- --------------------------------------------------------------------------------
John Hancock Funds
Disciplined
Growth
Fund
FINAL REPORT
December 5, 1997
- --------------------------------------------------------------------------------
<PAGE>
John Hancock Funds - Disciplined Growth Fund
Trustees
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl *
Richard A. Farrell *
Gail D. Fosler*
William F. Glavin *
Anne C. Hodsdon
John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
* Members of the Audit Committee
Officers
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
Custodian
Investors Bank & Trust Company
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
60 State Street
Boston, Massachusetts 02109
<PAGE>
John Hancock Funds - Disciplined Growth Fund
Statement of Assets and Liabilities
Final Report December 5, 1997* (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks
(cost- $84,736,903) $126,901,269
Joint repurchase agreement
(cost- $12,428,000) 12,428,000
Corporate savings account 2,888
----------------
139,332,157
Receivable for shares sold 85,773
Dividends receivable 132,943
Interest receivable 1,879
Foreign tax receivable 518
Other assets 4,162
----------------
Total Assets 139,557,432
---------------------------------------
Liabilities:
Payable for shares repurchased 35,431
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 82,479
Accounts payable and accrued expenses 43,589
----------------
Total Liabilities 161,499
---------------------------------------
Net Assets:
Capital paid-in 98,454,730
Accumulated net realized loss on investments (1,218,313)
Net unrealized appreciation of investments 42,164,993
Accumulated net investment loss (5,477)
----------------
Net Assets $139,395,933
=======================================
<CAPTION>
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
<S> <C> <C>
Class A - $38,166,628 / 2,318,348 $16.46
=========================================================================================
Class B - $101,229,305 / 6,305,496 $16.05
=========================================================================================
Maximum Offering Price Per Share**
Class A - ($ 16.46 x 105.26%) $17.33
=========================================================================================
</TABLE>
* The net assets of the John Hancock Disciplined Growth Fund ("the Fund") were
merged into the John Hancock Growth Fund as of the close of business on December
5, 1997 and the Fund was subsequently terminated. The Statement of Assets and
Liabilities reflect the Fund's position prior to the transfer of net assets and
the termination of the Fund. (See Note A to the Notes to Financial Statements).
** On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
See notes to financial statements.
<PAGE>
John Hancock Funds - Disciplined Growth Fund
Statement of Operations
For the Period November 1, 1997 to December 5, 1997* (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends $151,951
Interest 41,476
---------------
193,427
---------------
Expenses:
Investment management fee - Note B 96,961
Distribution and service fee - Note B
Class A 10,562
Class B 89,372
Transfer agent fee - Note B 24,995
Custodian fee 4,000
Financial services fee - Note B 2,284
Registration and filing fees 1,125
Printing 625
Trustees' fees 480
Legal fees 100
---------------
Total Expenses 230,504
--------------------------------------
Net Investment Loss (37,077)
--------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold (1,207,188)
Change in net unrealized appreciation/depreciation
of investments 10,628,262
---------------
Net Realized and
Unrealized Gain on Investments 9,421,074
-----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $9,383,997
=====================================================
</TABLE>
* The net assets of the John Hancock Disciplined Growth Fund ("the Fund") were
merged into the John Hancock Growth Fund as of the close of business on December
5, 1997 and the Fund was subsequently terminated. The Statement of Operations
reflects the Fund's position prior to the transfer of net assets and the
termination of the Fund. (See Note A to the Notes to Financial Statements).
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
YEAR ENDED NOVEMBER 1, 1997 TO
OCTOBER 31, DECEMBER 5, 1997
1997 (UNAUDITED)**
--------------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($172,647) ($37,077)
Net realized gain on investments sold 16,517,935 (1,207,188)
Change in net unrealized appreciation/depreciation of investments 10,036,060 10,628,262
--------------------- -------------------
Net Increase in Net Assets Resulting from Operations 26,381,348 9,383,997
--------------------- -------------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($1.7182 and $1.9030 per share, respectively) (3,141,926) (3,970,550)
Class B - ($1.7182 and $1.9030 per share, respectively) (10,186,413) (10,806,752)
--------------------- -------------------
Total Distributions to Shareholders (13,328,339) (14,777,302)
--------------------- -------------------
From Fund Share Transactions - Net: * (1,598,035) 12,019,289
--------------------- -------------------
Net Assets:
Beginning of period 121,314,975 132,769,949
--------------------- -------------------
End of period (including accumulated net investment loss
of $5,477and $5,477, respectively) $132,769,949 $139,395,933
===================== ===================
<CAPTION>
* Analysis of Fund Share Transactions:
FOR THE PERIOD
YEAR ENDED NOVEMBER 1, 1997 TO
OCTOBER 31, DECEMBER 5, 1997
1997 (UNAUDITED)**
------------------------------------ -------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 444,482 $6,976,511 17,714 $294,913
Shares issued to shareholders
in reinvestment of distributions 212,861 3,038,956 233,179 3,786,782
----------------- ----------------- ----------------- ------------------
657,343 10,015,467 250,893 4,081,695
Less shares repurchased (410,838) (6,487,188) (27,905) (489,158)
----------------- ----------------- ----------------- ------------------
Net increase 246,505 $3,528,279 222,988 $3,592,537
================= ================= ================= ==================
CLASS B
Shares sold 408,644 $6,251,617 16,634 $235,440
Shares issued to shareholders in
reinvestment of distributions 656,617 9,225,469 624,466 9,891,475
----------------- ----------------- ----------------- ------------------
1,065,261 15,477,086 641,100 10,126,915
Less shares repurchased (1,331,002) (20,603,400) (98,892) (1,700,163)
----------------- ----------------- ----------------- ------------------
Net increase (decrease) (265,741) ($5,126,314) 542,208 $8,426,752
================= ================= ================= ==================
</TABLE>
** The net assets of the John Hancock Disciplined Growth Fund ("the Fund") were
merged into the John Hancock Growth Fund as of the close of business on December
5, 1997 and the Fund was subsequently terminated. The Statement of Changes in
Net Assets reflects the Fund's position prior to the transfer of net assets and
the termination of the Fund. (See Note A to the Notes to Financial Statements).
See notes to financial statements.
<PAGE>
John Hancock Funds - John Hancock Disciplined Growth Fund
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:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
NOVEMBER 1, 1997
YEAR ENDED OCTOBER 31, TO
------------------------------------------------------------------- DECEMBER 5, 1997
1993 1994 1995 1996 1997 (UNAUDITED)
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.99 $12.39 $12.02 $12.77 $15.56 $17.17
------- ------- ------- ------- ------- -------
Net Investment Income 0.08(1) 0.10 0.08(1) 0.07(1) 0.06(1) --(1,4)
Net Realized and Unrealized Gain on
Investments 1.34 0.07 1.29 2.82 3.27 1.19
------- ------- ------- ------- ------- -------
Total from Investment Operations 1.42 0.17 1.37 2.89 3.33 1.19
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.02) (0.10) (0.10) -- -- --
Distributions from Net Realized Gain on
Investments Sold -- (0.44) (0.52) (0.10) (1.72) (1.90)
------- ------- ------- ------- ------- -------
Total Distributions (0.02) (0.54) (0.62) (0.10) (1.72) (1.90)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $12.39 $12.02 $12.77 $15.56 $17.17 $16.46
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset
Value (2) 12.97% 1.35% 12.21% 22.78% 23.63% 7.10%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $23,372 $23,292 $27,692 $28,760 $35,971 $38,167
Ratio of Expenses to Average Net Assets 1.60% 1.53% 1.46% 1.47% 1.40% 1.31%(5)
Ratio of Net Investment Income to Average
Net Assets 0.64% 0.83% 0.69% 0.46% 0.38% 0.19%(5)
Portfolio Turnover Rate 71% 60% 65% 78% 58% 3%
Average Broker Commission Rate (3) N/A N/A N/A $0.0698 $0.0699 $0.0700
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.97 $12.31 $11.95 $12.69 $15.35 $16.80
------- ------- ------- ------- ------- -------
Net Investment Income (Loss) 0.02(1) 0.03 0.01(1) (0.03)(1) (0.05)(1) (0.01)(1)
Net Realized and Unrealized Gain on
Investments 1.33 0.07 1.28 2.79 3.22 1.16
------- ------- ------- ------- ------- -------
Total from Investment Operations 1.35 0.10 1.29 2.76 3.17 1.15
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.01) (0.02) (0.03) -- -- --
Distributions from Net Realized Gain on
Investments Sold -- (0.44) (0.52) (0.10) (1.72) (1.90)
------- ------- ------- ------- ------- -------
Total Distributions (0.01) (0.46) (0.55) (0.10) (1.72) (1.90)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $12.31 $11.95 $12.69 $15.35 $16.80 $16.05
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset
Value (2) 12.34% 0.78% 11.51% 21.89% 22.83% 7.01%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $93,853 $94,431 $86,178 $92,555 $96,799 101,229
Ratio of Expenses to Average Net Assets 2.09% 2.10% 2.11% 2.17% 2.10% 1.96%(5)
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.17% 0.25% 0.06% (0.24%) (0.31%) (0.46%)(5)
Portfolio Turnover Rate 71% 60% 65% 78% 58% 3%
Average Broker Commission Rate (3) N/A N/A N/A $0.0698 $0.0699 $0.0700
</TABLE>
(1)Based on the average of the shares outstanding at the end of each
month.
(2)Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3)Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(4)Net investment income is less than $0.01 per share.
(5)Annualized.
(6)Not annualized.
See notes to financial statements.
<PAGE>
Schedule of Investments
December 5, 1997
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.31%)
Interpublic Group, Inc. 39,200 $ 1,832,600
-------------
Banks - United States (5.56%)
First Tennessee National Corp. 30,000 1,987,500
Mellon Bank Corp. 35,000 2,051,875
Norwest Corp. 60,000 2,220,000
Regions Financial Corp. 35,000 1,487,500
-------------
7,746,875
-------------
Beverages (1.34%)
PepsiCo, Inc. 50,000 1,865,625
-------------
Building (3.25%)
Clayton Homes, Inc. 120,000 2,085,000
Masco Corp. 50,000 2,453,125
-------------
4,538,125
-------------
Chemicals (3.86%)
Air Products & Chemicals, Inc. 15,000 1,169,062
RPM, Inc. 100,000 1,962,500
Sigma-Aldrich Corp. 60,000 2,242,500
-------------
5,374,062
-------------
Computers (11.27%)
Automatic Data Processing, Inc. 45,000 2,556,562
Cisco Systems, Inc.* 30,000 2,681,250
Computer Sciences Corp.* 15,000 1,275,938
Fiserv, Inc.* 45,000 2,154,375
Hewlett-Packard Co. 25,000 1,690,625
Microsoft Corp.* 20,000 2,862,500
Sun Microsystems, Inc.* 60,000 2,493,750
-------------
15,715,000
-------------
Containers (1.26%)
Bemis Co. 40,000 1,750,000
-------------
See notes to financial statements.
<PAGE>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Electronics (5.31%)
AMP, Inc. 45,000 $ 2,047,500
Emerson Electric Co. 30,000 1,700,625
General Electric Co. 20,000 1,468,750
Grainger (W.W.), Inc. 15,000 1,456,875
Parker-Hannifin Corp. 15,000 724,688
-------------
7,398,438
-------------
Finance (1.91%)
Franklin Resources, Inc. 27,000 2,659,500
-------------
2,659,500
-------------
Food (3.91%)
Archer-Daniels-Midland Co. 94,500 2,019,937
ConAgra, Inc. 46,000 1,710,625
Flowers Industries, Inc. 85,000 1,721,250
-------------
5,451,812
-------------
Furniture (1.73%)
Leggett & Platt, Inc. 55,000 2,416,563
-------------
Household (1.48%)
Newell Co. 50,000 2,065,625
-------------
Insurance (8.44%)
AFLAC, Inc. 30,000 1,526,250
Chubb Corp. 24,000 1,824,000
General Re Corp. 10,000 2,131,250
ReliaStar Financial Corp. 72,200 2,757,137
Travelers Group, Inc. 63,000 3,528,000
-------------
11,766,637
-------------
Leisure (0.92%)
X-Rite, Inc. 68,500 1,275,813
-------------
Linen Supply & Related (1.42%)
G & K Services, Inc. (Class A) 50,000 1,975,000
-------------
Machinery (3.47%)
Dover Corp. 40,000 2,772,500
Pentair, Inc. 55,000 2,069,375
-------------
4,841,875
-------------
Media (2.66%)
Central Newspapers, Inc. (Class A) 30,000 2,124,375
Gannett Co., Inc. 26,000 1,581,125
-------------
3,705,500
-------------
See notes to financial statements.
<PAGE>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Medical (10.82%)
Abbott Laboratories 35,000 $ 2,380,000
Baxter International, Inc. 45,000 2,399,062
Johnson & Johnson 28,500 1,857,844
Jones Medical Industries, Inc. 67,300 2,347,088
Lilly (Eli) & Co. 20,000 1,277,500
Medtronic, Inc. 40,000 2,080,000
SmithKline Beecham PLC, American
Depositary Receipts (ADR)
(United Kingdom) 52,000 2,746,250
-------------
15,087,744
-------------
Oil & Gas (4.94%)
Amoco Corp. 15,000 1,347,187
Chevron Corp. 19,000 1,505,750
Mobil Corp. 34,000 2,516,000
Repsol SA (ADR) (Spain) 35,000 1,511,563
-------------
6,880,500
-------------
Retail (8.80%)
Arbor Drugs, Inc. 60,000 1,672,500
Dayton Hudson Corp. 30,000 2,175,000
Family Dollar Stores, Inc. 90,000 2,610,000
Home Depot, Inc. 60,000 3,585,000
Sysco Corp. 50,000 2,228,125
-------------
12,270,625
-------------
Soap & Cleaning
Preparations (1.53%)
Ecolab, Inc. 40,000 2,132,500
-------------
Transport (0.04%)
C.H. Robinson Worldwide, Inc.* 2,400 54,600
-------------
Utilities (5.81%)
Century Telephone Enterprises, Inc. 60,000 2,797,500
National Fuel Gas Co. 30,000 1,361,250
Questar Corp. 45,000 1,788,750
SBC Communications, Inc. 30,000 2,148,750
-------------
8,096,250
-------------
TOTAL COMMON STOCKS
(Cost $84,736,903) (91.04%) 126,901,269
-------------
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
RATE (000s OMITTED) MARKET VALUE
---- -------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.91%)
Investment in a joint repurchase agreement
transaction with Hong Kong & Shanghai Banking Corp. -
Dated 12-05-97, Due 12-08-97 (Secured by
U.S. Treasury Bonds, 6.875% thru 9.125%
due 05-15-09 thru 08-15-25 and U.S. Treasury
Notes, 5.625% thru 9.125% Due 05-15-99 thru 10-15-06) -
Note A 5.44% $12,428 $12,428,000
-------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 2,888
-------------
TOTAL SHORT-TERM INVESTMENTS (8.91%) 12,430,888
-------------
TOTAL INVESTMENTS (99.95%) $139,332,157
=============
</TABLE>
*Non-Income producing security.
The pecentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
See notes to financial statements.
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - DISCIPLINED GROWTH FUND
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust")(formerly Freedom Investment
Trust) is a diversified open-end management investment company, registered under
the Investment Company Act of 1940. The Trust consisted of three series: John
Hancock Disciplined Growth Fund (the "Fund"), John Hancock Regional Bank Fund
and John Hancock Financial Industries Fund. The other two series of the Trust
are reported in separate financial statements. The investment objective of the
Fund was to achieve long-term growth of capital by investing only in established
companies that have demonstrated both earnings growth and stability.
The Trustees authorized the issuance of multiple classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represented an interest in the same portfolio of investments of the Fund and had
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may have been applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bear distribution and service expenses under terms
of a distribution plan had exclusive voting rights to that distribution plan.
On November 12, 1997 shareholders of the Fund approved a plan of
reorganization between the Fund and the John Hancock Growth Fund ("Growth Fund")
providing for the transfer of substantially all the assets and liabilities of
the Fund to the Growth Fund in exchange solely for shares of beneficial interest
of the Growth Fund. After this transaction and as of the close of business on
December 5, 1997, the Fund was terminated The financial statements herein
reflect the position of the Fund prior to the exchange of net assets and
termination of the Fund.
Significant accounting policies of the Fund were as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio were valued on the
basis of market quotations, valuations provided by independent pricing services,
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
were valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances were
invested in one or more repurchase agreements, whose underlying securities were
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank received delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser was responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions were recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments were determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy was to comply with the requirements of
the Internal Revenue Code that were 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 was
required. For federal income tax purposes, the Fund has $1,207,188 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward is used
by the Fund, no capital gain distributions will be made. The carryforward
expires October 31, 2005.
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - DISCIPLINED GROWTH FUND
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
was recorded on the ex-dividend date or in the case of some foreign securities,
on the date thereafter when the Fund was made aware of the dividend. Interest
income on investment securities was recorded on the accrual basis. Foreign
income may have been subject to foreign withholding taxes which were accrued as
applicable.
The Fund recorded all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions were
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares were calculated in the same manner, at the same
time and were in the same amount, except for the effect of expenses that may be
applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) were calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, were calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust were directly identifiable to
an individual fund. Expenses which were not readily identifiable to a specific
fund were allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporated estimates made by
management in determining the reported amount of assets, liabilities, revenues
and expenses of the Fund.
BANK BORROWINGS The Fund was permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enabled
the Fund to participate with other Funds managed by the Advisor in an unsecured
lines of credit with banks which permited borrowings up to $600 million,
collectively. Interest was charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a
rate of 0.075% per annum based on the average daily unused portion of the line
of credit, was allocated among the participating Funds. The Fund had no
borrowing activity for the period ended December 5, 1997.
NOTE B-
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the investment management contract, the Fund paid a monthly management fee
to the Adviser for a continuous investment program equivalent, on an annual
basis, to the sum of (a) 0.75% of the first $500,000,000 of the Fund's average
daily net asset value and (b) 0.65% of the Fund's average daily net asset value
in excess of $500,000,000.
The Fund had a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended December
5, 1997, net sales charges received with regard to sales of Class A shares
amounted to $2,474. Of this amount, $351 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $1,440 was paid
as sales commissions to unrelated broker-dealers and $683 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which were redeemed within six years of purchase were
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC were paid to JH Funds and were used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended December 5,
1997, the contingent deferred sales charges paid to JH Funds amounted to $7,834.
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - DISCIPLINED GROWTH FUND
In addition, to reimburse the JH Funds for the services they provided as
distributors of shares of the Fund, the Fund had adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund made payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for their distribution and service costs. Up to a maximum
of 0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could have occurred under certain circumstances.
The Fund had a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund paid transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund had an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees was
borne by the Fund. 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 made investments into other John Hancock
funds, as applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability were recorded on
the Fund's books as an other asset. The deferred compensation liability and the
related other asset were always equal and were marked to market on a periodic
basis to reflect any income earned by the investment as well as any unrealized
gains or losses. At December 5, 1997, the Fund's investments to cover the
deferred compensation liability had unrealized appreciation of $627.
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 December 5, 1997, aggregated $4,051,193 and $12,526,973 respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended December 5, 1997.
The cost of investments owned at December 5, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $97,176,028. Gross
unrealized appreciation and depreciation of investments aggregated $42,250,406
and $97,165, respectively, resulting in net unrealized appreciation of
$42,153,241.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended December 5, 1997, the Fund has reclassified amounts to
reflect an increase in accumulated net realized loss on investments of $27 a
decrease in accumulated net investment loss of $37,077 and a decrease in capital
paid-in of $37,050. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of December
5, 1997. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - DISCIPLINED GROWTH FUND
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended December
5, 1997.
The Fund designated a distribution to shareholders $13,549,623 as
long-term capital gain dividends, of this amount $7,948,566 is a 28% rate gain
distribution and $5,601,057 is a 20% rate gain distribution.
With respect to the dividends paid by the fund for the fiscal year ended
December 5, 1997, none qualify for the corporate dividends received deduction.
