) (1.88%) 465,750
---------- -----------
</TABLE>
See notes to financial statements.
<PAGE>
John Hancock Funds - Gold & Government Fund
Schedule of Investments
September 6, 1996 (Unaudited)
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- ----------- --------- -------------- -------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
Short-term Notes (56.41%)
Federal Farm Credit Bank 5.240% 09-10-96 $ 6,000 $ 5,994,760
Federal Home Loan Bank 5.200 09-12-96 6,000 5,987,867
Federal Home Loan Bank 5.200 09-23-96 2,000 1,992,200
-------------
13,974,827
-------------
Joint Repurchase Agreement (8.82%)
Investment in a joint repurchase agreement
transaction with Swiss Bank Inc. -
Dated 09-06-96, Due 09-09-96
(secured by U.S. Treasury Notes, 6.25% - 7.125%
Due 09-30-99 Thru 08-31-00 and U.S. Treasury
Bonds, 7.250% Due 05-15-16 Thru 08-15-22) Note A 5.140 09-09-96 2,186 2,186,000
-------------
Corporate Savings Account ( 0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 317
-------------
TOTAL SHORT-TERM INVESTMENTS (65.23%) 16,161,144
--------- -------------
TOTAL INVESTMENTS (99.98%) $ 24,768,224
========= =============
</TABLE>
* 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.
<PAGE>
Notes to Financial Statements
John Hancock Funds - John Hancock Gold & Government Fund
(UNAUDITED)
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 Gold & Government Fund (the "Fund"),
John Hancock Regional Bank Fund, John Hancock Disciplined Growth Fund and John
Hancock Managed Tax-Exempt Fund. Prior to April 1, 1996, John Hancock
Disciplined Growth Fund was known as John Hancock Sovereign Achievers Fund. The
investment objective of the Fund is to achieve capital appreciation and
preservation of the purchasing power of your capital.
The Trustees authorized the issuance of multiple classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represented an interest in the same portfolio of investments of the Fund and had
equal rights to voting, redemptions, dividends, and liquidation, except that
certain expenses subject to the approval of the Trustees, may have been applied
differently to each class of shares in accordance with regulations of the
Securities and Exchange Commission. Shareholders of a class which bore
distribution and service expenses under terms of a distribution plan, had
exclusive voting rights regarding the distribution plan.
On August 14, 1996, shareholders of the Fund approved a plan of
reorganization between the Fund and John Hancock Special Opportunities Fund
("Special Opportunities Fund") providing for the transfer of substantially all
of the assets and liabilities of the Fund to Special Opportunities Fund in
exchange solely for shares of beneficial interest of Special Opportunities Fund.
After this transaction and as of the close of business on September 6, 1996, the
Fund was terminated. The financial statements presented herein reflect the
position of the Fund prior to the exchange of net assets and termination of the
Fund. Significant accounting policies of the Fund were as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio were 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
were valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies had been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
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 were
invested in one or more repurchase agreements, whose underlying securities were
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank received delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser was responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions were recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments were determined on the identified cost basis. Capital gains realized
on some foreign securities were subject to foreign taxes and were accrued, as
applicable.
<PAGE>
Notes to Financial Statements
John Hancock Funds - John Hancock Gold & Government Fund
FEDERAL INCOME TAXES The Fund's policy was 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
investment, to its shareholders. Therefore, no federal income tax provision is
required as of September 6, 1996, the Fund's final tax year end. For federal
income tax purposes, the Fund has $9,835,666 of capital loss carryforwards
available, to the extent provided by regulations, to offset future net realized
capital gains. If these carryforwards are used by the Fund, no capital gains
distributions will be made. The carryforwards expire as follows: October 31,
2002 --- $6,112,495 and October 31, 2003 --- $3,723,171. The capital loss
carryforwards unused as of September 6, 1996 were transferred to the Special
Opportunities Fund. These capital loss carryforwards will be available, to the
extent provided by regulations, to offset future net capital gains of the
Special Opportunities Fund. Expired capital loss carryforwards are reclassed to
capital paid-in, on the year of expiration.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
was recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund was made aware of the dividend. Interest
income on investment securities was recorded on the accrual basis. Foreign
income may have been subject to foreign withholding taxes which are accrued as
applicable.
The Fund recorded all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions were
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principals. Dividends paid by the Fund with
respect to each class of shares were calculated in the same manner, at the same
time and were in the same amount, except for the effect of expenses that may
have been applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust were directly identifiable to
an individual Fund. Expenses which were not readily identifiable to a specific
Fund were 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) were calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, were 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 accreted discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporated estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund. Actual results may differ from these estimates.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies were translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments
were translated at the rates prevailing at the dates of the transactions.
The Fund did not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations were included with the net realized and unrealized gain or loss
from investments.
<PAGE>
Notes to Financial Statements
John Hancock Funds - John Hancock Gold & Government Fund
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may have entered into
forward foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund recorded realized gains and losses at the time
the forward foreign currency contract was closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may have also purchased and sold forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under which
it intends to take delivery of the foreign currency. Such contracts normally
involve no market risk other than that offset by the currency amount of the
underlying transaction.
At September 6, 1996, there were no open forward foreign currency exchange
contracts.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund paid 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, (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, were in excess of the most restrictive state
limit where the Fund was registered to sell shares, the fee payable to the
Adviser was reduced to the extent of such excess, and the Adviser made
additional arrangements necessary to eliminate any remaining excess expenses.
The limits were 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.
<PAGE>
Notes to Financial Statements
John Hancock Funds - John Hancock Gold & Government Fund
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") acted as Co-Distributors
for shares of the Fund. For the period ended September 6, 1996, net sales
charges received with regard to sales of Class A shares amounted to $16,899. Out
of this amount, $2,228 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $5,342 was paid as sales
commissions to unrelated broker-dealers and $9,329 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 were redeemed within six years of purchase were
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 were paid to JH Funds and were used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended September 6,
1996, the contingent deferred sales charges paid to JH Funds amounted to
$81,585.
In addition, to reimburse the Co-Distibutors for the services they provided
as distributors of shares of the Fund, the Fund 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 made payments to the Co-Distributors,
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-Distibutors for
their distribution and service costs. Up to a maximum of 0.25% of such payments
may have been 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 have
occurred under certain circumstances.
The Fund had a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund paid Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
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 Trustees of the Fund. The compensation of unaffiliated Trustees was
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Trustees could elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund made 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 were recorded on the Fund's books as an other
asset. The deferred compensation liability and the related other asset were
always equal and were marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At September
6, 1996, the Fund's investments to cover the deferred compensation liability had
an unrealized appreciation of $145.
<PAGE>
Notes to Financial Statements
John Hancock Funds - John Hancock Gold & Government Fund
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 September 6, 1996, aggregated $15,829,757 and $26,474,103, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated none and $16,308,796, respectively, during the period ended
September 6, 1996.
The cost of investments owned at September 6, 1996 (excluding the corporate
savings account) for federal income tax purposes was $23,282,034. Gross
unrealized appreciation and depreciation of investments aggregated $1,544,374
and $58,501, respectively, resulting in net unrealized appreciation of
$1,485,873.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the period ended September 6, 1996, the Fund has reclassified $40,828
from accumulated net realized loss on investments sold to undistributed net
investment income. This represents the amount necessary to report these balances
on a tax basis, excluding certain temporary differences, as of September 6,
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.
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund during its fiscal year ended September
6, 1996.
Shareholders will receive a 1996 U.S. Treasury Department Form 1099-DIV in
January of 1997. This will reflect the total of all distributions which are
taxable for the calender year ended 1996.
For the period ending September 6, 1996, 15.76% of the ordinary income
distributions qualify for the dividends received deduction.
