ANNUAL REPORT
Regional
Bank Fund
October 31, 1997
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 J. 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
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market in 1997 has been anything but dull. Investors have
been treated to record-breaking performance by the Dow Jones
Industrial Average, but with record-breaking volatility. After two
years of strong advances amid relatively little volatility, the
market's recent sharp drops and enormous rebounds have caused a fair
share of investor concern.
The latest round came in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world
caught a cold. On October 27, the Dow experienced its largest one-day
point decline, dropping 554 points. In percentage terms, however, that
roughly 7% decline didn't even register on the list of 10 largest
drops. The next day, the market bounced right back, as the Dow had a
record one-day vault of 337 points. In short order, the U.S. market
had stabilized, yet many markets remained edgy as investors sorted out
the Asian turmoil and its implications on economic growth, interest
rates and corporate earnings.
In the face of such uncertainty, a trusted investment professional can
be your best ally. Now, more than ever, your investment professional
can help you take the emotion out of investment decisions. At a time
when your instincts might have you react to the heat of the market's
moment, your investment professional can serve as an objective voice
to put current events in a longer-term perspective. He or she can also
help you evaluate your investments in any market environment to ensure
that they fit your risk tolerance and time horizons. On an ongoing
basis, your investment professional is there for you to check out new
investment ideas or to get an informed opinion about current economic
and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your
financial destination regardless of the conditions along the way.
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 James K. Schmidt, CFA, Portfolio Manager
John Hancock
Regional Bank Fund
Stock market and bank stocks advance, despite nervous
environment; earnings fundamentals stay on track
The last 12 months were rewarding for stock investors, albeit
occasionally nerve-wracking. The markets brought their 1996 winning
streak into the beginning of 1997, but saw their progress slowed by
inflationary concerns and rising interest rates in March and April.
After a mild sell-off, stocks resumed their upward trajectories in the
spring and summer, as investors basked in the warm sunshine of a
benign economic expansion that drove corporate earnings higher and
eased inflationary concerns. This positive tack stayed its course
until very recently, when trepidations over the slowdown in Asia
spooked investors. Despite recent softness, the Standard & Poor's 500
Stock Index, a commonly used gauge for the broader stock market,
returned 32.10% for the last 12 months, including reinvested
dividends.
Over the same period, financial stocks outperformed the broader
market. After early lethargy caused by rising interest rates in the
spring, bank stocks then rose smartly due to record earnings and
merger activity. For the year ended October 31, 1997, John Hancock
Regional Bank Fund's Class A and Class B shares posted total returns
of 46.79% and 45.78%, respectively at net asset value. These results
surpassed the average financial services fund's average return of
41.27%, according to Lipper Analytical Services, Inc.1 Please see
pages seven and eight for longer-term performance information.
"...financial
stocks
outperformed
the broader
market."
A 2 1/4" x 3 1/2" photo of portfolio management team at
bottom right. Caption reads: "Jim Schmidt (standing) and Fund
management team members (l - r): Jay McKelvey, Tom Finucane
and Patricia Ouimet".
Chart with heading "Top Five Common Stock Holdings" at top of
left hand column. The chart lists five holdings: 1) Summit
Bancorp 2.8%; 2) U.S. Bancorp 2.3%; 3) Union Planters Corp.
1.9%; 4) Chase Manhattan Corp. 1.9%; 5) First American Corp.
1.8%. Footnote below states "As a percentage of total net
assets on October 31, 1997."
"...the
[earnings]
results have
been even
better than
anticipated."
Earnings trends positive again
We had expected strong earnings from the banking industry in 1997, and
the results have been even better than anticipated. The favorable
variance resulted from commercial loan growth that was a few
percentage points higher than we had forecast, coupled with very low
levels of problem loans. The economy has been ideal for running a bank
- -- moderate growth, quarter after quarter. Importantly, the strength
of the economy has reached all regions of the country and therefore
bank investors are not faced with credit "land mines" exploding due to
localized economic difficulties. This contrasts with the situation
during the last prolonged expansion when, in the midst of a generally
ebullient economy, regional recessions crept through the farm states,
the energy states, and the real estate boom states sequentially.
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 City National Corp. followed by an
up arrow and the phrase "Rebounding California economy helps
revenue and earnings grow." The second listing is RCSB Financial
followed by an up arrow and the phrase "Succesful merger with
charter one." The third listing is First Hawaiian, Inc. followed
by a horizontal arrow and the phrase "Sluggish island economy
produces disappointing results." Footnote below reads: "See
"Schedule of Investments." Investment holdings are subject to
change."
Improved efficiency ratios (non-interest expense divided by revenues)
have also contributed to earnings gains. The style in the industry has
become to use healthy profits to fund share buyback programs, rather
than adding additional overhead. We feel that stock repurchases are
excellent, shareholder-friendly uses of excess capital. On average we
think that the earnings per share of our companies will grow 12% in
1997 and 8% to 10% in 1998.
The consolidation beat goes on
In the first 10 months of 1997, a record 32 of the Fund's holdings
were taken over, topping the record 30 mergers that occurred in the
portfolio during 1996. The recent rash of merger activity got going at
the end of August with the announcement of NationsBank's acquisition
of Barnett Banks. This deal was noteworthy because of the size of the
target (Barnett's assets exceed $40 billion) and the ground-breaking
pricing of the transaction (over five times tangible book value). As
lofty as the price was, we believe that it was justifiable because the
transaction is non-dilutive to the earnings of NationsBank. The key to
the transaction is the 50% or greater expense savings that can be
achieved by eliminating redundancies in the organizations. The
arithmetic of this merger illustrates an interesting point -- that the
largest regional banks find acquisitions to be affordable, even though
deals are being struck at higher prices than ever before. This is
because, while the absolute level of price-earnings and price-book
ratios is high, the relative ratios between target bank and acquiring
bank are much narrower than usual. Thus, the number of shares that
would have to be issued in a merger has declined even as the stated
price has gotten higher. As the chart on this page shows, the price-
earnings multiples that superregional banks are selling at in 1997 are
significantly closer to the median multiple of a smaller bank than was
the case in mid 1995.
Bar chart with heading "Price / Earnings Ratio Differential"
at top of left hand column. Under the heading is the
footnote: "Small and Super regional banks." The chart is
scaled in increments of 5% from bottom to top, with 20% at
the top and 0% at the bottom. Within the chart there are two
sets of two bars. The left bar in each is solid and the
right one is shaded. There is a key showing that the solid
bars represent Small Bank Median, and the shaded bars
represent Superregional Bank Median. The two left bars have
August 1995 under them. The first bar is solid, and
represents 11.10%. The next bar is shaded, and represents
8.60%. The second set of two bars have September 1997
written under them. The first bar is solid, and represents
16.80%. The second bar is shaded, and represents 16.00%.
Although the affordability of bank mergers hasn't looked better in
many years, we find that the high profitability most banks are
experiencing is impinging on the willingness of managements to accept
a merger proposal. Being a bank CEO currently is a satisfying
position: bonuses and stock options are remunerative, shareholders are
happy, and the annual report essays can brag about record earnings.
The incentive to disrupt this lifestyle just isn't there the way it
used to be. Numerous bankers have told us they are looking for
acquisitions, but are having more trouble finding receptive sellers.
Troubles in the Far East
Economic bliss in the United States contrasts with some of the
difficulties the economies and currencies of fast-growing Pacific Rim
nations have experienced recently. These problems have been lurking in
the background all year and leaped onto the front pages when the Hong
Kong dollar, heretofore a pillar of stability, came under attack in
October. The direct exposure of our holdings to emerging markets is
very little, since we own no banks based in emerging markets and only
5% of the Fund is invested in banks that derive over 10% of their
earnings from them.
Portfolio strategy and tactics
The Fund's basic concept has remained the same since we started
investing in 1985. We seek relatively underfollowed, inexpensive
regional bank and thrift stocks that have solid earnings fundamentals
and may be in the path of consolidation. The Fund is diversified
geographically because the interstate banking laws are now uniform and
there are currently no major regional recessions to be avoided. In
fact, several of our top-performing stocks were our California banks,
which we have been adding to over the last year or so in anticipation
of economic recovery there. Most notably, City National Corp. and
Imperial Bancorp. have seen their stock prices rise nicely in the last
12 months in tandem with the robust economy in southern California.
These banks have also benefited from disarray among merging
competitors.
Due to enormous inflows of new investor money, the Fund was closed to
new investors on March 12. The cash position, which was over 20% of
net assets at that point, was at 10% by the end of October. We have
principally been adding to existing positions, especially some of the
mid-sized and smaller names that had not run up as fast in price early
in the year. At the same time, we have cut back our positions in
several stocks that we deemed excessively priced due to takeover
speculation or pressure from the company's buyback program. The cases
where we sold a bank holding due to deteriorating asset quality have
been few and far between lately, and we don't see signs of that
changing any time soon.
"In the first
10 months
of 1997, a
record 32 of
the Fund's
holdings
were taken
over..."
Bar chart with heading "Fund Performance" at top of left hand column. Under
the heading is the footnote: "For the year ended October 31, 1997." The chart
is scaled in increments of 10% from bottom to top, with 50% at the top and 0%
at the bottom. Within the chart there are three solid bars. The first
represents the 46.79% total return for the John Hancock Regional Bank Fund:
Class A. The second represents the 45.78% total return for John Hancock
Regional Bank Fund: Class B. The third represents the 41.27% 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, Inc. (1)" See the following two pages for
historical performance information."
Outlook
Our outlook for bank stocks remains positive. The key factors that
have caused the stocks to perform well this year are still in place:
earnings growth, merger activity, and a backdrop of low inflation. The
recent turmoil in Asian markets that marked the Fund's fiscal year end
could keep markets more volatile in the short term, as investors try
to determine the potential effects of slowing Asian economies on the
U.S. In our view, the slowdown we anticipate in some of these
countries will have only a moderate impact on the domestic economy. If
anything, we were worried that domestic growth was too rapid to be
sustained. A slight slowdown, therefore, could further reduce the need
for interest-rate hikes and keep the economy on the moderate growth
path that we, as bank investors, love.
"Our outlook
for bonds
remains
positive."
- --------------------------------------------------------------------
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, Inc. 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 measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested.
For Class A shares, total return figures include a maximum applicable
sales charge of 5%. Prior to August 1992, different sales charges
were in effect for Class A shares and are not reflected in the
performance data. Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six
years).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares
may be worth more or less than their original cost, depending on when
you sell them. Please read your prospectus for risks associated with
industry segment investing before you invest or send money.
CLASS A
For the period ended September 30, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
-------- ------- ---------
Cumulative Total Returns 45.77% 252.76% 350.57%
Average Annual Total Returns 45.77% 28.68% 29.97%
CLASS B
For the period ended September 30, 1997
ONE FIVE TEN
YEAR YEARS YEARS
-------- ------- ---------
Cumulative Total Returns 47.34% 257.26% 647.93%
Average Annual Total Returns 47.34% 29.00% 22.29%
WHAT HAPPENED 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, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Standard & Poor's 500 Stock Index.
The Standard & Poor's 500 Stock Index is an unmanaged index that
includes 500 widely traded common stocks and is a commonly used
measure of stock market performance. Past performance is not
indicative of future results.
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 $47,555 as of October 31, 1997. 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 $45,177 as of October 31, 1997. The third line
represents the Standard & Poor's 500 Stock Index and is equal to $25,905
as of October 31, 1997.
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
$94,022 as of October 31, 1997. 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 $48,661 as of October 31, 1997.
*No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
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, 1997. You'll also find the net asset value and the maximum
offering price per share as of that date.
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
October 31, 1997
- ----------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks and warrants
Unaffiliated Issuers (cost - $3,046,442,624) $5,535,326,479
Affiliated Issuers - Note E (cost - $160,339,085) 281,098,230
Bonds (cost - $16,728,434) 17,443,373
Joint repurchase agreement (cost - $289,650,000) 289,650,000
Short-term notes (cost - $332,968,759) 332,383,412
Corporate savings account 884
-------------
6,455,902,378
Receivable for investments sold 608,105
Receivable for shares sold 7,767,503
Dividends receivable 9,308,219
Interest receivable 7,533,150
Foreign tax receivable 4,966
Other assets 58,521
-------------
Total Assets 6,481,182,842
- ----------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 25,432,661
Payable for shares repurchased 4,931,435
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 5,492,492
Accounts payable and accrued expenses 734,488
-------------
Total Liabilities 36,591,076
- ----------------------------------------------------------------------------------
Net Assets:
Capital paid-in 3,777,914,480
Accumulated net realized gain on investments and
foreign currency transactions 51,955,393
Net unrealized appreciation of investments 2,609,778,714
Undistributed net investment income 4,943,179
-------------
Net Assets $6,444,591,766
==================================================================================
Net Asset Value Per Share:
(Based on net assets and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $1,596,836,363/32,767,337 $48.73
==================================================================================
Class B - $4,847,755,403/99,997,220 $48.48
==================================================================================
Maximum Offering Price Per Share*
Class A - ($48.73 x 105.26%) $51.29
==================================================================================
* 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.
</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, 1997
- ----------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (including $11,323,375 received from
affiliated issuers and net of foreign withholding
taxes of $31,326) $102,142,475
Interest 43,308,969
-----------
145,451,444
-----------
Expenses:
Investment management fee - Note B 38,590,925
Distribution and service fee - Note B
Class A 3,895,640
Class B 38,135,767
Transfer agent fee - Note B 9,455,661
Financial services fee - Note B 936,142
Registration and filing fees 705,670
Custodian fee 642,115
Trustees' fees 317,282
Printing 251,782
Miscellaneous 114,421
Legal fees 68,346
Auditing fee 36,000
-----------
Total Expenses 93,149,751
- ----------------------------------------------------------------------------------
Net Investment Income 52,301,693
- ----------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold (including
$1,096,573 gain on sales of investments in
affiliated issuers) 59,108,632
Net realized loss on foreign currency transactions (1,803)
Change in net unrealized appreciation/depreciation
of investments 1,780,828,190
-----------
Net Realized and Unrealized
Gain on Investments and
foreign currency transactions 1,839,935,019
- ----------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $1,892,236,712
==================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------
1996 1997
------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $38,837,758 $52,301,693
Net realized gain on investments sold and foreign currency transactions 32,654,655 59,106,829
Change in net unrealized appreciation/depreciation of investments 550,720,765 1,780,828,190
-------------- --------------
Net Increase in Net Assets Resulting from Operations 622,213,178 1,892,236,712
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6039 and $0.6125 per share, respectively) (12,903,706) (19,020,629)
Class B - ($0.4021 and $0.3392 per share, respectively) (23,862,840) (31,890,024)
Distributions from net realized gain on investments sold
Class A - ($0.2154 and $0.3143 per share, respectively) (4,107,407) (8,142,308)
Class B - ($0.2154 and $0.3143 per share, respectively) (10,792,198) (24,538,932)
-------------- --------------
Total Distributions to Shareholders (51,666,151) (83,591,893)
-------------- --------------
From Fund Share Transactions - Net:* 975,731,251 1,366,590,293
-------------- --------------
Net Assets:
Beginning of period 1,723,078,376 3,269,356,654
-------------- --------------
End of period (including undistributed net investment income
of $4,107,673 and $4,943,179, respectively) $3,269,356,654 $6,444,591,766
============== ==============
*Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
1996 1997
------------------------------ ---------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- --------------
CLASS A
Shares sold 31,732,595 $957,001,609 38,788,657 $1,491,103,323
Shares issued to shareholders in reinvestment
of distributions 470,777 13,828,404 559,414 22,095,071
---------- ------------- ---------- --------------
32,203,372 970,830,013 39,348,071 1,513,198,394
Less shares repurchased (24,808,137) (750,988,300) (31,907,187) (1,238,344,932)
---------- ------------- ---------- --------------
Net increase 7,395,235 $219,841,713 7,440,884 $274,853,462
========== ============= ========== ==============
CLASS B
Shares sold 33,358,085 $990,153,270 40,654,404 $1,573,447,820
Shares issued to shareholders in reinvestment
of distributions 757,733 22,085,406 929,268 35,725,726
---------- ------------- ---------- -----------
34,115,818 1,012,238,676 41,583,672 1,609,173,546
Less shares repurchased (8,681,596) (256,349,138) (12,781,798) (517,436,715)
---------- ------------- ---------- -----------
Net increase 25,434,222 $755,889,538 28,801,874 $1,091,736,831
========== ============= ========== ==============
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, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the Fund. The footnote illustrates the number of
Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the periods indicated, investment returns, key
ratios and supplemental data are as follows:
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.47 $21.62 $21.52 $27.14 $33.99
-------- -------- -------- -------- --------
Net Investment Income(1) 0.26 0.39 0.52 0.63 0.64
Net Realized and Unrealized Gain
on Investments 5.84 0.91 5.92 7.04 15.02
-------- -------- -------- -------- --------
Total from Investment Operations 6.10 1.30 6.44 7.67 15.66
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.26) (0.34) (0.48) (0.60) (0.61)
Distributions from Net Realized Gain
on Investments Sold (1.69) (1.06) (0.34) (0.22) (0.31)
-------- -------- -------- -------- --------
Total Distributions (1.95) (1.40) (0.82) (0.82) (0.92)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $21.62 $21.52 $27.14 $33.99 $48.73
======== ======== ======== ======== ========
Total Investment Return
at Net Asset Value(2) 37.45% 6.44% 31.00% 28.78% 46.79%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $94,158 $216,978 $486,631 $860,843 $1,596,836
Ratio of Expenses to Average Net Assets 1.35% 1.34% 1.39% 1.36% 1.30%
Ratio of Net Investment Income
to Average Net Assets 1.29% 1.78% 2.23% 2.13% 1.55%
Portfolio Turnover Rate 35% 13% 14% 8% 5%
Average Broker Commission Rate(3) N/A N/A N/A $0.0694 $0.0694
The Financial Highlights summarizes the impact of the following factors on a single share for each period
indicated: net investment income, gains, dividends and total investment return of the Fund. It shows how the
Fund's net asset value for a share has changed since the end of the previous period. Additionally, important
relationships between some items presented in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.44 $21.56 $21.43 $27.02 $33.83
-------- -------- -------- -------- --------
Net Investment Income(1) 0.15 0.23 0.36 0.42 0.35
Net Realized and Unrealized Gain
on Investments 5.83 0.91 5.89 7.01 14.95
-------- -------- -------- -------- --------
Total from Investment Operations 5.98 1.14 6.25 7.43 15.30
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.17) (0.21) (0.32) (0.40) (0.34)
Distributions from Net Realized Gain
on Investments Sold (1.69) (1.06) (0.34) (0.22) (0.31)
-------- -------- -------- -------- --------
Total Distributions (1.86) (1.27) (0.66) (0.62) (0.65)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $21.56 $21.43 $27.02 $33.83 $48.48
======== ======== ======== ======== ========
Total Investment Return at
Net Asset Value(2) 36.71% 5.69% 30.11% 27.89% 45.78%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $171,808 $522,207 $1,236,447 $2,408,514 $4,847,755
Ratio of Expenses to Average Net Assets 1.88% 2.06% 2.09% 2.07% 2.00%
Ratio of Net Investment Income to
Average Net Assets 0.76% 1.07% 1.53% 1.42% 0.84%
Portfolio Turnover Rate 35% 13% 14% 8% 5%
Average Broker Commission Rate(3) N/A N/A N/A $0.0694 $0.0694
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) 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, 1997
- -------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Regional Bank Fund on October 31, 1997.
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
ISSUER, DESCRIPTION, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- ----------
<S> <C> <C>
COMMON STOCKS, WARRANTS AND OTHER
Money Center Banks (3.29%)
Bankers Trust New York Corp. (NY) 476,695 $56,250,010
Chase Manhattan Corp. (NY) 1,033,708 119,264,060
Morgan (J.P.) & Co., Inc. (NY) 336,000 36,876,000
-----------------
212,390,070
-----------------
Superregional Banks (16.10%)
Banc One Corp. (OH) 1,409,640 73,477,485
BankAmerica Corp. (CA) 1,440,374 102,986,741
BankBoston Corp. (MA) 1,418,750 115,007,422
Bank of New York Co., Inc. (NY) 2,079,449 97,864,069
Barnett Banks, Inc. (FL) 878,000 60,582,000
First Chicago NBD Corp. (IL) 1,203,213 87,533,746
First Union Corp. (NC) 1,452,738 71,274,958
Fleet Financial Group, Inc. (MA) 853,648 54,900,237
KeyCorp. (OH) 678,005 41,485,431
Mellon Bank Corp. (PA) 596,402 30,751,978
NationsBank Corp. (NC) 1,938,989 116,096,989
Norwest Corp. (MN) 2,445,432 78,406,664
PNC Bank Corp. (PA) 1,766,900 83,927,750
Wachovia Corp. (NC) 315,000 23,723,438
--------------
1,038,018,908
--------------
Regional Banks (48.39%)
ABC Bancorp. (GA) 173,000 2,962,625
American Bancorp. (WV) 148,000 3,330,000
American Bancshares, Inc. * (FL) 82,000 1,014,750
AmSouth Bancorp. (AL) 703,440 33,809,061
ANB Corp. (IN) 137,500 3,368,750
Associated Banc-Corp. (WI) 397,446 19,921,971
Atlantic Bank & Trust Co.* (MA) 79,500 1,212,375
BancFirst Corp. (OK) 345,600 10,972,800
BancFirst Ohio Corp. (OH) 81,000 3,483,000
BancorpSouth, Inc. (MS) 162,000 6,156,000
Banknorth Group, Inc. (VT) 416,500 25,198,250
BB&T Corp. (NC) 1,844,014 100,383,512
Brenton Banks, Inc. (IA) 191,686 6,157,913
Bryn Mawr Bank Corp. (PA) 90,200 4,239,400
BT Financial Corp. (PA) 102,364 4,683,130
California Community Bancshares. (CA) 60,020 1,620,540
California State Bank (CA) 165,100 4,911,725
Carnegie Bancorp. (NJ) 85,660 2,227,147
CB Bancshares, Inc. (HI) 145,100 6,166,750
CCB Financial Corp. (NC) 525,433 47,814,357
Central Fidelity Banks, Inc. (VA) 357,500 16,623,750
Centura Banks, Inc. (NC) 470,525 27,231,634
Chittenden Corp. (VT) 120,200 5,048,400
Citizens Banking Corp. (MI) 78,400 3,341,800
City National Corp. (CA) 494,800 14,874,925
CNB Bancshares, Inc. (IN) 89,571 3,571,644
Colonial BancGroup, Inc. (AL) 605,800 17,984,688
Comerica, Inc. (MI) 824,098 65,155,248
Commerce Bancshares, Inc. (MO) 525,833 30,761,230
Commercial Bankshares, Inc. (FL) 171,950 3,911,862
Community Bank System, Inc. (NY) 150,000 4,387,500
Community First Bankshares, Inc. (ND) 377,875 18,043,531
Compass Bancshares, Inc. (AL) 1,590,250 59,932,547
CoreStates Financial Corp. (PA) 1,445,924 105,190,971
Crestar Financial Corp. (VA) 1,623,220 76,798,596
Cullen / Frost Bankers, Inc. (TX) 893,200 45,106,600
Deposit Guaranty Corp. (MS) 818,400 30,178,500
Evergreen Bancorp., Inc. (NY) 291,100 5,749,225
F & M National Corp.* (VA) 146,150 4,548,919
First American Corp. (TN) 2,505,600 119,016,000
First of America Bank Corp. (MI) 1,524,307 84,980,115
First Citizens BancShares, Inc.
(Class A) (NC) 73,344 7,187,712
First Colonial Group, Inc. (PA) 30,358 979,029
First Commerce Corp. (LA) 1,206,387 77,510,365
First Hawaiian, Inc. (HI) 833,500 32,506,500
First Merchants Corp. (IN) 110,100 3,708,994
First Oak Brook Bancshares, Inc.
(Class A) (IL) 23,500 869,500
First Republic Bank * (CA) 274,162 7,745,076
First Security Corp. (UT) 1,032,500 29,942,500
First Source Corp. (IN) 108,751 3,045,028
First State Bancorp. (NM) 107,500 2,002,187
First Tennessee National Corp. (TN) 1,529,800 88,154,725
First Virginia Bank, Inc. (VA) 120,249 5,584,063
First Western Bancorp., Inc. (PA) 233,750 6,311,250
Firstar Corp. (WI) 1,197,400 43,256,075
Firstbank Corp. (MI) 49,835 2,167,822
FirstMerit Corp. (OH) 110,000 2,805,000
Firstbank of Illinois Co. (IL) 262,912 8,347,456
F.N.B. Corp. (PA) 207,774 6,908,485
FNB Rochester Corp. (NY) 225,337 4,084,233
Franklin Bank, NA (MI) 81,075 1,256,663
Fulton Financial Corp. (PA) 243,727 7,068,083
GBC Bancorp. (CA) 35,000 1,890,000
Grand Premier Financial, Inc. (IL) 199,118 2,588,534
Greater Bay Bancorp. (CA) 41,959 1,930,114
Hancock Holdings Co. (MS) 337,700 18,489,075
Harleysville National Corp. (PA) 43,575 1,655,850
Hibernia Corp. (Class A) (LA) 1,540,600 27,441,937
HUBCO, Inc. (NJ) 760,064 26,459,728
Huntington Bancshares, Inc. (OH) 378,172 12,219,683
Imperial Bancorp.* (CA) 276,100 12,044,862
Independent Bank Corp. (MA) 974,000 14,610,000
Interchange Financial Services Corp. (NJ) 210,750 5,031,656
Keystone Financial, Inc. (PA) 150,245 5,164,672
LSB Bancshares, Inc. (NC) 18,408 471,705
Magna Group, Inc. (MO) 603,000 23,818,500
Mainstreet BankGroup, Inc. (VA) 237,700 6,774,450
Marshall & Ilsley Corp. (WI) 551,480 28,608,025
Mercantile Bancorp., Inc. (MO) 2,003,262 97,283,411
Mercantile Bankshares Corp. (MD) 663,750 23,646,094
Merchants Bancorp., Inc. (IL) 141,600 3,327,600
MetroBanCorp. (IN) 75,000 675,000
Michigan Financial Corp. (MI) 64,630 1,955,045
Mississippi Valley Bancshares, Inc. (MO) 117,700 6,120,400
National City Bancshares, Inc. (IN) 76,899 3,479,680
National City Corp. (OH) 870,746 52,027,074
North Fork Bancorp., Inc. (NY) 2,941,418 86,587,992
North Valley Bancorp. (CA) 78,400 2,528,400
Old Kent Financial Corp. (MI) 715,827 45,186,579
One Valley Bancorp., Inc. (WV) 327,606 13,104,240
Pacific Bank N.A. * (CA) 66,923 2,660,189
Pacific Century Financial Corp. (HI) 844,133 42,523,200
Peoples Bank Corp. of Indianapolis (IN) 71,100 2,381,850
Pinnacle Financial Services, Inc. (MI) 233,136 9,150,588
Premier Financial Bancorp., Inc. (KY) 35,000 918,750
Prime Bancshares, Inc.* (TX) 39,900 760,594
Princeton National Bancorp., Inc. (IL) 49,500 1,218,938
Provident Financial Group, Inc. (OH) 202,375 9,309,250
Provident Bankshares Corp. (MD) 329,900 17,814,600
Regions Financial Corp. (AL) 1,089,480 40,038,390
Republic Bancorp., Inc. (MI) 96,691 1,643,747
Republic New York Corp. (NY) 619,600 65,561,425
Riggs National Corp. (DC) 385,000 8,855,000
Seacoast Banking Corp. (Class A) (FL) 172,800 5,702,400
SierraWest Bancorp. (CA) 77,500 2,131,250
Signet Banking Corp. (VA) 943,100 50,750,569
Silicon Valley Bancshares * (CA) 195,000 10,651,875
Simmons First National Corp.
(Class A) (AR) 303,500 10,850,125
Southtrust Corp. (AL) 1,108,100 53,188,800
Southwest Bancorp., Inc. (OK) 121,500 3,067,875
State Financial Services Corp.
(Class A) (WI) 187,220 4,820,915
State Street Corp. (MA) 465,000 25,923,750
Sterling Bancshares, Inc. (TX) 241,088 4,701,206
Summit Bancorp. (NJ) 4,243,225 181,132,684
Surety Capital Corp. * (TX) 95,000 653,125
Susquehanna Bancshares, Inc. (PA) 713,262 21,665,333
Synovus Financial Corp. (GA) 321,200 6,986,100
TCF Financial Corp. (MN) 744,833 42,362,377
Texas Regional Bancshares, Inc.
(Class A) (TX) 405,500 11,556,750
Trans Financial, Inc. (KY) 157,000 5,024,000
TriCo Bancshares (CA) 224,050 5,965,331
Trustmark Corp. (MS) 152,000 4,693,000
UnionBanCal Corp. (CA) 741,800 67,874,700
Union Planters Corp. (TN) 2,065,239 122,494,488
U.S. Bancorp. (OR) 1,451,777 147,627,574
U.S. Trust Corp. (NY) 87,500 5,118,750
USBANCORP., Inc. (PA) 75,500 4,907,500
UST Corp. (MA) 345,000 8,926,875
Vectra Banking Corp. * (CO) 292,150 7,632,419
Vermont Financial Services Corp. (VT) 779,672 20,368,931
Wells Fargo & Co. (CA) 341,966 99,640,343
Westamerica Bancorp. (CA) 267,700 23,557,600
Western Bancorp. (CA) 177,827 5,668,224
West Coast Bancorp. (OR) 105,437 3,110,392
Whitney Holding Corp. (LA) 447,300 22,141,350
Zions Bancorp. (UT) 713,574 27,740,192
--------------
3,120,106,117
--------------
Thrifts (16.49%)
Acadiana BancShares, Inc. (LA) 25,000 575,000
Afsala Bancorp., Inc. (NY) 60,000 1,125,000
Ahmanson (H.F.) & Co. (CA) 1,150,000 67,850,000
ALBANK Financial Corp. (NY) 92,500 4,278,125
Ambanc Holding Co., Inc. * (NY) 185,000 2,960,000
American National Bancorp., Inc. (MD) 142,300 2,854,894
Andover Bancorp Inc. (MA) 86,500 3,178,875
Astoria Financial Corp. (NY) 630,198 32,927,827
Bank Plus Corp. * (CA) 723,644 8,683,728
Bank United Corp. (Class A) (TX) 293,600 12,331,200
BankUnited Financial Corp.
(Class A) (FL) 128,760 1,689,975
Bayonne Bancshares, Inc. (NJ) 40,000 510,000
Bay View Capital Corp. (CA) 757,400 23,100,700
Bedford Bancshares, Inc. (VA) 20,000 500,000
Big Foot Financial Corp. * (IL) 15,000 281,250
BostonFed Bancorp., Inc. (MA) 325,700 6,676,850
Calumet Bancorp., Inc. * (IL) 138,000 6,969,000
Camco Financial Corp. (OH) 21,259 483,642
Cameron Financial Corp. (MO) 115,000 2,199,375
Capital Savings Bancorp., Inc. (MO) 51,502 952,787
Catskill Financial Corp. (NY) 225,000 3,993,750
CCF Holding Co. (GA) 44,700 938,700
CENFED Financial Corp. (CA) 187,150 7,556,181
CFX Corp. (NH) 149,317 3,676,931
Charter Financial, Inc. (IL) 62,500 1,335,937
Charter One Financial, Inc. (OH) 1,588,885 92,353,941
Coast Savings Financial, Inc. * (CA) 321,100 18,844,556
Coastal Bancorp., Inc. (TX) 90,000 2,531,250
Commercial Federal Corp. (NE) 1,297,200 62,914,200
Commonwealth Bancorp., Inc. (PA) 241,873 4,414,182
CSB Financial Group, Inc. * (IL) 40,000 505,000
Dime Bancorp., Inc. (NY) 1,502,500 36,060,000
Dime Community Bancorp., Inc. (NY) 335,000 7,076,875
D & N Financial Corp. * (MI) 40,600 1,020,075
Downey Financial Corp. (CA) 65,000 1,706,250
Eagle Bancshares, Inc. (GA) 174,000 3,175,500
Eagle Financial Corp. (CT) 10,000 502,500
East Texas Financial Services, Inc. (TX) 44,000 863,500
Elmira Savings Bank (NY) 34,950 1,017,919
Falmouth Co-Operative Bank (MA) 55,000 1,127,500
Fed One Bancorp., Inc. (WV) 15,000 369,375
Fidelity Financial of Ohio (OH) 55,000 825,000
Financial Bancorp., Inc. (NY) 45,000 1,091,250
First Bell Bancorp., Inc. (PA) 120,000 2,100,000
First Colorado Bancorp., Inc. (CO) 645,000 13,141,875
First Defiance Financial Corp. (OH) 362,200 5,749,925
First Federal Bancorp. * (MN) 56,000 1,407,000
First Federal Bancshares
of Arkansas, Inc. (AR) 110,000 2,365,000
First Federal Capital Corp. (WI) 159,917 4,357,738
First Financial Holdings, Inc. (SC) 84,000 3,244,500
First Independence Corp. (KS) 71,000 1,047,250
First Indiana Corp. (IN) 56,748 1,418,700
First Keystone Financial, Inc. (PA) 18,000 540,000
First Mutual Bancorp., Inc. (IL) 238,000 4,373,250
First Savings Bank of Washington
Bancorp., Inc. (WA) 120,000 2,850,000
First Southern Bancshares. (AL) 35,000 516,250
Flagstar Bancorp, Inc. * (MI) 400,000 7,550,000
Flushing Financial Corp. (NY) 105,000 2,283,750
FMS Financial Corp. (NJ) 24,000 702,000
Fort Bend Holdings Corp. (TX) 78,000 1,521,000
Fort Thomas Financial Corp. (KY) 60,000 817,500
Frankfort First Bancorp. (KY) 145,000 1,395,625
GA Financial, Inc. (PA) 420,000 8,190,000
Golden State Bancorp., Inc. * (CA) 851,900 28,325,675
Golden West Financial Corp. (CA) 100,000 8,675,000
GreenPoint Financial Corp. (NY) 1,692,000 108,922,500
Harbor Federal Bancorp., Inc. (MD) 115,000 2,357,500
HF Financial Corp. (SD) 150,000 3,862,500
Highland Federal Bank * (CA) 90,500 2,997,812
HMN Financial, Inc.* (MN) 110,000 2,695,000
Home Bancorp of Elgin Inc. (IL) 60,000 1,053,750
Home Federal Bancorp. (IN) 223,800 8,224,650
IBS Financial Corp. (NJ) 18,250 280,594
Industrial Bancorp., Inc. (OH) 150,000 2,625,000
InterWest Bancorp, Inc. (WA) 124,500 4,762,125
ISB Financial Corp. (LA) 350,000 8,618,750
Kankakee Bancorp., Inc. (IL) 31,020 977,130
Kentucky First Bancorp., Inc. (KY) 65,000 893,750
Klamath First Bancorp., Inc. (OR) 415,000 9,285,625
Landmark Bancshares, Inc. (KS) 100,000 2,300,000
Life Bancorp., Inc. (VA) 100,000 3,031,250
Little Falls Bancorp., Inc. (NJ) 125,000 2,281,250
Logansport Financial Corp. (IN) 117,500 1,806,562
Long Island Bancorp., Inc. (NY) 803,300 35,746,850
MAF Bancorp., Inc. (IL) 452,829 14,547,132
Marion Capital Holdings, Inc. (IN) 52,500 1,404,375
Marshalltown Financial Corp. * (IA) 20,000 343,124
MASSBANK Corp. (MA) 76,400 3,304,299
MFB Corp. (IN) 90,000 2,058,750
Medford Savings Bank (MA) 102,500 3,664,375
Mid Continent Bancshares, Inc. (KS) 10,000 402,500
Midwest Federal Financial Corp. (WI) 15,000 375,000
Mississippi View Holding Co. (MN) 70,000 1,233,750
ML Bancorp, Inc. (PA) 265,000 7,287,500
Monterey Bay Bancorp., Inc. (CA) 65,000 1,186,250
New Hampshire Thrift Bancshares, Inc.
(NH) 40,000 900,000
North Central Bancshares, Inc. (IA) 115,000 2,084,375
Northeast Indiana Bancorp., Inc. (IN) 94,500 1,890,000
NS & L Bancorp. (MO) 35,000 647,500
Ocean Financial Corp. (NJ) 50,000 1,875,000
PALFED, Inc. (SC) 233,600 5,840,000
Pamrapo Bancorp., Inc. (NJ) 120,000 2,970,000
Park Bancorp, Inc. * (IL) 25,000 431,250
Patriot Bank Corp. (PA) 158,000 2,765,000
Peekskill Financial Corp. (NY) 142,000 2,378,500
PennFirst Bancorp., Inc. (PA) 156,299 2,871,994
Peoples Heritage Financial Group, Inc.
(ME) 888,450 34,982,719
Permanent Bancorp., Inc. (IN) 60,000 1,545,000
PFF Bancorp., Inc. * (CA) 600,000 11,550,000
Piedmont Bancorp., Inc. (NC) 20,000 220,000
Pittsburgh Home Financial Corp. (PA) 90,000 1,710,000
Prestige Bancorp Inc. (PA) 82,000 1,517,000
Primary Bank * (NH) 110,250 3,114,563
Progress Financial Corp. (PA) 34,125 516,141
PVF Capital Corp.* (OH) 2,722 53,760
QCF Bancorp., Inc. * (MN) 70,000 1,890,000
Quaker City Bancorp., Inc.* (CA) 93,750 1,921,875
RedFed Bancorp., Inc.* (CA) 30,000 581,250
River Bank America * (NY) 145,000 833,750
River Valley Bancorp. * (IN) 15,000 247,500
St. Paul Bancorp., Inc. (IL) 323,625 7,767,000
SFS Bancorp., Inc. (NY) 74,000 1,702,000
SIS Bancorp, Inc. (MA) 142,500 4,862,813
Sistersville Bancorp., Inc.* (WV) 10,000 151,875
Skaneateles Bancorp, Inc. (NY) 46,100 1,429,100
Sobieski Bancorp., Inc. (IN) 40,000 750,000
Southern Banc Co., Inc. (AL) 55,500 957,375
Southern Financial Bancorp., Inc. (VA) 64,098 1,273,948
Southern Missouri Bancorp., Inc. (MO) 80,000 1,500,000
South Street Financial Corp. (NC) 55,000 962,500
Sovereign Bancorp., Inc. (PA) 312,832 5,552,768
Statewide Financial Corp. (NJ) 205,000 4,407,500
Sterling Financial Corp. * (WA) 261,877 5,564,886
Tappan Zee Financial, Inc. (NY) 87,500 1,793,750
Teche Holding Co. (LA) 81,000 1,690,875
TeleBanc Financial Corp. * (VA) 100,000 1,862,500
Texarkana First Financial Corp. (AR) 124,800 3,252,600
TF Financial Corp (PA) 50,000 1,176,560
TR Financial Corp (NY) 65,000 2,128,750
Virginia First Financial Corp. (VA) 260,000 6,305,000
Washington Bancorp. * (IA) 25,000 440,625
Washington Federal, Inc. (WA) 1,026,335 30,276,883
Washington Mutual, Inc. (WA) 1,424,983 97,522,274
Webster Financial Corp. (CT) 105,000 6,470,625
WesterFed Financial Corp. (MT) 287,426 6,970,080
WSFS Financial Corp. * (DE) 239,400 4,309,200
York Financial Corp. (PA) 55,000 1,526,250
--------------
1,063,075,205
--------------
Other - Financial (4.47%)
Apartment Investment & Management Co.
(Class A) 155,000 5,492,812
Associates First Capital Corp. (Class A) 232,000 14,761,000
Beacon Properties Corp. 200,000 8,425,000
Cali Realty Corp. 132,000 5,346,000
Capital One Financial Corp. 768,100 35,044,562
CapMac Holdings, Inc. 37,500 1,125,000
CB Commercial Real Estate Services
Group, Inc. * 140,000 5,250,000
Delta Financial Corp. * 120,200 2,193,650
Donaldson, Lufkin & Jenrette, Inc. 40,000 2,810,000
Edwards (A.G.), Inc. 186,750 6,127,734
Enhance Financial Services Group, Inc. 115,000 6,073,437
EVEREN Capital Corp. 39,500 1,491,125
Fannie Mae 580,000 28,093,750
Financial Federal Corp. * 66,600 1,265,400
Financial Security Assurance
Holdings Ltd. 85,000 3,697,500
Highwood Properties, Inc. 110,000 3,795,000
HomeSide, Inc. * 220,000 5,898,750
IMC Mortgage Co. * 49,400 858,325
Imperial Credit Industries, Inc.* 89,200 2,241,150
Innkeepers USA Trust 105,000 1,752,187
Interra Financial, Inc. 47,200 2,601,900
Interstate/Johnson Lane, Inc. 35,300 953,100
Investors Financial Services Corp. 65,000 2,860,000
ITLA Capital Corp. * 245,600 4,912,000
Legg Mason, Inc. 53,600 2,629,750
Lehman Brothers Holdings, Inc. 232,500 10,942,031
Lomas Financial Corp. * 180,000 2,813
Matrix Capital Corp. * 89,500 1,364,875
McDonald & Co., Investments 153,400 3,748,713
Morgan Keegan, Inc. 94,200 1,672,050
Nationwide Financial Services, Inc. *
(Class A) 66,000 2,008,875
Old Guard Group, Inc. * 28,000 493,500
Penncorp Financial Group, Inc. 121,000 3,940,063
Prentiss Properties Trust 249,500 6,845,656
Prime Retail, Inc. 390,431 5,832,063
Raymond James Financial, Inc. 115,050 3,451,500
Salomon, Inc. 225,000 17,479,688
Sirrom Capital Corp. 231,600 11,666,850
SLM Holding Corp. 242,000 33,970,750
Southern Pacific Funding Corp. * 196,900 2,584,313
Temple-Inland, Inc. 96,207 5,519,859
Travelers Property Casualty Corp.
(Class A) 243,000 8,778,375
Trenwick Group, Inc. 209,500 7,306,313
Ugly Duckling Corp. * 159,700 1,896,438
WFS Financial, Inc. * 147,450 1,916,850
Willis Lease Finance Corp. * 74,000 1,341,250
--------------
288,461,957
--------------
Banks - Foreign (0.79%)
Allied Irish Banks PLC, American
Depositary Receipt, ADR (Ireland) 103,000 5,240,125
Popular, Inc. (Puerto Rico) 702,000 32,292,000
Royal Bank of Canada (Canada) 173,000 9,287,938
Toronto Dominion Bank (Canada) 105,000 3,832,500
--------------
50,652,563
--------------
WARRANTS (0.11%)
Golden State Bancorp, Inc. * (CA) 310,000 6,820,000
--------------
OTHER (0.00%)
California Federal Bank, Inc. * (CA)
Contingent Litigation Participation Int. 10,833 219,368
California Federal Bank * (CA)
Secondary Contingent Litigation
Participation Int. 833 18,543
--------------
237,911
--------------
TOTAL COMMON STOCKS,
WARRANTS AND OTHER
(Cost $3,179,479,528) (89.64%) 5,779,762,731
-------------- --------------
PREFERRED STOCKS
California Federal Bank,
Ser B, 10.625% (CA) 13,333 $1,453,297
California Federal Bank, 11.50% (CA) 30,000 3,450,936
Chevy Chase Pref. Capital Corp.
Ser A, 10.375% (MD) 18,000 938,250
Chevy Chase Savings, 13.00% (MD) 50,000 1,525,000
Community Bank, Ser B, 13.00% (CA) 40,000 1,120,000
CRIIMI MAE, Inc. Ser B, 10.875% (MD) 15,000 543,750
FirstFederal Financial Corp.,
Ser A, 7.00% (OH) 10,000 1,255,000
First Preferred Cap I, 9.25% (MO) 100,000 2,662,500
First Source Capital Trust I, 9.00% (IN) 40,000 1,040,000
First Source Capital Trust II,
7.24% (IN)** 40,000 1,000,000
First Washington Realty Trust,
Ser A, 9.75% (MD) 113,498 3,497,157
Golden State Bancorp, Inc.
Ser A, 8.75% (CA) 100,000 8,300,000
IFC Capital Trust I, 9.25% (IN) 160,000 4,400,000
Riggs National Corp.,
Ser B, 10.75% (DC) 64,300 1,840,588
Southwest Bancorp., Inc.
Ser A, 9.20% (OK) 20,000 518,750
Sterling Bancshares Capital Trust I,
9.28% (TX) 60,000 1,548,750
Walden Residential, Ser B, 9.16% (TX) 56,000 1,568,000
--------------
TOTAL PREFERRED STOCKS
(Cost $27,302,181) (0.57%) 36,661,978
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
----------- ------------------ ------------
BONDS
<S> <C> <C> <C>
BFC Capital Trust I,
Capital Securities
Ser A 01-15-27 9.650% $1,000 $1,063,000
Bank Plus Corp.,
Sr Note 07-18-07 12.000 1,000 1,120,000
BankUnited Capital Trust,
Pref Sec, Ser A 12-31-26 10.250 2,000 2,060,000
CIT Group Holdings,
Sr Note 11-09-98 5.875 7,235 7,234,711
Hydro Quebec,
Deb 10-28-98 9.300 1,000 1,031,772
IBM Credit Corp.,
Note 08-17-98 5.820 1,000 998,590
Imperial Capital Trust I,
Capital Securities
12-31-26 9.980 1,500 1,702,500
Susquehanna Bancshares, Inc.,
Conv Sub Deb 02-01-05 9.000 2,000 2,232,800
--------------
TOTAL BONDS
(Cost $16,728,434) (0.27%) 17,443,373
-------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.49%)
Investment in joint repurchase
agreement transaction with
Aubrey G. Lanston & Co. -
Dated 10-31-97, Due 11-03-97
(Secured by U.S. Treasury
Notes, 5.00% thru 9.25%
Due 02-28-98 thru 04-30-02)
- - Note A 5.680 289,650 289,650,000
--------------
Short-Term Notes (5.16%)
American General Finance
Corp., Due 03-01-98 7.250 10,000 10,040,800
Associates Corp. of North
America, Due 01-15-98 8.125 900 903,744
Associates Corp. of North
America, Due 01-15-98 8.375 3,700 3,716,946
Associates Corp. of North
America, Due 02-01-98 6.125 205 205,090
Bear Stearns Co., Inc.,
Due 11-07-97 5.620 10,000 9,990,633
Beneficial Corp.,
Due 11-13-97 6.790 10,000 10,030,300
Beneficial Corp.,
Due 11-24-97 6.890 1,800 1,806,660
Canadian Imperial Bank of
Commerce, Due 03-17-98 5.940 11,000 10,999,010
Chrysler Financial Corp.
Due 12-18-97 5.920 1,000 1,000,230
Chrysler Financial Corp.,
Due 06-29-98 6.250 1,000 1,002,210
Chrysler Financial Corp.,
Due 10-15-98 5.375 500 497,455
CIT Group Holdings, Inc.,
Due 04-01-98 5.625 2,500 2,498,325
CIT Group Holdings, Inc.,
Due 04-15-98 8.750 5,000 5,043,000
Countrywide Home Loans,
Due 11-10-97 5.520 10,000 9,986,200
Federal Home Loan Bank,
Due 11-05-97 5.775 5,000 5,000,000
Federal Home Loan Bank,
Due 01-02-98 5.8925 5,000 4,999,370
Federal Home Loan Bank,
Due 01-15-98 5.815 4,000 3,997,480
Federal Home Loan Bank,
Due 03-17-98 5.815 500 499,685
Federal Home Loan Bank,
Due 03-17-98 5.850 50,000 50,000,000
Federal Home Loan Bank
Due 08-13-98 5.800 25,000 25,000,000
Federal Home Loan Bank,
Due 09-16-98 5.900 10,000 10,000,000
Federal Home Loan Bank,
Due 04-02-98 5.910 27,550 27,532,643
Federal Home Loan Bank,
Due 04-07-98 7.035 780 784,750
Federal Home Loan Bank,
Due 11-05-98 + 5.905 10,500 10,493,385
Federal National Mortgage
Association, Due 01-16-98 5.600 650 649,694
Federal National Mortgage
Association, Due 05-11-98 8.150 2,000 2,024,380
Ford Motor Credit Co.,
Due 12-01-97 8.000 11,000 11,140,250
Ford Motor Credit Co.,
Due 12-15-97 9.375 1,410 1,423,903
Ford Motor Credit Co.,
Due 02-26-98 6.250 5,540 5,547,211
Ford Motor Credit Co.,
Due 05-08-98 9.050 1,000 1,015,740
General Motors Acceptance
Corp., Due 12-22-97 5.700 1,000 999,040
General Motors Acceptance
Corp., Due 04-15-98 7.000 1,000 1,004,810
General Motors Acceptance
Corp., Due 05-18-98 7.500 2,000 2,017,060
General Motors Acceptance
Corp., Due 06-04-98 6.500 1,055 1,057,532
GTE Corp.,
Due 11-10-97 5.620 11,800 11,783,421
GTE Corp.,
Due 03-01-98 8.850 11,890 12,008,187
GTE Finance Corp.,
Due 12-15-97 5.810 5,000 4,999,681
International Lease Finance,
Due 01-15-98 8.125 30,785 30,929,074
International Lease Finance,
Due 02-13-98 5.870 500 499,840
International Lease Finance,
Due 03-01-98 5.625 483 482,759
International Lease Finance,
Due 04-30-98 6.000 2,000 2,001,200
International Lease Finance,
Due 07-01-98 5.980 1,000 1,000,300
NBD Bancorp, Inc.,
Due 02-28-98 7.500 10,000 10,053,200
Norwest Corp.,
Due 03-15-98 5.750 1,000 999,790
Philip Morris Cos., Inc.,
Due 05-15-98 9.000 1,000 1,018,430
Student Loan Marketing
Association, Due 03-17-98 5.700 1,000 999,370
Sears Roebuck Acceptance
Corp., Due 03-02-98 7.400 1,000 1,004,970
Sears Roebuck Acceptance
Corp., Due 04-15-98 9.250 7,620 7,696,154
Societe Generale N.A., Inc.,
Due 03-04-98 5.870 9,000 9,000,000
Swedish Export Credit Corp.,
Due 04-24-98 5.750 5,000 4,999,500
--------------
TOTAL SHORT-TERM NOTES
(Cost $332,968,759) 332,383,412
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 884
--------------
TOTAL SHORT-TERM
INVESTMENTS (9.65%) 622,034,296
-------------- --------------
TOTAL INVESTMENTS (100.13%) $6,455,902,378
============== ==============
* Non-income producing security.
** Variable rate as of October 31, 1997.
+ This security having a value of $10,493,385 or 0.16% of the Fund's net assets, has been purchased as a forward
commitment. The Fund has agreed on the trade date, to take delivery of and make payment on a delayed basis
subsequent to the date of this schedule. The purchase price and interest rate of the security is fixed at the
trade date. The Fund does not earn any interest on this security until its settlement date. The Fund has
instructed its Custodian Bank to segregate assets with the current value at least equal to the amount of its
forward commitment. Accordingly, the Fund's investment in Federal Home Loan Bank, 5.815% due 01-15-98, valued
at $3,997,480 and Federal Home Loan Bank, 5.90% due 09-16-98, valued at $10,000,000 has been segregated to
cover the forward commitment.
See Note A of the Notes to Financial Statements for valuation policy.
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>
NOTES TO FINANCIAL STATEMENTS
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust") (formerly Freedom
Investment Trust) is an open-end management investment company,
registered under the Investment Company Act of 1940. The Trust
consists of three series portfolios: John Hancock Regional Bank Fund
(the "Fund"), John Hancock Disciplined Growth Fund and John Hancock
Financial Industries Fund. The other two 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 Board of Trustees voted to temporarily
suspend accepting new investors in the Fund at the close of business
on March 12, 1997.
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. All portfolio
transactions initially expressed in terms of foreign currencies have
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 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 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.
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 appropriate 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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. These agreements enable the Fund to participate with
other Funds managed by the Adviser in an unsecured line of credit
with banks which permit borrowings up to $600 million, collectively.
Interest is charged to each Fund, based on its borrowings, at a rate
equal to 0.50% over the Fed Funds Rate. In addition, a commitment
fee, at a rate of 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating
Funds. The Fund had no borrowing activity for the year ended October
31, 1997.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially
expressed in terms of foreign currencies are translated into U.S.
dollars based on London currency exchange quotations as of 5:00PM,
London time, on the date of any determination of the net asset value
of the Fund. Transactions affecting statement of operations accounts
and net realized gain/(loss) on investments are translated at the
rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from
sales of foreign currency, currency gains or losses realized between
the trade and settlement dates on securities transactions and the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in the exchange rate.
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.
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 year ended October
31, 1997, JH Funds received net sales of $13,953,243 with regard to
sales of Class A shares. Out of this amount, $2,179,219 was retained
and used for printing prospectuses, advertising, sales literature
and other purposes, $10,843,803 was paid as sales commissions to
unrelated broker-dealers, and $930,221 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 ("JHMLICo"), is the indirect sole shareholder of
Distributors and was the indirect shareholder until November 29,
1996 of 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 JH Funds
and are used in whole or in part to defray its expenses related to
providing distribution related services to the Fund in connection
with the sale of Class B shares. For the year ended October 31,
1997, the contingent deferred sales charges received by JH Funds
amounted to $7,693,431.
In addition, to reimburse JH Funds 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 JH Funds for its distribution and service costs. Up to a
maximum of 0.25% of such payments may be service fees as defined by
the amended Rules of Fair Practice of the National Association of
Securities Dealers. Under the amended Rules of Fair Practice,
curtailment of a portion of the Fund's 12b-1 payments could occur
under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax
and financial management services for the Funds. The compensation
for the year was at an annual rate of less than 0.02% of the average
net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees 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. 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 another
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, 1997, the Fund's
investments to cover the defined compensation liability had
unrealized appreciation of $6,122.
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 year ended October 31, 1997, aggregated
$1,544,328,015, and $222,958,743, respectively. There were no
purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1997.
The cost of investments owned at October 31, 1997 (including the
short-term investments) for Federal income tax purposes was
$3,846,672,705. Gross unrealized appreciation and depreciation of
investments aggregated $2,616,705,942 and $7,476,269, respectively,
resulting in net unrealized appreciation of $2,609,229,673.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1997, the Fund has reclassified
amounts to reflect a decrease in accumulated net realized gain on
investments of $6,875,968, a decrease in undistributed net
investment income of $555,534 and an increase in capital paid-in of
$7,431,502. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as
of October 31, 1997. 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, and the Fund's use
of the tax accounting practice known as equalization. The
calculation of net investment income in the financial highlights
excludes these adjustments.
NOTE E --
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of
1940, are those in which the Fund's holdings of an issuer represent
5% or more of the outstanding voting securities of the issuer.
A summary of the Fund's transactions in the securities of these
issuers during the year ended October 31, 1997 is set forth below.
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
Beginning -----------------------------------------------------
Share Share Share
Affiliate Amount Amount Cost Amount Cost
- --------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ABC Bancorp (GA) 130,000 43,000 $ 173,988 -- $ --
BancFirst Corp. (OK) 302,100 43,500 1,286,000 -- --
Banknorth Group, Inc. (VT) 386,500 30,000 1,220,000 -- --
Bay View Capital Corp. (CA) 294,000 488,400 5,327,481 25,000 821,750
BostonFed Bancorp., Inc. (MA) 325,700 -- -- -- --
Bryn Mawr Bank Corp. (PA) 79,200 11,000 381,250 -- --
CCF Holding Co. (G.A.) 49,000 -- -- 4,300 49,450
California Community
Bancshares (CA) 5,000 55,020 694,678 -- --
Calumet Bancorp, Inc.* (IL) 138,000 -- -- -- --
Collective Bancorp, Inc. (NJ) 1,242,900 -- -- -- --
Commercial Bankshares,
Inc. (FL) 159,000 12,950 83,963 -- --
Commercial Federal
Corp. (NE) 360,200 937,000 25,307,132 -- --
Community Bank, Ser B,
13.00% (CA) 40,000 -- -- -- --
First Federal Bancorp. (MN) 42,000 14,000 252,000 -- --
First Independence Corp. (KS) 35,500 35,500 -- -- --
First Mutual Bancorp., Inc. (IL) 185,000 83,000 1,297,750 30,000 382,500
First Source Capital Trust II,
7.42% (IN) -- 40,000 1,000,000 -- --
First Washington Realty Trust,
Ser. A, 9.75% (MD) 113,498 -- -- -- --
FNB Rochester Corp. (NY) 168,737 56,600 797,600 -- --
GA Financial, Inc. (PA) 420,000 -- -- -- --
Harbor Federal Bancorp.,
Inc. (MD) 80,000 35,000 608,125 -- --
HF Financial Corp. (SD) 150,000 -- -- -- --
Home Federal Bancorp. (IN) 46,000 177,800 4,208,501 -- --
IFC Capital Trust I, 9.25% (IN) -- 160,000 4,000,000 -- --
Independent Bank Corp. (MA) 480,000 494,000 5,101,125 -- --
ISB Financial Corp. (LA) 335,000 15,000 279,375 -- --
Landmark Bancshares, Inc. (KS) 100,000 -- -- -- --
Logansport Financial
Corp. (IN) 50,000 67,500 818,438 -- --
MFB Corp. (IN) 100,000 -- -- 10,000 152,500
Mississippi View Holding
Co. (MN) 40,000 30,000 1,896,800 -- --
Northeast Indiana Bancorp.,
Inc. (IN) 55,000 60,000 817,500 20,500 279,313
North Fork Bancorp., Inc. (NY) 727,309 2,214,109 26,953,259 -- --
Prestige Bancorp Inc. (PA) 40,000 42,000 583,000 -- --
Primary Bank (NH) 80,000 30,250 465,938 -- --
Prime Retail, Inc. 340,431 50,000 643,750 -- --
QCF Bancorp, Inc.* (MN) 50,000 20,000 360,000 -- --
Roosevelt Financial Group,
Inc. (MD) 1,943,123 -- -- 90,000 1,580,001
SFS Bancorp., Inc. (NY) 45,000 49,000 784,000 20,000 320,000
Simmons First National
Corp. (AR) 189,000 114,500 624,375 -- --
Sobieski Bancorp., Inc. (IN) 40,000 -- -- -- --
State Financial Services
Corp. (Class A) (WI) 57,600 131,020 2,355,324 1,400 29,750
Sterling Bancshares Capital
Trust I, 9.28% (TX) -- 60,000 1,500,000 -- --
Tappan Zee Financial,
Inc. (NY) 67,500 30,000 442,500 10,000 121,250
Texarkana First Financial
Corp. (AR) 96,800 28,000 462,000 -- --
TriCo Bancshares (CA) 183,050 41,000 1,039,781 -- --
Union Planters Corp. (TN) 1,831,939 324,800 14,019,560 91,500 4,175,381
Vectra Banking
Corporation (CO) 50,000 247,150 2,792,713 5,000 89,625
Vermont Financial
Services Corp. (VT) 359,200 422,972 1,180,626 2,500 88,697
Virginia First Financial
Corp. (VA) 260,000 -- -- -- --
WesterFed Financial
Corp. (MT) 230,000 57,426 -- -- --
----------- ----------
$109,758,532 $8,090,217
============ ==========
</TABLE>
<TABLE>
<CAPTION>
Ending
Share Realized Dividend Ending
Affiliate Amount Gain (Loss) Income Value
- --------- --------------------------------------------------
<S> <C> <C> <C> <C>
ABC Bancorp (GA) 173,000*(1) $ -- $ 59,270 $ --
BancFirst Corp. (OK) 345,600 -- 129,040 10,972,800
Banknorth Group, Inc. (VT) 416,500 -- 458,980 25,198,250
Bay View Capital Corp. (CA) 757,400* 453,208 228,816 23,100,700
BostonFed Bancorp., Inc. (MA) 325,700 -- 78,168 6,676,850
Bryn Mawr Bank Corp. (PA) 90,200(1) -- 46,548 --
CCF Holding Co. (G.A.) 44,700 14,513 34,653 938,700
California Community
Bancshares (CA) 60,020 -- 28,512 1,620,540
Calumet Bancorp, Inc.* (IL) 138,000 -- -- 6,969,000
Collective Bancorp, Inc. (NJ) --(1, 2) -- 1,006,925 --
Commercial Bankshares,
Inc. (FL) 171,950 -- 57,563 3,911,862
Commercial Federal
Corp. (NE) 1,297,200* -- 303,023 62,914,200
Community Bank, Ser B,
13.00% (CA) 40,000 -- 130,000 1,120,000
First Federal Bancorp. (MN) 56,000 -- -- 1,407,000
First Independence Corp. (KS) 71,000* -- 16,863 1,047,250
First Mutual Bancorp., Inc. (IL) 238,000 53,750 71,120 4,373,250
First Source Capital Trust II,
7.42% (IN) 40,000 -- 39,468 1,000,000
First Washington Realty Trust,
Ser. A, 9.75% (MD) 113,498(1) -- 276,663 --
FNB Rochester Corp. (NY) 225,337 -- 80,991 4,084,233
GA Financial, Inc. (PA) 420,000 -- 159,600 8,190,000
Harbor Federal Bancorp.,
Inc. (MD) 115,000 -- 44,800 2,357,500
HF Financial Corp. (SD) 150,000 -- 56,250 3,862,500
Home Federal Bancorp. (IN) 223,800* -- 70,185 8,224,650
IFC Capital Trust I, 9.25% (IN) 160,000 -- 260,012 4,400,000
Independent Bank Corp. (MA) 974,000 -- 265,425 14,610,000
ISB Financial Corp. (LA) 350,000 -- 142,225 8,618,750
Landmark Bancshares, Inc. (KS) 100,000 -- 40,000 2,300,000
Logansport Financial
Corp. (IN) 117,500 -- 40,250 1,806,562
MFB Corp. (IN) 90,000 37,500 37,600 2,058,750
Mississippi View Holding
Co. (MN) 70,000 -- $8,800 $1,233,750
Northeast Indiana Bancorp.,
Inc. (IN) 94,500 18,803 24,320 1,890,000
North Fork Bancorp., Inc. (NY) 2,941,418* -- 1,495,155 --
Prestige Bancorp Inc. (PA) 82,000 -- 7,230 1,517,000
Primary Bank (NH) 110,250 -- -- 3,114,563
Prime Retail, Inc. 390,431(1) -- 445,959 --
QCF Bancorp, Inc.* (MN) 70,000 -- -- 1,890,000
Roosevelt Financial Group,
Inc. (MD) --(1,3) 113,125 1,064,768 --
SFS Bancorp., Inc. (NY) 74,000 9,989 18,240 1,702,000
Simmons First National
Corp. (AR) 303,500* -- 155,890 10,850,125
Sobieski Bancorp., Inc. (IN) 40,000 -- 8,800 750,000
State Financial Services
Corp. (Class A) (WI) 187,220* -- 51,595 4,820,915
Sterling Bancshares Capital
Trust I, 9.28% (TX) 60,000 -- 33,253 1,548,750
Tappan Zee Financial,
Inc. (NY) 87,500 17,500 20,000 1,793,750
Texarkana First Financial
Corp. (AR) 124,800 -- 59,874 3,252,600
TriCo Bancshares (CA) 224,050(1) -- 126,912 --
Union Planters Corp. (TN) 2,065,239(1) 350,939 3,027,776 --
Vectra Banking
Corporation (CO) 292,150* 27,246 -- 7,632,419
Vermont Financial
Services Corp. (VT) 779,672* -- 467,422 20,368,931
Virginia First Financial
Corp. (VA) 260,000(1) -- 26,000 --
WesterFed Financial
Corp. (MT) 287,426* -- 118,431 6,970,080
---------- ----------- ------------
$1,096,573 $11,323,375 $281,098,230
========== =========== ============
* Shares reflect stock split.
(1) As of October 31, 1997, no longer an affiliated issuer.
(2) Acquired by Summit Bancorp. effective August 1, 1997.
(3) Acquired by Mercantile Bancorp., Inc. effective July 2, 1997.
</TABLE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock Regional Bank Fund
and the Trustees of John Hancock Investment Trust II
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 John Hancock Investment Trust II) at October 31, 1997,
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
owned at October 31, 1997 by correspondence with the custodian and
the application of alternative auditing procedures where investments
purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 15, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is
furnished with respect to the distributions of the Fund for its
fiscal year ended October 31, 1997.
The Fund designated a distribution to shareholders of $18,396,588 as
a capital gain dividend. All of this amount is a 28% rate gain
distribution.
With respect to the dividends paid by the Fund for the fiscal year
ended October 31, 1997, 58.41% of the dividends qualify for the
corporate dividends received deduction.
Shareholders will receive a 1997 U.S. Treasury Department Form 1099-
DIV in January 1998. This will reflect the tax character of all
distributions received during calendar year 1997.
NOTES
John Hancock Funds - Regional Bank Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - Regional Bank Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
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This report is for the information of shareholders of the John
Hancock Regional Bank Fund. It may be used as sales literature when
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charges, investment objectives and operating policies.
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0100A 10/97
12/97
