John Hancock Funds
Financial
Industries
Fund
SEMI-ANNUAL REPORT
April 30, 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
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.
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
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, and Thomas Finucane,
Co-Portfolio Managers
John Hancock
Financial Industries Fund
Financial stocks soften in nervous market; earnings
fundamentals stay intact despite rising rates
On the heels of a strong 1996, the stock market continued its upward
march for the first two months of 1997, only to meet a stiff headwind of
inflationary concern and rising interest rates in mid-March. In 1996,
investors had basked in the glow of a slow-growth economy with stable
interest rates. But early in 1997, the engine of economic growth began
to overheat and the Federal Reserve moved toward a more restrictive
monetary policy to pre-empt inflation. The stock market reacted with a
series of gyrations, first giving back most of its gains for the year
and then moving to new highs. The advances were restricted, however,
mostly to a narrow range of large-company stocks. For the six months
ended April 30, the broader market, as measured by the Standard & Poor's
500 Stock Index returned 14.71%.
"Financial
stocks were
not immune
to rising
interest
rates..."
A 2 1/4" x 3 3/4" photo of the portfolio management team. Caption reads:
"James K. Schmidt (seated) and Fund management team members: (l-r) James
Boyd, Thomas Finucane, Patricia Ouimet, Gerard Cronin."
Financial stocks were not immune to rising interest rates and the
market's volatility, especially in the latter part of the period. For
the six months ended April 30, 1997, John Hancock Financial Industries
Fund's Class A shares posted a total return of 8.61% at net asset value,
compared with the 14.35% return for the average financial services fund,
according to Lipper Analytical Services, Inc.1 The Fund's Class B shares
began on January 14, 1997, and for the three months from inception
through April 30, 1997, they returned -1.40% at net asset value.Please
see pages seven and eight for longer-term performance information. We
attribute the Fund's underperformance primarily to two factors. The
first was the higher than usual level of cash earlier in the period, as
this one-year-old Fund's assets have been growing rapidly and we have
been adding holdings to the portfolio selectively. The second was due to
the Fund's strong concentration in the larger banks and consumer loan
companies, both of which were especially affected in the March and April
downturn.
Chart with heading "Top Five Common Stock Holdings" at top left hand
column. The chart lists five holdings: 1) American Express 1.9% 2) Alex
Brown 1.8% 3) Citicorp 1.8% 4) General Re Corp. 1.8% 5) Fannie Mae 1.7%.
A footnote below reads: "As a percentage of net assets on April 30,
1997."
"In 1997,
our model
forecasts
10% earnings
growth over
1996."
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 Allmerica Financial followed by an up arrow and the phrase
"Interesting and inexpensive restructuring story." the second listing is
First USA followed by an up arrow and the phrase "recent takeover by
BancOne." The third listing is Aames Financial followed by a down arrow
and the phrase "Market shuns sub-prime mortgage lenders." Footnote below
reads "See "schedule of Investments." Investment holdings are subject to
change."
Looking forward, we believe it is likely that the Fed will need to
increase rates in the near future to curb inflation. As rates move up,
investors invariably sell financial stocks on the assumption that higher
rates have a negative impact on company earnings. We find this behavior
mistaken, since in recent years financial companies have been able to
adjust their levels of interest income and their interest costs in lock
step, thereby keeping earnings on track.
Earnings trend upward
In 1996, results for the financial sector were strong. Banks and thrifts
once again shattered prior records; brokers and asset managers were
buoyed by vibrant debt and equity activity, and insurance companies
benefited from more favorable underwriting and additional cost cutting.
The macroeconomic triple play of moderate growth, low inflation and
stable interest rates drove earnings-per-share above consensus
estimates. On average, companies reported wider margins, stable overhead
levels and lower share counts due to stock repurchases. Consumer credit
costs, mostly due to elevated levels of problem loans in bank and
finance company portfolios, rose moderately off an unsustainably low
base and had little impact on bottom line profitability. In 1997, our
model forecasts 10% earnings growth over 1996. Recently released first
quarter reports corroborate this thesis as the 1996 trends continue:
wide spreads between interest income and interest costs (despite rising
rates), controlled expenses and share repurchases all are driving
earnings-per-share.
After strong earnings momentum and price strength drove financial stocks
to new highs by early March, the recent downturn has cooled down the
price-to-earnings ratios (a measure of what you're paying for earnings
growth). Banks, asset managers and finance companies, the leaders of the
upward charge, have corrected to more reasonable levels while most
insurance stocks remained inexpensively valued throughout. Only the
brokerage stocks, helped by both real and rumored acquisition activity,
have kept lofty valuations.
Bar chart with heading "Fund Performance" at top of left hand column.
The chart is scaled in increments of 2% with 16% at the top and -2% at
the bottom. Within the chart there are three solid bars. The first
represents the 8.61% total return for John Hancock Financial Industries
Fund: Class A. The second represents the -1.40% return for John Hancock
Financial Industries Fund: Class B. There is an asterisk (*) next to the
- -1.40%. The third represents the 14.35% total return for the Average
financial services fund. Footnote below reads: "Total returns for John
Hancock Financial Industries Fund are at net asset value with all
distributions reinvested. For class A shares and the average financial
services fund, returns are for the six months ended April 30, 1997. The
average financial services fund is tracked by Lipper Analytical
Services, Inc. (1) See pages 7 and 8 for historical performance information.
*For class B shares, return is from January 14, 1997 through April 30,
1997."
The consolidation process keeps going and going
Since its March 1996 inception, nine of the Fund's holdings have
announced mergers. These deals have been spread across several
industries, including banks buying thrifts, banks buying brokers and
brokers buying each other. A major transaction of note is Bankers
Trust's purchase of Alex Brown, one of the Fund's brokerage holdings.
This deal is the first example of a bank taking advantage of newly-
relaxed regulations governing securities activities. As we predicted, on
March 1 the Federal Reserve allowed banks to derive 25% of their
business from underwriting stocks and bonds, up from the prior 10%
limit. Thus, without any legislative modification to current Glass-
Steagall rules which separate banks and brokerage firms from getting
into each other's business, banks have found themselves an easy back-
door entree to the securities business. We expect the majority of the
publicly traded brokerage firms to be acquired by the major commercial
banks during the next five years. In our view, the ongoing consolidation
and homogenization of the financial services industry will continue into
the future. In fact, this theme is one of the driving forces behind John
Hancock Financial Industries Fund.
"...consolida-
tion and
homogeniza-
tion of the
financial
services
industry will
continue..."
Investment concept
The motivation for starting the Fund sprang from the success we have had
with John Hancock Regional Bank Fund. That fund was started in October
1985 to benefit from investing in the banking industry just before the
enactment of regulatory changes that would bring forth many years of
restructuring and consolidation. Over the next dozen years, national
interstate banking was gradually introduced, indeed resulting in an
extraordinary number of profitable investment opportunities. Although
the consolidation of the banking industry will continue to play out for
at least a dozen more years, any further deregulation will take a new
direction; instead of geographic deregulation, we expect product
deregulation. Specifically, we think that the laws separating banking
from other forms of commerce will break down. This has already happened
to some extent within the last year as banks have been given limited
rights to distribute insurance, and their ability to earn income from
investment banking activities has been expanded. We think the trend is
toward a repeal or substantial alteration of the Glass-Steagall Act,
thereby allowing a single corporate entity to operate a bank, securities
broker, insurer or finance company.
"...our
long-term
outlook for
the financial
industries
sector
is very
positive."
Many bankers long to be in these other businesses because of the growth
possibilities they offer. In some cases, shareholders of banks will be
rewarded as their institutions are able to earn satisfactory returns in
a new area. It will be more common, however, for shareholders of the
non-bank financial institutions to be the beneficiaries of this cross
industry consolidation. There are several sub-industries within the
financial area, such as securities brokerage, investment management and
finance, where successful companies attain returns on equity and
earnings growth rates far higher than are typical in the banking
industry. As attractive as these businesses may appear, they are highly
competitive and offer a higher degree of risk. Moreover, most banks are
ill-suited culturally to be top-notch players in these new businesses.
The hierarchical organization that is prevalent in banking is quite
different from the flatter, more entrepreneurial structure that is the
rule at other financial companies. The banking organization, which is
stereotypically bureaucratic and where rewards are a function of
management status rather than the production of business, is an
impediment to attracting and retaining many talented financial
professionals.
Consequently, major banks that want to attain a significant presence in
other financial industries will find it more expedient to buy successful
organizations than to build them internally. This process is likely to
benefit shareholders of the non-bank financial companies more than those
of the banks. Therefore, we think that the best way to "play" financial
deregulation is through a Fund that invests in a broad spectrum of
financial companies.
Outlook
As we have discussed, our long-term outlook for the financial industries
sector is very positive. For the moment, financial stocks are currently
in limbo as the market ponders the possibility of additional interest
rate rises and evaluates first quarter earnings. But if our
macroeconomic forecast of moderate rate hikes putting the brakes on
economic growth and bringing it back under 3% in the second half of 1997
holds true, then earnings for the group should grow 10% in 1997. Under
this scenario, the financials are inexpensive. The biggest threat to the
sector would be if economic growth peters out and problem loans
increase. But we see no signs of that occurring and that bodes well for
financial stocks.
- ----------------------------------------------------------------------
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.
Sector investing is subject to different, and sometimes greater, risks
than the market as a whole.
1 Figures 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 Financial Industries
Fund. Total return is a performance measure that equals the sum of all
income and capital gain distributions, assuming reinvestment of these
distributions and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 5%
for Class A shares. The effect of the maximum contingent-deferred sales
charge for Class B shares (5% and declining to 0% over six years) is
included in Class B performance. Performance is affected by a 12b-1
plan. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind
that the total return and share price of the Fund's investments will
fluctuate. As a result, your Fund's shares may be worth more or less
than their original cost, depending on when you sell them. Please see
your prospectus for risks associated with industry segment investing.
CUMULATIVE TOTAL RETURNS
For the period ended March 31, 1997
ONE LIFE OF
YEAR FUND
------- ---------
John Hancock Financial
Industries Fund: Class A 23.57% 30.06%(1)
John Hancock Financial
Industries Fund: Class B N/A (8.91%)(2)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended March 31, 1997
ONE LIFE OF
YEAR FUND
------- ---------
John Hancock Financial
Industries Fund: Class A(3) 23.57% 28.70%(1)
John Hancock Financial
Industries Fund: Class B(3) N/A (8.91%)(2)
Notes to Performance
(1) Class A shares commenced on March 14, 1996.
(2) Class B shares commenced on January 14, 1997.
(3) The Adviser had agreed to limit the Fund's expenses to 0.90% of the
Fund's average daily net assets, including the management fee (but
not including a 12b-1 fee or other class specific expenses). Without
the limitations of expenses, the average annual total return for the
one-year and since inception periods would have been 23.13% and
24.95% for Class A shares and (9.09%) since inception for Class B
shares.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The chart on the right shows how much a $10,000 investment in the John
Hancock Financial Industries Fund would be worth on April 30, 1997,
assuming you had invested on the day shares started and have reinvested
all distributions. For comparison, we've shown the same $10,000
investment in the Standard & Poor's 500 Stock Index -- an unmanaged
index that includes 500 widely traded common stocks and is a commonly
used measure of stock market performance.
Financial Industries Fund
Class A shares
Line chart with the heading Financial Industries 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 Financial Industries Fund, before sales charge, and is
equal to $14,094 as of April 30, 1997. The second line represents the
value of the hypothetical $10,000 investment made in the Financial
Industries Fund, after sales charge, on March 14, 1996, and is equal to
$13,390 as of April 30, 1997. The third line represents the value of the
Standard & Poor's 500 Stock Index and is equal to $12,819 as of April
30, 1997.
Financial Industries
Class B shares
Line chart with the heading Financial Industries Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines. The first line represents
the value of the Standard & Poor's 500 Stock Index and is equal to
$10,818 as of April 30, 1997. The second line represents the Financial
Industries Fund, before sales charge, and is equal to $9,860 as of April 30,
1997. The third line represents the value of the hypothetical $10,000
investment made in the Financial Industries Fund, after sales charge, on
January 14, 1997, and is equal to $9,367 as of April 30, 1997.
<TABLE>
<CAPTION>
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 for each share as of that date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- -----------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $448,107,248) $436,812,526
Joint repurchase agreement (cost - $66,397,000) 66,397,000
Corporate savings account 15,550
-------------
503,225,076
Foreign cash, at value (cost $1,675,005) 1,645,953
Receivable for investments sold 1,235,449
Receivable for shares sold 8,988,908
Dividends receivable 656,703
Interest receivable 11,638
Foreign tax receivable 19,772
Deferred organization expense - Note A 19,716
-------------
Total Assets 515,803,215
- -----------------------------------------------------------------------
Liabilities:
Payable for investments purchased 19,132,321
Payable for shares repurchased 77,276
Payable for open forward foreign currency
exchange contracts bought - Note A 1,710
Payable to John Hancock Advisers, Inc
and affiliates - Note B 187,449
Accounts payable and accrued expenses 217,192
-------------
Total Liabilities 19,615,948
- -----------------------------------------------------------------------
Net Assets:
Capital paid-in 510,041,998
Accumulated net realized loss on investments and
foreign currency transactions (3,260,842)
Net unrealized depreciation of investments and
foreign currency transactions (11,303,204)
Undistributed net investment income 709,315
-------------
Net Assets $496,187,267
=======================================================================
Net Asset Value Per Share:
(Based on net asset value and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $123,612,356 / 10,944,646 $11.29
=======================================================================
Class B - $372,574,911 / 33,059,546 $11.27
=======================================================================
Maximum Offering Price Per Share*
Class A - ($11.29 x 105.26%) $11.88
=======================================================================
* 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
Six months ended April 30, 1997 (Unaudited)
- -----------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $39,368) $1,379,256
Interest 619,597
-------------
1,998,853
-------------
Expenses:
Investment management fee - Note B 597,614
Distribution and service fee - Note B
Class A 56,659
Class B 558,155
Registration and filing fees 228,211
Transfer agent fee - Note B 218,504
Custodian fee 62,693
Auditing fee 14,381
Financial services fee - Note B 14,006
Printing 13,142
Organization expense - Note A 2,525
Miscellaneous 2,252
Legal fees 1,796
Trustees' fees 441
-------------
Total Expenses 1,770,379
- -----------------------------------------------------------------------
Less expense reductions -
Note B (481,406)
- -----------------------------------------------------------------------
Net Expenses 1,288,973
- -----------------------------------------------------------------------
Net Investment Income 709,880
- -----------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss on investments sold (3,257,228)
Net realized loss on foreign currency transactions (3,614)
Change in net unrealized appreciation/depreciation
of investments (11,423,108)
Change in net unrealized appreciation/depreciation
of foreign currency transactions (8,482)
-------------
Net Realized and Unrealized
Loss on Investments (14,692,432)
- -----------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ($13,982,552)
=======================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
SIX MONTHS ENDED
PERIOD ENDED APRIL 30, 1997
OCTOBER 31, 1996** (UNAUDITED)
---------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $1,763 $709,880
Net realized gain (loss) on investments sold and foreign currency transactions 53,536 (3,260,842)
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions 128,386 (11,431,590)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations 183,685 (13,982,552)
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A** - (none and $0.0283 per share, respectively) -- (2,341)
Distributions from net realized gain on investments sold
Class A** - (none and $0.6466 per share, respectively) -- (53,523)
------------- -------------
Total Distributions to Shareholders -- (55,864)
------------- -------------
From Fund Share Transactions - Net* 211,607 509,330,391
------------- -------------
Net Assets:
Beginning of period 500,000 895,292
------------- -------------
End of period (including undistributed net investment income
of $1,776 and $709,315, respectively) $895,292 $496,187,267
============= =============
* Analysis of Fund Share Transactions: SIX MONTHS ENDED
PERIOD ENDED APRIL 30, 1997
OCTOBER 31, 1996** (UNAUDITED)
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
Shares sold 31,545 $301,830 11,339,472 $131,621,379
Shares issued to shareholders in reinvestment of distributions -- -- 1,484 16,403
------------- ------------- ------------- -------------
31,545 301,830 11,340,956 131,637,782
Less shares repurchased (9,232) (90,223) (477,447) (5,412,763)
------------- ------------- ------------- -------------
Net increase 22,313 $211,607 10,863,509 $126,225,019
============= ============= ============= =============
CLASS B ***
Shares sold 33,463,470 $387,660,910
Less shares repurchased (403,924) (4,555,538)
------------- -------------
Net increase 33,059,546 $383,105,372
============= =============
** Class A shares commenced operations on March 14, 1996.
*** Class B shares commenced operations on January 14, 1997.
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, and any increase
or decrease in money shareholders invested in the Fund. The footnote illustrates the number of Fund shares sold and
repurchased during the period, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the period indicated,
investment returns, key ratios and supplemental data are listed as follows:
SIX MONTHS ENDED
PERIOD ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
--------------- -----------------
<S> <C> <C>
CLASS A (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $8.50 $11.03
-------- --------
Net Investment Income (2) 0.02 0.07
Net Realized and Unrealized Gain on Investments 2.51 0.87(3)
-------- --------
Total from Investment Operations 2.53 0.94
-------- --------
Less Distributions
Dividends from Net Investment Income -- (0.03)
Distributions from Net Realized Gains on Investments Sold -- (0.65)
-------- --------
Total Distributions -- (0.68)
-------- --------
Net Asset Value, End of Period $11.03 $11.29
======== ========
Total Investment Return at Net Asset Value (4) 29.76%(8) 8.61%(8)
Total Adjusted Investment Return at Net Asset Value (4,5) 26.04%(8) 7.96%(8)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $895 $123,612
Ratio of Expenses to Average Net Assets 1.20%(9) 1.20%(9)
Ratio of Adjusted Expenses to Average Net Assets (6) 7.07%(9) 1.88%(9)
Ratio of Net Investment Income to Average Net Assets 0.37%(9) 1.47%(9)
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (6) (5.50%)(9) 0.79%(9)
Portfolio Turnover Rate 31% 16%
Average Brokerage Commission Rate (7) $0.0649 $0.0669
<CAPTION>
FOR THE PERIOD FROM
JANUARY 14, 1997
(COMMENCEMENT OF OPERATIONS) TO
APRIL 30, 1997 (UNAUDITED)
-------------------------
<S> <C>
CLASS B (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $11.43
--------
Net Investment Income (2) 0.03
Net Realized and Unrealized Gain on Investments (0.19)
--------
Total from Investment Operations (0.16)
--------
Net Asset Value, End of Period $11.27
========
Total Investment Return at Net Asset Value (4) (1.40%)(8)
Total Adjusted Investment Return at Net Asset Value (4,5) (1.52%)(8)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $372,575
Ratio of Expenses to Average Net Assets 1.90%(9)
Ratio of Adjusted Expenses to Average Net Assets (6) 2.54%(9)
Ratio of Net Investment Income to Average Net Assets 0.77%(9)
Ratio of Adjusted Net Investment Income to Average Net Assets (6) 0.13%(9)
Portfolio Turnover Rate 16%
Average Brokerage Commission Rate (7) $0.0669
(1) Class A and Class B commenced operations on March 14, 1996 and January 14, 1997, respectively.
(2) On average month-end shares outstanding.
(3) The amount shown may not accord with the change in the aggregate gains and losses in the
portfolio securities for the period because of the timing of purchases and withdrawals in shares
in relation to the fluctuating market value of the portfolio.
(4) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(5) An estimated total return calculation which does not take into consideration fee reductions by the
Adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
(7) Per portfolio share traded.
(8) Not annualized.
(9) Annualized.
The Financial Highlights summarizes the impact of the following factors on a single
share for the period indicated: the net investment income, gains (losses), 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>
Schedule of Investments
April 30, 1997 (Unaudited)
The Schedule of Investments is a complete list of all securities owned by the Financial
Industries Fund on April 30, 1997. It's divided into two main categories: common stocks
and short-term investments. The common stocks are further broken down by industry groups.
Short-term investments, which represent the Fund's "cash" position, are listed last.
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ---------------------------------------------------- ------------- -------------
<S> <C> <C>
COMMON STOCK
Banks - Foreign (7.73%)
Allied Irish Banks plc, American Depositary
Receipt, ADR (Ireland) 100,000 $4,225,000
Banco Bilbao Vizcaya, S.A. ADR (Spain) 70,000 4,663,750
Bank of Scotland (United Kingdom) 415,509 2,494,550
HSBC Holdings plc (United Kingdom) 130,000 3,277,976
National Australia Bank Ltd., ADR
(Australia) 25,000 1,721,875
National Westminster Bank, plc
(United Kingdom) 330,000 3,908,817
Royal Bank of Canada (Canada) 120,000 4,785,000
Societe Generale (France) 35,000 3,921,953
Svenska Handelsbanken (Class A)
(Sweden) 140,000 3,854,438
Toronto - Dominion Bank (Canada) 195,200 5,514,400
------------
38,367,759
------------
Banks - Midwest (2.22%)
BancFirst Ohio Corp. 49,900 1,659,175
Community First Bankshares, Inc. 120,000 3,855,000
Firstbank of Illinois Co. 5,000 185,000
Star Banc Corp. 125,000 5,312,500
------------
11,011,675
------------
Banks - Money Center (3.29%)
Chase Manhattan Corp. 79,000 7,317,375
Citicorp 80,000 9,010,000
------------
16,327,375
------------
Banks - Northeast (2.28%)
FNB Rochester Corp. 23,250 286,265
State Street Corp. 90,000 7,087,500
U.S. Trust Corp. 55,000 2,420,000
Vermont Financial Services Corp. 37,750 1,500,562
------------
11,294,327
------------
Banks - Southeast (1.00%)
American Bancshares, Inc.* 20,000 167,500
First Tennessee National Corp. 110,000 4,771,250
------------
4,938,750
------------
Banks - Southwest (1.13%)
Bank United Corp. (Class A) 130,000 3,965,000
Southwest Bancorp. of Texas, Inc.* 78,000 1,618,500
------------
5,583,500
------------
Banks - Super Regional (3.34%)
BankBoston Corp. 120,000 8,730,000
Norwest Corp. 157,500 7,855,312
------------
16,585,312
------------
Banks - West (1.91%)
City National Corp. 205,787 4,707,380
Greater Bay Bancorp. 77,733 2,050,208
SJNB Financial Corp. 42,000 997,500
TransWorld Bancorp.* 7,625 137,250
United Security Bancorp.* 16,350 212,550
West Coast Bancorp. 53,125 1,195,313
Westamerica Bancorp. 2,957 192,944
------------
9,493,145
------------
Business Services (1.64%)
First Data Corp. 169,400 5,844,300
First USA Paymentech, Inc.* 64,500 1,556,063
National Processing, Inc.* 105,500 738,500
------------
8,138,863
------------
Broker Services (12.64%)
Alex Brown, Inc. 140,000 9,012,500
Dean Witter Discover & Co. 198,600 7,596,450
Edwards (A.G.), Inc. 234,000 8,190,000
EVEREN Capital Corp. 174,500 4,122,562
Interra Financial, Inc. 90,700 3,321,887
Interstate/Johnson Lane, Inc. 100,800 1,764,000
Legg Mason, Inc. 115,600 5,491,000
Lehman Brothers Holdings, Inc. 184,700 6,256,713
McDonald & Co., Investments 120,800 4,348,800
Morgan Keegan, Inc. 117,100 2,122,438
Raymond James Financial, Inc. 218,700 5,112,113
Salomon, Inc. 107,800 5,390,000
------------
62,728,463
------------
Computer - Services (1.82%)
BISYS Group, Inc. (The)* 115,800 3,705,600
Fiserv, Inc.* 141,500 5,341,625
------------
9,047,225
------------
Finance - Consumer Loans (10.27%)
Aames Financial Corp. 115,325 1,773,122
Advanta Corp. (Class A)* 19,250 457,187
American Express Co. 145,000 9,551,875
Associates First Capital Corp. (Class A) 146,000 7,482,500
Capital One Financial Corp. 173,400 6,264,075
ContiFinancial Corp.* 98,400 2,829,000
Delta Financial Corp.* 154,300 2,083,050
First Alliance Corp. (Class A)* 60,000 1,230,000
First USA, Inc. 172,400 8,296,750
FIRSTPLUS Financial Group, Inc.* 88,700 1,962,488
Imperial Credit Industries, Inc.* 130,800 1,904,775
MBNA Corp. 218,000 7,194,000
------------
51,028,822
------------
Finance - Investment Management (4.47%)
Alliance Capital Management, L.P. 92,600 2,511,775
Amvesco plc, ADR 87,500 4,801,563
Franklin Resources, Inc. 126,500 7,479,313
Price (T. Rowe) Associates, Inc. 160,500 7,423,125
------------
22,215,776
------------
Finance - Savings & Loan (2.07%)
American Federal Bank 13,500 391,500
First Federal Bancshares of Arkansas, Inc. 97,500 1,755,000
InterWest Bankcorp., Inc. 57,500 1,638,750
PALFED, Inc. 66,800 1,102,200
Washington Mutual, Inc. 109,000 5,381,875
------------
10,269,325
------------
Finance - SBIC & Commercial (1.66%)
Financial Federal Corp.* 57,600 972,000
Newcourt Credit Group, Inc. (Canada) 226,000 4,173,054
Sirrom Capital Corp. 88,200 2,745,225
Willis Lease Finance Corp.* 34,500 362,250
------------
8,252,529
------------
Insurance - Brokers (0.99%)
Marsh & McLennan Cos., Inc. 40,600 4,892,300
------------
Insurance - Life (5.64%)
AmerUs Life Holdings, Inc. (Class A) 157,100 3,613,300
AmVestors Financial Corp. 223,100 3,569,600
Equitable of Iowa Cos. 145,000 7,086,875
Liberty Corp. 130,000 5,037,500
Nationwide Financial Services, Inc.
(Class A)* 167,600 4,441,400
Presidential Life Corp. 295,000 4,240,625
------------
27,989,300
------------
Insurance - Multi Line (3.78%)
Allmerica Financial Corp. 204,700 7,369,200
CapMAC Holdings, Inc. 130,000 3,380,000
Enhance Financial Services Group, Inc. 107,000 4,119,500
PMI Group, Inc. 76,400 3,905,950
------------
18,774,650
------------
Insurance - Property & Casualty (9.07%)
Ace, Ltd. (Bermuda) 68,250 4,095,000
Aetna, Inc. 78,200 7,125,975
General Re Corp. 53,575 8,960,418
Progressive Corp 95,000 7,231,875
St. Paul Cos., Inc. 94,700 6,344,900
Travelers Property Casualty Corp.
(Class A) 166,400 5,616,000
Trenwick Group Inc. 172,000 5,611,500
------------
44,985,668
------------
Leasing Companies (1.01%)
Resource America, Inc. (Class A) 94,500 1,842,750
Winthrop Resources Corp. 105,000 3,189,375
------------
5,032,125
------------
Mortgage & RE Services (3.09%)
Countrywide Credit Industries, Inc. 125,000 3,390,625
Fannie Mae 215,000 8,841,875
HomeSide, Inc.* 195,000 3,120,000
------------
15,352,500
------------
Mortgage - Equity REIT (6.75%)
Apartment Investment & Management Co.
(Class A) 80,600 2,236,650
Beacon Properties Corp. 139,500 4,307,062
Cali Realty Corp. 150,300 4,433,850
CRIIMI MAE, Inc. 40,000 625,000
Glenborough Realty Trust, Inc. 143,300 2,830,175
Innkeepers USA Trust 150,000 2,100,000
Prentiss Properties Trust 169,500 4,004,437
Patriot American Hospitality, Inc. 126,400 2,717,600
Reckson Associates Realty Corp. 145,000 3,353,125
Spieker Properties, Inc. 115,000 4,010,625
Starwood Lodging Trust 74,300 2,860,550
------------
33,479,074
------------
Retail - Misc./Diversified (0.21%)
Ugly Duckling Corp.* 72,500 1,024,063
------------
TOTAL COMMON STOCK
(Cost $448,107,248) (88.03%) 436,812,526
------------
<CAPTION>
<S> <C> <C> <C>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ------------ ------------ ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (13.39%)
Investment in joint repurchase
agreement transaction with
Aubrey G. Lanston & Co.-
Dated 4-30-97, Due 5-01-97
(Secured by U.S. Treasury Bills,
5.37% thru 5.78% Due 8-21-97
thru 3-05-98, U.S. Treasury
Bonds 7.125% thru 11.25% Due
2-15-15 thru 2-15-23, U.S.
Treasury Notes, 5.125% thru
7.75%, Due 8-31-98 thru
5-15-05 - Note A 5.375% $66,397 $66,397,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 15,550
------------
TOTAL SHORT-TERM INVESTMENTS (13.39%) 66,412,550
-------- ------------
TOTAL INVESTMENTS (101.42%) $503,225,076
======== ============
* Non-Income producing security.
The percentage shown for each investment category is the total value of that category as a
percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
Notes to Financial Statements
(UNAUDITED)
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: John Hancock Financial Industries Fund (the "Fund"),
John Hancock Regional Bank Fund and John Hancock Disciplined Growth
Fund. The other two series of the Trust are reported in separate
financial statements. The investment objective of the Fund is to seek
capital appreciation through investments in financial services
companies.
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. On January 14, 1997, Class B shares of beneficial interest were
sold to commence class activity.
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 sources 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 or less 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 large 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.
Capital gains realized on some foreign securities are subject to foreign
taxes and are accrued, as applicable.
FEDERAL INCOME TAXES The Fund intends 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, 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 identifies 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 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.
ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to
the Fund's operations ratably over a five-year period that commenced
with the investment operations of the 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 amounts 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.
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 5:00 p.m.,
London time, on the date of any determination of the net asset value of
the Fund. Transactions affecting statement of operations accounts and
net realized gain/(loss) on investments 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into
forward foreign currency exchange contracts as a hedge against the
effect of fluctuations in currency exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date at a set price. The aggregate
principal amounts of the contracts are marked to market daily at the
applicable foreign currency exchange rates. Any resulting unrealized
gains and losses are included in the determination of the Fund's daily
net assets. The Fund records realized gains and losses at the time the
forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential
inability of counterparties to meet the terms of the contract and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar.
These contracts involve market or credit risk in excess of the
unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. The Fund may also purchase and sell forward contracts to
facilitate the settlement of foreign currency denominated portfolio
transactions, under which it intends to take delivery of the foreign
currency. Such contracts normally involve no market risk other than that
not offset by the currency amount of the underlying transaction.
Open foreign currency forward contracts bought at April 30, 1997, were
as follows:
PRINCIPAL AMOUNT
COVERED BY EXPIRATION UNREALIZED
CURRENCY CONTRACT MONTH DEPRECIATION
- ------------ ------------ -------- ----------------
British Pound
Sterling 153,670 May 97 ($1,710)
=======
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates
and other market conditions. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures
contract, it is required to deposit with its custodian a specified
amount of cash or U.S. government securities, known as "initial margin,"
equal to a certain percentage of the value of the financial futures
contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities
exchange on which it trades. Subsequent payments, known as "variation
margin," to and from the broker are made on a daily basis as the market
price of the financial futures contract fluctuates. Daily variation
margin adjustments arising from this "mark to market," are recorded by
the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there
may be an illiquid market and/or that a change in the value of the
contracts may not correlate with changes in the value of the underlying
securities. In addition, the Fund could be prevented from opening or
realizing the benefits of closing out futures positions because of
position limits or limits on daily price fluctuation imposed by an
exchange.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures
contracts.
At April 30, 1997, there were no open positions in financial futures
contracts.
OPTIONS The Fund may purchase option contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Purchased put or call over-the-counter options will be
valued at the average of the "bid" prices obtained from two independent
brokers. Written put or call over-the-counter options will be valued at
the average of the "asked" prices obtained from two independent brokers.
Upon the writing of a call or put option, an amount equal to the premium
received by the Fund is included in the Statement of Assets and
Liabilities as an asset and corresponding liability. The amount of the
liability is subsequently marked to market to reflect the current market
value of the written option.
The Fund may use options contracts to manage its exposure to changing
security prices. Writing puts and buying calls tend to increase the
Fund's exposure to the underlying instrument and buying puts and writing
calls tend to decrease the Fund's exposure to the underlying instrument,
or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the
face (or "notional") amount of each contract at value reflects the
maximum exposure of the Fund in these contracts, but the actual exposure
will be limited to the change in value of the contract over the period
the contract remains open.
Risks may also arise if counterparties do not perform under the
contracts' terms, or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties
to each transaction, and only present liquidity risk in highly unusual
market conditions. To minimize credit risk and liquidity risks in over-
the-counter option contracts, the Fund will continuously monitor the
creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's
period-end Statement of Assets and Liabilities.
There were no written option transactions for the period ended 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) 0.80% 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.
The Adviser has agreed to limit Fund expenses, including the management
fee (but not including the 12b-1 fee and any other class specific
expenses), to 0.90% of the Fund's average daily net assets. Accordingly,
the reduction in expenses amounted to $481,406 for the period ended
April 30, 1997. The Adviser reserves the right to terminate this limit
in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
April 30, 1997, net sales charges received with regard to sales of Class
A shares amounted to $3,813,038. Out of this amount, $857,290 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $2,824,452 was paid as sales commissions
to unrelated broker-dealers and $131,296 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 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 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, contingent-deferred sales charges paid
to JH Funds amounted to $51,925.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds 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 these 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
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 Adviser owns 58,824
shares of beneficial interest 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 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. The investment had no impact on the
operations of the Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the period ended April 30, 1997, aggregated
$473,347,041, and $22,749,850, 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 $514,504,248. Gross
unrealized appreciation and depreciation of investments aggregated
$7,977,652 and $19,272,374, respectively, resulting in net unrealized
depreciation of $11,294,722.
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
Internet: www.jhancock.com/funds
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Financial Industries Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details
charges, investment objectives and operating policies.
A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper." 700SA 4/97
6/97
John Hancock Funds
Regional
Bank
Fund
SEMI-ANNUAL REPORT
April 30, 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
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.
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
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
Bank stocks soften in jittery market; earnings
fundamentals stay intact despite rising rates
On the heels of a strong 1996, the markets continued their upward march
for the first two months of 1997, only to meet a stiff headwind of
inflationary concern and rising interest rates in mid-March. In 1996,
investors had basked in the glow of a slow-growth economy with stable
interest rates. But early in 1997, the engine of economic growth began
to overheat and the Federal Reserve moved toward a more restrictive
monetary policy to pre-empt an inflation spike. The stock market reacted
with a series of gyrations, first giving back most of its gains for the
year and then moving to new highs. The advances were restricted,
however, mostly to a narrow range of large-company stocks. For the six
months ended April 30, the broader market, as measured by the Standard &
Poor's 500 Stock Index, returned 14.71%.
Bank stocks were not immune to rising interest rates and the market's
volatility, especially in the latter part of the period. Nonetheless,
the Fund still performed very well. For the six months ended April 30,
1997, John Hancock Regional Bank Fund's Class A and Class B shares
posted a total return of 15.57% and 15.17%, respectively, at net asset
value. That compared favorably to the 14.35% return for the average
financial services fund, according to Lipper Analytical Services, Inc.1
Please see pages eight and nine for longer-term performance information.
"...early in
1997, the
engine of
economic
growth
began to
overheat..."
A 2 1/4" x 3 1/4" photo of the portfolio management team. Caption reads:
"James K. Schmidt (seated) and Fund management team members: (l-r) James
Boyd, Thomas Finucane, Patricia Ouimet, Gerard Cronin."
Interest rates vs. bank earnings
Looking forward, we believe it is likely that the Fed will need to
increase rates one more time to curb inflation. As rates move up,
investors invariably sell bank stocks on the assumption that higher
rates have a negative impact on bank earnings. We find this behavior
mistaken, since in recent years banks have been able to adjust both loan
and deposit pricing in step and keep earnings on track. Consider the
last time interest rates moved up sharply, a 15-month period in 1994-95.
Short-term interest rates rose by 300 basis points (3.0%), much more
than we are forecasting for 1997. The impact on bank margins was slight.
According to FDIC data, net interest margins -- the spread, or
difference between what banks receive on their loans and what they pay
out to depositors -- in the commercial banking industry declined only
modestly, from 4.36% to 4.29%. Net interest income actually increased
due to growth in earning assets.
A line chart with the heading "Key banking rates: Short term rate
comparison" at the top of the left hand column. The chart is scaled in
increments of 2% with 10% at the top and 0% at the bottom on the
vertical left side, The bottom is scaled in increments of one year with
Jan-91 at the left and Jan-97 at the right. Within the chart are four
horizontal lines running from the top to the bottom of the chart, each
tracking yearly percentage rate changes for each of the four types of
key interest rate bench marks. The first one on the top represents the
Prime rate percentage. The next one below represents the percent for the
90 day CD. The next represents the percent for Money market accounts.
The bottom line represents percent for NOW savings accounts. The
code for each line is shown centered under the graph with the first two
codes on one row, and the second two underneath. Below is a footnote
that says "Source: Bank Rate Monitor - Barron's; Bloomberg Financial
Markets."
"Bank stocks
were not
immune to
the market's
volatility..."
The chart on this page shows key interest rates during the last five
years. Note that while the cost of funds, as indicated by the yield on
90-day certificates of deposits, has increased, the impact has been
passed on to borrowers. That's because the prime rate -- a key peg for
setting lending rates -- has also risen. In fact, the spread between the
prime rate and money market accounts has increased by 100 basis points
(1.0%) since mid-1994. We believe that any further increases in the cost
of funds will translate into a corresponding increase in the prime rate
and have little impact on margins.
Earnings trend upward
In 1996, bank earnings once again shattered prior records, as net income
for the nation's 9,500 commercial banks exceeded $50 billion for the
first time. The macroeconomic triple play of moderate growth, low
inflation and stable interest rates drove bank earnings-per-share above
consensus estimates. Banks reported wide interest margins, stable
overhead levels and lower share counts due to stock repurchases. Credit
costs, mostly due to elevated levels of problem loans in consumer
portfolios, rose moderately off an unsustainably low base and had little
impact on bottom line profitability. In 1997, our model forecasts 12%
earnings growth over 1996. Recently released first quarter reports
corroborate this thesis, as the 1996 trends continue: wide spreads
(despite rising rates), controlled expenses and share repurchases all
are driving banks' earnings per share.
The decline in bank and thrift shares since early March has also
restored their inexpensive valuation status. Although the prices of many
individual stocks are down more than 15% since their peaks in March, we
have, in aggregate, not changed our earnings forecast for the year.
Consequently, the relative price-earnings ratio multiple of the banking
group has declined to 68% of the average market multiple, from its March
high of 72%.
Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) NationsBank Corp. 2.3%
2)BankBoston Corp. 1.8% 3) GreenPoint Financial Corp. 1.8% 4) Union
Planters Corp. 1.7% 5) Wells Fargo & Co. 1.7% A footnote below reads:
"As a percentage of net assets on April 30, 1996."
The consolidation process keeps going and going
In 1996, a record 30 of the Fund's holdings announced that they were
being taken over. Although the number of mergers in 1996 was higher than
in 1995, the deals were generally much smaller. In the first four months
of 1997, nine more of our stocks announced that they were being
acquired. The largest transaction was First Bank Systems' pending
acquisition of US Bancorp. This was a watershed event, similar to the
NationsBank purchase of Boatmen's last August. Both transactions were
enabled by the national interstate banking legislation that took effect
in 1995. Like NationsBank, First Bank is paying a high premium for one
of the Fund's larger, regional "trophy franchises." Although Boatmen's
and US Bancorp both had leading positions in attractive markets, as
stand-alones they lacked the critical mass to invest in new technology,
develop products and squeeze the maximum returns from their franchises.
Although the Fund has historically concentrated on smaller banks (i.e.
less than $5 billion in assets), in recent years, we have increased our
weightings in larger regionals with $20 to $40 billion in assets.
Regional banks in this size category are too big to compete as locals
and too small to take on the behemoth superregionals; we think that this
group will have the highest "mortality rate" through mergers over the
next five years.
"In 1997,
our model
forecasts
12% earnings
growth
over 1996."
The second merger transaction of note is Bankers Trust's purchase of
Alex Brown, one of the Fund's brokerage holdings. This deal is the first
example of a bank taking advantage of newly-relaxed regulations
governing securities activities. As we forecast in our last report, on
March 1 the Federal Reserve allowed banks to derive 25% of their
business from underwriting stocks and bonds, up from the prior 10%
limit. Thus, without any legislative modification to the Glass-Steagall
Act, banks have discovered a "back-door" entry into the securities
business. We expect the majority of the publicly traded brokerage firms
to be acquired by the major commercial banks during the next five years.
Because the major theme of the Fund is bank and thrift investing, our
brokerage holdings will never be more than a minor percentage of the
Fund.
An interesting takeover battle has recently been resolved in California,
as Washington Mutual will merge with Great Western Financial, creating
what will be the largest thrift institution in the U.S. After H.F.
Ahmanson put Great Western "in play" with a hostile offer in February,
Washington Mutual was able to successfully enter the fray as a "white
knight." Interestingly, the stocks of all three companies benefited, as
did the Fund which owns all three. The earnings of Washington Mutual
will be enhanced because of the enormous expense savings and revenue
enhancement opportunities in the merger, coupled with Washington
Mutual's history of smooth integration of acquisitions. Ahmanson shares
are being viewed in a new light as there is now pressure on them to find
another partner. We consider this merger to be a very positive
development because it produces a new powerhouse institution with the
capability of making further acquisitions, and because it demonstrates
that industry consolidation can produce benefits for all parties to a
transaction. What is clear, though, is that the California economy has
recovered and that this state will be a focal point of consolidation in
the future. Several of the Fund's smaller-capitalization California
banks have already been party to this activity and we expect this trend
to continue.
So far in
1997, nine of
the Fund's
holdings have
reported they
are being
bought.
Portfolio tactics
The basic investment concept of the Fund has remained the same since its
inception in 1985. We invest in undervalued regional banks and thrifts
with healthy earnings fundamentals which are in the path of
consolidation. The Fund remains geographically diverse because the
nation's economic expansion has now reached every region and there are
no longer any localized economic crises to beware of. As mentioned
previously, we have been active in accumulating banks and thrifts in
California. The growth of employment and personal income in that state
has stemmed the decline in real estate values, and the California banks
are finally seeing their non-performing assets decline. In terms of
consolidation, California is still in its infancy and we think it will
take at least a decade for the merger activity that we expect in the
state to play out.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left column is "Investment"; the header for the right column is
"Recent performance ... and what's behind the numbers." The first
listing is Roosevelt Financial followed by an up arrow and the phrase
"Subpar 1996 performance forces management sell-out." The second listing
is AmSouth Bancorp. followed by an up arrow and the phrase "Earnings up
due to refocus and restructuring efforts." The third listing is First
Commerce Corp. followed by a horizontal arrow and the phrase "Suspect
consumer loan quality impacts earnings." Footnote below reads: "See
"Schedule of Investments." Investment holdings are subject to change."
Historically, banks that were perceived as potential acquisition targets
traded at a significant price-earnings multiple premium to those that
were considered to be buyer institutions. Since the beginning of 1996,
however, the shares of the largest banks have risen dramatically to the
point where there is no longer a valuation disparity between potential
buyers and potential sellers. We think this has caused many of the mid-
sized banks, with between $20 billion and $40 billion in assets, to
trade at prices that are reasonable, even if there were no possibility
of a takeover bid. As we mentioned earlier, we expect this group to
attract a considerable amount of merger activity over the next five
years. It is only since national interstate banking went into effect in
late 1995 that merger bids for banks of this size were practical.
Among smaller stocks, we have built many positions in previously mutual
savings and loans that have converted to public ownership. These are the
least expensive of all depository institutions, as many still trade
below their book value. While we encourage these companies to buy back
their stock aggressively, on some occasions we have concluded that the
buybacks have forced the stocks to too high a level and we have cut back
or eliminated our holdings.
We believe that savings and loan stocks, in general, have become
increasingly attractive investment vehicles. As has been the case
historically, the savings and loans are less expensive than commercial
banks. At the end of April, the average thrift traded at 130% of book
value, while 190% of book value was the norm for commercial banks.
Interestingly, thrifts are increasingly looking like banks. Many of them
are building a commercial lending capability and introducing more of the
fee-producing services that banks have. Last fall, Congress cut the
deposit insurance premium that thrifts pay to the FDIC by about 80%,
bringing them more in line with banks and presumably paving the way for
an eventual merger of the Bank Insurance Fund with the Savings
Association Insurance Fund. Another attractive aspect of several of our
saving and loan holdings is that they are plaintiffs in the so-called
"goodwill" breach of contract lawsuits against the U.S. government. The
landmark case, Glendale Federal vs. the United States, is currently
being tried in the Court of Federal Claims. We expect a verdict by late
summer that is likely (but not certain) to result in a large sum being
awarded to Glendale. This will set a precedent for dozens of similar
cases.
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 5% from top to bottom, with
20% at the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 5.57% total return for John Hancock
Regional Bank Fund: Class A. The second represents the 15.17% total
return for John Hancock Regional Bank Fund: Class B. The third
represents the 14.35% total return for the average financial services
fund. Footnote below reads: "Total returns for John Hancock Regional
Bank Fund are at net asset value with all distributions reinvested. The
average financial services fund is tracked by Lipper Analytical
Services.(1) See pages 8 and 9 for historical performance information."
Fund closed to new investors
Since mid-1996, the Fund has had strong inflows of investor cash,
coincident with the financial stocks' strong performance. By early 1997,
the pace of the inflows accelerated and began to outstrip our ability to
deploy the money prudently in the types of stocks we target. Thus, cash
built up to over 20% of net assets, and on March 12, 1997 the Fund was
closed to new investors, although it will continue to accept subsequent
deposits from existing shareholders. The excess liquidity has since been
pared down to 17%. Any decision to re-open the Fund would be dependent
on achieving a more consistently manageable level of cash, as well as
market and other considerations.
We remain confident about the prospects for bank and thrift stocks. Even
though any further rise in interest rates might temporarily put the
sector under pressure, we believe, as we stated earlier, that the
conventional wisdom no longer holds true that rising rates affect bank
earnings. Bank and thrift fundamentals remain as strong as ever, and we
expect industry consolidation to continue for many years.
"Bank and
thrift
fundamentals
remain as
strong as
ever..."
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 is a performance measure that equals the sum of all
dividends and capital gains, assuming reinvestment of these
distributions and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 5%
for Class A shares. Prior to August 1992, different sales charges were
in effect for Class A shares and are not reflected in the performance
data. The effect of the maximum contingent-deferred sales charge for
Class B shares (maximum 5% and declining to 0% over six years) is
included in Class B performance. Remember that all figures represent
past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of
the Fund's investments will fluctuate. As a result, your Fund's shares
may be worth more or less than their original cost, depending on when
you sell them. Please see your prospectus for risks associated with
industry segment investing.
CUMULATIVE TOTAL RETURNS
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
------- --------- -------------
John Hancock Regional
Bank Fund: Class A(1) 23.36% 207.06% 243.98%
John Hancock Regional
Bank Fund: Class B(2) 23.94% 210.61% 495.30%
AVERAGE ANNUAL TOTAL RETURNS
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
------- --------- -------------
John Hancock Regional
Bank Fund: Class A(1) 23.36% 25.15% 26.58%
John Hancock Regional
Bank Fund: Class B(2) 23.94% 25.44% 19.53%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
(2) Class B shares commenced on October 4, 1985.
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 on April 30, 1997, assuming
you either had invested on the day each class of shares started or have
been invested for the most recent ten years and have reinvested all
distributions. For comparison, we've shown the same $10,000 investment
in the Standard & Poor's 500 Stock Index -- an unmanaged index that
includes 500 widely traded common stocks and is a commonly used measure
of stock market performance.
Regional Bank Fund
Class A shares
Line chart with the heading Regional Bank Fund: Class A, representing
the growth of a hypothetical $10,000 investment over the life of the
fund. Within the chart are three lines.
The first line represents the value of the Regional Bank Fund, before
sales charge, and is equal to $37,441 as of April 30, 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 $35,569 as of April 30, 1997. The third line represents the
Standard & Poor's 500 Stock Index and is equal to $22,076 as of April
30, 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 $69,940 as of April 30, 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 $36,822 as of
April 30, 1997.
* No contingent-deferred sales charge applicable.
<TABLE>
<CAPTION>
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)
- -------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks and warrants
Unaffiliated Issuers (cost - $2,748,606,228) $4,004,256,776
Affiliated Issuers (cost - $161,571,104) 226,310,246
Bonds (cost - $7,622,097) 8,117,403
Joint repurchase agreement
(cost - $245,074,000) 245,074,000
Short-term notes (cost - $646,574,634) 646,447,752
---------------
5,130,206,177
Receivable for investments sold 4,591,910
Receivable for shares sold 4,286,957
Dividends receivable 7,189,862
Interest receivable 2,914,785
Other assets 45,603
---------------
Total Assets 5,149,235,294
- -------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 29,838,224
Payable for shares repurchased 3,193,268
Due to custodian 92,915
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 4,780,174
Accounts payable and accrued expenses 517,493
---------------
Total Liabilities 38,422,074
- -------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 3,766,690,004
Accumulated net realized gain on investments and
foreign currency transactions 17,450,628
Net unrealized appreciation of investments 1,320,760,090
Undistributed net investment income 5,912,498
---------------
Net Assets $5,110,813,220
=====================================================================================
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 - $1,305,698,910 / 33,794,000 $38.64
=====================================================================================
Class B - $3,805,114,310 / 98,971,685 $38.45
=====================================================================================
Maximum Offering Price Per Share*
Class A - ($38.64 x 105.26%) $40.67
=====================================================================================
* 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
Six months ended April 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (including $1,867,227 received from
affiliated issuers) $42,744,833
Interest 22,439,989
---------------
65,184,822
---------------
Expenses:
Investment management fee - Note B 16,163,375
Distribution and service fee - Note B
Class A 1,654,953
Class B 15,869,361
Transfer agent fee - Note B 4,727,674
Registration and filing fees 586,596
Financial services fee - Note B 400,985
Custodian fee 303,906
Trustees' fees 155,370
Printing 119,512
Miscellaneous 41,456
Legal fees 36,707
Auditing fee 17,770
---------------
Net Expenses 40,077,665
- -------------------------------------------------------------------------------------
Net Investment Income 25,107,157
- -------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold
(including $610,263 gain on sales of investments
in affiliated issuers) 17,727,840
Net realized loss on foreign currency transactions (1,744)
Change in net unrealized appreciation/depreciation
of investments 491,809,566
---------------
Net Realized and Unrealized
Gain on Investments 509,535,662
- -------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $534,642,819
=====================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $38,837,758 $25,107,157
Net realized gain on investments sold and foreign currency
transactions 32,654,655 17,726,096
Change in net unrealized appreciation/depreciation of
investments 550,720,765 491,809,566
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 622,213,178 534,642,819
--------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6039 and $0.2916 per share, respectively) (12,903,706) (8,541,627)
Class B - ($0.4021 and $0.1668 per share, respectively) (3,862,840) (14,760,705)
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) (55,983,572)
--------------- ---------------
From Fund Share Transactions - Net* 975,731,251 1,362,797,319
--------------- ---------------
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 $5,912,498,
respectively) $3,269,356,654 $5,110,813,220
=============== ===============
* Analysis of Fund Share Transactions: SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
-------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
CLASS A
Shares sold 31,732,595 $957,001,609 32,100,122 $1,198,294,434
Shares issued to shareholders in reinvestment of distributions 470,777 13,828,404 370,032 13,558,596
--------------- --------------- --------------- ---------------
32,203,372 970,830,013 32,470,154 1,211,853,030
Less shares repurchased (24,808,137) (750,988,300) (24,002,607) (894,109,580)
--------------- --------------- --------------- ---------------
Net increase 7,395,235 $219,841,713 8,467,547 $317,743,450
=============== =============== =============== ===============
CLASS B
Shares sold 33,358,085 $990,153,270 33,952,116 $1,274,986,045
Shares issued to shareholders in reinvestment of distributions 757,733 22,085,406 683,396 24,769,540
--------------- --------------- --------------- ---------------
34,115,818 1,012,238,676 34,635,512 1,299,755,585
Less shares repurchased (8,681,596) (256,349,138) (6,859,173) (254,701,716)
--------------- --------------- --------------- ---------------
Net increase 25,434,222 $755,889,538 27,776,339 $1,045,053,869
=============== =============== =============== ===============
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference
reflects earnings less expenses, any investment and foreign currency gains
and losses, distributions paid to shareholders, 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 finanical statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are listed as follows:
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 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 $13.47 $17.47 $21.62 $21.52 $27.14 $33.99
---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income 0.21 0.26(2) 0.39(2) 0.52(2) 0.63(2) 0.31(2)
Net Realized and Unrealized Gain on Investments 3.98 5.84 0.91 5.92 7.04 4.94
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 4.19 6.10 1.30 6.44 7.67 5.25
---------- ---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income (0.19) (0.26) (0.34) (0.48) (0.60) (0.29)
Distributions from Net Realized Gain on
Investments Sold -- (1.69) (1.06) (0.34) (0.22) (0.31)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions (0.19) (1.95) (1.40) (0.82) (0.82) (0.60)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $17.47 $21.62 $21.52 $27.14 $33.99 $38.64
========== ========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value(3) 31.26%(4) 37.45% 6.44% 31.00% 28.78% 15.57%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $31,306 $94,158 $216,978 $486,631 $860,843 $1,305,699
Ratio of Expenses to Average Net Assets 1.41%(5) 1.35% 1.34% 1.39% 1.36% 1.35%(5)
Ratio of Net Investment Income to Average
Net Assets 1.64%(5) 1.29% 1.78% 2.23% 2.13% 1.70%(5)
Portfolio Turnover Rate 53% 35% 13% 14% 8% 3%
Average Broker Commission Rate(6) N/A N/A N/A N/A $0.0694 $0.0693
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $13.76 $17.44 $21.56 $21.43 $27.02 $33.83
---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income 0.18 0.15(2) 0.23(2) 0.36(2) 0.42(2) 0.18(2)
Net Realized and Unrealized Gain on
Investments 4.56 5.83 0.91 5.89 7.01 4.92
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 4.74 5.98 1.14 6.25 7.43 5.10
---------- ---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income (0.28) (0.17) (0.21) (0.32) (0.40) (0.17)
Distributions from Net Realized Gain on
Investments Sold (0.78) (1.69) (1.06) (0.34) (0.22) (0.31)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions (1.06) (1.86) (1.27) (0.66) (0.62) (0.48)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $17.44 $21.56 $21.43 $27.02 $33.83 $38.45
========== ========== ========== ========== ========== ==========
Total Investment Return at Net Asset
Value(3) 37.20% 36.71% 5.69% 30.11% 27.89% 15.17%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $56,016 $171,808 $522,207 $1,236,447 $2,408,514 $3,805,114
Ratio of Expenses to Average Net
Assets 1.96% 1.88% 2.06% 2.09% 2.07% 2.05%(5)
Ratio of Net Investment Income to
Average Net Assets 1.21% 0.76% 1.07% 1.53% 1.42% 0.99%(5)
Portfolio Turnover Rate 53% 35% 13% 14% 8% 3%
Average Broker Commission Rate(6) N/A N/A N/A N/A $0.0694 $0.0693
(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.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
April 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Regional
Bank Fund on April 30, 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.
NUMBER MARKET
DESCRIPTION, STATE, ISSUER OF SHARES VALUE
- ------------------------------------------- ------------- ---------------
<S> <C> <C>
COMMON STOCKS, WARRANTS AND OTHER
Money Center Banks (2.26%)
Bankers Trust New York Corp. (NY) 100,000 $8,137,500
Chase Manhattan Corp. (NY) 814,808 75,471,591
Morgan (J.P.) & Co., Inc. (NY) 316,000 32,192,500
---------------
115,801,591
---------------
Super Regional Banks (16.40%)
Banc One Corp. (OH) 832,268 35,267,356
BankAmerica Corp. (CA) 688,687 80,490,293
BankBoston Corp. (MA) 1,278,250 92,992,687
Bank of New York Co., Inc. (NY) 2,049,449 80,953,235
Barnett Banks, Inc. (FL) 878,000 42,912,250
First Bank System, Inc. (MN) 394,865 30,305,889
First Chicago NBD Corp. (IL) 1,153,213 64,868,231
First Union Corp. (NC) 694,369 58,326,996
Fleet Financial Group, Inc. (MA) 798,648 48,717,528
KeyCorp. (OH) 599,305 31,238,773
Mellon Bank Corp. (PA) 263,201 21,878,583
NationsBank Corp. (NC) 1,938,989 117,066,483
Norwest Corp. (MN) 1,030,216 51,382,023
PNC Bank Corp. (PA) 1,621,900 66,700,638
Wachovia Corp. (NC) 260,000 15,210,000
---------------
838,310,965
---------------
Regional Banks (39.61%)
ABC Bancorp. (GA) 130,000 2,567,500
AMBANC Corp. (IN) 10,000 350,000
American Bancorp. (WV) 74,000 2,284,750
American Bancshares, Inc. * (FL) 70,000 586,250
AmSouth Bancorp. (AL) 442,293 23,330,956
ANB Corp. (IN) 113,000 2,062,250
Aspen Bancshares, Inc. (CO) 20,000 415,000
Atlantic Bank & Trust Co.* (MA) 49,500 556,875
BancFirst Corp. (OK) + 328,100 9,350,850
BancFirst Ohio Corp. (OH) 65,000 2,161,250
BancorpSouth, Inc. (MS) 125,000 3,406,250
Banknorth Group, Inc. (VT) + 416,500 17,701,250
BanPonce Corp. (PR) 742,000 25,320,750
BNH Bancshares, Inc. * (CT) 136,250 2,026,719
Brenton Banks, Inc. (IA) 194,260 5,390,715
Bryn Mawr Bank Corp. (PA) 89,200 2,965,900
BT Financial Corp. (PA) 73,285 2,986,364
California Commercial
Bankshares * (CA) 52,747 1,265,928
California Community Bancshares (CA) 35,020 569,075
California State Bank (CA) 160,100 3,492,181
Carnegie Bancorp. (NJ) 52,092 879,052
CB Bancshares, Inc. (HI) 145,100 4,353,000
CCB Financial Corp. (NC) 263,100 17,857,912
Central Fidelity Banks, Inc. (VA) 352,500 9,781,875
Centura Banks, Inc. (NC) 415,525 16,257,416
Chittenden Corp. (VT) 76,200 2,162,175
Citizens Banking Corp. (MI) 58,400 1,810,400
City National Corp. (CA) 332,300 7,601,362
CNB Bancshares, Inc. (IN) 85,306 3,742,801
CoBancorp, Inc. (OH) 42,000 1,113,000
Colonial BancGroup, Inc. (AL) 625,800 14,080,500
Comerica, Inc. (MI) 704,098 41,189,733
Commerce Bancshares, Inc. (MO) 318,833 14,427,193
Commercial Bankshares, Inc. (FL) 166,950 2,754,675
Community Bank System, Inc. (NY) 125,000 2,625,000
Community First Bankshares, Inc. (ND) 347,875 11,175,484
Compass Bancshares, Inc. (AL) 1,499,750 45,367,437
CoreStates Financial Corp. (PA) 1,476,124 74,728,777
Crestar Financial Corp. (VA) 1,529,220 56,581,140
CU Bancorp. (CA) 172,311 2,541,587
Cullen / Frost Bankers, Inc. (TX) 868,200 30,387,000
Dauphin Deposit Corp. (PA) 38,000 1,615,000
Deposit Guaranty Corp. (MS) 768,400 23,532,250
Evergreen Bancorp., Inc. (NY) 263,200 3,816,400
F & M National Corp.* (VA) 138,150 2,952,956
First American Corp. (TN) 1,237,800 81,075,900
First of America Bank Corp. (MI) 981,205 65,250,132
First Citizens Bancshares, Inc.
(Class A) (NC) 58,344 4,609,176
First Colonial Group, Inc. (PA) 24,150 578,091
First Commerce Corp. (LA) 1,177,387 48,125,694
First Hawaiian, Inc. (HI) 774,500 23,815,875
First Merchants Corp. (IN) 60,100 1,697,825
First Oak Brook Bancshares, Inc.
(Class A) (IL) 43,500 1,239,750
First Patriot Bankshares. (VA) 41,100 673,012
First Security Corp. (UT) 648,000 23,085,000
First Source Corp. (IN) 103,751 2,412,211
First State Bancorp. (NM) + 107,500 1,491,562
First Tennessee National Corp. (TN) 1,456,800 63,188,700
First Western Bancorp., Inc. (PA) 132,500 4,306,250
Firstar Corp. (WI) 995,000 29,352,500
Firstbank of Illinois Co. (IL) 155,775 5,763,675
F.N.B Corp. (PA) 195,275 4,686,595
FNB Rochester Corp. (NY) + 201,237 2,477,731
Franklin Bank, NA (MI) 89,075 1,213,647
Fulton Financial Corp. (PA) 197,025 5,073,394
Grand Premier Financial, Inc. (IL) 184,118 2,002,283
Greater Bay Bancorp. (CA) 26,959 711,044
Hancock Holding Co. (MS) 303,700 12,451,700
Harleysville National Corp. (PA) 41,500 1,141,250
Hibernia Corp. (Class A) (LA) 1,345,600 17,324,600
HUBCO, Inc. (NJ) 710,064 17,485,326
Huntington Bancshares, Inc. (OH) 316,975 9,073,409
Imperial Bancorp.* (CA) 266,100 6,253,350
Independent Bank Corp. (MA) + 804,000 8,040,000
Interchange Financial Services
Corp. (NJ) 210,750 3,925,219
Keystone Financial, Inc. (PA) 33,500 854,250
Liberty Bancorp., Inc. (OK) 15,000 742,500
LSB Bancshares, Inc. (NC) 13,408 254,752
Magna Group, Inc. (MO) 560,000 17,290,000
Mainstreet Bankgroup, Inc. (VA) 203,700 3,870,300
Marshall & Ilsley Corp. (WI) 501,480 19,244,295
Mercantile Bancorp., Inc. (MO) 796,999 46,225,942
Mercantile Bankshares Corp. (MD) 432,500 15,894,375
Merchants Bancorp., Inc. (IL) 55,800 2,036,700
MetroBanCorp. (IN) 75,000 525,000
Michigan Financial Corp. (MI) 61,552 1,408,002
Mississippi Valley Bancshares,
Inc. (MO) 92,000 3,910,000
National City Bancshares, Inc. (IN) 76,899 2,479,993
National City Corp. (OH) 818,646 39,908,993
North Fork Bancorp., Inc. (NY) 1,445,709 57,286,219
North Valley Bancorp. (CA) 76,600 2,058,625
Old Kent Financial Corp. (MI) 674,598 34,235,849
One Valley Bancorp., Inc. (WV) 206,085 7,908,512
Pacific Bank N.A. * (CA) 66,923 2,267,017
Pacific Century Financial Corp. (HI) 740,450 31,654,237
Peoples Bank Corp. of Indianapolis (IN) 24,000 1,050,000
Pinnacle Financial Services, Inc. (MI) 120,000 3,120,000
Premier Bankshares Corp. (VA) 113,333 2,974,991
Premier Financial Bancorp., Inc. (KY) 35,000 529,375
Princeton National Bancorp., Inc. (IL) 64,500 1,193,250
Provident Bancorp., Inc. (OH) 219,375 8,555,625
Provident Bankshares Corp. (MD) 259,900 9,161,475
Regions Financial Corp. (AL) 473,240 26,856,370
Republic Bancorp., Inc. (MI) 96,691 1,281,156
Republic New York Corp. (NY) 599,600 54,938,350
Riggs National Corp. (DC) 385,000 7,122,500
SC Bancorp. (CA) 219,051 2,601,231
Seacoast Banking Corp. (Class A) (FL) 140,300 3,560,113
Signet Banking Corp. (VA) 870,600 26,879,775
Silicon Valley Bancshares * (CA) 180,000 6,300,000
Simmons First National Corp.
(Class A) (AR) 283,500 7,672,219
Southern National Corp. (NC) 1,722,963 67,626,298
Southtrust Corp. (AL) 1,015,600 37,958,050
Southwest Bancorp., Inc. (OK) 130,500 2,936,250
State Financial Services Corp.
(Class A) (WI) 90,120 1,768,605
State Street Corp. (MA) 235,000 18,506,250
Sterling Bancshares, Inc. (TX) 241,088 3,646,448
Summit Bancorp. (NJ) 1,540,424 71,629,712
Surety Capital Corp. * (TX) 120,000 630,000
Susquehanna Bancshares, Inc. (PA) 437,175 14,645,363
Synovus Financial Corp. (GA) 286,200 6,940,350
Texas Regional Bancshares, Inc.
(Class A) (TX) 212,500 7,225,000
Trans Financial, Inc. (KY) 105,000 2,441,250
TransWorld Bancorp. * (CA) 25,000 450,000
TriCo Bancshares (CA) 203,050 4,543,244
Trustmark Corp. (MS) 132,000 3,333,000
UnionBanCal Corp. (CA) 736,800 42,181,800
Union Planters Corp. (TN) 1,990,239 88,814,415
United Carolina Bancshares, Inc. (NC) 62,600 2,738,750
US Bancorp. (OR) 1,353,527 77,320,230
USBANCORP., Inc. (PA) 60,500 2,737,625
UST Corp. (MA) 300,000 5,625,000
U.S. Trust Corp. (NY) 75,000 3,300,000
Vectra Banking Corp. * (CO) + 185,000 3,538,125
Vermont Financial Services Corp. (VT) + 389,200 15,470,700
Wells Fargo & Co. (CA) 321,966 85,884,430
Westamerica Bancorp. (CA) 202,800 13,232,700
West Coast Bancorp. (OR) 93,437 2,102,333
Whitney Holding Corp. (LA) 426,300 15,453,375
Zions Bancorp. (UT) 135,200 17,102,800
---------------
2,024,283,933
---------------
Thrifts (18.91%)
Acadiana BancShares, Inc. (LA) 35,000 630,000
Afsala Bancorp., Inc. (NY) 60,000 810,000
ALBANK Financial Corp. (NY) 87,500 3,193,750
Ahmanson (H.F.) & Co. (CA) 1,200,000 45,750,000
Ambanc Holding Co., Inc. * (NY) + 250,000 3,406,250
American Federal Bank, FSB (SC) 398,500 11,556,500
American National Bancorp., Inc. (MD) 142,300 2,045,562
Andover Bancorp Inc. (MA) 75,000 2,043,750
Astoria Financial Corp. (NY) 550,000 21,518,750
Avondale Financial Corp. * (IL) 20,000 255,000
Bank Plus Corp. * (CA) 763,644 7,540,984
Bank United Corp. (Class A) (TX) 263,600 8,039,800
BankUnited Financial Corp.
(Class A) (FL) 82,000 738,000
Bay View Capital Corp. (CA) + 378,700 18,390,619
Bedford Bancshares, Inc. (VA) 30,000 581,250
Big Foot Financial Corp. * (IL) 15,000 223,125
BostonFed Bancorp., Inc. (MA) + 325,700 4,966,925
California Financial Holding Co. (CA) 191,000 5,574,812
Calumet Bancorp., Inc. * (IL) + 138,000 4,864,500
Camco Financial Corp. (OH) 20,247 354,322
Cameron Financial Corp. (MO) 125,000 2,062,500
Capital Savings Bancorp., Inc. (MO) 51,502 675,964
Catskill Financial Corp. (NY) 225,000 3,234,375
CB Bancorp., Inc. * (IN) + 72,870 2,400,156
CCF Holding Co. (GA) + 44,700 723,581
CENFED Financial Corp. (CA) 172,150 4,906,275
CFX Corp. (NH) 69,462 1,128,757
Charter Financial, Inc. (IL) 70,000 1,242,500
Charter One Financial, Inc. (OH) 795,300 35,390,850
Chester Bancorp, Inc. (IL) 40,000 592,500
Coast Savings Financial * (CA) 331,100 13,326,775
Coastal Bancorp., Inc. (TX) 115,000 2,731,250
Collective Bancorp., Inc. (NJ) + 1,369,900 55,994,662
Commercial Federal Corp. (NE) + 1,127,200 37,761,200
Commonwealth Bancorp., Inc. (PA) 301,873 4,339,424
Crazy Woman Creek Bancorp.,
Inc. (WY) + 51,700 685,025
CSB Financial Group, Inc. * (IL) + 50,000 581,250
Damen Financial Corp. (IL) 45,000 630,000
Dime Bancorp., Inc. (NY) 1,522,500 24,550,312
Dime Community Bancorp., Inc. * (NY) 335,000 5,925,312
Dime Financial Corp. (CT) 50,000 943,750
D & N Financial Corp. * (MI) 50,000 868,750
Eagle Bancshares, Inc. (GA) 174,000 2,784,000
Eastern Bancorp, Inc. (NH) 5,000 123,750
East Texas Financial Services, Inc. (TX) 44,000 770,000
Elmira Savings Bank (NY) 34,950 725,212
Falmouth Co-Operative Bank (MA) 55,000 783,750
Fed One Bancorp., Inc. (WV) 15,000 277,500
Fidelity Financial of Ohio (OH) 80,000 1,060,000
Financial Bancorp., Inc. (NY) 45,000 736,875
Firstbank Corp. (MI) 49,835 1,968,482
First Bankshares, Inc. (MO) 48,000 954,000
First Bell Bancorp., Inc. (PA) 120,000 1,755,000
First Colorado Bancorp., Inc. (CO) 645,000 10,320,000
First Defiance Financial Corp. (OH) 422,200 5,383,050
First Federal Bancorp. * (MN) + 56,000 1,015,000
First Federal Bancshares of Arkansas,
Inc. (AR) 110,000 1,980,000
First Federal Capital Corp. (WI) 103,945 2,754,542
First Financial Corp. (WI) 509,537 13,439,038
First Financial Corp. of Western
Maryland (MD) 90,500 2,901,656
First Financial Holdings Inc. (SC) 80,000 1,980,000
First Independence Corp. (KS) + 71,000 781,000
First Indiana Corp. (IN) 61,748 1,157,775
First Keystone Financial, Inc. (PA) 18,000 387,000
First Mutual Bancorp., Inc. (IL) + 238,000 3,332,000
First Republic Bancorp., Inc. * (CA) 254,162 5,305,632
First Savings Bank of Washington
Bancorp., Inc. (WA) 120,000 2,520,000
First Southern Bancshares (AL) 35,000 446,250
Flagstar Bancorp, Inc. * (MI) 450,000 5,906,250
Flushing Financial Corp. (NY) 105,000 1,942,500
FMS Financial Corp. (NJ) 24,000 471,000
Fort Bend Holding Corp. (TX) 39,000 1,023,750
Fort Thomas Financial Corp. (KY) 60,000 630,000
Frankfort First Bancorp. (KY) 145,000 1,431,875
GA Financial, Inc. (PA) 420,000 6,615,000
Glendale Federal Bank * (CA) 851,900 21,191,012
Golden West Financial Corp. (CA) 100,000 6,500,000
Greater New York Savings Bank (NY) 100,000 1,837,500
Great Western Financial Corp. (CA) 675,000 28,350,000
GreenPoint Financial Corp. (NY) 1,642,000 90,925,750
Harbor Federal Bancorp., Inc. (MD) + 115,000 1,897,500
HF Financial Corp. (SD) + 150,000 2,925,000
Highland Federal Bank * (CA) 90,500 1,991,000
HMN Financial, Inc.* (MN) 110,000 2,117,500
Home Bancorp of Elgin Inc. (IL) 65,000 975,000
Home Federal Bancorp. (IN) 133,600 3,373,400
IBS Financial Corp. (NJ) 63,250 940,844
Indiana Federal Corp. (IN) 25,000 615,625
Industrial Bancorp., Inc. (OH) 150,000 1,893,750
InterWest Bancorp, Inc. (WA) 87,500 2,493,750
ISB Financial Corp. (LA) 350,000 7,875,000
Kankakee Bancorp., Inc. (IL) 31,020 868,560
Kentucky First Bancorp., Inc. (KY) 65,000 719,063
Klamath First Bancorp., Inc. (OR) 400,000 7,100,000
Landmark Bancshares, Inc. (KS) + 100,000 1,962,500
Life Bancorp., Inc. (VA) 100,000 1,862,500
Little Falls Bancorp., Inc. (NJ) 125,000 1,640,625
Logansport Financial Corp. (IN) + 117,500 1,556,875
Long Island Bancorp., Inc. (NY) 845,800 28,757,200
MAF Bancorp., Inc. (IL) 278,553 11,002,844
Marion Capital Holdings, Inc. (IN) 72,500 1,590,469
Marshalltown Financial Corp. * (IA) 20,000 305,936
MASSBANK Corp. (MA) 57,300 2,295,581
MFB Corp. (IN) + 90,000 1,732,500
Medford Savings Bank (MA) 87,500 2,264,063
Mid Continent Bancshares, Inc. (KS) 13,500 347,625
Midwest Federal Financial Corp. (WI) 15,000 305,625
Mississippi View Holding Co. (MN) + 70,000 1,023,750
ML Bancorp, Inc. (PA) 235,000 3,818,750
Monterey Bay Bancorp., Inc. (CA) 65,000 1,056,250
MSB Bancorp., Inc. (NY) 15,000 264,375
New Hampshire Thrift Bancshares,
Inc. (NH) 40,000 590,000
North Central Bancshares, Inc. (IA) 115,000 1,804,063
Northeast Indiana Bancorp., Inc. (IN) + 94,500 1,323,000
NS & L Bancorp. (MO) 35,000 590,625
Ocean Financial Corp. (NJ) 120,000 3,547,500
PALFED, Inc. (SC) 233,600 3,854,400
Pamrapo Bancorp., Inc. (NJ) 120,000 2,250,000
Park Bancorp, Inc. * (IL) 25,000 364,063
Patriot Bank Corp. (PA) 180,000 2,812,500
Peekskill Financial Corp. (NY) 162,000 2,187,000
Pennfirst Bancorp., Inc. (PA) 142,090 1,918,215
Peoples Heritage Financial Group,
Inc. (ME) 908,450 28,502,619
Permanent Bancorp., Inc. (IN) 60,000 1,395,000
PFF Bancorp., Inc. * (CA) 750,000 10,687,500
Piedmont Bancorp., Inc. (NC) 20,000 212,500
Pittsburgh Home Financial Corp. (PA) 90,000 1,327,500
Portsmouth Bank Shares, Inc. (NH) 75,000 1,106,250
Potters Financial Corp. (OH) 25,000 506,250
Prestige Bancorp. Inc. (PA) + 82,000 1,296,625
Primary Bank * (NH)+ 110,250 2,618,438
Progress Financial Corp. (PA) 32,500 278,281
Provident Financial Holdings, Inc. * (CA) 30,000 457,500
PVF Capital Corp. * (OH) 27,225 503,663
QCF Bancorp., Inc. * (MN) 70,000 1,382,500
Quaker City Bancorp., Inc. * (CA) 75,000 1,350,000
RCSB Financial, Inc. (NY) 550,000 16,362,500
River Bank America * (NY) 220,000 1,485,000
River Valley Bancorp. * (IN) 15,000 219,375
Roosevelt Financial Group, Inc. (MO) 1,933,123 44,945,110
SIS Bancorp Inc. (MA) 142,500 3,705,000
Skaneateles Bancorp, Inc. (NY) 46,100 852,850
SFS Bancorp., Inc. (NY) + 74,000 1,276,500
Sobieski Bancorp., Inc. (IN) + 40,000 580,000
Southern Banc Co., Inc. (AL) 55,500 790,875
Southern Financial Bancorp., Inc. (VA) 64,098 857,311
Southern Missouri Bancorp., Inc. (MO) 80,000 1,270,000
South Street Financial Corp. (NC) 55,000 886,875
Sovereign Bancorp., Inc. (PA) 311,832 3,819,942
St. Paul Bancorp., Inc. (IL) 323,250 8,848,969
Standard Federal Bancorp. (MI) 341,800 20,123,475
Standard Financial, Inc. (IL) 125,000 2,859,375
Statewide Financial Corp. (NJ) 220,000 3,423,750
Sterling Financial Corp. * (WA) 261,877 4,124,563
Tappan Zee Financial, Inc. (NY) + 87,500 1,389,063
TCF Financial Corp. (MN) 526,826 21,534,013
Teche Holding Co. (LA) 81,000 1,306,125
TeleBanc Financial Corp. * (VA) 100,000 1,300,000
Texarkana First Financial Corp. (AR) + 124,800 2,152,800
TF Financial Corp (PA) 50,000 856,250
TR Financial Corp (NY) 50,000 1,856,250
Virginia First Financial Corp. (VA) 260,000 3,510,000
Washington Bancorp. * (IA) 25,000 359,375
Washington Federal, Inc. (WA) 791,335 18,992,040
Washington Mutual, Inc. (WA) 772,483 38,141,348
Webster Financial Corp. (CT) 110,000 4,076,875
WesterFed Financial Corp. (MT) + 287,426 5,353,309
WSFS Financial Corp. * (DE) 194,400 2,344,950
York Financial Corp. (PA) 55,000 1,003,750
---------------
966,692,286
---------------
Other - Financial (4.75%)
Alex Brown, Inc. 421,500 27,134,062
Ambassador Apartments, Inc. 70,000 1,706,250
Apartment Investment &
Management Co. (Class A) 145,000 4,023,750
Associates First Capital Corp. (Class A) 172,000 8,815,000
Beacon Properties Corp. 180,000 5,557,500
Cali Realty Corp. 127,000 3,746,500
Capital One Financial Corp. 798,100 28,831,362
CapMAC Holdings, Inc. 25,000 650,000
CB Commercial Real Estate Services
Group, Inc. * 140,000 2,940,000
ContiFinancial Corp. * 36,000 1,035,000
Delta Financial Corp. * 120,200 1,622,700
Donaldson Lufkin & Jenrette, Inc. 30,000 1,293,750
Edwards (A.G.), Inc. 105,000 3,675,000
Enhance Financial Services Group, Inc. 115,000 4,427,500
EVEREN Capital Corp. 39,500 933,187
Fannie Mae 305,000 12,543,125
Financial Federal Corp. * 44,400 749,250
Financial Security Assurance
Holdings Ltd. 60,000 1,942,500
First USA, Inc. 305,000 14,678,125
First USA Paymentech, Inc. * 34,700 837,137
First Washington Realty Trust, Inc. 79,470 1,857,611
Healthcare Financial Partners, Inc. * 44,500 534,000
Highwood Properties, Inc. 85,000 2,645,625
HomeSide, Inc. * 200,000 3,200,000
IMC Mortgage Co. * 49,400 555,750
Imperial Credit Industries, Inc.* 89,200 1,298,975
Innkeepers USA Trust 100,000 1,400,000
Interra Financial, Inc. 39,700 1,454,013
Interstate/Johnson Lane, Inc. 32,300 565,250
Investors Financial Services Corp. 40,000 1,400,000
ITLA Capital Corp. * 245,600 3,530,500
Legg Mason, Inc. 30,200 1,434,500
Lehman Brothers Holdings, Inc. 185,000 6,266,875
Lomas Financial Corp. * 180,000 2,813
Matrix Capital Corp. * 89,500 1,018,063
McDonald & Co., Investments 74,200 2,671,200
Morgan Keegan, Inc. 37,800 685,125
Nationwide Financial Services, Inc.
(Class A) * 61,000 1,616,500
Old Guard Group, Inc. * 28,000 388,500
Penncorp Financial Group, Inc. 111,000 3,815,625
PMC Capital, Inc. 25,000 321,875
Prentiss Properties Trust 216,500 5,114,813
Prime Retail, Inc. 390,431 4,733,976
Raymond James Financial, Inc. 105,050 2,455,544
Salomon, Inc. 175,000 8,750,000
Sirrom Capital Corp. 226,600 7,052,925
Southern Pacific Funding Corp. * 146,900 1,560,813
Student Loan Marketing Assn. 232,000 27,434,000
Travelers Property Casualty Corp.
(Class A) 138,500 4,674,375
Trenwick Group, Inc. 199,500 6,508,688
Ugly Duckling Corp. * 490,500 6,928,313
Union Acceptance Corp. (Class A) * 51,200 537,600
WFS Financial, Inc. * 197,450 2,320,038
Willis Lease Finance Corp. * 79,000 829,500
---------------
242,705,083
---------------
Banks - Foreign (0.06%)
Royal Bank of Canada (Canada) 50,000 1,993,750
Toronto Dominion Bank (Canada) 40,000 1,130,000
---------------
3,123,750
---------------
WARRANTS (0.09%)
Carnegie Bancorp. * (NJ) 29,000 117,813
Glendale Federal Savings Bank *
(CA) 310,000 4,262,500
---------------
4,380,313
---------------
OTHER (0.01%)
California Federal Bank * (CA)
Contingent Litigation Participation Int. 10,833 166,557
California Federal Bank * (CA)
Secondary Contingent Litigation
Participation Int. 5,833 90,418
---------------
256,975
---------------
TOTAL COMMON STOCKS,
WARRANTS AND OTHER
(Cost $2,881,476,401) (82.09%) $4,195,554,896
-------- ---------------
PREFERRED STOCKS
BankUnited Financial, 8.00% (FL) 28,000 $ 441,000
California Federal Bank, 11.50% (CA) 30,000 3,412,500
California Federal Bank, Ser B,
10.625% (CA) 13,333 1,439,131
Chevy Chase Pref. Capital Corp. Ser A,
10.375% (MD) 18,000 888,750
Chevy Chase Savings, 13.00% (MD) 50,000 1,475,000
Community Bank, Ser B, 13.00%
(CA) + 40,000 1,080,000
CRIIMI MAE, Inc. Ser B, 10.875% (MD) 15,000 530,625
Fidelity Federal Bank, Ser A,
12.00% (CA) 40,000 1,100,000
FirstFederal Financial Corp., Ser A,
7.00% (OH) 10,000 883,750
First Preferred Cap I, 9.25% (MO) 100,000 2,587,500
First Source Capital Trust I,
9.00% (IN) + 40,000 1,010,000
First Source Capital Trust II, 7.495% (IN)** 40,000 1,000,000
First Washington Realty Trust, Ser A,
9.75% (MD) 113,498 3,305,629
Glendale Federal Bank, Ser E,
8.75% (CA) 100,000 6,162,500
IFC Capital Trust I, 9.25% (IN) + 160,000 4,160,000
Prime Retail, Inc., Ser B, 8.50% (MD) 19,105 441,803
Riggs National Corp., Ser B,
10.75% (DC) 64,300 1,808,438
Roosevelt Financial Group, Inc. Ser F,
6.50% (MO) 16,000 1,364,000
Southwest Bancorp., Inc. Ser A,
9.20% (OK) 20,000 507,500
Walden Residential, Ser B, 9.16% (TX) 56,000 1,414,000
---------------
TOTAL PREFERRED STOCKS
(Cost $28,700,931) (0.68%) $35,012,126
-------- ---------------
<CAPTION>
INTEREST PAR VALUE MARKET
RATE (000'S OMITTED) VALUE
------------ ------------- ------------
<S> <C> <C> <C>
BONDS
BFC Capital Trust I (R)
Capital Securities Ser A
1/15/27 9.650% 1,000 985,000
BankUnited Capital (R)
Trust Pref Sec, Ser A
12/31/26 10.250 2,000 1,940,000
Imperial Capital Trust I, (R)
Capital Securities
12/31/26 9.980 1,500 1,486,875
Norwest Corp.,
Sr Note 8-15-97 6.000 700 700,448
Sierra Tahoe Bancorp
Conv Sub Deb 02-01-04 8.500 500 875,000
Susquehanna Bancshares, Inc.
Conv Sub Deb 02-01-05 9.000 2,000 2,130,080
---------------
TOTAL BONDS
(Cost $7,622,097) (0.16%) $8,117,403
-------- ---------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.80%)
Investment in joint repurchase
agreement transaction with
Aubrey G. Lanston & Co.
Dated 4-30-97, Due 5-01-97
(Secured by U.S. Treasury Bills,
5.370% thru 5.780% Due 8-21-97
thru 3-05-98, U.S. Treasury
Bonds, 7.125% thru 11.250%
Due 2-15-15 thru 2-15-23,
U.S. Treasury Notes, 5.125%
thru 7.750%, Due 8-31-98
thru 5-15-05) - Note A 5.375% $245,074 $245,074,000
---------------
Short-Term Notes (12.65%)
American General Financial
Service due 03-01-98 7.250 10,000 10,074,200
American Honda Finance
Corp. due 05-14-97 5.340 10,000 9,980,716
American Honda Finance
Corp. due 06-11-97 5.400 25,000 24,846,250
Associates Corp.
due 02-01-98 6.125 205 204,848
Bear Stearns Cos., Inc.,
due 05-02-97 5.560 16,000 15,997,529
Bear Stearns Cos., Inc.,
due 05-07-97 5.540 27,000 26,975,070
Bear Stearns Cos., Inc.,
due 05-21-97 5.520 25,000 24,923,333
Bear Stearns Cos., Inc.,
due 05-21-97 5.530 25,000 24,923,195
Countrywide Home Loans
due 05-22-97 5.540 25,000 24,919,208
Countrywide Home Loans
due 07-31-97 6.570 4,000 4,004,840
Countrywide Home Loans
due 08-04-97 6.570 5,500 5,505,940
Federal Farm Credit Bank
due 05-01-97 6.580 1,000 1,002,679
Federal Home Loan Bank
due 05-19-97 6.430 4,000 4,003,750
Federal Home Loan Bank
due 11-05-97 5.775 5,000 4,989,850
Federal Home Loan Bank
due 11-12-97 5.800 7,700 7,685,524
Federal Home Loan Bank
due 03-17-98 5.815 500 499,685
Federal Home Loan Bank
due 03-17-98 5.580 50,000 50,000,000
Federal Home Loan Bank
due 03-17-98 5.875 25,000 25,000,000
Federal Home Loan Bank
due 03-24-98 5.910 10,000 10,000,000
Federal Home Loan Bank
due 04-02-98 5.910 27,550 27,532,644
Federal Home Loan Bank
due 04-14-98 6.105 25,000 25,000,000
Federal National Mortgage
Assn, due 06-17-97 6.200 1,650 1,654,455
Ford Motor Credit Co.,
due 12-01-97 8.000 11,000 11,112,530
General Motors Acceptance
Corp. due 05-22-97 7.350 2,000 2,017,400
General Motors Acceptance
Corp. due 06-03-97 5.350 25,000 24,877,396
General Motors Acceptance
Corp. due 06-12-97 5.380 25,000 24,843,083
General Motors Acceptance
Corp. due 06-16-97 5.420 25,000 24,826,861
General Motors Acceptance
Corp. due 12-22-97 5.700 1,000 996,910
Goldman Sachs Group, L.P.
due 05-21-97 5.280 25,000 24,926,667
Goldman Sachs Group, L.P.
due 10-15-97 7.800 1,600 1,611,264
Heller Financial
due 05-12-97 5.550 25,000 24,957,604
Heller Financial
due 05-16-97 5.610 10,000 9,976,625
Heller Financial
due 05-19-97 5.570 25,000 24,930,375
Heller Financial
due 05-23-97 5.580 25,000 24,914,750
International Business
Machines due 05-07-97 5.530 13,850 13,837,235
International Lease Finance
due 01-15-98 8.125 17,000 17,225,420
Merrill Lynch & Co., Inc.
due 06-02-97 5.290 25,000 24,882,444
PNC Bank,
due 05-20-97 5.490 25,000 24,927,563
Sears Roebuck Acceptance
Corp. due 03-02-98 7.400 1,000 1,008,520
Student Loan Mortgage Assn.
due 04-07-98 6.000 10,000 10,000,000
Unifunding
due 06-10-97 5.350 25,000 24,851,389
---------------
TOTAL SHORT-TERM NOTES
(Cost $646,574,634) 646,447,752
---------------
TOTAL SHORT-TERM
INVESTMENTS (17.44%) 891,521,752
-------- ---------------
TOTAL INVESTMENTS (100.38%) $5,130,206,177
======== ===============
* Non-income producing security.
** Variable rate as of April 30, 1997.
+ Denotes an affiliated Company which the Fund has ownership of at least 5% of the voting securities
(See Note D).
(R) These Securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such
securities may be resold, normally to qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $4,411,875 as of April 30, 1997.
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>
(UNAUDITED)
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: 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 Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
instruments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for
ensuring that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all its taxable income,
including any net realized gain on investments, to its shareholders.
Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date. Interest income on
investment securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are determined at the Fund level and allocated daily to
each class of shares based on the 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. The Fund had no borrowing activity for the period ended
April 30, 1997.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially
expressed in terms of foreign currencies are translated into U.S.
dollars based on London currency exchange quotations as of 5:00 p.m.,
London time, on the date of any determination of the net asset value of
the Fund. Transactions affecting statement of operations accounts and
net realized gain/(loss) on investments 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
or losses arise from changes in the value of assets and liabilities
other than investments in securities at fiscal year end, resulting from
changes in the exchange rate.
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") act as Co-
Distributors for shares of the Fund. For the period ended April 30,
1997, JH Funds received net sales charges of $11,566,276 with regard to
sales of Class A shares. Out of this amount, $1,813,580 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $9,090,700 was paid as sales commissions to unrelated broker-
dealers, and $661,996 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 period ended April 30, 1997, the contingent-
deferred sales charges received by JH Funds amounted to $3,498,298.
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 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
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 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 an
other asset. The deferred compensation liability and the related other
asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized
gains or losses. At April 30, 1997, the Fund's investments to cover the
defined compensation liability and unrealized appreciation $1,976.
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 $1,111,310,247, and
$93,746,696, respectively. There were no purchases or sales of
obligations of the U.S. government during the period ended April 30,
1997.
The cost of investments owned at April 30, 1997 (including the short-
term investments) for Federal income tax purposes was $3,809,448,063.
Gross unrealized appreciation and depreciation of investments aggregated
$1,332,250,270 and $11,492,156, respectively, resulting in net
unrealized appreciation of $1,320,758,114.
NOTE D --
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 period ended April 30, 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>
Ambanc Holding
Co., Inc. 205,000 45,000 $590,625 -- $--
BancFirst Corp. 302,100 26,000 749,125 -- --
Banknorth Group, Inc. 386,500 30,000 1,220,000 -- --
Bay View Capital Corp. 294,000 109,700 5,327,481 25,000 821,750
BostonFed Bancorp., Inc. 325,700 -- -- -- --
Calumet Bancorp., Inc. 138,000 -- -- -- --
CB Bancorp., Inc. 57,870 15,000 502,500 -- --
CCF Holding Co. 49,000 -- -- 4,300 49,450
Collective
Bancorp., Inc. 1,242,900 127,000 4,389,875 -- --
Commercial
Federal Corp. 360,200 767,000* 19,251,996 -- --
Community Bank,
Ser B, 13.00% 40,000 -- -- -- --
Crazy Woman Creek
Bancorp., Inc. 50,000 21,700 284,813 20,000 262,500
CSB Financial Group, Inc 50,000 -- -- -- --
F.N.B. Rochester Corp. 168,737 32,500 445,939 -- --
First Federal Bancorp. 42,000 14,000 252,000 -- --
First Independence Corp. 35,500 35,500* -- -- --
First Mutual Bancorp., I 185,000 83,000 1,297,750 30,000 382,500
First Source Capital
Trust I, 9.00% -- 40,000 1,000,000 -- --
First State Bancorp. 87,500 20,000 314,375 -- --
Harbor Federal
Bancorp., Inc. 80,000 35,000 608,125 -- --
HF Financial Corp. 150,000 -- -- -- --
IFC Capital Trust I, 9.2 -- 160,000 4,000,000 -- --
Independent Bank Corp. 480,000 324,000 3,260,500 -- --
Landmark Bancshares, Inc 100,000 -- -- -- --
Logansport Financial Cor 50,000 67,500 818,438 -- --
MFB Corp. 100,000 -- -- 10,000 152,500
Mississippi View
Holding Co. 40,000 30,000 408,750 -- --
Northeast Indiana
Bancorp., Inc. 55,000 60,000 817,500 20,500 279,313
Prestige Bancorp Inc. 40,000 42,000 583,000 -- --
Primary Bank 80,000 30,250 512,783 -- --
SFS Bancorp., Inc. 45,000 49,000 784,000 20,000 320,000
Sobieski Bancorp., Inc. 40,000 -- -- -- --
Tappan Zee Financial, In 67,500 30,000 442,500 10,000 121,250
Texarkana First
Financial Corp. 96,800 28,000 462,000 -- --
Vectra Banking Corporati 50,000 135,000 2,480,625 -- --
Vermont Financial
Services Corp. 359,200 30,000 1,064,376 -- --
WesterFed Financial Corp 230,000 57,426* -- -- --
------------ ------------
$51,869,077 $2,389,263
============ ============
<CAPTION>
ENDING
SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT GAIN (LOSS) INCOME VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ambanc Holding
Co., Inc. 250,000 $-- $-- $3,406,252
BancFirst Corp. 328,100 -- 61,720 9,350,850
Banknorth Group, Inc. 416,500 -- 217,410 17,701,250
Bay View Capital Corp. 378,700 453,208 107,632 18,390,619
BostonFed Bancorp., Inc. 325,700 -- 16,285 4,966,925
Calumet Bancorp., Inc. 138,000 -- -- 4,864,500
CB Bancorp., Inc. 72,870 -- -- 2,400,156
CCF Holding Co. 44,700 14,513 22,350 723,581
Collective
Bancorp., Inc. 1,369,900 -- 664,450 55,994,662
Commercial
Federal Corp. 1,127,200 -- 125,615 37,761,200
Community Bank,
Ser B, 13.00% 40,000 -- 65,000 1,080,000
Crazy Woman Creek
Bancorp., Inc. 51,700 5,000 12,170 685,025
CSB Financial Group, Inc 50,000 -- -- 581,250
F.N.B. Rochester Corp. 201,237 -- 8,437 2,477,731
First Federal Bancorp. 56,000 -- -- 1,015,000
First Independence Corp. 71,000 -- 7,988 781,000
First Mutual Bancorp., I 238,000 53,750 33,040 3,332,000
First Source Capital
Trust I, 9.00% 40,000 -- -- 1,010,000
First State Bancorp. 107,500 -- 4,375 1,491,562
Harbor Federal
Bancorp., Inc. 115,000 -- 19,500 1,897,500
HF Financial Corp. 150,000 -- 27,000 2,925,000
IFC Capital Trust I, 9.2 160,000 -- -- 4,160,000
Independent Bank Corp. 804,000 -- 100,245 8,040,000
Landmark Bancshares, Inc 100,000 -- 10,000 1,962,500
Logansport Financial Cor 117,500 -- 16,750 1,556,875
MFB Corp. 90,000 37,500 16,000 1,732,500
Mississippi View
Holding Co. 70,000 -- 3,200 1,023,750
Northeast Indiana
Bancorp., Inc. 94,500 18,803 9,200 1,323,000
Prestige Bancorp Inc. 82,000 -- 2,310 1,296,625
Primary Bank 110,250 -- -- 2,618,438
SFS Bancorp., Inc. 74,000 9,989 2,700 1,276,500
Sobieski Bancorp., Inc. 40,000 -- 2,800 580,000
Tappan Zee Financial, In 87,500 17,500 7,750 1,389,063
Texarkana First
Financial Corp. 124,800 -- 24,930 2,152,800
Vectra Banking Corporati 185,000 -- -- 3,538,125
Vermont Financial
Services Corp. 389,200 -- 233,520 15,470,700
WesterFed Financial Corp 287,426 -- 44,850 5,353,309
------------ ------------ ------------
$610,263 $1,867,227 $226,310,246
============ ============ ============
*Shares reflect merger activity or stock split.
</TABLE>
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
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