SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Financial
Industries Fund
APRIL 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-------------------------------------
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 and
Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
-------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer so far has
been more of the same. This achievement continues to bolster many investors'
convictions that the market will produce these results forever, or, in the worst
case, that market declines will always be short-lived. While the economy remains
solid and the environment favorable, history and reason tell us it's a highly
unlikely scenario.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to third paragraph.]
This doesn't mean we know what the market will do next, or that it's
riding for a fall. But after such a run, even in this "new era" of strong
economic growth with low inflation, we believe it would be wise for investors to
set more realistic expectations. As we've said before, markets do indeed move in
two directions, even though we've seen "up" much more than "down" recently. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
In addition to adjusting, or at least re-examining expectations, now could
also be a good time to review with your investment professional how your assets
are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY JAMES K. SCHMIDT, CFA, MANAGEMENT TEAM LEADER AND
THOMAS FINUCANE AND THOMAS GOGGINS,
PORTFOLIO MANAGERS
John Hancock
Financial Industries Fund
Financial stocks percolate in a consolidation whirlwind
- --------------------------------------------------------------------------------
After some Asia-related weakness in late 1997, U.S. financial markets continued
their exuberant ascent in 1998, fueled by the powerful combination of strong
economic growth and low inflation. For the six months ended April 30, 1998, the
Standard and Poor's 500 Stock Index, a commonly used gauge of the broader stock
market, returned 22.49%, including reinvested dividends. As they have for the
last several years, large-company stocks led the market's charge.
Banks and other financial stocks also performed well. Mirroring the broad
market, the large superregional and money center banks outperformed their
smaller counterparts. For the six months ended April 30, 1998, the Fund's Class
A and Class B shares posted total returns of 21.21% and 20.78%, respectively, at
net asset value. Keep in mind that your net asset value return will be different
from this performance if you were not invested in the Fund for the entire period
and did not reinvest all distributions. Longer-term performance information can
be found on pages seven and eight.
The Fund's results land just short of the average financial services
fund's return of 22.51%, according to Lipper Analytical Services, Inc.(1) We
attribute this slight lag to our smaller-sized holdings, as well as to
higher-than-average levels of cash periodically, as new assets continued to come
into the Fund.
"...in the first four months of 1998, the Fund's merger tally stood at four."
[A 2 1/4" x 3 3/4" photo at bottom of page of Fund management team members.
Standing (l-r): Jay McKelvey, Tom Goggons and Tom Finucane. Seated (l-r): Lisa
Welch, Jim Schmidt and Patricia Ouimet.]
3
<PAGE>
================================================================================
John Hancock Funds - Financial Industries Fund
"...earnings for financial companies in 1998 have continued to exceed
expectations..."
[Chart at the top of left hand column with the heading "Top Five Common Stock
Holdings". The chart lists five holdings: 1.) American Express 2.2%; 2.) Fannie
Mae 2.1%; 3.) Morgan Stanley, Dean Witter, Discover 2.0%; 4.) Travelers Group
1.9% and 5.) Chase Manhattan Corp. 1.8%. A note below the chart reads "As a
percentage of net assets on April 30, 1998".]
Performance review
The single most important factor contributing to the financial sector's success
is the ideal macroeconomic environment we are enjoying. A string of mergers and
healthy earnings reports also helped our cause. But these two positives were
made even more robust by the moderate, sustainable growth, low inflation and
stable interest rates this country has experienced over the last few years. As
long as these economic conditions exist, we believe the financial sector will
deliver the bottom-line results and the consolidation wave will roll on.
Consolidation across financial industries
The most important development this year in the financial services arena was the
announcement on April 6 that Travelers and Citicorp would merge to form
Citigroup. This transaction will create the world's largest financial services
company and has enormous implications for the future structure of the industry.
Our feeling is that mergers beget mergers and that Citigroup sets a new standard
for scale and breadth of product offerings that will encourage formation of
other giant financial enterprises on a worldwide basis. We believe this is a
low-risk merger that produces clear cost-cutting opportunities and the
possibility of benefits through myriad forms of cross-selling. While management
has emphasized the latter benefit, as a Travelers shareholder we place more
value on tangible identified expense savings than we do on short-lived revenue
enhancements. We believe this transaction should continue to bode well for
Travelers stock.
The greatest significance of this merger lies in the impact it may have on
financial reform legislation. A bill that would allow cross-ownership between
banks, securities brokers and insurance underwriters had been languishing in the
House of Representatives. The Citigroup merger, which ultimately requires such
legislation, creates a sense of urgency among congressmen and lobbyists to work
out the compromises needed to pass the reform. We think that enactment of the
financial reform bill would encourage consolidation in the financial services
industry and would be beneficial to its companies and shareholders.
In 1997, the Fund had 12 of its holdings announce mergers; in the first
four months of 1998 the Fund's merger tally stood at four. These deals were
dispersed across financial industries: bank-broker, bank-finance company, and
insurance-broker transactions comprise the list. Even without the boost to
merger activity that would result from reform legislation, we expect numerous
deals to take place over the next several years. The stocks most likely to be
merger targets
[Table at bottom of left hand column entitled "Scorecard". 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
ContiFinancial followed by an up arrow with the phrase "Stock rebounds on up
earnings and market's renewed interest". The second listing is Chubb Corp.
followed by an arrow pointing to the right and left with the phrase "Market
ignores smart property & casualty underwriter". The third listing is Norwest
Corp. followed by a down arrow with the phrase "Investors overreact to a
conservative bank with strict loan policies." A note below the table reads "See
"Schedule of Investments." Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - Financial Industries Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended April 30, 1998". The
chart is scaled in increments of 5% with 0% at the bottom and 25% at the top.
The first bar represents the 21.21% total return for John Hancock Financial
Industries Fund Class A. The second bar represents the 20.78% total return for
John Hancock Financial Industries Fund Class B. The third bar represents the
22.51% total return for the average financial services fund. A note below the
chart reads "Total returns for John Hancock Financial Industries Fund are at net
asset value with all distributions reinvested. The average financial services
fund is tracked by Lipper Analytical Services, Inc. (1). See pages seven and
eight for historical performance information."]
are brokerage firms and asset managers that will be sought by commercial banks.
Europe's potential grows
In Europe, the rationalization of the financial services sector is many years
behind the United States. For political and cultural reasons, managements have
been reluctant to implement shareholder-friendly measures such as stock
repurchases and expense reductions. Development of pan-European financial
institutions has been inhibited by the lack of a common language and currency.
After the economic summit in Brussels in early May, it now seems certain that
the European Monetary Union (EMU) will go into effect next January with 11
initial member countries and the euro as a common currency. If the euro is
successful, it will not only make it more practical to transact business across
national borders, but it will also be a significant step toward still further
economic cooperation among the European nations. We believe consolidation among
the European financial institutions and the development of globally competitive,
shareholder-oriented dominant firms will be the eventual outcome. What makes
this such an exciting opportunity for investors is that we are at the beginning
of this process and have a long way to go. Because most of the European banks
earn very low returns on equity compared to their U.S. counterparts, there is
potential for enormous improvement.
Until now, the Fund's European investments have concentrated on the most
progressive banks in the U.K., Netherlands and Scandinavia that have higher
returns on equity and managements more committed to creating shareholder value.
Over the upcoming several years, we suspect that the most opportunistic
investments will be in the EMU countries whose banks have less-than-stellar
returns (France, Germany, Italy) that can benefit the most from restructuring,
cross-border merging, and U.S.-style shareholder-oriented management.
Although our stake in Europe is currently less than 10% of the Fund's net
assets, we will increase our allocation as we gain confidence that U.S.-style
restructuring is beginning to take hold.
Earnings results stay positive
Following a productive 1997, earnings for financial companies in 1998 have
continued to exceed expectations, with year-over-year earnings growth averaging
12% in the first quarter. Across the gamut of financial firms, loan quality is
very good, margins remain stable, expense controls have been excellent and stock
buybacks continue to counter capital build-up. Decreasing levels of write-offs
and past due loans have lessened earlier worries about consumer credit quality.
In addition, the Asian economic swoon and gyrating U.S. long-term interest rates
have had little effect
"...the Fund's European investments have concentrated on the most progressive
banks..."
5
<PAGE>
================================================================================
John Hancock Funds - Financial Industries Fund
"We're holding on to our upbeat outlook for financial stocks..."
on the broad underlying strength of the global markets.
The firms that have benefited the most from these conditions are the
securities brokers, including Fund holdings Legg Mason, Raymond James and Morgan
Keegan. Commissions, underwriting volume and mergers and acquisition fees have
all been running at record levels. However, this strong runup has produced a
level of earnings that we fear may be unsustainable. On the other hand, we
believe our holdings in life insurance companies and real estate investment
trusts (REITs) should witness improving performance, since their share prices
have not advanced significantly and their stocks still seem to be lagging their
fundamental value.
Fund composition and activity
The Fund seeks capital appreciation by holding a portfolio of financial equities
that have healthy fundamentals and may stand in the path of consolidation. The
Fund is diversified across the different financial sub-segments, including banks
and thrifts at 19% of the Fund's net assets; insurance companies 26%; finance
companies 14%; brokers 10%; REITs 9%; foreign banks 8% and asset managers 5%.
Our investment process has us choose attractive segments and then stocks within
that group that fit our valuation and investment criteria. During the period, we
increased our weighting in specialty property and casualty insurance companies
because they had attractive valuation levels and we saw increasing potential for
merger activity. Several new additions here included Chubb Corp., Mid Ocean Ltd.
and Vesta Insurance Group.
Outlook
We're holding on to our upbeat outlook for financial stocks and the U.S. economy
in general. As long as the current backdrop of solid economic growth, low
interest rates and tame inflation remains, we believe the seven-year-old U.S.
economic expansion still has legs and can go well into 1998 without producing
inflationary side effects. This positive macro-economic picture, combined with
continued bank mergers and a favorable regulatory environment, keeps us
encouraged about the prospects for U.S. bank and thrift stocks. Likewise, in
Europe, the stage is just being set for U.S.-style changes that bode well for
financial stocks there.
- --------------------------------------------------------------------------------
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.
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
Sector investing is subject to 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.
6
<PAGE>
================================================================================
John Hancock Funds - Financial Industries Fund
- --------------------------------------------------------------------------------
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
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus for risks associated with industry segment investing before you
invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE INCEPTION
YEAR (3/14/96)
---- ---------
Cumulative Total Returns 47.86% 102.49%
Average Annual Total Returns(1) 47.86% 41.16%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE INCEPTION
YEAR (1/14/97)
---- ---------
Cumulative Total Returns 49.53% 44.17%
Average Annual Total Returns(1) 49.53% 35.37%
Notes to Performance
(1) From March 14, 1996 through October 31, 1997, the Adviser limited the
Fund's expenses to 0.90% for Class A and Class B shares of the Fund's
average daily net asset value, including the management fee (but not
including a 12b-1 fee). Without the limitation of expenses, the average
annualized returns for the one-year period and since inception for Class A
shares would have been 47.70% and 39.21%, respectively. The average
annualized returns for the one-year period and since inception for Class B
shares would have been 49.37% and 35.20%, respectively.
7
<PAGE>
================================================================================
John Hancock Funds - Financial Industries Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Financial Industries Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Stock Index. The Standard &
Poor's 500 Stock Index is an unmanaged index that includes 500 widely traded
common stocks and is a commonly used measure of stock market performance. Past
performance is not indicative of future results.
[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 value a $10,000
hypothetical investment in the Financial Industries Fund on March 14, 1996,
before sales charge, and is equal to $21,579 as of April 30, 1998. The second
line represents the value of the Financial Industries Fund, after sales charge,
and is equal to $20,500 as of April 30, 1998. The third line represents the
value of the Standard & Poor's 500 Stock Index, and is equal to $18,083 as of
April 30, 1998.]
[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 a
$10,000 hypothetical investment in the Standard & Poor's 500 Stock Index on
January 14, 1997, and is equal to $15,349 as of April 30, 1998. The second line
represents the value of the Financial Industries Fund, before sales charge, and
is equal to $14,984 as of April 30, 1998. The third line represents the value of
the Financial Industries Fund, after sales charge, and is equal to $14,584 as of
April 30, 1998.]
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1998. You'll also
find the net asset value for each share as of that date.
Statement of Assets and Liabilities
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and warrant
(cost - $2,847,091,755) ................................ $3,433,988,867
Preferred stock (cost - $112,500) ........................ 112,500
Joint repurchase agreement (cost - $228,300,000) ......... 228,300,000
Short-term notes (cost - $183,503,399) ................... 183,405,399
Corporate savings account ................................ 40,367
--------------
3,845,847,133
Foreign cash, at value (cost $1,761,847) .................. 1,772,655
Receivable for investments sold ........................... 4,431,902
Receivable for shares sold ................................ 61,089,552
Receivable for forward foreign currency contracts
purchased - Note A ....................................... 760
Dividends receivable ...................................... 4,200,578
Interest receivable ....................................... 1,473,970
Foreign tax receivable .................................... 148,694
Deferred organization expense - Note A .................... 14,624
--------------
Total Assets ............................ 3,918,979,868
------------------------------------------------------------
Liabilities:
Payable for investments purchased ......................... 146,702,593
Payable for shares repurchased ............................ 2,796,385
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ...................................... 3,051,261
Accounts payable and accrued expenses ..................... 291,806
--------------
Total Liabilities ....................... 152,842,045
------------------------------------------------------------
Net Assets:
Capital paid-in ........................................... 3,140,570,977
Accumulated net realized gain on investments .............. 37,724,775
Net unrealized appreciation of investments ................ 586,803,399
Undistributed net investment income ....................... 1,038,672
--------------
Net Assets .............................. $3,766,137,823
============================================================
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)
Class A - $1,067,667,215 / 62,305,918 ..................... $17.14
==============================================================================
Class B - $2,698,470,608 / 158,016,469 ................... $17.08
==============================================================================
Maximum Offering Price Per Share*
Class A - ($17.14 x 105.26%) .............................. $18.04
==============================================================================
* 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.
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes
of $351,865) ............................................. $19,728,227
Interest .................................................. 7,974,703
-------------
27,702,930
-------------
Expenses:
Investment management fee - Note B ....................... 9,665,829
Distribution and service fee - Note B
Class A ................................................ 996,518
Class B ................................................ 9,400,748
Transfer agent fee-- Note B .............................. 2,750,778
Registration and filing fees ............................. 353,654
Custodian fee ............................................ 266,384
Financial services fee-- Note B .......................... 224,806
Trustees' fees ........................................... 57,727
Printing ................................................. 53,032
Miscellaneous ............................................ 25,516
Legal fees ............................................... 12,302
Auditing fee ............................................. 12,149
Organization expenses-- Note A ........................... 2,525
-------------
Total Expenses .......................... 23,821,968
-----------------------------------------------------------
Net Investment Income ................... 3,880,962
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ..................... 38,743,092
Net realized loss on foreign currency transactions ........ (252,612)
Change in net unrealized appreciation/depreciation
of investments ........................................... 425,687,439
Change in net unrealized appreciation/depreciation
of foreign currency transactions ......................... (93,714)
-------------
Net Realized and Unrealized
Gain on Investments ..................... 464,084,205
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............... $467,965,167
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................. $3,491,693 $3,880,962
Net realized gain on investments sold and foreign currency transactions 1,555,050 38,490,480
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions ....................................... 161,081,288 425,593,725
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ................ 166,128,031 467,965,167
--------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A ** - ($0.0283 and $0.1117 per share, respectively) .......... (2,341) (3,725,901)
Class B ***- (none and $0.0250 per share, respectively) ............. -- (2,632,181)
Distributions from net realized gain on investments sold
Class A ** - ($0.6466 and $0.0166 per share, respectively) .......... (53,523) (552,197)
Class B ***- (none and $0.0166 per share, respectively) ............. -- (1,743,894)
--------------- ---------------
Total Distributions to Shareholders ................................. (55,864) (8,654,173)
--------------- ---------------
From Fund Share Transactions-- Net:* ..................................... 1,558,677,052 1,581,182,318
--------------- ---------------
Net Assets:
Beginning of period ................................................... 895,292 1,725,644,511
--------------- ---------------
End of period (including undistributed net investment income
of $3,515,792 and $1,038,672, respectively) ......................... $1,725,644,511 $3,766,137,823
=============== ===============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
CLASS A **
Shares sold ......................... 31,103,168 $400,561,297 37,146,136 $595,139,749
Shares issued to shareholders in
reinvestment of distributions ..... 1,495 16,558 212,182 3,212,529
----------- --------------- ----------- ---------------
31,104,663 400,577,855 37,358,318 598,352,278
Less shares repurchased ............. (1,970,382) (25,782,509) (4,267,818) (67,899,041)
----------- --------------- ----------- ---------------
Net increase ........................ 29,134,281 $374,795,346 33,090,500 $530,453,237
=========== =============== =========== ===============
CLASS B ***
Shares sold ......................... 94,841,897 $1,217,437,825 70,452,080 $1,125,972,691
Shares issued to shareholders in
reinvestment of distributions ..... -- -- 161,641 2,445,791
----------- --------------- ----------- ---------------
94,841,897 1,217,437,825 70,613,721 1,128,418,482
Less shares repurchased ............. (2,549,195) (33,556,119) (4,889,954) (77,689,401)
----------- --------------- ----------- ---------------
Net increase ........................ 92,292,702 $1,183,881,706 65,723,767 $1,050,729,081
=========== =============== =========== ===============
</TABLE>
**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 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 FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1996(1) OCTOBER 31, 1997 (UNAUDITED)
------------------- ---------------- -----------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $8.50 $11.03 $14.26
------ -------- ----------
Net Investment Income (2) ............................... 0.02 0.14 0.06
Net Realized and Unrealized Gain on Investments ......... 2.51 3.77 2.95
------ -------- ----------
Total from Investment Operations ....................... 2.53 3.91 3.01
------ -------- ----------
Distributions to Shareholders:
Dividends from Net Investment Income .................... -- (0.03) (0.11)
Distributions from Net Realized Gains on Investments Sold -- (0.65) (0.02)
------ -------- ----------
Total Distributions .................................... -- (0.68) (0.13)
------ -------- ----------
Net Asset Value, End of Period .......................... $11.03 $14.26 $17.14
====== ======== ==========
Total Investment Return at Net Asset Value (3) .......... 29.76%(6) 37.19% 21.21%(6)
Total Adjusted Investment Return at Net Asset
Value (3,4) ........................................... 26.04%(6) 36.92% --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $895 $416,698 $1,067,667
Ratio of Expenses to Average Net Assets ................. 1.20%(7) 1.20% 1.36%(7)
Ratio of Adjusted Expenses to Average Net Assets (5) .... 7.07%(7) 1.47% --
Ratio of Net Investment Income to Average Net Assets .... 0.37%(7) 1.10% 0.82%(7)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (5) ................................ (5.50%)(7) 0.83% --
Portfolio Turnover Rate ................................. 31% 6% 12%
Fee Reduction Per Share (2) ............................. $0.38 $0.03 --
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: the 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.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED APRIL 30, 1998
OCTOBER 31, 1997 (1) (UNAUDITED)
-------------------- ----------------
<S> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................... $11.43 $14.18
---------- ----------
Net Investment Income (2) .......................................... 0.04 0.01
Net Realized and Unrealized Gain on Investments .................... 2.71 2.94
---------- ----------
Total from Investment Operations .................................. 2.75 2.95
---------- ----------
Distributions to Shareholders:
Dividends from Net Investment Income ............................... -- (0.03)
Distributions from Net Realized Gains on Investments Sold .......... -- (0.02)
---------- ----------
Total Distributions ............................................... -- (0.05)
---------- ----------
Net Asset Value, End of Period ..................................... $14.18 $17.08
========== ==========
Total Investment Return at Net Asset Value (3) ..................... 24.06%(6) 20.78%(6)
Total Adjusted Investment Return at Net Asset Value (3,4) .......... 23.85%(6) --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................... $1,308,946 $2,698,471
Ratio of Expenses to Average Net Assets ............................ 1.90%(7) 2.06%(7)
Ratio of Adjusted Expenses to Average Net Assets (5) ............... 2.17%(7) --
Ratio of Net Investment Income to Average Net Assets ............... 0.40%(7) 0.12%(7)
Ratio of Adjusted Net Investment Income to Average Net Assets (5) .. 0.13%(7) --
Portfolio Turnover Rate ............................................ 6% 12%
Fee Reduction Per Share (2) ........................................ $0.03 --
</TABLE>
(1) Class A and Class B commenced operations on March 14, 1996 and January 14,
1997, respectively.
(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) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Not annualized.
(7) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Schedule of Investments
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Financial Industries Fund on April 30, 1998. It's divided into three main
categories: common stocks and warrant, preferred stock, 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.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS AND WARRANT
Banks - Foreign (8.33%)
ABN Amro Holding NV, American
Depositary Receipts (ADR)
(Netherlands) ............................. 461,975 $11,809,236
Allied Irish Banks PLC (ADR) (Ireland) ...... 245,950 20,413,850
Anglo Irish Bank Corp., PLC (Ireland) ....... 85,000 227,392
Australia & New Zealand Banking Group
Ltd. (ADR) (Australia) .................... 295,000 10,656,875
Banco Bilbao Vizcaya, S.A. (ADR) (Spain) .... 355,000 18,482,187
Bank of Scotland (United Kingdom) ........... 1,410,509 17,334,027
Corporacion Bancaria de Espana S.A.
(ADR) (Spain) ............................. 142,800 5,819,100
HSBC Holdings, PLC (United Kingdom) ......... 490,000 14,419,328
ING Groep N.V. (ADR) (Netherlands) .......... 694,573 46,710,034
National Westminster Bank, PLC
(United Kingdom) .......................... 1,210,000 24,216,698
Nordbanken Holding AB (Sweden) .............. 638,000 4,699,125
Royal Bank of Canada (Canada) .............. 936,600 56,020,387
Royal Bank of Scotland Group, PLC
(United Kingdom) .......................... 775,000 11,960,188
Societe Generale (France) ................... 78,500 16,331,980
Svenska Handelsbanken (Sweden) .............. 370,000 16,781,609
Toronto-Dominion Bank (Canada) .............. 830,200 37,929,762
-------------
313,811,778
-------------
Banks - Midwest (2.56%)
BancFirst Ohio Corp. ........................ 74,400 3,850,200
Community First Bankshares, Inc. ............ 199,000 10,024,625
Star Banc Corp. ............................. 840,000 53,077,500
TCF Financial Corp. ......................... 905,276 29,478,050
-------------
96,430,375
-------------
Banks - Money Center (4.47%)
Bankers Trust New York Corp. ................ 494,600 $63,865,225
Chase Manhattan Corp. ....................... 477,800 66,205,162
Citicorp .................................... 254,500 38,302,250
-------------
168,372,637
-------------
Banks - Northeast (1.93%)
FNB Rochester Corp. ......................... 37,750 764,438
State Street Corp. .......................... 655,000 46,832,500
U.S. Trust Corp. ............................ 323,700 22,982,700
Vermont Financial Services Corp. ............ 70,500 2,062,125
-------------
72,641,763
-------------
Banks - Southeast (1.45%)
CCB Financial Corp. ......................... 203,007 22,077,011
First Tennessee National Corp. .............. 651,900 22,449,806
Regions Financial Corp. ..................... 231,760 10,110,530
-------------
54,637,347
-------------
Banks - Southwest (0.13%)
Southwest Bancorp. of Texas, Inc.* .......... 126,000 5,040,000
-------------
Banks - Super Regional (5.94%)
Banc One Corp. .............................. 826,262 48,594,534
BankBoston Corp. ............................ 485,300 52,382,069
KeyCorp ..................................... 250,000 9,921,875
National City Corp. ......................... 444,000 30,747,000
NationsBank Corp. ........................... 250,000 18,937,500
Norwest Corp. ............................... 1,587,500 63,003,906
-------------
223,586,884
-------------
Banks - West (1.02%)
City National Corp. ......................... 418,287 15,555,048
Greater Bay Bancorp ......................... 85,733 5,572,645
SJNB Financial Corp. ........................ 62,000 2,433,500
West Coast Bancorp .......................... 110,687 2,891,698
Westamerica Bancorp ......................... 365,571 12,063,843
-------------
38,516,734
-------------
Broker Services (9.87%)
Dain Rauscher Corp. ......................... 292,600 17,610,862
Edwards (A.G.), Inc. ........................ 1,131,000 50,895,000
EVEREN Capital Corp. ........................ 336,500 17,897,594
Friedman, Billings, Ramsey Group, Inc.
(Class A) * ............................... 127,500 2,398,594
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Broker Services (continued)
Interstate/Johnson Lane, Inc. ............... 145,600 $4,577,300
Legg Mason, Inc. ............................ 603,400 35,600,600
Lehman Brothers Holdings, Inc. .............. 487,200 34,621,650
McDonald & Co., Investments ................. 450,250 12,944,687
Merrill Lynch & Co., Inc. ................... 275,000 24,131,250
Morgan Keegan, Inc. ......................... 326,150 7,481,066
Morgan Stanley, Dean Witter,
Discover & Co. ............................ 969,600 76,477,200
Raymond James Financial, Inc. ............... 494,550 16,103,783
Travelers Group, Inc. ....................... 1,156,071 70,737,094
-------------
371,476,680
-------------
Business Services (0.81%)
Coinstar, Inc.* ............................. 63,500 627,063
First Data Corp. ............................ 844,400 28,604,050
National Processing, Inc.* .................. 104,500 1,312,781
-------------
30,543,894
-------------
Computer - Services (2.12%)
BISYS Group, Inc. (The)* .................... 592,800 23,415,600
E*TRADE Group, Inc.* ........................ 246,000 6,134,625
Fiserv, Inc.* ............................... 771,200 50,417,200
-------------
79,967,425
-------------
Finance - Consumer Loans (8.21%)
American Express Co. ........................ 816,150 83,247,300
AmeriCredit Corp.* .......................... 210,000 6,969,375
AMRESCO, Inc.* .............................. 37,500 1,359,375
Associates First Capital Corp. (Class A) .... 786,000 58,753,500
Beneficial Corp. ............................ 240,000 31,290,000
Capital One Financial Corp. ................. 151,400 14,543,862
ContiFinancial Corp.* ....................... 198,300 6,395,175
Delta Financial Corp.* ...................... 146,300 2,578,538
FIRSTPLUS Financial Group, Inc.* ............ 76,200 3,695,700
Household International, Inc. ............... 419,500 55,138,031
Imperial Credit Industries, Inc.* ........... 43,000 1,085,750
MBNA Corp. .................................. 629,875 21,337,016
Money Store, Inc. (The) ..................... 175,000 5,753,125
Providian Financial Corp. ................... 260,000 15,648,750
United Companies Financial Corp. ............ 63,500 1,297,781
-------------
309,093,278
-------------
Finance - Investment Management (3.88%)
Amvescap PLC, ADR (United Kingdom) .......... 567,600 32,069,400
Conning Corp. ............................... 48,000 984,000
Franklin Resources, Inc. .................... 677,700 36,256,950
Investors Group, Inc. (Canada) .............. 225,000 8,572,860
John Nuveen Co. (Class A) ................... 127,300 4,614,625
Kansas City Southern Industries, Inc. ....... 185,000 8,359,688
Liberty Financial Cos., Inc. ................ 157,500 6,309,844
Price (T. Rowe) Associates, Inc. ............ 565,450 42,691,475
Waddell & Reed Financial, Inc. (Class A) .... 254,700 6,303,825
-------------
146,162,667
-------------
Finance - Savings & Loan (1.12%)
Bank United Corp. (Class A) ................. 222,500 11,514,375
First Federal Bancshares of Arkansas, Inc. .. 50,500 1,432,938
InterWest Bancorp., Inc. .................... 112,300 4,990,331
Washington Mutual, Inc. ..................... 346,500 24,276,656
-------------
42,214,300
-------------
Finance - SBIC & Commercial (0.90%)
CIT Group, Inc. (The) (Class A) ............. 546,000 19,348,875
Financial Federal Corp.* .................... 109,600 2,534,500
Resource America, Inc. (Class A) ............ 62,500 4,187,500
Sirrom Capital Corp. ........................ 264,200 7,892,975
-------------
33,963,850
-------------
Insurance - Accident & Health (1.21%)
Penncorp Financial Group, Inc. .............. 230,000 5,980,000
Provident Cos., Inc. ........................ 1,010,225 39,461,914
-------------
45,441,914
-------------
Insurance - Brokers (1.23%)
Marsh & McLennan Cos., Inc. ................. 506,200 46,127,475
-------------
Insurance - Diversified (2.08%)
Aetna, Inc. ................................. 338,000 27,314,625
Equitable Cos., Inc. (The) .................. 485,000 29,766,875
Transamerica Corp. .......................... 185,000 21,367,500
-------------
78,449,000
-------------
Insurance - Life (3.68%)
AmerUs Life Holdings, Inc. (Class A) ........ 726,612 23,251,584
Annuity and Life Re (Holdings), Ltd.* ....... 14,550 347,381
ARM Financial Group, Inc. (Class A) ......... 163,300 3,500,744
Hartford Life, Inc. (Class A) .............. 220,850 10,918,272
Liberty Corp. ............................... 350,000 17,937,500
Nationwide Financial Services, Inc.
(Class A) ................................. 462,000 20,039,250
Presidential Life Corp. ..................... 439,185 8,948,394
Protective Life Corp. ....................... 515,000 19,119,375
SunAmerica, Inc. ............................ 535,000 26,716,562
Torchmark Corp. ............................. 172,000 7,664,750
-------------
138,443,812
-------------
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Insurance - Multi Line (3.73%)
Allianz AG (Germany) ........................ 50,000 $15,380,345
Allmerica Financial Corp. ................... 691,000 43,273,875
Enhance Financial Services Group, Inc. ...... 234,000 16,058,250
MBIA, Inc. .................................. 840,768 62,742,312
Royal & Sun Alliance Insurance Group, PLC
(United Kingdom) .......................... 275,000 3,071,448
-------------
140,526,230
-------------
Insurance - Property & Casualty (14.16%)
Ace, Ltd. (Bermuda) ......................... 1,221,250 46,254,844
Chartwell Re Corp. .......................... 223,000 6,871,187
Chubb Corp. (The) ........................... 700,000 55,256,250
Cincinnati Financial Corp. .................. 326,000 41,524,250
Frontier Insurance Group, Inc. .............. 180,500 4,783,250
General Re Corp. ............................ 291,275 65,118,167
Hartford Financial Services Group,
Inc. (The) ................................ 348,000 38,541,000
Mid Ocean Ltd. (Bermuda) .................... 225,000 16,959,375
Penn-America Group, Inc. .................... 194,125 4,003,828
PMI Group, Inc. ............................. 398,400 32,370,000
Progressive Corp. ........................... 444,100 60,147,794
SAFECO Corp. ................................ 446,000 22,272,125
St. Paul Cos., Inc. ......................... 642,913 54,486,877
Summit Holdings Southeast, Inc. * ........... 94,800 2,346,300
Travelers Property Casualty Corp. (Class A) . 716,900 30,109,800
Trenwick Group, Inc. ........................ 389,000 14,976,500
Vesta Insurance Group, Inc. ................. 656,000 37,146,000
-------------
533,167,547
-------------
Leasing Companies (0.49%)
LINC Capital, Inc.* ......................... 83,750 1,627,891
Newcourt Credit Group, Inc. (Canada) ........ 310,000 15,228,750
Willis Lease Finance Corp.* ................. 62,500 1,476,563
-------------
18,333,204
-------------
Mortgage & Real Estate Services (3.07%)
Countrywide Credit Industries, Inc. ......... 750,000 36,281,250
Fannie Mae .................................. 1,322,450 79,181,694
-------------
115,462,944
-------------
REIT - Equity Trust (8.70%)
Apartment Investment & Management Co.
(Class A) ................................. 325,400 12,161,825
Arden Realty Group, Inc. .................... 450,000 12,628,125
Berkshire Realty Co., Inc. .................. 210,000 2,559,375
Boston Properties, Inc. ..................... 581,000 19,209,312
Brandywine Realty Trust ..................... 457,700 10,412,675
Colonial Properties Trust ................... 295,000 $8,757,813
Corporate Office Properties Trust, Inc. ..... 94,300 996,044
Equity Office Properties Trust .............. 739,281 21,023,303
Equity Residential Properties Trust ......... 478,300 23,496,488
Essex Property Trust, Inc. .................. 140,000 4,620,000
Excel Legacy Corp. .......................... 313,000 8,372,750
General Growth Properties ................... 591,000 21,202,125
Glenborough Realty Trust, Inc. .............. 356,300 9,553,294
Innkeepers USA Trust ........................ 105,000 1,588,125
LaSalle Hotel Properties* ................... 100,000 1,825,000
Liberty Property Trust ...................... 20,000 511,250
Macerich Co. (The) .......................... 247,100 6,934,244
Mack-Cali Realty Corp. ...................... 420,300 15,787,519
Patriot American Hospitality, Inc. .......... 475,670 12,010,668
Prentiss Properties Trust ................... 489,200 12,413,450
Price REIT, Inc. ............................ 185,000 8,486,875
Prime Group Realty Trust .................... 220,000 4,606,250
Reckson Associates Realty Corp. ............. 819,800 20,085,100
Simon DeBartolo Group, Inc. ................. 520,000 17,127,500
SL Green Realty Corp. ....................... 168,500 4,044,000
Spieker Properties, Inc. .................... 688,000 27,262,000
Starwood Hotels & Resorts ................... 529,300 26,564,244
Storage Trust Realty ........................ 279,400 6,775,450
Tower Realty Trust, Inc. .................... 288,000 6,804,000
-------------
327,818,804
-------------
REIT - Mortgage Trust (0.09%)
Core Cap, Inc.* (r) ......................... 4,500 90,000
CRIIMI MAE, Inc. ............................ 110,000 1,643,125
Hanover Capital Mortgage Holdings, Inc. ..... 97,600 1,683,600
-------------
3,416,725
-------------
WARRANT
REIT - Mortgage Trust (0.01%)
Hanover Capital Mortgage Holdings, Inc.* .... 97,600 341,600
-------------
TOTAL COMMON STOCKS
AND WARRANT
(Cost $2,847,091,755) (91.19%) 3,433,988,867
------- -------------
PREFERRED STOCK
REIT - Mortgage Trust (0.00%)
Core Cap, Inc., Ser A/I, 10.00% (r) ........ 4,500 112,500
-------------
TOTAL PREFERRED STOCK
(Cost $112,500) (0.00%) 112,500
------- -------------
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.06%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. - Dated 04-30-98,
Due 05-01-98 (Secured by U.S.
Treasury Bills, 4.86% and 5.27%,
Due 06-18-98 and 12-10-98, U.S.
Treasury Bonds, 6.00% thru 13.25%,
Due 05-15-14 thru 02-15-27 and
U.S. Treasury Notes, 4.75% thru
9.25%, Due 07-31-98 thru 05-15-06)
- Note A ........................... 5.500% $228,300 $228,300,000
-------------
Short-Term Notes (4.87%)
Bell Atlantic Financial Services,
Due 06-01-98 ....................... 6.000 1,500 1,500,270
Bell Atlantic Financial Services,
Due 09-01-98 ....................... 5.300 7,400 7,383,276
Beneficial Corp.,
Due 11-17-98 ....................... 8.090 8,250 8,347,845
Chrysler Financial Corp.,
Due 06-23-98 ....................... 6.300 300 300,828
CIT Group Holdings, Inc.,
Due 07-31-98 ....................... 6.350 8,150 8,158,476
FCC National Bank,
Due 10-15-98 ....................... 6.170 8,467 8,479,701
Federal Home Loan Bank,
Due 06-12-98 # ..................... 5.615 7,000 7,000,000
Federal Home Loan Bank,
Due 07-08-98 # ..................... 5.750 10,000 10,001,600
Federal Home Loan Bank,
Due 03-02-99 ....................... 5.610 20,000 19,990,600
Federal Home Loan Bank,
Due 05-18-99 + ..................... 5.830 30,000 29,977,064
Federal Home Loan Bank,
Due 05-27-99 + ..................... 5.860 20,830 20,830,000
Federal National
Mortgage Association,
Due 05-05-99 + ..................... 5.630 23,500 23,511,750
General Motors Acceptance Corp.,
Due 05-22-98 ....................... 6.150% $4,234 $4,235,861
General Motors Acceptance Corp.,
Due 12-14-98 ....................... 5.950 10,000 9,997,900
General Motors Acceptance Corp.,
Due 01-15-99 ....................... 8.500 7,100 7,218,499
Morgan (J.P) & Co. Inc.,
Due 11-15-98 ....................... 7.625 10,000 10,093,900
Southern California Edison Co.,
Due 06-15-98 ....................... 5.450 1,300 1,299,229
Southern California Edison Co.,
Due 4-15-99 ........................ 7.500 5,000 5,078,600
-------------
TOTAL SHORT-TERM NOTES
(Cost $183,503,399) (4.87%) 183,405,399
------- -------------
Corporate Saving Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............................ 40,367
--------------
TOTAL SHORT-TERM INVESTMENTS (10.93%) 411,745,766
------- --------------
TOTAL INVESTMENTS (102.12%) 3,845,847,133
------- --------------
OTHER ASSETS AND LIABILITIES, NET (2.12%) (79,709,310)
------- --------------
TOTAL NET ASSETS (100.00%) $3,766,137,823
======== ==============
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security.
# Call date.
+ These securities, having a value of $74,318,814 or 1.97% of the Fund's net
assets, have been purchased as a forward commitment. The Fund has agreed on
the trade date to take delivery of and make payment on a delayed basis
subsequent to the date of this schedule. The purchase price and interest
rate of these securities are fixed at the trade date. The Fund does not earn
any interest on these securities until their settlement date. The Fund has
instructed its Custodian Bank to segregate assets with the current value at
least equal to the amount of its forward commitment. Accordingly,
$78,046,500 of the value of the Fund's investment in Toronto Dominion
Securities USA, Inc., 5.50% due 05-01-98, has been segregated to cover the
forward commitment.
(r) The securities listed below are direct placement securities and are
restricted as to resale. The Fund has limited rights to registration under
the Securities Act of 1933 with respect to restricted securities (not
including Rule 144A securities). In certain circumstances the Fund may bear
a portion of the cost of such registrations; otherwise, such costs would be
borne by the issuer. Additional information on these restricted securities
is as follows:
MARKET
VALUE AS A MARKET
PERCENTAGE VALUE AT
ACQUISITION ACQUISITION OF FUND'S APRIL 30,
DATE COST NET ASSETS 1998
----------- ----------- ---------- ---------
Core Cap, Inc.
Common Stock....... 10-31-97 $90,000 0.00% $90,000
Preferred Stock.... 10-31-97 112,500 0.00 112,500
---- --------
TOTAL 0.00% $202,500
==== ========
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.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Financial Industries Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of two series: John Hancock Financial Industries Fund (the
"Fund") and John Hancock Regional Bank Fund. The other series of the Trust is
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.
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."
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,
Inc., 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. For federal income tax purposes, net currency gains and losses from
sales of foreign debt securities may be treated as ordinary income even though
such items are gains and losses for accounting purposes.
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
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Financial Industries Fund
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. These agreements enable
the Fund to participate with other funds managed by the Advisor in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is 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
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the lines of credit, is allocated among the participating funds.
The Fund had no borrowing activity for the period ended April 30, 1998.
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 if they are offset by the currency amount of the underlying
transaction.
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Financial Industries Fund
Open forward foreign currency contracts bought at April 30, 1998, were as
follows:
PRINCIPAL AMOUNT
COVERED BY EXPIRATION UNREALIZED
CURRENCY CONTRACT MONTH APPRECIATION
- -------- ---------------- ---------- ------------
British Pound Sterling 451,740 MAY 98 $760
====
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, 1998, there were no open positions in financial futures
contracts.
OPTIONS Listed options are valued at the last quoted sales price on the exchange
on which they are primarily traded. Over-the-counter options are valued at the
mean between the last bid and asked prices. 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 the stock
market. 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 ("credit risk"), 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,
1998.
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
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Financial Industries Fund
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 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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $12,794,111. Out of this amount, $1,982,321 was retained and used
for printing prospectuses, advertising, sales literature and other purposes,
$9,939,290 was paid as sales commissions to unrelated broker dealers and
$872,500 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 are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with sale of Class B shares. For the period April 30, 1998,
contingent deferred sales charges received by JH Funds amounted to $1,946,497.
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 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 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, 1998, aggregated $1,734,500,188,
and $275,041,727, respectively. There were no purchases or sales of obligations
of the U.S. government and its agencies during the period ended April 30, 1998.
The cost of investments owned at April 30, 1998 (including short-term
investments) for federal income tax purposes was $3,259,427,700. Gross
unrealized appreciation and depreciation of investments aggregated $623,696,176
and $37,317,109, respectively, resulting in net unrealized appreciation of
$586,379,067.
21
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Financial Industries Fund
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Financial Industries Fund
23
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS ---------------
A Global Investment Management Firm Bulk Rate
U.S. Postage
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA
INTERNET: www.jhancock.com/funds 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.
[RECYCLE LOGO] Printed on Recycled Paper 700SA 4/98
6/98
