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John Hancock Funds
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Disciplined
Growth
Fund
SEMI-ANNUAL REPORT
April 30, 1997
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TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
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
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
As the market continues to fret over interest rates and inflation,
investors should be prepared for more volatility. It also makes sense to do
something we've always advocated: set realistic expectations. Keep in mind that
the stock market's historic yearly average has been about 10%, not the 20%-plus
annual average of the last two years or even the 16% annual average over the
last 10 years. Remember that the kind of market volatility we've seen lately is
more like the way the market really works. Fluctuations go with the territory.
And market corrections can be healthy, serving to bring inflated stock prices
down to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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By John Snyder and Jere Estes, Co-Portfolio Managers
John Hancock
Disciplined Growth Fund
"Goldilocks" vanishes, then reappears, while predictable
earnings growth continues to drive Fund strategy
Good news closed out 1996 and ushered investors into 1997. The main cause for
celebration was the shift toward what we call a "Goldilocks" economy, that is,
an economy that is not too hot and not too cold, but just right. With the best
of both worlds: moderate economic growth and tame inflation, stocks had the wind
at their backs from October until early March. In fact, the Dow Jones Industrial
Average broke through the 7000 level for the first time in early March.
With surprisingly strong employment numbers in mid-March rekindling fears of
inflation, however, Goldilocks quickly disappeared and stocks started on a
precipitous decline. The situation worsened when the Federal Reserve -- the
supreme arbiter of economic growth -- raised short-term interest rates
one-quarter of a percentage point in an attempt to curb the economy's new-found
growth and pre-empt an inflation surge. From mid-March to mid-April, the Dow
Jones Industrial Average lost nearly 700 points.
Remarkably, Goldilocks reappeared in the last few weeks of April, pushing
stocks back up toward their record-breaking territory by the end of the period.
Positive inflation news -- both from the consumer price index and gross domestic
product reports -- temporarily calmed investors' fears of an overheating economy
and another imminent interest-rate hike by the Federal Reserve. By the end of
April, the Dow Jones Industrial Average had once again soared above the 7000
threshold.
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Stocks rode a rollercoaster during the last six months.
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[A 2 1/4" x 3 3/4" photo of the portfolio management team at bottom right.
Caption reads: "Disciplined Growth Fund management team members: (l-r) Jere
Estes, Anne McDermott, John Snyder."]
3
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John Hancock Funds - Discilined Growth Fund
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Microsoft 2.0% 2) SmithKline Beecham 2.0% 3)
Hewlett-Packard 2.0% 4. Home Depot 1.9% 5)Interpublic Group 1.9%. A footnote
below reads: "As a percentage of net assets on April 30, 1997."]
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"Retail stocks were among the Fund's best performers."
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Performance scorecard
Even with the tumultuous market, John Hancock Disciplined Growth Fund turned in
solid results. For the six months ended April 30, 1997, the Fund's Class A and
Class B shares had a total return of 7.07% and 6.75%, respectively, at net asset
value. By comparison, the average growth fund had a total return of 7.15%,
according to Lipper Analytical Services, Inc.1 Please see pages six and seven
for longer-term performance information.
Retail stocks languished for most of 1996, topped off by a disappointing
Christmas season. A strong pick-up in consumer spending, however, lifted the
group out of its doldrums during the first quarter of this year. Our biggest
winners were the home-improvement store Home Depot, and auto-repair chain Pep
Boys.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment" and the header for the right column is "Recent
performance...and what's behind the numbers." The first listing is Home Depot
followed by an up arrow and the phrase "Pick-up in consumer spending." The
second listing is Mobil followed by an up arrow and the phrase "Rising oil
prices/increasing demand. The third listing is Oracle followed by a down arrow
and the phrase "Technology stocks fall out of favor." Footnote below reads "See
"schedule of Investments." Investment holdings are subject to change."]
Our technology stocks did not fare as well. So-called "momentum" investors --
who tend to latch onto fast rising stocks and then bail out at the first sign of
weakness-- fled the sector when the market took a turn for the worse in
mid-March. There was no discrimination between the good and bad technology
stocks. The entire group was painted with the same negative brush. Our
technology holdings -- such as Cisco Systems and Oracle -- were no exception.
Searching for value
Narrow market leadership has meant only a small group of stocks have contributed
to the market's gains. Because of neglect, more than anything else, many good
stocks, particularly in the mid-cap sector, have been left behind. We've taken
advantage of this opportunity to add stocks to the portfolio that meet our
investment criteria.
By maintaining the same sector weightings as the Standard & Poor's 500 Stock
Index, we avoid making bets on any one sector. Instead, within each sector, we
target the stocks with the best prospects for predictable and stable earnings
growth over the long haul. In addition, we look for those companies that have
low levels of debt, seasoned management and a sustainable competitive advantage
both domestically and globally. Below are three new holdings that fit the bill.
Leggett & Platt. This bedding/furniture component manufacturer is the
dominant player in this fragmented industry. The company is growing rapidly by
gaining share from or acquiring weaker competitors. What's more, Leggett & Platt
has plenty of resources to spend on research and development. Its innovative
products are also helping the company strengthen its leadership position. While
Leggett & Platt may not be in the hottest industry, the company does offer what
we look for first and foremost in selecting stocks: predictable and stable
earnings growth.
Ecolabs. The same holds true for Ecolabs. This specialty-chemical company
supplies cleaning products primarily to the hotel/motel indus-
4
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John Hancock Funds - Discilined Growth Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." The chart is
scaled in increments of 2% from bottom to top, with 10% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
7.07% total return for John Hancock Disciplined Growth Fund: Class A. The second
represents the 6.75% total return for John Hancock Disciplined Growth Fund:
Class B. The third represents the 7.15%% total return for the average growth
fund. Footnote below reads: "Total returns for John Hancock Disciplined Growth
Fund are at net asset value with all distributions reinvested. The average
growth fund is tracked by Lipper Analytical Services. (1) See the following two
ages for historical performance information."]
try. Much like Leggett & Platt, Ecolabs is the dominant player in a fragmented
industry. With U.S. hotels expanding both domestically and internationally,
Ecolabs has been able to grow its market share.
RPM. This company, which makes protective coatings for decks and other wood
products, has recently refocused its business with several strategic
acquisitions and divestitures. The stock normally sells at a premium to the
market. However, it is currently trading at discount simply because of investor
neglect. With a stellar track record of 40 years of consecutive earnings
increases, RPM offered an attractive buying opportunity that we could not pass
up.
Outlook
Despite the stock market's recent rebound, we still expect to see more
volatility in the months ahead as investors worry about the direction of the
economy and the Federal Reserve's next interest-rate moves. Most Wall Street
analysts agree that the Fed probably is not through raising interest rates this
year. The big question, however, is how much further and how fast will the Fed
increase rates to keep the economy moving along at the right pace. With this
uncertainty looming over the market, investors will be constantly looking over
their shoulders.
Another area of uncertainty is corporate earnings. After two record-setting
years, earnings are likely to slow, especially given the increased pressure on
margins. Although inflation has remained moderate, labor costs -- which account
for almost two-thirds of corporate costs -- have started to inch up. The problem
is that cut-throat competition precludes many companies from offsetting these
rising labor costs with price increases. As a result, we're likely to see a
gradual compression in margins and more sluggish earnings.
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"Now, more than ever, we believe that it is a stock picker's market."
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Given these trends, investors would do well to temper their expectations for
1997. It is important to realize that stocks are not likely to repeat their
phenomenal returns of 1995 and 1996. Having said that, though, we are still
constructively optimistic on stocks. In spite of all the worry, we do not
believe that inflation poses a serious threat, especially given the Federal
Reserve's determination to keep it under control. Favorable inflation trends --
combined with continued market liquidity and improving economic growth overseas
- -- bode well for U.S. stocks. Now, more than ever, we believe that it is a stock
picker's market. A rising tide is no longer lifting all boats, so stock
selectivity is paramount. Given that, we will continue to take advantage of any
market weakness to find opportunities in stocks that meet the Fund's investment
criteria of stable, predictable earnings growth.
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This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
1 Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Disciplined Growth Fund. Total return is a
performance measure that equals the sum of all dividend and capital gains
dividends, assuming reinvestment of these distributions and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Performance figures include the maximum applicable sales charge
of 5% for Class A shares. The effect of the maximum contingent-deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six years) is
included in Class B performance. Prior to August 1992, different sales charges
were in effect for Class A shares and are not reflected in the performance data.
Remember that all figures represent past performance and are no guarantee of how
the Fund will perform in the future. Also, keep in mind that the total return
and share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost, depending on
when you sell them.
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CUMULATIVE TOTAL RETURNS
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For the period ended March 31, 1997
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
John Hancock Disciplined Growth
Fund: Class A(1) 4.36% 57.66% 52.76%
John Hancock Disciplined Growth
Fund: Class B(2) 4.09% 58.94% 124.45%
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended March 31, 1997
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
John Hancock Disciplined Growth
Fund: Class A(1) 4.36% 9.53% 8.42%
John Hancock Disciplined Growth
Fund: Class B(2) 4.09% 9.71% 8.47%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
(2) Class B shares commenced on April 22, 1987.
6
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
Disciplined Growth Fund would be worth on April 30, 1997, assuming you had
invested on the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index -- an unmanaged index that includes 500 widely
traded common stocks and is a commonly used measure of stock market performance.
[Line chart with the heading Disciplined Growth Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the Disciplined Growth
Fund, after sales charge, and is equal to $16,071 as of April 30, 1997. The
second line represents the value of the hypothetical $10,000 investment made in
the Disciplined Growth Fund on January 3, 1992, before sales charge, and is
equal to $16,917 as of April 30, 1997. The third line represents the value of
the Standard & Poor's 500 Stock Index, and is equal to $22,076 as of April 30,
1997.]
[Line chart with the heading Disciplined Growth Fund: Class B*, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines. The first line represents the value of the Standard &
Poor's 500 Stock Index, and is equal to $37,118 as of April 30, 1997. The second
line represents the value of the hypothetical $10,000 investment made in the
Disciplined Growth Fund on April 22, 1987, before sales charge, and is equal to
$23,609 as of April 30, 1997.]
* No contingent deferred sales charge applicable.
7
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FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - 89,039,181) .......................... $111,391,925
Joint repurchase agreement (cost - $10,868,000) ............ 10,868,000
Corporate savings account .................................. 690
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............................................................... 122,260,615
Receivable for shares sold ................................... 26,676
Dividends receivable ......................................... 130,970
Interest receivable .......................................... 1,626
Foreign tax receivable ....................................... 600
Other assets ................................................. 3,557
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Total Assets ..................... 122,424,044
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Liabilities:
Payable for investments purchased ............................ 1,193,000
Payable for shares repurchased ............................... 81,390
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 114,560
Accounts payable and accrued expenses ........................ 45,992
------------
Total Liabilities ................ 1,434,942
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Net Assets:
Capital paid-in .............................................. 91,397,132
Accumulated net realized gain on investments ................. 7,315,265
Net unrealized appreciation of investments ................... 22,353,072
Accumulated net investment loss .............................. ( 76,367)
------------
Net Assets ....................... $120,989,102
=================================================
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 - $30,925,407 / 2,079,053 ............................ $ 14.87
=============================================================================
Class B - $90,063,695 / 6,167,167 ............................ $ 14.60
=============================================================================
Maximum Offering Price Per Share*
Class A - ( $14.87 x 105.26%) ................................ $ 15.65
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* On a single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
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Investment Income:
Dividends (net of foreign withholding taxes of $1,800) $ 928,991
Interest 205,285
------------
1,134,276
------------
Expenses:
Investment management fee - Note B 454,698
Distribution and service fee - Note B
Class A 44,287
Class B 458,641
Transfer agent fee - Note B 166,205
Registration and filing fees 21,851
Custodian fee 20,034
Printing 13,425
Auditing fee 11,653
Financial services fee - Note B 11,367
Trustees' fees 5,397
Miscellaneous 1,825
Legal fees 1,260
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Net Expenses 1,210,643
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Net Investment Loss ( 76,367)
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Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold 7,315,324
Change in net unrealized appreciation/depreciation
of investments 852,401
------------
Net Realized and Unrealized
Gain on Investments 8,167,725
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Net Increase in Net Assets
Resulting from Operations $ 8,091,358
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ...................................................... ($ 83,995) ($ 76,367)
Net realized gain on investments sold .................................... 13,412,288 7,315,324
Change in net unrealized appreciation/depreciation of investments ........ 10,413,875 852,401
Net Increase in Net Assets Resulting from Operations ................... 23,742,168 8,091,358
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.1030 and $1.7182 per share, respectively) ................ ( 218,913) ( 3,141,926)
Class B - ($0.1030 and $1.7182 per share, respectively) ................ ( 691,213) ( 10,186,413)
Total Distributions to Shareholders .................................... ( 910,126) ( 13,328,339)
From Fund Share Transactions - Net* ........................................ ( 15,386,732) 4,911,108
Net Assets:
Beginning of period ...................................................... 113,869,665 121,314,975
End of period (including accumulated net investment loss of
none and $76,367, respectively) ........................................ $121,314,975 $120,989,102
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ....................................................... 1,009,864 $14,846,003 232,536 $ 3,435,195
Shares issued to shareholders in reinvestment of distributions .... 15,749 211,679 212,762 3,036,113
--------- ----------- ------- -----------
.................................................................... 1,025,613 15,057,682 445,298 6,471,308
Less shares repurchased ........................................... (1,345,465) ( 19,632,832) (215,000) ( 3,200,477)
--------- ----------- ------- -----------
Net increase (decrease) ........................................... ( 319,852) ($ 4,575,150) 230,298 $ 3,270,831
========= =========== ======= ===========
CLASS B
Shares sold ....................................................... 687,430 $ 9,579,944 239,683 $ 3,498,185
Shares issued to shareholders in reinvestment of distributions .... 48,668 649,722 656,616 9,225,452
--------- ----------- ------- -----------
.................................................................... 736,098 10,229,666 896,299 12,723,637
Less shares repurchased ........................................... (1,497,331) ( 21,041,248) (758,161) ( 11,083,360)
--------- ----------- ------- -----------
Net increase (decrease) ........................................... ( 761,233) ($10,811,582) 138,138 $ 1,640,277
========= =========== ======= ===========
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders, if any, and any increase or decrease in money shareholders
invested in the Fund. The footnote illustrates the number of Fund shares
sold,reinvested and repurchased during the last two periods, along with the
corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $12.81 $ 10.99 $ 12.39 $ 12.02 $ 12.77 $ 15.56
------ ------- ------- ------- ------- -------
Net Investment Income ................................. 0.06(2) 0.08(2) 0.10 0.08(2) 0.07(2) 0.03(2)
Net Realized and Unrealized Gain (Loss)
on Investments ...................................... ( 0.06) 1.34 0.07 1.29 2.82 1.00
------ ------- ------- ------- ------- -------
Total from Investment Operations .................... 0.00 1.42 0.17 1.37 2.89 1.03
------ ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................. ( 0.07) ( 0.02) ( 0.10) ( 0.10) -- --
Distributions from Net Realized Gain on
Investments Sold .................................... ( 1.74) -- ( 0.44) ( 0.52) ( 0.10) ( 1.72)
Distributions from Capital Paid-In .................... ( 0.01) -- -- -- -- --
------ ------- ------- ------- ------- -------
Total Distributions ................................. ( 1.82) ( 0.02) ( 0.54) ( 0.62) ( 0.10) ( 1.72)
------ ------- ------- ------- ------- -------
Net Asset Value, End of Period ........................ $10.99 $ 12.39 $ 12.02 $ 12.77 $ 15.56 $ 14.87
====== ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(3) ......... 0.19%(4) 12.97% 1.35% 12.21% 22.78% 7.07%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $1,771 $23,372 $23,292 $27,692 $28,760 $30,925
Ratio of Expenses to Average Net Assets ............... 1.73%(5) 1.60% 1.53% 1.46% 1.47% 1.47%(5)
Ratio of Net Investment Income to Average Net Assets .. 0.62%(5) 0.64% 0.83% 0.69% 0.46% 0.40%(5)
Portfolio Turnover Rate ............................... 246% 71% 60% 65% 78% 25%
Average Broker Commission Rate(6) ..................... N/A N/A N/A N/A $0.0698 $0.0700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
------- ------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $ 11.71 $ 10.97 $ 12.31 $ 11.95 $ 12.69 $ 15.35
------- ------- ------- ------- ------- -------
Net Investment Income (Loss) ......................... 0.01(2) 0.02(2) 0.03 0.01(2) ( 0.03)(2) ( 0.02)(2)
Net Realized and Unrealized Gain on Investments ...... 1.05 1.33 0.07 1.28 2.79 0.99
------- ------- ------- ------- ------- -------
Total from Investment Operations ................... 1.06 1.35 0.10 1.29 2.76 0.97
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................. ( 0.03) ( 0.01) ( 0.02) ( 0.03) -- --
Distributions from Net Realized Gain on
Investments Sold ................................... ( 1.76) -- ( 0.44) ( 0.52) ( 0.10) ( 1.72)
Distributions from Capital Paid-In ................... ( 0.01) -- -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions ................................ ( 1.80) ( 0.01) ( 0.46) ( 0.55) ( 0.10) ( 1.72)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ....................... $ 10.97 $ 12.31 $ 11.95 $ 12.69 $ 15.35 $ 14.60
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(3) ........ 7.22% 12.34% 0.78% 11.51% 21.89% 6.75%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $23,525 $93,853 $94,431 $86,178 $92,555 $90,064
Ratio of Expenses to Average Net Assets .............. 2.27% 2.09% 2.10% 2.11% 2.17% 2.17%(5)
Ratio of Net Investment Income (Loss) to Average
Net Assets ......................................... 0.10% 0.17% 0.25% 0.06% ( 0.24%) ( 0.30%)(5)
Portfolio Turnover Rate .............................. 246% 71% 60% 65% 78% 25%
Average Broker Commission Rate(6) .................... N/A N/A N/A N/A $0.0698 $0.0700
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Disciplined Growth Fund on April 30, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (1.87%)
Interpublic Group, Inc. .................. 40,000 $ 2,265,000
-----------
Aerospace (1.59%)
Rockwell International Corp. ............. 29,000 1,928,500
-----------
Banks (5.66%)
Compass Bancshares, Inc. ................. 30,000 907,500
First Tennessee National Corp. .......... 30,000 1,301,250
Mellon Bank Corp. ........................ 10,000 831,250
Norwest Corp. ............................ 30,000 1,496,250
Regions Financial Corp. .................. 20,000 1,135,000
Southern National Corp. .................. 30,000 1,177,500
-----------
6,848,750
-----------
Beverages (1.73%)
PepsiCo, Inc. ............................ 60,000 2,092,500
-----------
Building (3.22%)
Clayton Homes, Inc. ...................... 75,000 1,050,000
Masco Corp. .............................. 40,000 1,510,000
RPM, Inc. ................................ 80,000 1,340,000
-----------
3,900,000
-----------
Chemicals (0.99%)
Sigma-Aldrich Corp. ...................... 40,000 1,200,000
-----------
Computers (12.70%)
Automatic Data Processing, Inc. .......... 30,000 1,357,500
Cisco Systems, Inc.* ..................... 34,000 1,759,500
Compaq Computer Corp.* ................... 10,000 853,750
Electronic Data Systems Corp. ............ 50,000 1,668,750
Fiserv, Inc.* ............................ 45,000 1,698,750
Hewlett-Packard Co. ...................... 45,000 2,362,500
Microsoft Corp.* ......................... 20,000 2,430,000
Oracle Corp.* ............................ 38,000 1,510,500
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
Sun Microsystems, Inc.* .................. 60,000 $ 1,728,750
-----------
15,370,000
-----------
Containers (2.85%)
Bemis Co. ................................ 40,000 1,525,000
Crown Cork & Seal Co., Inc. .............. 35,000 1,916,250
-----------
3,441,250
-----------
Diversified Operations (2.12%)
Federal Signal Corp. ..................... 50,000 1,218,750
Ikon Office Solutions, Inc. .............. 50,000 1,343,750
-----------
2,562,500
-----------
Electronics (2.18%)
Emerson Electric Co. ..................... 30,000 1,522,500
General Electric Co. ..................... 10,000 1,108,750
-----------
2,631,250
-----------
Finance (3.40%)
First Data Corp. ......................... 55,000 1,897,500
Franklin Resources, Inc. ................. 37,500 2,217,187
-----------
4,114,687
-----------
Food (2.79%)
ConAgra, Inc. ............................ 30,000 1,728,750
CPC International, Inc. .................. 20,000 1,652,500
-----------
3,381,250
-----------
Furniture (1.44%)
Leggett & Platt, Inc. .................... 50,000 1,737,500
-----------
Household (1.45%)
Newell Co. ............................... 50,000 1,750,000
-----------
Insurance (6.75%)
AFLAC, Inc. .............................. 50,000 2,150,000
American International Group, Inc. ....... 15,000 1,927,500
General Re Corp. ......................... 4,000 669,000
ReliaStar Financial Corp. ................ 20,000 1,210,000
Travelers Group, Inc. .................... 40,000 2,215,000
-----------
8,171,500
-----------
Leisure (0.55%)
X-Rite, Inc. ............................. 40,000 660,000
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Linen Supply & Related (0.84%)
G & K Services, Inc. (Class A) ........... 35,000 $ 1,015,000
-----------
Machinery (2.33%)
Dover Corp. .............................. 25,000 1,325,000
Pentair, Inc. ............................ 50,000 1,493,750
-----------
2,818,750
-----------
Media (1.08%)
Gannett Co., Inc. ........................ 15,000 1,308,750
-----------
Medical (11.04%)
Abbott Laboratories ...................... 35,000 2,135,000
Eli Lilly & Co. .......................... 15,000 1,318,125
Guidant Corp. ............................ 20,000 1,365,000
Johnson & Johnson ........................ 25,000 1,531,250
Jones Medical Industries, Inc. ........... 50,000 1,762,500
Medtronic, Inc. .......................... 20,000 1,385,000
Pfizer, Inc. ............................. 15,000 1,440,000
SmithKline Beecham PLC,
American Depositary Receipts
(ADR) (United Kingdom) ................. 30,000 2,418,750
-----------
13,355,625
-----------
Metal (1.91%)
Illinois Tool Works, Inc. ................ 15,000 1,370,625
Worthington Industries, Inc. ............. 50,000 943,750
-----------
2,314,375
-----------
Oil & Gas (9.63%)
Amoco Corp. .............................. 15,000 1,254,375
Chevron Corp. ............................ 19,000 1,301,500
Enron Corp. .............................. 35,000 1,316,875
Enron Oil & Gas Co. ...................... 67,000 1,247,875
Exxon Corp. .............................. 10,000 566,250
Mobil Corp. .............................. 12,000 1,560,000
Repsol SA (ADR ) (Spain) ................. 25,000 1,046,875
Sonat, Inc. .............................. 30,000 1,713,750
Williams Cos., Inc. (The) ................ 37,500 1,645,313
-----------
11,652,813
-----------
Paper & Paper Products (1.44%)
Kimberly-Clark Corp. ..................... 34,000 1,742,500
-----------
Retail (6.62%)
Arbor Drugs, Inc. ........................ 60,000 1,102,500
Family Dollar Stores, Inc. ............... 40,000 1,045,000
Home Depot, Inc. ......................... 40,000 2,320,000
Pep Boys - Manny, Moe & Jack ............. 65,000 2,120,625
Sysco Corp. .............................. 40,000 1,420,000
-----------
8,008,125
-----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Soap & Cleaning Preparations (1.01%)
Ecolab, Inc. ............................. 30,000 $ 1,222,500
-----------
Utilities (4.88%)
Century Telephone Enterprises, Inc. ...... 55,000 1,643,125
National Fuel Gas Co. .................... 27,000 1,123,875
Questar Corp. ............................ 38,600 1,466,800
SBC Communications, Inc. ................. 30,000 1,665,000
-----------
5,898,800
-----------
TOTAL COMMON STOCKS
(Cost $89,039,181) (92.07%) 111,391,925
------ -----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.98%)
Investment in a joint repurchase
agreement transaction with
Aubrey G. Lanston & Co. -
Dated 04-30-97, Due
05-01-97 (Secured by
U.S. Treasury Bills, 5.37%
thru 5.78% Due 08-21-97
thru 03-05-98, U.S. Treasury
Bonds, 7.125% thru 11.25%
Due 02-15-15 thru 02-15-23,
and U.S. Treasury Notes,
5.125% thru 7.75%, Due
08-31-98 thru 05-15-05) -
Note A ............................ 3.75% $ 10,868 10,868,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 690
------------
TOTAL SHORT-TERM INVESTMENTS ( 8.98%) 10,868,690
--------- ------------
TOTAL INVESTMENTS ( 101.05%) $122,260,615
========= ============
* 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.
13
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust") (formerly Freedom Investment
Trust) is a diversified open-end management investment company, registered under
the Investment Company Act of 1940. The Trust consists of three series: John
Hancock Disciplined Growth Fund (the "Fund"), John Hancock Regional Bank 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 growth of capital by investing only in established
companies that have demonstrated both earnings growth and stability.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
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.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amount of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended April 30, 1997.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.75% of the first $500,000,000 of the Fund's
average daily net asset value and (b) 0.65% of the Fund's average daily net
asset value in excess of $500,000,000.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. For the period ended April 30, 1997, net sales charges
received with regard to sales of Class A shares amounted to $27,798. Of this
amount, $3,527 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $13,012 was paid as sales commissions to
unrelated broker-dealers and $11,259 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 sole 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 will be
subject to a contingent-deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended April 30, 1997,
the contingent-deferred sales charges paid to JH Funds amounted to $93,265.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 1.00% of Class B average
daily net assets to reimburse the Co-Distributors for their distribution and
service costs. Up to a maximum of 0.25% of such payments may be service fees as
defined by the amended Rules of Fair Practice of the National Association of
Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock 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 Fund. The compensation for the period was
at an annual rate of 0.01875% 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/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
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 April 30,
1997, the Fund's investments to cover the deferred compensation liability had
unrealized appreciation of $328.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1997, aggregated $28,271,124 and $38,809,090, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1997.
The cost of investments owned at April 30, 1997 (excluding the corporate
savings account) for federal income tax purposes was $99,907,181. Gross
unrealized appreciation and depreciation of investments aggregated $24,301,803
and $1,949,059, respectively, resulting in net unrealized appreciation of
$22,352,744.
16
<PAGE>
================================================================================
NOTES
John Hancock Funds - Disciplined Growth Fund
17
<PAGE>
================================================================================
NOTES
John Hancock Funds - Disciplined Growth Fund
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Disciplined Growth Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
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Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
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accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
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