The latest report from your
Fund's management team
SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Financial
Industries Fund
APRIL 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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---------------------------------
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
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
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
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
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DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
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[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing. These modifications and replacements are
nearly done, and the tests of all our systems are on schedule for completion by
the end of July. The rest of 1999 will be spent testing with our business
partners and continuing to participate in industry testing. We have also
established additional contingency plans beyond our regular ones to prepare for
any challenges that the Year 2000 might present. In the end, John Hancock will
spend approximately $90-$95 million to ensure we make a successful transition to
the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although we
cannot make any ironclad assurances, we are confident that the steps we have
taken will provide shareholders with as smooth a transition as possible. Once
that occurs, we will happily raise our glasses to toast the New Year, future
prosperity and our hopes to serve you well into the 2000's.
Sincerely,
/s/Edward J. Boudreau, Jr.
- -------------------------------------------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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By James K. Schmidt, CFA, Management Team Leader, and
Thomas Finucane and Thomas Goggins, Portfolio Managers
John Hancock
Financial Industries Fund
Strong U.S. economy, signs of recovery overseas
-----------------------------------------------
spark financial-stock rebound
-----------------------------
After being hammered by global economic turmoil last year, the stock market,
including financial stocks, staged a rebound over the last six months, lifted by
a stronger-than-expected U.S. economy and news of solid corporate earnings
growth. Fears of a spreading "Asian contagion" never materialized and investors
regained confidence after interest-rate cuts by the Federal Reserve and central
banks worldwide calmed world markets and sent stocks soaring in the last quarter
of 1998.
Also following the trend of the broader market, the largest financial
stocks, including brokerage firms and money-center banks, dominated the sector's
advance, while small- and mid-cap stocks lagged. Because of their lending and
trading exposure to emerging markets, money-center banks and brokerage firms had
fallen more during last summer's global economic turmoil. Consequently they
benefited more when the emerging markets of Asia, Russia and Latin America
showed signs of stabilizing this year. When the feared scenario of global
recession and massive loan defaults never materialized, money-center banks and
brokerage firms saw their fundamentals improve, and their stocks made up
virtually all the ground they lost last year. Overall, financial stocks, as
measured by the S&P 500 Financial Index, outpaced the
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[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Financial
Industries Fund. Caption below reads "Fund management team members. Standing
(l-r): "Jay McKelvey, Tom Goggins and Tom Finucane. Seated (l-r): Lisa Welch,
Jim Schmidt and Patricia Ouimet."]
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"...the largest financial stocks... dominated the sector's advance..."
3
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John Hancock Funds - Financial Industries Fund
"During the period, the merger pace slowed, especially among U.S. banks."
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[Table at top left hand column entitled "Top Five Stock Holdings." The first
listing is Berkshire Hathaway 2.3%, the second is Progressive Corp. 2.2%, the
third Wells Fargo 2.2%, the fourth American Express 2.2% and the fifth Citigroup
2.1%. A note below the table reads "As a percentage of net assets on April 30,
1999."]
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broader S&P 500 Index. In both instances, however, the bulk of the return was
generated by a handful of the largest stocks in each index.
Performance review
With the sector's rebound, the Fund posted a strong absolute return over the
last six months, bouncing back from a disappointing year in 1998. This result
serves as a good example of why we encourage shareholders to take a longer-term
perspective to sector-specific investing, which is more susceptible to
short-term volatility. For the six months ended April 30, 1999, the Fund's Class
A and Class B shares posted total returns of 16.40% and 16.03%, respectively, at
net asset value, compared to the 19.08% return of the average financial services
fund, according to Lipper, Inc.1 The Fund's Class C shares, which became
effective March 1, 1999, returned 9.04% at net asset value in the two months
between inception and April 30, 1999. Keep in mind that your net asset value
return will be
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[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 Lincoln
National Corp. followed by an up arrow with the phrase "Strong player in vibrant
annuity market." The second listing is City National followed by a sideways
arrow with the phrase "Rebounding California middle-market lender." The third
listing is Progressive Corp. followed by a down arrow with the phrase "
Unwarranted sell-off in high-growth insurer." A note below the table reads "See
`Schedule of Investments.' Investment holdings are subject to change."]
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different from the Fund's performance if you were not invested in the Fund for
the entire period and did not reinvest all distributions. Historical performance
information can be found on pages seven and eight.
Large beats small
As we mentioned earlier, the best-performing financial stocks were the
money-center banks and broker firms, and our holdings such as Citigroup and
Morgan Stanley Dean Witter served us well. As was the case in most other
industries, smaller-cap financial companies, including banks, thrifts and
insurance companies, lagged their larger counterparts.
This underperformance occurred despite the fact that the earnings of
most financial companies remained solid. Brokerage earnings continued a sharp
rebound from the dark days of last summer, as underwriting revenues and trading
profits grew. As for U.S. banks, which represented 20% of the Fund's net assets,
the last two quarters saw bank earnings continue on the 12% to 14% growth path
that we saw throughout 1998. The strong economy helped banks produce
better-than-expected domestic loan growth. The level of non-producing loans
remained low, net interest margins were stable and share buybacks continue to
aid earnings- per-share growth.
The insurance group, which represented 29% of the Fund's net assets,
produced mixed results. There were several high-profile mergers during the
period, some involving foreign insurers' buying American counterparts. Chief
among them were Transamerica, which was acquired by Aegon, and American Bankers
Insurance, which was acquired by Fortis. We took profits and sold out of our
stakes in Transamerica and American
4
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John Hancock Funds - Financial Industries Fund
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended April 30, 1999." The
chart is scaled in increments of 5% with 0% at the bottom and 20% at the top.
The first bar represents the 16.40% total return for John Hancock Financial
Industries Fund Class A. The second bar represents the 16.03% total return for
John Hancock Financial Industries Fund Class B. The third bar represents the
9.04%* total return for John Hancock Financial Industries Fund Class C. The
fourth bar represents the 19.08% total return for 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, Inc. See pages seven and
eight for historical performance information. *From inception March 1, 1999
through April 30, 1999."]
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Bankers Insurance on the good news. But property and casualty companies suffered
from a weak pricing environment. During the period we rebalanced our insurance
holdings by paring our stake in the property and casualty names and adding to
our life and annuity companies, such as ReliaStar Financial, Fortis and
Equitable Cos., because we believe the fundamentals and growth prospects for
their businesses are better.
Euro and REITs weak
Real estate investment trusts (REITs) continued to lag the market, despite a
generally favorable environment for rent increases. REITs lagged in part because
of their perception as value stocks at a time when growth stocks were the rage.
REITs came to life in April, however, with a surge in more economically
sensitive cyclical stocks and the recent REIT acquisitions by Warren Buffett, a
classic value investor.
The weakness of the new European currency, the euro, caused many of our
foreign banks in EMU-member countries to post disappointing results in dollar
terms. By contrast, our European banks in countries outside of the EMU, such as
the U.K. and Sweden, did well. We continued to increase our stake in European
banks and insurers - from 8% last October to 11% by the end of April. The
positive broader trends of consolidation and a new focus on shareholder value
remain in place, while the euro still holds the promise of being a catalyst for
the creation of pan-European banking.
Slower U.S. merger pace
The Fund invests across a broad range of financial services companies of all
sizes, targeting those with solid fundamentals and the potential to benefit from
industry consolidation. During the period, the merger pace slowed, especially
among U.S. banks. Five of our holdings have announced acquisitions so far this
year - two of them involving the insurance mergers we mentioned earlier. A major
transaction was the announcement in March that Boston's Fleet Bank would acquire
BankBoston. We think the merger is a good one that should provide the banks with
cost savings and increased future earnings.
While bank merger activity slowed in the U.S. recently, the reasons
appear to be temporary, stemming from the transition to the year 2000 and a
change in the pricing environment. Banks have been holding back on attempting
mergers until Y2K is less of an issue. We believe the pressures should ease
later this year, since by then any merger wouldn't actually get implemented
until next year. Deal pricing also became tougher in the midst of last year's
market downturn, and selling banks grew more reluctant to agree to mergers at
lower stock prices. We believe this, too, should pass, either as prices go back
up, or as sellers adjust their expectations down.
"The insurance group, which represented 29% of the Fund's net assets, produced
mixed results."
5
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John Hancock Funds - Financial Industries Fund
"...the underlying trends that have made investing in financial stocks so
successful ...remain firmly in place."
Merger activity could get an additional boost if a proposed change in
the method of accounting for mergers is enacted, possibly as early as next year.
We believe this rule change may accelerate merger activity as banks seek to take
advantage of the current, and preferred, "pooling" accounting method before it
is eliminated.
Regulatory reform update
A landmark financial reform bill designated H.R. 10, which is aimed at repealing
restrictive and obsolete regulations, has gotten off to a fast start this year,
with both the House and Senate banking committees already approving different
versions of the bill. Although there are still some significant issues to be
resolved, we believe it is inevitable that some form of financial deregulation
will be enacted, possibly this year. This will set the stage for a new round of
consolidation that will produce cross-ownership between financial services
companies previously separated by product specialization, such as banks,
brokerage firms and insurance companies. We believe insurance companies have the
most opportunities to achieve efficiencies through such mergers.
A look ahead
With robust U.S. growth, low interest rates and inflation and improvements
overseas, the economic environment remains ripe for further stock market
advances. In particular, we are encouraged about the prospects for financial
stocks. Despite short-term market fluctuations, the underlying trends that have
made investing in financial stocks so successful over the years remain firmly in
place. In addition, after struggling last year, many financial-stock valuations
are compelling, selling at a large discount to the market, even as earnings
growth remains equal to, or better than, the S&P 500 Index. We will continue to
apply in-depth fundamental company analysis and our extensive knowledge of the
financial industry to maintain a portfolio of quality financial stocks that have
the potential to provide superior results over time.
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This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
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.
1Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
6
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John Hancock Funds - Financial Industries Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock 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). Class C performance
includes a contingent deferred sales charge (1% declining to 0% after one year).
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.
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CLASS A
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For the period ended March 31, 1999
SINCE
ONE INCEPTION
YEAR (3/14/96)
------- ---------
Cumulative Total Returns (8.94%) 94.00%
Average Annual Total Returns (1) (8.94%) 24.30%
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CLASS B
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For the period ended March 31, 1999
SINCE
ONE INCEPTION
YEAR (1/14/97)
------- ---------
Cumulative Total Returns (9.58%) 38.01%
Average Annual Total Returns (1) (9.58%) 15.71%
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CLASS C
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For the period ended March 31, 1999
SINCE
INCEPTION
(3/1/99)
---------
Cumulative Total Return 1.69%
Average Annual Total Return 1.69%(2)
Notes to Performance
(1) Prior to November 1, 1997, the Adviser had agreed to limit the
Fund's expenses to 0.90% for Class A and Class B shares of the Fund's
average net asset value, including the management fee (but not
including a 12b-1 fee). Without the limitation of expenses, the average
annualized return since inception for Class A shares would have been
22.99%. The average annualized return since inception for Class B
shares would have been 15.61%.
(2) Not annualized.
7
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John Hancock Funds - Financial Industries Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
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 John Hancock 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
Standard & Poor's 500 Stock Index and is equal to $22,030. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Financial Industries Fund on March 14, 1996, before sales charge, and is
equal to $21,685 As of April 30, 1999. The third line represents the value of
same hypothetical investment made in the John Hancock Financial Industries Fund,
after sales charge, and is equal to $20,595 as of April 30, 1999.
Line chart with the heading John Hancock 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
Standard & Poor's 500 Stock Index and is equal to $18,700. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Financial Industries Fund on January 14, 1997, before sales charge, and
is equal to $14,963 As of April 30, 1999. The third line represents the value of
same hypothetical investment made in the John Hancock Financial Industries Fund,
after sales charge, and is equal to $14,663 as of April 30, 1999.
Line chart with the heading John Hancock Financial Industries Fund Class C,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Financial
Industries Fund on March 1, 1999, before sales charge, and is equal to $10,904
as of April 30, 1999. The second line represents the value of the same
hypothetical investment made in the John Hancock Financial Industries Fund,
after sales charge, and is equal to $10,804 as of April 30, 1999. The third line
represents the Standard & Poor's 500 Stock Index and is equal to $10,803.
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8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Statement of Assets and Liabilities
April 30, 1999 (Unaudited)
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Assets:
Investments at value - Note C:
Common stocks (cost - $2,779,623,611) ..................... $3,403,958,267
Preferred stocks (cost - $112,500) ........................ 107,055
Joint repurchase agreement (cost - $110,162,000) .......... 110,162,000
Short-term notes (cost - $41,629,013) ..................... 41,500,848
Corporate savings account ................................. 868
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3,555,729,038
Receivable for investments sold ............................ 15,776,122
Receivable for shares sold ................................. 1,973,118
Dividends receivable ....................................... 5,082,655
Interest receivable ........................................ 985,013
Foreign tax receivable ..................................... 381,984
Deferred organization expense - Note A ..................... 9,533
Other assets ............................................... 6,882
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Total Assets ....................... 3,579,944,345
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Liabilities:
Payable for investments purchased .......................... 15,552,330
Payable for open forward foreign currency exchange
contracts sold - Note A ................................... 383
Payable for closed forward foreign currency exchange
contracts - Note A ........................................ 808,505
Payable for shares repurchased ............................. 5,607,689
Dividend payable ........................................... 1,407
Payable to John Hancock Advisers, Inc. and affiliates - Note B 3,349,098
Accounts payable and accrued expenses ...................... 537,253
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Total Liabilities .................. 25,856,665
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Net Assets:
Capital paid-in ............................................ 3,044,314,968
Accumulated net realized loss on investments and
foreign currency transactions ............................. (113,382,551)
Net unrealized appreciation of investments and
foreign currency transactions ............................. 624,149,610
Distributions in excess of net investment income ........... (994,347)
--------------
Net Assets ......................... $3,554,087,680
======================================================
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)
Class A - $842,090,392/49,347,730 .......................... $17.06
==============================================================================
Class B - $2,710,005,934/159,388,316 ....................... $17.00
==============================================================================
Class C * - $1,991,354/117,099 ............................. $17.01
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Maximum Offering Price Per Share**
Class A - ($17.06 x 105.26%) ............................... $17.96
==============================================================================
* Class C shares commenced operations on March 1, 1999.
** 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 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, 1999. You'll also
find the net asset value for each share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Statement of Operations
Six months ended April 30, 1999 (Unaudited)
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<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $591,365)......................................................... $31,661,247
Interest ........................................................................................................ 5,891,561
------------
37,552,808
------------
Expenses:
Investment management fee - Note B ............................................................................. 13,275,065
Distribution and service fee - Note B
Class A ....................................................................................................... 1,280,062
Class B ....................................................................................................... 13,266,335
Class C ....................................................................................................... 1,582
Transfer agent fee - Note B .................................................................................... 4,980,905
Custodian fee .................................................................................................. 311,398
Financial services fee - Note B ................................................................................ 252,676
Registration and filing fees ................................................................................... 138,976
Trustees' fees ................................................................................................. 88,578
Printing ....................................................................................................... 71,696
Miscellaneous .................................................................................................. 59,174
Legal fees ..................................................................................................... 17,038
Auditing fee ................................................................................................... 12,235
Organization expense ........................................................................................... 2,595
------------
Total Expenses .......................................................................... 33,758,315
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Net Investment Income ................................................................... 3,794,493
--------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss on investments sold ........................................................................... (99,096,764)
Net realized loss on foreign currency transactions .............................................................. (166,423)
Change in net unrealized appreciation/depreciation of investments ............................................... 622,130,888
Change in net unrealized appreciation/depreciation of foreign currency transactions ............................. (69,358)
------------
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions ....... 522,798,343
--------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations .................................... $526,592,836
========================================================================================================
</TABLE>
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.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
--------------------- ---------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ..................................................... $13,092,229 $3,794,493
Net realized loss on investments sold and foreign currency transactions ... (10,047,867) (99,263,187)
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions ............................................ (159,121,594) 622,061,530
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations .......... (156,077,232) 526,592,836
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.1117 and $0.1560 per share, respectively) .................. (3,725,901) (8,902,330)
Class B - ($0.0250 and $0.0528 per share, respectively) .................. (2,632,181) (9,275,553)
Distributions from net realized gain on investments sold
Class A - ($0.0166 and none per share, respectively) ..................... (552,197) --
Class B - ($0.0166 and none per share, respectively) ..................... (1,743,894) --
-------------- --------------
Total Distributions to Shareholders ...................................... (8,654,173) (18,177,883)
-------------- --------------
From Fund Share Transactions - Net:* ....................................... 1,903,689,892 (418,930,271)
-------------- --------------
Net Assets:
Beginning of period ....................................................... 1,725,644,511 3,464,602,998
-------------- --------------
End of period (including undistributed net investment income of $13,389,043 and
distributions in excess of net investment income of $994,347, respectively) $3,464,602,998 $3,554,087,680
============== ==============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment 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
11
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==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Statement of Changes in Net Assets (continued)
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* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ............ 55,765,091 $897,314,850 13,138,285 $208,895,530
Shares reinvested ...... 212,459 3,216,372 468,752 7,017,391
------------ ------------- ----------- ------------
55,977,550 900,531,222 13,607,037 215,912,921
Less shares repurchased (26,987,952) (385,136,154) (22,464,323) (356,807,905)
------------ ------------- ----------- ------------
Net increase (decrease) 28,989,598 $515,395,068 (8,857,286) ($140,894,984)
============ ============= =========== ============
CLASS B
Shares sold ............ 107,496,787 $1,727,338,249 9,559,441 $149,803,137
Shares reinvested ...... 161,856 2,448,654 374,288 5,599,924
------------ ------------- ----------- ------------
107,658,643 1,729,786,903 9,933,729 155,403,061
Less shares repurchased (22,873,695) (341,492,079) (27,623,063) (435,353,245)
------------ ------------- ----------- ------------
Net increase (decrease) 84,784,948 $1,388,294,824 (17,689,334) ($279,950,184)
============ ============= =========== ============
CLASS C **
Shares sold ............ -- -- 117,130 $1,915,410
Less shares repurchased -- -- (31) (513)
------------ ------------- ----------- ------------
Net increase ........... -- -- 117,099 $1,914,897
============ ============= =========== ============
</TABLE>
* Class C shares commenced operations on March 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS
12
<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>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
----------------------------- APRIL 30, 1999
1996 1997 1998 (UNAUDITED)
------- -------- -------- ----------------
<S> <C> <C> <C> <C>
CLASS A(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $8.50 $11.03 $14.26 $14.80
------- -------- -------- --------
Net Investment Income (2) ...................................................... 0.02 0.14 0.15 0.06
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 2.51 3.77 0.52(8) 2.36
------- -------- -------- --------
Total from Investment Operations .............................................. 2.53 3.91 0.67 2.42
------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ........................................... -- (0.03) (0.11) (0.16)
Distributions from Net Realized Gains on Investments Sold ...................... -- (0.65) (0.02) --
------- -------- -------- --------
Total Distributions ........................................................... -- (0.68) (0.13) (0.16)
------- -------- -------- --------
Net Asset Value, End of Period ................................................. $11.03 $14.26 $14.80 $17.06
======= ======== ======== ========
Total Investment Return at Net Asset Value (3) ................................. 29.76%(6) 37.19% 4.66% 16.40%(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 $861,582 $842,090
Ratio of Expenses to Average Net Assets ..................................... 1.20%(7) 1.20% 1.37% 1.40%(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% 0.92% 0.74%(7)
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (5) ....... (5.50%)(7) 0.83% -- --
Portfolio Turnover Rate ........................................................ 31% 6% 30% 21%
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), distributions and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed since the end of the previous
period. Additionally, important relationships between some items presented in
the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------- APRIL 30, 1999
1997 1998 (UNAUDITED)
---------- ---------- ----------------
<S> <C> <C> <C>
CLASS B(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................ $11.43 $14.18 $14.70
---------- ---------- ----------
Net Investment Income (2) ....................................................... 0.04 0.03 0.00(9)
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 2.71 0.54(8) 2.35
---------- ---------- ----------
Total from Investment Operations ............................................... 2.75 0.57 2.35
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ............................................ -- (0.03) (0.05)
Distributions from Net Realized Gains on Investments Sold ....................... -- (0.02) --
---------- ---------- ----------
Total Distributions ............................................................ -- (0.05) (0.05)
---------- ---------- ----------
Net Asset Value, End of Period .................................................. $14.18 $14.70 $17.00
========== ========== ==========
Total Investment Return at Net Asset Value (3) .................................. 24.06%(6) 3.95% 16.03%(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 $2,603,021 $2,710,006
Ratio of Expenses to Average Net Assets ......................................... 1.90%(7) 2.07% 2.10%(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) 0.22% 0.05%(7)
Ratio of Adjusted Net Investment Income to Average Net Assets (5) ............... 0.13%(7) -- --
Portfolio Turnover Rate ......................................................... 6% 30% 21%
Fee Reduction Per Share (2) ..................................................... $0.03 -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
FOR THE PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT OF
OPERATIONS) TO
APRIL 30, 1999
(UNAUDITED)
-------------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $15.60
----------
Net Investment Income (2) 0.01
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions 1.40
----------
Total from Investment Operations 1.41
----------
Net Asset Value, End of Period $17.01
==========
Total Investment Return at Net Asset Value (3) 9.04%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $1,991
Ratio of Expenses to Average Net Assets 2.10%(7)
Ratio of Net Investment Income to Average Net Assets 0.48%(7)
Portfolio Turnover Rate 21%
(1) Class A and Class B shares 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.
(8) Amount shown for a share outstanding does not correspond with aggregate net
gain (loss) on investments for the period, due to the timing of sales and
repurchases of the Fund shares in relation to fluctuating market values of
the investments of the Fund.
(9) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Schedule of Investments
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Financial Industries Fund on April 30, 1999. It's divided into three main
categories: common stocks, preferred stocks and short-term investments. The
common and preferred stocks are further broken down by industry groups.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
MARKET
ISUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------ ---------------- -----
COMMON STOCKS
Banks - Foreign (9.94%)
Abbey National Plc (United Kingdom)........ 300,000 $6,781,740
ABN AMRO Holding NV, American
Depositary Receipts (ADR)
(Netherlands) ............................ 171,975 4,030,664
Allied Irish Banks Plc (ADR) (Ireland) .... 485,558 46,613,568
Anglo Irish Bank Corp., Plc (Ireland) ..... 1,174,908 3,480,782
Argentaria, Laja Postal y Banco
Hipotecario de Espana, SA
(ADR) (Spain) ............................ 550,200 25,653,075
Australia & New Zealand Banking Group
Ltd. (ADR) (Australia) ................... 90,000 3,543,750
Banca Popolare di Brescia (Italy) ......... 510,000 17,562,564
Banco Bilbao Vizcaya, S.A. (ADR)
(Spain) .................................. 400,000 5,950,000
Banco Comercial Portugues, SA
(Portugal) * .............................. 240,000 6,776,832
Bank of Scotland (United Kingdom) ......... 1,436,191 21,505,380
HSBC Holdings Plc (United Kingdom) ........ 290,000 10,916,789
ING Groep NV (ADR) (Netherlands) .......... 787,573 48,337,293
Lloyds TSB Group, Plc
(United Kingdom) ......................... 310,000 4,993,790
Merita Plc (Finland) ...................... 810,000 4,841,694
National Bank of Canada (Canada) .......... 75,000 1,210,253
National Westminster Bank, Plc
(United Kingdom) ......................... 1,020,000 24,585,264
Nordbanken Holding AB (Sweden) ............ 360,000 2,268,504
Royal Bank of Canada (Canada) ............. 382,900 18,809,963
Royal Bank of Scotland Group, Plc
(United Kingdom) ......................... 704,684 16,633,432
Societe Generale (France) ................. 90,000 16,129,566
Svenska Handelsbanken (Sweden) ............ 410,000 15,404,028
MARKET
ISUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------ ---------------- -----
Banks - Foreign (continued)
Toronto-Dominion Bank (Canada) ............ 340,200 $18,179,438
UBS AG (Switzerland) ...................... 85,000 28,920,451
-----------
353,128,820
-----------
Banks - Midwest (3.24%)
BancFirst Ohio Corp. ...................... 128,800 3,397,100
Commerce Bancshares, Inc. ................. 106,750 4,370,078
Community First Bankshares, Inc. .......... 448,500 9,166,219
Fifth Third Bancorp. ...................... 81,500 5,842,531
Firstar Corp. ............................. 1,547,960 46,535,548
FirstMerit Corp. .......................... 250,500 6,967,031
Marshall & Ilsley Corp. ................... 145,000 10,150,000
TCF Financial Corp. ....................... 992,776 28,790,504
-----------
115,219,011
-----------
Banks - Money Center (2.91%)
Bankers Trust New York Corp. .............. 68,600 6,178,288
Chase Manhattan Corp. ..................... 295,100 24,419,525
Citigroup, Inc. ........................... 968,371 72,869,918
-----------
103,467,731
-----------
Banks - Northeast (2.57%)
FNB Rochester Corp. ....................... 39,250 1,373,750
M&T Bank Corp. ............................ 18,450 10,313,550
State Street Corp. ........................ 517,500 45,281,250
U.S. Trust Corp. .......................... 308,200 28,161,775
Wilmington Trust Corp. .................... 104,000 6,389,500
-----------
91,519,825
-----------
Banks - Southeast (1.75%)
CCB Financial Corp. ....................... 442,314 25,543,634
First Tennessee National Corp. ............ 649,900 28,026,937
Regions Financial Corp. ................... 229,760 8,673,440
-----------
62,244,011
-----------
Banks - Southwest (0.39%)
Cullen/Frost Bankers., Inc. ............... 156,500 8,441,219
Southwest Bancorp. of Texas, Inc.* ........ 321,000 5,416,875
-----------
13,858,094
-----------
Banks - Super Regional (7.65%)
Bank of America Corp. ..................... 264,300 19,029,600
Bank One Corp. ............................ 625,948 36,930,932
BankBoston Corp. .......................... 773,600 37,906,400
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
MARKET
ISUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------ ---------------- -----
Banks - Super Regional (continued)
First Union Corp. ......................... 73,498 $4,069,952
KeyCorp. .................................. 887,275 27,450,070
National City Corp. ....................... 548,250 39,336,937
SunTrust Banks, Inc. ...................... 90,000 6,435,000
Wachovia Corp. ............................ 272,032 23,904,812
Wells Fargo Co. ........................... 1,776,500 76,722,594
-----------
271,786,297
-----------
Banks - West (1.19%)
BancWest Corp. ............................ 59,500 2,368,844
City National Corp. ....................... 587,787 22,703,273
Greater Bay Bancorp. ...................... 121,466 3,659,163
West Coast Bancorp. ....................... 143,555 2,476,324
Westamerica Bancorp. ...................... 330,071 11,016,119
-----------
42,223,723
-----------
Broker Services (7.26%)
Dain Rauscher Corp. ....................... 88,800 3,807,300
Edwards (A.G.), Inc. ...................... 1,300,000 45,500,000
EVEREN Capital Corp. ...................... 903,600 26,543,250
Freedom Securities Corp. .................. 207,100 3,766,631
Legg Mason, Inc. .......................... 1,373,800 47,911,275
Lehman Brothers Holdings, Inc. ............ 67,200 3,733,800
Merrill Lynch & Co., Inc. ................. 250,000 20,984,375
Morgan Keegan, Inc. ....................... 543,650 9,106,137
Morgan Stanley Dean Witter & Co. .......... 637,600 63,241,950
Paine Webber Group, Inc. .................. 235,000 11,030,313
Ragen Mackenzie Group, Inc.* .............. 86,600 1,028,375
Raymond James Financial, Inc. ............. 728,550 15,709,359
Schwab (Charles) Corp. .................... 50,000 5,487,500
-----------
257,850,265
-----------
Computer - Services (3.83%)
BISYS Group, Inc. (The)* .................. 598,700 30,384,025
First Data Corp. .......................... 849,400 36,046,413
Fiserv, Inc.* ............................. 1,189,050 69,633,741
-----------
136,064,179
-----------
Computer - Software (0.19%)
Intuit, Inc.* ............................. 80,000 6,890,000
-----------
Finance - Consumer Loans (7.37%)
American Express Co. ...................... 586,150 76,602,478
AmeriCredit Corp.* ........................ 800,000 13,250,000
AMRESCO, Inc. ............................. 580,000 3,770,000
Associates First Capital Corp. (Class A) .. 1,520,000 67,355,000
Household International, Inc. ............. 1,358,984 68,373,882
MBNA Corp. ................................ 1,057,062 29,795,935
Metris Co., Inc.* ......................... 45,000 2,750,625
-----------
261,897,920
-----------
MARKET
ISUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------ ---------------- -----
Finance - Investment Management (4.52%)
Affiliated Managers Group, Inc.* .......... 212,400 $6,172,875
Amvescap Plc (ADR) (United Kingdom) ....... 736,200 40,168,913
Federated Investors, Inc. (Class B)* ...... 842,000 13,524,625
Franklin Resources, Inc. .................. 845,200 33,808,000
Investors Group, Inc. (Canada) ............ 215,000 3,247,940
John Nuveen Co. (The) (Class A) ........... 175,800 6,988,050
Mackenzie Financial Corp (Canada) ......... 210,000 2,739,807
Price (T. Rowe) Associates, Inc. .......... 1,080,900 40,736,419
Waddell & Reed Financial, Inc.
(Class A) ................................ 574,682 12,966,263
-----------
160,352,892
-----------
Finance - Savings & Loan (1.19%)
Astoria Financial Corp. ................... 162,050 8,122,756
Bank United Corp. (Class A) ............... 226,300 9,136,862
Charter One Financial, Inc. ............... 35,000 1,093,750
Dime Bancorp., Inc. ..................... 255,000 5,880,937
InterWest Bancorp., Inc. .................. 169,700 3,945,525
Staten Island Bancorp., Inc. .............. 10,000 180,625
Washington Mutual, Inc. ................... 342,250 14,075,031
-----------
42,435,486
-----------
Finance - SBIC & Commercial (2.13.%)
CIT Group, Inc. (The) (Class A) ........... 969,500 31,508,750
FINOVA Group, Inc. (The) .................. 490,950 23,719,022
Heller Financial, Inc. .................... 756,500 20,520,063
-----------
75,747,835
-----------
Insurance (1.98%)
Ambac Financial Group, Inc. ............... 180,000 10,867,500
Enhance Financial Services Group, Inc. .... 481,900 9,969,306
Financial Security Assurance Holdings
Ltd. ...................................... 453,000 25,877,625
MBIA, Inc. ................................ 352,799 23,725,733
-----------
70,440,164
-----------
Insurance - Accident & Health (1.71%)
AFLAC, Inc. ............................... 120,000 6,510,000
American Heritage Life Investment Corp. ... 455,000 10,550,313
Provident Cos., Inc. ...................... 1,022,500 40,260,937
StanCorp Financial Group, Inc.* ........... 145,000 3,489,062
-----------
60,810,312
-----------
Insurance - Brokers (2.00%)
Marsh & McLennan Cos., Inc. ............... 754,800 57,789,375
Aon Corp. ................................. 195,000 13,357,500
-----------
71,146,875
-----------
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
MARKET
ISUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------ ---------------- -----
Insurance - Diversified (0.49%)
Aetna, Inc. ............................... 200,000 $17,537,500
-----------
Insurance - Life (7.35%)
American General Corp. .................... 285,000 21,090,000
Axa (ADR) (France) ........................ 150,000 9,590,625
Equitable Cos., Inc. ...................... 535,000 36,012,187
Hartford Life, Inc. (Class A) ............. 230,850 12,076,341
Liberty Corp. ............................. 310,000 16,042,500
Lincoln National Corp. .................... 257,500 24,736,094
Nationwide Financial Services, Inc.
(Class A) ................................ 470,000 21,796,250
Presidential Life Corp. ................... 389,000 6,977,687
Protective Life Corp. ..................... 960,000 37,620,000
Reinsurance Group of America, Inc. ........ 867,650 37,092,038
ReliaStar Financial Corp. ................. 349,000 12,825,750
Torchmark Corp. ........................... 738,000 25,230,375
-----------
261,089,847
-----------
Insurance - Multi Line (2.73%)
Allianz AG (Germany) ...................... 117,000 37,319,853
Allied Zurich Plc (United Kingdom) ........ 370,000 5,057,789
Allmerica Financial Corp. ................. 723,850 41,485,653
Companhia de Seguros Mundial
Confianca, SA (Portugal) * ................ 135,000 3,813,399
Fortis (B) (Belgium) ...................... 267,000 9,519,351
-----------
97,196,045
-----------
Insurance - Property & Casualty (12.78%)
Ace, Ltd. (Bermuda) ....................... 1,538,750 46,547,188
American International Group, Inc. ........ 373,450 43,857,034
Berkshire Hathaway, Inc. (Class A) ........ 10,760 82,206,400
Chubb Corp. (The) ......................... 130,000 7,702,500
Cincinnati Financial Corp. ................ 697,000 28,141,375
FPIC Insurance Group, Inc.* ............... 164,400 7,398,000
Hartford Financial Services Group, Inc.
(The) .................................... 856,000 50,450,500
Horace Mann Educators Corp. ............... 751,600 17,098,900
Medical Assurance, Inc.* .................. 230,000 6,325,000
Mutual Risk Management Ltd. ............... 120,000 4,665,000
Philadelphia Consolidated Holding
Corp.* ................................... 350,000 8,640,625
Progressive Corp. ......................... 543,600 78,006,600
SAFECO Corp. .............................. 97,000 3,855,750
St. Paul Cos., Inc. ....................... 118,326 3,394,477
Travelers Property Casualty Corp.
(Class A) ................................ 947,400 32,685,300
MARKET
ISUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------ ---------------- -----
Insurance - Property & Casualty (continued)
XL Capital, Ltd. (Class A) ................ 548,116 $33,263,790
-----------
454,238,439
-----------
Mortgage & Real Estate Services (2.79%)
Countrywide Credit Industries, Inc. ....... 890,000 40,328,125
Fannie Mae ................................ 794,000 56,324,375
Freddie Mac ............................... 40,000 2,510,000
-----------
99,162,500
-----------
Real Estate Investment Trust - Equity Trust (7.28%)
Alexandria Real Estate Equities, Inc. ..... 135,900 3,830,681
Apartment Investment & Management
Co. (Class A) ............................ 372,900 14,939,306
Arden Realty, Inc. ........................ 443,000 11,075,000
Berkshire Realty Co., Inc. ................ 160,240 1,842,760
Boston Properties, Inc. ................... 280,000 10,167,500
Brandywine Realty Trust ................... 580,000 10,947,500
Colonial Properties Trust ................. 300,000 8,212,500
Equity Office Properties Trust ............ 720,281 19,852,745
Equity Residential Properties Trust ....... 280,000 12,950,000
General Growth Properties, Inc. ........... 600,000 22,087,500
Glenborough Realty Trust, Inc. ............ 436,800 7,507,500
Highwoods Properties, Inc. ................ 220,000 5,665,000
Home Properties of New York, Inc. ......... 143,000 3,700,125
Kimco Realty Corp. ........................ 130,000 5,102,500
LaSalle Hotel Properties .................. 75,000 1,026,563
Macerich Co. (The) ........................ 252,100 6,444,306
Mack-Cali Realty Corp. .................... 440,300 13,621,781
New Plan Excel Realty Trust ............... 270,000 5,011,875
Prentiss Properties Trust ................. 470,000 10,163,750
Public Storage, Inc. ...................... 215,184 5,998,254
Reckson Associates Realty Corp. ........... 900,000 20,250,000
Simon Property Group, Inc. ................ 400,000 11,475,000
SL Green Realty Corp. ..................... 456,500 9,072,937
Spieker Properties, Inc. .................. 525,000 20,606,250
Starwood Hotels & Resorts Worldwide,
Inc. ..................................... 195,000 7,154,063
Tower Realty Trust, Inc. .................. 220,000 4,510,000
Vornado Realty Trust ...................... 136,000 5,304,000
-----------
258,519,396
-----------
Real Estate Investment Trust -
Mortgage Trust (0.00%)
Core Cap, Inc. (Class A)* (r) ............ 4,500 71,100
-----------
Transportation - Rail (0.54%)
Kansas City Southern Industries, Inc. ..... 320,000 19,060,000
-----------
TOTAL COMMON STOCKS
(Cost $2,779,623,611) (95.78%) 3,403,958,267
-------- -------------
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
MARKET
ISUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------ ---------------- -----
PREFERRED STOCKS
Real Estate Investment Trust -
Mortgage Trust (0.00%)
Core Cap, Inc., Ser A/I, 10.00% (r)........ 4,500 $107,055
----------
TOTAL PREFERRED STOCKS
(Cost $112,500) (0.00%) 107,055
------- ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.10%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
04-30-99, due 05-03-99
(Secured by U.S. Treasury Bonds,
6.625% thru 9.250%, due
02-15-16 thru 02-15-27 and
U.S. Treasury Note, 5.625%
due 04-30-00) - Note A .......... 4.890% $110,162 110,162,000
-----------
Short-Term Notes (1.17%)
Ford Motor Credit Co.,
Due 05-17-99 .................... 7.900 5,500 5,505,390
General Motors Acceptance
Corp., Due 05-24-99 ............. 6.400 2,500 2,501,925
Federal Home Loan Bank,
Due 10-29-99 .................... 5.030 10,000 9,993,700
Federal National Mortgage
Association, Due 05-05-99 ....... 5.630 23,500 23,499,833
-----------
TOTAL SHORT-TERM NOTES
(Cost $41,629,013) (1.17%) 41,500,848
------- -----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ....................... 868
-----------
TOTAL SHORT-TERM INVESTMENTS (4.27%) 151,663,716
-------- -------------
TOTAL INVESTMENTS (100.05%) 3,555,729,038
-------- -------------
OTHER ASSETS AND LIABILITIES, NET (0.05%) (1,641,358)
-------- -------------
TOTAL NET ASSETS (100.00%)$3,554,087,680
======== ==============
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security.
(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 1999
----------- ----------- ---------- --------
Core Cap, Inc.
Common Stock 10-31-97 $90,000 0.00% $71,100
Preferred Stock 10-31-97 112,500 0.00 107,055
------ --------
TOTAL 0.00% $178,155
====== ========
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
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Financial Industries Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Financial Industries Fund invests primarily in equity securities of issuers
in the financial sector in the United States and abroad. The concentration of
investments by industry category for individual securities held by the Fund is
shown in the schedule of investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentage of the Fund's investments at
April 30, 1999 assigned to the various country categories.
MARKET VALUE
AS A PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- ------------------
Australia................................................. 0.10%
Bermuda .................................................. 1.31
Belgium .................................................. 0.27
Canada ................................................... 1.24
Finland .................................................. 0.14
France ................................................... 0.72
Germany .................................................. 1.05
Ireland .................................................. 1.41
Italy .................................................... 0.49
Netherlands .............................................. 1.47
Portugal ................................................. 0.30
Spain .................................................... 0.89
Sweden ................................................... 0.50
Switzerland .............................................. 0.81
United Kingdom ........................................... 3.68
United States ............................................ 85.67
-------
TOTAL INVESTMENTS 100.05%
=======
SEE NOTES TO FINANCIAL STATEMENTS
20
<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 three series: John Hancock Financial Industries Fund (the
"Fund"), John Hancock Regional Bank Fund and John Hancock Small Cap Value Fund.
Prior to June 1, 1999, John Hancock Small Cap Value Fund was known as John
Hancock Special Value Fund. The other series of the Trust are reported in
separate financial statements. The investment objective of the Fund is to seek
capital appreciation.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The Trustees
authorized the issuance of Class C shares effective March 1, 1999. 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $2,259,735 of a capital loss
carryforward available, to the extent provided by regulations, to offset future
net realized capital gains. If such carryforward is used by the Fund, no capital
gain distributions will be made. The carryforward expires October 31, 2006.
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
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Financial Industries Fund
be in the same amount, except for the effect of expenses that may be applied
differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not identifiable to a specific fund are
allocated in such a manner as deemed equitable, taking into consideration, among
other things, the nature and type of expense and the relative sizes of the
funds.
ORGANIZATION EXPENSES Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that commenced with the investment operations of
the Fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks, which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowing. In
addition, a commitment fee is charged based on the average daily unused portion
of the lines of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the period ended April 30, 1999.
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.
22
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Financial Industries Fund
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.
At April 30, 1999, open forward foreign currency exchange contracts
were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT DATE DEPRECIATION
- -------- ------------------- ---- ------------
SELLS
British Pound 183,233 MAY 99 $383
=====
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, 1999, 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.
At April 30, 1999, there were no written option transactions.
23
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Financial Industries Fund
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.80% of the first $500,000,000 of the Fund's
average daily net asset value and (b) 0.75% of the Fund's average daily net
asset value in excess of $500,000,000.
The 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, 1999, net sales charges received with regard to sales of Class A
shares amounted to $2,541,278. Out of this amount, $308,952 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $2,013,680 was paid as sales commissions to unrelated broker-dealers
and $218,646 was paid as sales commissions to sales personnel of Signator
Investors, Inc. ("Signator Investors"), a related broker-dealer, formerly known
as John Hancock Distributors, Inc. The Adviser's indirect parent, John Hancock
Mutual Life Insurance Company ("JHMLICo"), is the indirect sole shareholder of
Signator Investors.
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 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with sale of Class B shares. For the period ended April 30, 1999,
contingent deferred sales charges received by JH Funds amounted to $8,803,154.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market value
at the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or
in part to defray its expenses for providing distribution related services to
the Fund in connection with the sale of Class C shares. For the period ended
April 30, 1999, there were no contingent deferred sales charges paid to JH
Funds.
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, Class B and Class C 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 and Class C 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., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon
and Mr. Richard S. Scipione are directors 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.
24
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Financial Industries Fund
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the period ended April 30, 1999, aggregated $704,040,327 and
$1,029,554,822, respectively. There were no purchases or sales of obligations of
the U.S. government and its agencies during the period ended April 30, 1999.
The cost of investments owned at April 30, 1999 (excluding the
corporate savings account) for federal income tax purposes was $2,941,103,831.
Gross unrealized appreciation and depreciation of investments aggregated
$697,279,659 and $82,655,320, respectively, resulting in net unrealized
appreciation of $614,624,339.
25
<PAGE>
=======================================NOTES====================================
John Hancock Funds - Financial Industries Fund
26
<PAGE>
=======================================NOTES====================================
John Hancock Funds - Financial Industries Fund
27
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS -----------------
A Global Investment 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.
[LOGO] Printed on Recycled Paper 700SA 4/99
6/99
<PAGE>
The latest report from your
Fund's management team
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Regional
Bank Fund
APRIL 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
---------------------------------
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
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
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
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
------------------------------------------
================================================================================
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing.
These modifications and replacements are nearly done, and the tests of all our
systems are on schedule for completion by the end of July. The rest of 1999 will
be spent testing with our business partners and continuing to participate in
industry testing. We have also established additional contingency plans beyond
our regular ones to prepare for any challenges that the Year 2000 might present.
In the end, John Hancock will spend approximately $90-$95 million to ensure we
make a successful transition to the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although we
cannot make any ironclad assurances, we are confident that the steps we have
taken will provide shareholders with as smooth a transition as possible. Once
that occurs, we will happily raise our glasses to toast the New Year, future
prosperity and our hopes to serve you well into the 2000's.
Sincerely,
/s/Edward J. Boudreau, Jr.
- -------------------------------------------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By James K. Schmidt, CFA, Portfolio Management Team Leader, and
Thomas Finucane and Thomas Goggins, Portfolio Managers
John Hancock
Regional Bank Fund
Financial stocks rebound; money-center banks lead the way,
----------------------------------------------------------
smaller banks lag
-----------------
Buoyed by a surprisingly strong U.S. economy, solid corporate earnings growth
and less turbulence overseas, the stock market staged a strong rebound over the
last six months. While the major indices reached new highs by the end of April,
the market grew increasingly two-tiered. A small group of large-company growth
stocks, many in the technology sector, generated the bulk of the market's
advance, while a much larger number of stocks lagged. Across most industries,
investors continued to favor growth stocks over value stocks and large companies
over small ones.
Financial stocks, which suffered more than many groups during last
year's global economic turmoil, spent the last six months making up lost ground.
Following the trend of the broader market, however, the largest financial
stocks, including brokerage firms and money-center banks, dominated the sector's
advance. Because of their exposure to emerging markets, these groups fell more
than the regional banks last summer, and they also benefited more when emerging
markets stabilized. Investors had worried that Asia's economic slowdown,
followed by problems in Russia and Latin America, would translate into a global
recession and massive loan defaults. When that scenario did not play out and
emerging markets showed signs of recovery instead, money-center banks and
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Regional
Bank Fund. Caption below reads "Fund management team members. Standing (l-r):
"Jay McKelvey, Tom Goggins and Tom Finucane. Sitting (l-r): Lisa Welch, Jim
Schmidt and Patricia Ouimet."]
- --------------------------------------------------------------------------------
"The smaller regional banks and thrifts that are the Fund's focus stayed in the
doldrums..."
3
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
"In the last two quarters, bank earnings have been very solid..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Stock Holdings." The first
listing is Bank of America Corp. 4.6%, the second is Bank One Corp. 4.6%, the
third First Union Corp. 4.0%, the fourth Wells Fargo Co. 3.6% and the fifth
National City Corp. 3.0%. A note below the table reads "As a percentage of net
assets on April 30, 1999."]
- --------------------------------------------------------------------------------
brokerage firms saw their fundamentals improve and their stocks take off.
The smaller regional banks and thrifts that are the Fund's focus stayed
in the doldrums despite solid earnings growth, as investors shunned them for
much of the period in favor of the headline-grabbing technology and Internet
groups. Finally, we saw this trend begin to reverse itself in March.
Performance review
John Hancock Regional Bank Fund posted solid absolute gains over the last six
months, although they were more modest than other financial services funds,
which tend to have heavier concentrations in the largest banks and financial
companies that dominated performance this period. For the six months ended April
30, 1999, John Hancock Regional Bank Fund's Class A and Class B shares posted
total returns of 11.22% and 10.85%, respectively, at net asset value. By
comparison, the average financial services fund
- --------------------------------------------------------------------------------
[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 SierraWest
Bancorp followed by an up arrow with the phrase "Small business lending king
being taken over." The second listing is Centura Banks followed by a down arrow
with the phrase "Stock price surprisingly lags bank's solid fundamentals." The
third listing is First American Corp. followed by a down arrow with the phrase
"Southeastern regional botches execution of a merger." A note below the table
reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
- --------------------------------------------------------------------------------
returned 19.08%, according to Lipper, Inc.1 The Fund's Class C shares, which
became effective March 1, 1999, returned 6.02% at net asset value in the two
months between inception and April 30, 1999. Keep in mind that your net asset
value return will be different from the Fund's performance if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. Historical performance information can be found on pages seven
and eight.
As long-time Regional Bank Fund shareholders know, the Fund's strategy
of buying attractively valued regional banks with solid fundamentals and the
potential to benefit from merger activity has served us very well over time. The
latest period, with its more modest performance (something we expect
periodically with market fluctuations) and its recent rebound, serves as a good
example of why we encourage shareholders to take a longer-term perspective to
sector-specific investing. Indeed, our long-term track record has enabled the
Fund to outperform the overall market, as measured by the S&P 500 Index, in six
of the last eight years.
Reasons for optimism
Although past performance is no guarantee of future results, the Fund's history
shows that investors who bought in years of relatively weak performance, or
stayed invested, were rewarded. That's because despite short-term market
fluctuations, the underlying trends that have made investing in bank stocks so
successful over the years have remained firmly in place. In our view, that makes
the case for financial-stock investing as compelling now as it has ever been.
Catalysts include:
o Industry consolidation: One of the founding principles behind
Regional Bank Fund
4
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended April 30, 1999." The
chart is scaled in increments of 5% with 0% at the bottom and 20% at the top.
The first bar represents the 11.22% total return for John Hancock Regional Bank
Fund Class A. The second bar represents the 10.85% total return for John Hancock
Regional Bank Fund Class B. The third bar represents the 6.02%* total return for
John Hancock Regional Bank Fund Class C. The fourth bar represents the 19.08%
total return for Average financial services fund. A note below the chart reads
"Total returns for John Hancock Regional Bank Fund are at net asset value with
all distributions reinvested. The average financial services fund is tracked by
Lipper, Inc. See pages seven and eight for historical performance information.
*From inception March 1, 1999 through April 30, 1999."]
- --------------------------------------------------------------------------------
was to capitalize on the passage of interstate banking legislation in 1985 that
we believed would spark a wave of bank mergers. That has indeed occurred, as the
number of individual institutions has dropped from around 14,000 in 1985 to just
under 9,000 today. The opportunities continue to abound, since the enduring
reason for these mergers - excess capacity in the U.S. banking system - will
serve as a catalyst for this process well into the 21st century.
Recently, the number of bank deals abated; nevertheless 13 of the
Fund's holdings announced mergers during the last six months - seven of them
since January. The largest transaction was the announcement in March that
Boston's Fleet Bank would acquire BankBoston, both stocks the Fund owns. We
think the merger is a good one that should provide the banks with cost savings
and increased future earnings. Because of the overlapping geography of these two
banks, we believe Fleet will be able to easily achieve the efficiencies they
have promised.
Even though merger activity slowed in this period, the reasons
appear to be temporary, stemming from the transition to the year 2000 and a
change in the pricing environment. Banks have been holding back on attempting
mergers until Y2K is less of an issue. We believe the pressures should ease
later this year, since by then any merger wouldn't actually get implemented
until next year. Deal pricing also became tougher in the midst of last year's
market downturn, and selling banks grew more reluctant to agree to mergers at
lower stock prices. We believe this, too, should pass, either as prices go back
up, or as sellers adjust their expectations down.
Merger activity could get an additional boost if a proposed change in
the method of accounting for mergers is enacted, possibly as early as next year.
We believe this rule change may accelerate merger activity as banks seek to take
advantage of the current, and preferred, "pooling" accounting method before it
is eliminated.
o Solid fundamentals: The stock market lately has overlooked one very
positive ingredient in the bank equation: earnings growth. In the last two
quarters, bank earnings have been very solid, continuing the 12% to 14% growth
rate we saw in 1998. The strong economy helped banks produce
better-than-expected domestic loan growth and created a pickup in capital
markets activity, which includes trading, loan syndication and investment
banking. The level of non-performing loans remained low, net interest margins
were stable and share buybacks continue to aid earnings-per-share growth.
o Regulatory reform: Financial reform legislation aimed at repealing
restrictive and obsolete regulations has gotten off to a fast start this year,
with both the House and Senate banking committees already approving different
"...underlying trends that have made investing in bank stocks so successful over
the years have remained firmly in place."
5
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
"Last year's disruption had a silver lining: it made attractive bank stocks
inexpensive."
versions of the bill. Although there are still some significant issues to be
resolved, we believe it is inevitable that some form of financial deregulation
will be enacted, possibly this year. This will set the stage for a new round of
consolidation that will produce cross-ownership between financial services
companies previously separated by product specialization, such as banks,
brokerage firms and insurance companies.
o Compelling valuations: Last year's disruption had a silver lining: it
made attractive bank stocks inexpensive. Currently, bank stocks are selling at
16 times 1999 earnings, while the S&P 500 Index stocks are selling at 26 times
1999 earnings. That means bank stocks are selling at 60% of the S&P 500's
earnings level. This is inexpensive from a historical perspective, even though
bank earnings growth is at least as good as, if not better than, the S&P. As
value investors, we'd rather buy good companies with solid fundamentals and
prospects at bargain prices, and hold on to them, waiting for the inevitable
rebound. During this period, we trimmed our stakes in some of the larger
money-center and superregional banks that had moved up strongly, including Bank
of America and Chase. In their place, we added to our positions in First
Tennessee, Commerce Bancshares, M&T Bank and City National, where we see real
value.
Going forward
With robust U.S. growth, low interest rates and inflation and an improving
climate overseas, the economic environment remains ripe for further stock market
advances. Regardless of market swings, we will continue to practice in-depth
fundamental company analysis and use our extensive knowledge of the financial
industry to maintain a portfolio of quality regional bank and thrift stocks that
have the potential to provide superior results over time.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
Sector investing is subject to greater risks than the market as a whole.
1Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
6
<PAGE>
================================================================================
John Hancock Funds - Regional Bank 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 Regional Bank Fund. Total return measures the
change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Prior to August 1992, different sales charges were in effect for
Class A shares and are not reflected in the performance data. Class B
performance reflects a maximum contingent deferred sales charge (maximum 5% and
declining to 0% over six years). Class C performance includes a contingent
deferred sales charge (1% declining to 0% after one year).
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, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
------- ------- ---------
Cumulative Total Returns (12.32%) 174.45% 396.16%
Average Annual Total Returns (12.32%) 22.37% 24.76%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (12.75%) 177.05% 617.89%
Average Annual Total Returns (12.75%) 22.61% 21.79%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
SINCE
INCEPTION
(3/1/99)
---------
Cumulative Total Return (1.59%)
Average Annual Total Return (1.59%)(1)
Notes to Performance
(1) Not annualized.
7
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Regional Bank Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Standard & Poor's 500 Stock Index - 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 John Hancock Regional Bank Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Regional Bank
Fund on January 3, 1992, before sales charge, and is equal to $55,719 as of
April 30, 1999. The second line represents the value of the same hypothetical
investment made in the John Hancock Regional Bank Fund, after sales charge, and
is equal to $52,929. The third line represents the Standard & Poor's 500 Stock
Index and is equal to $38,659.
Line chart with the heading John Hancock Regional Bank Fund Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the value of
the hypothetical $10,000 investment made in the John Hancock Regional Bank Fund
on October 31, 1988, before sales charge, and is equal to $79,750 as of April
30, 1999. The second line represents the Standard & Poor's 500 Stock Index and
is equal to $63,281.
Line chart with the heading John Hancock Regional Bank Fund Class C,
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
Standard & Poor's 500 Stock Index and is equal to $10,803. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Regional Bank Fund on March 1, 1999, before sales charge, and is equal
to $10,602 as of April 30, 1999. The third line represents the value of the same
hypothetical investment made in the John Hancock Regional Bank Fund on March 1,
1999, before sales charge, and is equal to $10,502 as of April 30, 1999.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
8
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1999. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Notes C and D:
Common and preferred stocks, warrants and other
Unaffiliated issuers (cost - $2,620,781,575).............. $5,669,051,197
Affiliated issuers (cost - $56,513,486) .................. 92,760,072
Bonds (cost - $12,624,710) ................................. 12,739,770
Joint repurchase agreement (cost - $135,050,000) ........... 135,050,000
Short-term notes (cost - $135,787,554) ..................... 135,656,711
Corporate savings account ................................... 864
--------------
6,045,258,614
Receivable for investments sold ............................. 23,967,862
Receivable for shares sold .................................. 2,697,690
Dividends receivable ........................................ 9,727,783
Interest receivable ......................................... 2,485,138
Other assets ................................................ 130,913
--------------
Total Assets ................... 6,084,268,000
------------------------------------------------
Liabilities:
Payable for shares repurchased .............................. 11,339,482
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 5,230,653
Accounts payable and accrued expenses ....................... 328,564
--------------
Total Liabilities .............. 16,898,699
------------------------------------------------
Net Assets:
Capital paid-in ............................................. 2,800,291,440
Accumulated net realized gain on investments and
foreign currency transactions .............................. 179,541,521
Net unrealized appreciation of investments .................. 3,084,506,547
Undistributed net investment income ......................... 3,029,793
--------------
Net Assets ..................... $6,067,369,301
================================================
Net Asset Value Per Share:
(Based on net assets and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $1,513,064,681/28,018,690 ......................... $54.00
=============================================================================
Class B - $4,551,925,335/84,745,799 ......................... $53.71
=============================================================================
Class C* - $2,379,285/44,292 ................................ $53.72
=============================================================================
Maximum Offering Price Per Share**
Class A - ($54.00 x 105.26%) ................................ $56.84
=============================================================================
* Class C shares commenced operations on March 1, 1999.
** 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (including $1,608,795 received
from affiliated issuers) ................................... $66,893,867
Interest .................................................... 12,012,908
--------------
78,906,775
--------------
Expenses:
Investment management fee - Note B ......................... 23,138,757
Distribution and service fee - Note B
Class A ................................................... 2,301,919
Class B ................................................... 21,914,207
Class C ................................................... 2,066
Transfer agent fee - Note B ................................ 5,377,797
Financial services fee - Note B ............................ 442,191
Custodian fee .............................................. 349,908
Miscellaneous .............................................. 164,346
Trustees' fees ............................................. 161,220
Printing ................................................... 99,680
Registration and filing fees ............................... 31,896
Legal fees ................................................. 30,750
Auditing fee ............................................... 15,103
--------------
Total Expenses ................. 54,029,840
------------------------------------------------
Net Investment Income .......... 24,876,935
------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold
(including $1,419,712 gain on sales of
investments in affiliated issuers) ......................... 180,378,319
Change in net unrealized appreciation/depreciation
of investments ............................................. 421,321,961
Change in net unrealized appreciation/depreciation
of foreign currency transactions ........................... (44,945)
--------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions .. 601,655,335
------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ...... $626,532,270
================================================
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
--------------------- ---------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income........................................................ $50,875,889 $24,876,935
Net realized gain on investments sold and foreign currency transactions ..... 202,591,364 180,378,319
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions ............................................. 53,450,817 421,277,016
-------------- ---------------
Net Increase in Net Assets Resulting from Operations ..................... 306,918,070 626,532,270
-------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6470 and $0.3614 per share, respectively) .................... (20,963,084) (10,828,702)
Class B - ($0.2841 and $0.1940 per share, respectively) .................... (27,817,233) (17,542,449)
Class C** - (none and $0.0975 per share, respectively) ..................... -- (2,354)
Distributions from net realized gain on investments sold
Class A - ($0.3926 and $1.4700 per share, respectively) .................... (13,035,642) (43,780,316)
Class B - ($0.3926 and $1.4700 per share, respectively) .................... (39,463,958) (132,282,955)
-------------- ---------------
Total Distributions to Shareholders ........................................ (101,279,917) (204,436,776)
-------------- ---------------
From Fund Share Transactions - Net:* ......................................... (643,047,648) (361,908,464)
-------------- ---------------
Net Assets:
Beginning of period ......................................................... 6,444,591,766 6,007,182,271
-------------- ---------------
End of period (including undistributed net investment income
of $6,526,363 and $3,029,793, respectively) ................................ $6,007,182,271 $6,067,369,301
============== ===============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains, distributions
paid to shareholders and any increase or decrease in money shareholders invested
in the Fund. The footnote illustrates the number of Fund shares sold, reinvested
and repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ --------- ----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........................................................... 9,772,747 $519,672,746 9,329,889 $481,745,319
Shares issued to shareholders in reinvestment of distributions ........ 517,773 27,781,650 899,859 44,878,184
------------ -------------- ----------- --------------
10,290,520 547,454,396 10,229,748 526,623,503
Less shares repurchased ............................................... (13,257,504) (698,208,336) (12,011,412) (618,702,036)
------------ -------------- ----------- --------------
Net increase (decrease) ............................................... (2,966,984) ($150,753,940) (1,781,664) ($92,078,533)
============ ============== =========== ==============
CLASS B
Shares sold ........................................................... 9,602,715 $509,059,888 7,196,957 $366,240,400
Shares issued to shareholders in reinvestment of distributions ........ 814,268 43,409,949 1,988,590 98,564,922
------------ -------------- ----------- --------------
10,416,983 552,469,837 9,185,547 464,805,322
Less shares repurchased ............................................... (20,411,405) (1,044,763,545) (14,442,546) (736,939,739)
------------ -------------- ----------- --------------
Net increase (decrease) ............................................... (9,994,422) ($492,293,708) (5,256,999) ($272,134,417)
============ ============== =========== ==============
CLASS C
Shares sold ........................................................... -- -- 44,259 $2,302,843
Shares issued to shareholders in reinvestment of distributions ........ -- -- 44 2,246
------------ -------------- ----------- --------------
-- -- 44,303 2,305,089
Less shares repurchased ............................................... -- -- (11) (603)
------------ -------------- ----------- --------------
Net increase (decrease) ............................................... -- -- 44,292 $2,304,486
============ ============== =========== ==============
</TABLE>
* Class C shares commenced operations on March 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
Financial Highlights Selected data for a share of beneficial interest
outstanding throughout each period indicated, investment returns, key ratios and
supplemental data are listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
----------------------------------------------------- APRIL 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
------- ------- ------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $21.62 $21.52 $27.14 $33.99 $48.73 $50.34
--------- --------- --------- --------- --------- ---------
Net Investment Income(1) ............................. 0.39 0.52 0.63 0.64 0.66 0.33
Net Realized and Unrealized Gain on Investments ...... 0.91 5.92 7.04 15.02 1.99 5.16
--------- --------- --------- --------- --------- ---------
Total from Investment Operations .................... 1.30 6.44 7.67 15.66 2.65 5.49
--------- --------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ................. (0.34) (0.48) (0.60) (0.61) (0.65) (0.36)
Distributions from Net Realized Gain on Investments Sold (1.06) (0.34) (0.22) (0.31) (0.39) (1.47)
--------- --------- --------- --------- --------- ---------
Total Distributions ................................. (1.40) (0.82) (0.82) (0.92) (1.04) (1.83)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period ....................... $21.52 $27.14 $33.99 $48.73 $50.34 $54.00
========= ========= ========= ========= ========= =========
Total Investment Return at Net Asset Value(2) ........ 6.44% 31.00% 28.78% 46.79% 5.33% 11.22%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $216,978 $486,631 $860,843 $1,596,836 $1,500,200 $1,513,065
Ratio of Expenses to Average Net Assets .............. 1.34% 1.39% 1.36% 1.30% 1.24% 1.27%(4)
Ratio of Net Investment Income to Average Net Assets . 1.78% 2.23% 2.13% 1.55% 1.23% 1.30%(4)
Portfolio Turnover Rate .............................. 13% 14% 8% 5% 5% 3%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains,
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
----------------------------------------------------- APRIL 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
------- ------- ------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $21.56 $21.43 $27.02 $33.83 $48.48 $50.08
-------- -------- -------- -------- -------- --------
Net Investment Income(1) ............................... 0.23 0.36 0.42 0.35 0.30 0.17
Net Realized and Unrealized Gain on Investments ........ 0.91 5.89 7.01 14.95 1.97 5.12
-------- -------- -------- -------- -------- --------
Total from Investment Operations ...................... 1.14 6.25 7.43 15.30 2.27 5.29
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.21) (0.32) (0.40) (0.34) (0.28) (0.19)
Distributions from Net Realized Gain on Investments Sold (1.06) (0.34) (0.22) (0.31) (0.39) (1.47)
-------- -------- -------- -------- -------- --------
Total Distributions ................................... (1.27) (0.66) (0.62) (0.65) (0.67) (1.66)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ......................... $21.43 $27.02 $33.83 $48.48 $50.08 $53.71
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) .......... 5.69% 30.11% 27.89% 45.78% 4.62% 10.85%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $522,207 $1,236,447 $2,408,514 $4,847,755 $4,506,983 $4,551,925
Ratio of Expenses to Average Net Assets ................ 2.06% 2.09% 2.07% 2.00% 1.92% 1.92%(4)
Ratio of Net Investment Income to Average Net Assets ... 1.07% 1.53% 1.42% 0.84% 0.56% 0.65%(4)
Portfolio Turnover Rate ................................ 13% 14% 8% 5% 5% 3%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT OF
OPERATIONS) TO
APRIL 30, 1999
(UNAUDITED)
---------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $50.77
--------------
Net Investment Income(1) ................................... 0.04
Net Realized and Unrealized Gain on Investments ............ 3.01
--------------
Total from Investment Operations .......................... 3.05
--------------
Less Distributions:
Dividends from Net Investment Income ....................... (0.10)
--------------
Net Asset Value, End of Period ............................. $53.72
==============
Total Investment Return at Net Asset Value(2) .............. 6.02%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $2,379
Ratio of Expenses to Average Net Assets .................... 1.97%(4)
Ratio of Net Investment Income to Average Net Assets ....... 0.47%(4)
Portfolio Turnover Rate .................................... 3%
(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) Not annualized.
(4) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
Schedule of Investments
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Regional Bank Fund on April 30, 1999. It's divided into four main categories:
common stocks, warrants and other; preferred stocks; bonds; and short-term
investments. Common stocks are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS, WARRANTS AND OTHER
Money Center Banks (1.87%)
Bankers Trust New York Corp. (NY) .......... 87,695 $7,898,031
Chase Manhattan Corp. (NY) ................. 1,066,540 88,256,185
Citigroup, Inc. (NY) ....................... 94,160 7,085,540
Morgan (J.P.) & Co., Inc. (NY) ............. 76,000 10,241,000
---------------
113,480,756
---------------
Superregional Banks (34.35%)
Bank One Corp. (OH) ........................ 4,705,441 277,621,019
BankBoston Corp. (MA) ...................... 2,439,500 119,535,500
Bank of America Corp. (NC) ................. 3,864,382 278,235,504
Bank of New York Co., Inc. (NY) ............ 4,081,398 163,255,920
First Union Corp. (NC) ..................... 4,387,244 242,943,637
Fleet Financial Group, Inc. (MA) ........... 1,659,796 71,474,965
KeyCorp. (OH) .............................. 1,607,434 49,729,989
Mellon Bank Corp. (PA) ..................... 882,652 65,592,077
National City Corp. (OH) ................... 2,514,914 180,445,080
PNC Bank Corp. (PA) ........................ 1,586,900 91,841,837
SunTrust Banks, Inc. (GA) .................. 1,621,365 115,927,597
U.S. Bancorp. (MN) ......................... 4,037,331 149,633,580
Wachovia Corp. (NC) ........................ 707,787 62,196,783
Wells Fargo Co. (CA) ....................... 4,985,392 215,306,617
---------------
2,083,740,105
---------------
Banks - United States (42.22%)
ABC Bancorp. (GA) .......................... 173,000 2,486,875
American Bancorp. (WV) ..................... 145,000 2,610,000
American Bancshares, Inc.* (FL) ............ 69,500 573,375
AmSouth Bancorp. (AL) ...................... 940,158 44,716,265
ANB Corp. (IN) ............................. 152,500 3,050,000
Associated Banc-Corp. (WI) ................. 631,706 22,978,306
BancFirst Corp. (OK) ....................... 349,600 12,410,800
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Banks - United States (continued)
BancFirst Ohio Corp. (OH) .................. 99,000 $2,611,125
BancorpSouth, Inc. (MS) .................... 336,500 5,594,312
BancWest Corp. (HI) ........................ 929,600 37,009,700
Banknorth Group, Inc. (VT) ................. 1,052,540 27,826,526
BB&T Corp. (NC) ............................ 3,309,890 132,188,732
Brenton Banks, Inc. (IA) ................... 378,909 6,015,180
Bryn Mawr Bank Corp. (PA) .................. 187,900 4,944,119
BT Financial Corp. (PA) .................... 199,726 5,055,564
CB Bancshares, Inc. (HI) ................... 145,100 4,062,800
CCB Financial Corp. (NC) ................... 1,053,564 60,843,321
Centura Banks, Inc. (NC) ................... 504,525 30,050,770
Chittenden Corp. (VT) ...................... 166,750 4,794,063
Citizens Banking Corp. (MI) ................ 213,500 6,952,094
City National Corp. (CA) ................... 575,050 22,211,306
CNB Bancshares, Inc. (IN) .................. 340,701 14,458,499
Colonial BancGroup, Inc. (AL) .............. 1,086,600 13,446,675
Comerica, Inc. (MI) ........................ 1,337,197 87,001,380
Commerce Bancshares, Inc. (MO) ............. 1,019,365 41,730,255
Commercial Bankshares, Inc. (FL) ........... 189,574 3,886,267
Community Bank System, Inc. (NY) ........... 142,500 3,607,031
Community First Bankshares, Inc. (ND) ...... 816,000 16,677,000
Compass Bancshares, Inc. (AL) .............. 2,336,625 63,673,031
Cullen/Frost Bankers., Inc. (TX) ........... 1,037,700 55,970,944
Eldorado Bancshares, Inc.* (CA) ............ 300,000 2,962,500
F & M Bancorp., Inc. (WI) .................. 5,000 197,500
F & M National Corp. (VA) .................. 138,650 3,856,203
First American Corp. (TN) .................. 3,514,528 136,407,618
First Citizens BancShares, Inc. (Class A)
(NC) ...................................... 87,344 7,009,356
First Colonial Group, Inc. (PA) ............ 32,874 721,173
First Merchants Corp. (IN) ................. 194,650 4,184,975
First Republic Bank* (CA) .................. 274,162 7,059,672
First Security Corp. (UT) .................. 1,985,278 37,720,282
First Source Corp. (IN) .................... 134,888 3,979,196
First State Bancorp. (NM) .................. 107,500 2,042,500
First Tennessee National Corp. (TN) ........ 2,946,300 127,059,187
First Virginia Banks, Inc. (VA) ............ 128,749 6,429,403
First Western Bancorp., Inc. (PA) .......... 259,750 8,799,031
Firstar Corp. (WI) ......................... 2,217,987 66,678,234
Firstbank Corp. (MI) ....................... 110,934 3,217,086
FirstMerit Corp. (OH) ...................... 502,981 13,989,159
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Banks - United States (continued)
F.N.B. Corp. (PA) .......................... 223,662 $5,507,677
FNB Rochester Corp. (NY) ................... 206,337 7,221,795
Fulton Financial Corp. (PA) ................ 406,158 9,544,713
GBC Bancorp. (CA) .......................... 170,000 3,006,875
Grand Premier Financial, Inc. (IL) ......... 44,279 498,139
Greater Bay Bancorp. (CA) .................. 68,418 2,061,092
Hancock Holding Co. (MS) ................... 326,200 14,515,900
Harleysville National Corp. (PA) ........... 45,575 1,595,125
Hibernia Corp. (Class A) (LA) .............. 1,240,600 16,515,488
Hudson United Bancorp. (NJ) ................ 737,607 26,092,848
Huntington Bancshares, Inc. (OH) ........... 426,489 15,113,704
Imperial Bancorp.* (CA) .................... 338,384 6,513,892
Independent Bank Corp. (MA) ................ 820,000 11,018,750
Interchange Financial Services Corp. (NJ) .. 323,625 5,178,000
Keystone Financial, Inc. (PA) .............. 148,845 4,781,646
LSB Bancshares, Inc. (NC) .................. 18,760 370,510
M&T Bank Corp. (NY) ........................ 38,600 21,577,400
Marshall & Ilsley Corp. (WI) ............... 768,730 53,811,100
Mercantile Bancorp., Inc. (MO) ............. 1,738,343 99,085,551
Mercantile Bankshares Corp. (MD) ........... 829,550 30,693,350
Merchants Bancorp., Inc. (IL) .............. 145,100 3,700,050
MetroBanCorp. (IN) ......................... 86,625 660,516
Michigan Financial Corp. (MI) .............. 70,360 2,189,955
Mississippi Valley Bancshares, Inc. (MO) ... 237,300 7,712,250
National City Bancshares, Inc. (IN) ........ 91,080 2,533,163
North Fork Bancorp., Inc. (NY) ............. 4,271,627 96,111,608
North Valley Bancorp. (CA) ................. 181,700 2,362,100
Old Kent Financial Corp. (MI) .............. 876,291 41,404,750
One Valley Bancorp., Inc. (WV) ............. 371,106 14,287,581
Pacific Century Financial Corp. (HI) ....... 1,548,766 33,685,661
Peoples Bank Corp. of Indianapolis (IN) .... 71,100 2,701,800
Prime Bancshares, Inc. (TX) ................ 61,400 974,725
Princeton National Bancorp., Inc. (IL) ..... 64,250 995,875
Provident Bankshares Corp. (MD) ............ 613,767 15,267,454
Provident Financial Group, Inc. (OH) ....... 158,375 6,631,953
Regions Financial Corp. (AL) ............... 1,133,000 42,770,750
Republic Bancorp., Inc. (MI) ............... 122,950 1,559,928
Republic New York Corp. (NY) ............... 1,004,200 58,996,750
Riggs National Corp. (DC) .................. 353,000 5,956,875
Seacoast Banking Corp. (Class A) (FL) ...... 165,800 4,642,400
Security Bank Holding Co. (OR) ............. 43,250 410,875
SierraWest Bancorp. (CA) ................... 137,000 4,392,562
Silicon Valley Bancshares* (CA) ............ 225,900 3,967,369
Simmons First National Corp. (Class A)
(AR) ...................................... 303,500 10,698,375
SouthTrust Corp. (AL) ...................... 1,572,150 62,640,430
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Banks - United States (continued)
Southwest Bancorp. of Texas, Inc.* (TX) .... 113,100 $1,908,562
Southwest Bancorp., Inc. (OK) .............. 104,000 2,392,000
State Financial Services Corp. (Class A)
(WI) ...................................... 265,504 3,999,154
State Street Corp. (MA) .................... 250,000 21,875,000
Sterling Bancshares, Inc. (TX) ............. 358,130 4,476,625
Summit Bancorp. (NJ) ....................... 4,012,225 170,018,034
Susquehanna Bancshares, Inc. (PA) .......... 1,074,893 19,885,520
Synovus Financial Corp. (GA) ............... 186,800 4,132,950
TCF Financial Corp. (MN) ................... 1,536,166 44,548,814
Texas Regional Bancshares, Inc. (Class A)
(TX) ...................................... 424,500 12,164,599
TriCo Bancshares (CA) ...................... 324,075 5,651,058
Trustmark Corp. (MS) ....................... 325,000 6,865,625
UnionBanCal Corp. (CA) ..................... 2,417,900 82,510,837
Union Planters Corp. (TN) .................. 1,803,067 77,193,806
U.S.B. Holding Co., Inc. (NY) .............. 117,500 1,667,031
USBANCORP., Inc. (PA) ...................... 216,500 3,436,938
UST Corp. (MA) ............................. 343,300 8,303,569
Vermont Financial Services Corp. (VT) ...... 736,672 22,698,706
Westamerica Bancorp. (CA) .................. 793,100 26,469,712
West Coast Bancorp. (OR) ................... 165,070 2,847,458
Western Bancorp. (CA) ...................... 149,126 5,359,216
Whitney Holding Corp. (LA) ................. 451,300 18,277,650
Wilmington Trust Corp. (DE) ................ 315,000 19,352,812
Zions Bancorp. (UT) ........................ 928,500 61,919,344
-------------
2,561,663,720
-------------
Thrifts (14.60%)
Acadiana BancShares, Inc. (LA) ............. 23,000 416,875
Alliance Bancorp (IL) ...................... 24,561 506,571
Ambanc Holding Co., Inc. (NY) .............. 207,100 3,132,388
Andover Bancorp., Inc. (MA) ................ 45,000 1,383,750
Astoria Financial Corp. (NY) ............... 1,326,567 66,494,171
Bank United Corp. (Class A) (TX) ........... 263,600 10,642,850
Bay View Capital Corp. (CA) ................ 180,000 3,206,250
Bedford Bancshares, Inc. (VA) .............. 40,000 482,500
BostonFed Bancorp., Inc. (MA) .............. 330,700 5,952,600
Calumet Bancorp., Inc.* (IL) ............... 207,000 6,636,938
Camco Financial Corp. (OH) ................. 31,888 442,446
Cameron Financial Corp. (MO) ............... 107,500 1,451,250
Catskill Financial Corp. (NY) .............. 210,000 3,215,625
CCF Holding Co. (GA) ....................... 49,687 794,992
Charter One Financial, Inc. (OH) ........... 3,649,616 114,050,500
Coastal Bancorp., Inc. (TX) ............... 70,000 1,207,500
Commercial Federal Corp. (NE) .............. 2,587,082 62,736,739
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Thrifts (continued)
Commonwealth Bancorp., Inc. (PA) ........... 146,000 $2,263,000
CSB Financial Group, Inc.* (IL) ............ 25,000 228,125
Dime Bancorp., Inc. (NY) .................. 1,389,500 32,045,344
Dime Community Bancshares (NY) ............. 285,000 6,412,500
Downey Financial Corp. (CA) ................ 35,000 700,000
Eagle Bancshares, Inc. (GA) ................ 82,000 1,752,750
East Texas Financial Services, Inc. (TX) ... 66,000 723,941
Elmira Savings Bank (NY) ................... 38,531 900,662
ESB Financial Corp. (PA) ................... 141,928 2,128,920
Fidelity Financial of Ohio, Inc. (OH) ...... 55,000 673,750
First Defiance Financial Corp. (OH) ........ 210,000 2,467,500
First Federal Bancorp.* (MN) ............... 84,000 1,239,000
First Federal Capital Corp. (WI) ........... 328,334 4,678,759
First Financial Holdings, Inc. (SC) ........ 178,000 3,537,750
First Independence Corp. (KS) .............. 46,500 479,531
First Keystone Financial, Inc. (PA) ........ 28,500 402,563
First Washington Bancorp, Inc. (WA) ........ 121,000 2,435,125
Flagstar Bancorp., Inc. (MI) ............... 130,000 3,315,000
Flushing Financial Corp. (NY) .............. 125,000 1,875,000
FMS Financial Corp. (NJ) ................... 72,000 756,000
Fort Thomas Financial Corp. (KY) ........... 55,000 623,909
Frankfort First Bancorp., Inc. (KY) ........ 72,500 1,073,906
GA Financial, Inc. (PA) .................... 384,500 6,103,937
Golden State Bancorp., Inc.* (CA) .......... 1,143,686 28,091,787
Golden West Financial Corp. (CA) ........... 100,000 10,012,500
Granite State Bankshares, Inc. (NH) ........ 126,600 2,785,200
GreenPoint Financial Corp. (NY) (r) ........ 50,000 1,750,000
GreenPoint Financial Corp. (NY) ............ 3,149,500 110,232,500
Harbor Federal Bancorp., Inc. (MD) ......... 31,500 515,813
HF Financial Corp. (SD) .................... 195,000 2,510,625
Highland Bancorp., Inc. (CA) ............... 87,000 3,501,750
HMN Financial, Inc. (MN) ................... 165,000 1,969,687
Home Federal Bancorp. (IN) ................. 310,700 6,913,075
Industrial Bancorp., Inc. (OH) ............. 140,000 2,782,500
InterWest Bancorp., Inc. (WA) .............. 153,500 3,568,875
ISB Financial Corp. (LA) ................... 320,000 6,560,000
Kankakee Bancorp., Inc. (IL) ............... 31,020 876,315
Kentucky First Bancorp., Inc. (KY) ......... 60,000 720,000
Klamath First Bancorp., Inc. (OR) .......... 332,052 5,395,845
Little Falls Bancorp., Inc. (NJ) ........... 120,000 2,475,000
Logansport Financial Corp. (IN) ............ 77,500 932,426
MAF Bancorp., Inc. (IL) .................... 634,243 14,111,907
Marion Capital Holdings, Inc. (IN) ......... 12,500 256,250
MASSBANK Corp. (MA) ........................ 103,899 3,896,212
MECH Financial, Inc. (CT) .................. 5,000 170,625
Medford Bancorp., Inc. (MA) ................ 208,500 3,492,375
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Thrifts (continued)
Mystic Financial, Inc. (MA) ................ 104,500 $1,136,437
New Hampshire Thrift Bancshares, Inc. (NH) . 40,000 575,000
North Central Bancshares, Inc. (IA) ........ 111,000 1,914,750
NS & L Bancorp. (MO) ....................... 42,000 603,750
Ocean Financial Corp. (NJ) ................. 45,000 708,750
Pamrapo Bancorp., Inc. (NJ) ................ 120,000 2,760,000
Park Bancorp., Inc.* (IL) .................. 25,000 356,250
Patriot Bank Corp. (PA) .................... 101,500 1,015,000
PBOC Holdings, Inc.* (CA) .................. 283,500 2,480,625
Peekskill Financial Corp. (NY) ............. 43,026 580,851
Peoples Heritage Financial Group, Inc. (ME) 2,257,838 43,745,611
Permanent Bancorp., Inc. (IN) .............. 110,000 1,100,000
PFF Bancorp., Inc.* (CA) ................... 190,000 3,556,572
Piedmont Bancorp., Inc. (NC) ............... 16,000 129,000
Pittsburgh Home Financial Corp. (PA) ....... 70,000 962,500
Prestige Bancorp., Inc. (PA) ............... 98,015 1,151,676
Provident Financial Holdings, Inc.* (CA) ... 10,000 176,875
Quaker City Bancorp., Inc.* (CA) ........... 109,687 1,713,859
Richmond County Financial Corp.* (NY) ...... 36,750 604,078
Roslyn Bancorp., Inc. (NY) ................. 207,562 3,788,007
St. Paul Bancorp., Inc. (IL) ............... 260,625 6,320,156
Seacoast Financial Services Corp.* (MA) .... 20,000 201,250
SFS Bancorp., Inc. (NY) .................... 79,000 1,476,312
Skaneateles Bancorp., Inc. (NY) ............ 69,150 1,694,175
Sobieski Bancorp., Inc. (IN) ............... 40,000 587,500
South Jersey Financial Corp, Inc. (NJ) ..... 65,000 755,625
South Street Financial Corp. (NC) .......... 55,000 415,938
Southern Banc Co., Inc. (AL) ............... 55,500 672,938
Southern Financial Bancorp., Inc. (VA) ..... 64,098 1,322,021
Southern Missouri Bancorp., Inc. (MO) ...... 21,000 283,500
Sovereign Bancorp., Inc. (PA) .............. 482,302 6,571,365
Staten Island Bancorp., Inc. (NY) .......... 85,000 1,535,312
Statewide Financial Corp. (NJ) ............. 160,000 3,900,000
Sterling Financial Corp.* (WA) ............. 241,877 3,567,686
Teche Holding Co. (LA) ..................... 66,000 1,035,375
Texarkana First Financial Corp. (AR) ....... 124,800 3,010,800
TF Financial Corp. (PA) .................... 50,000 987,500
Virginia Capital Bancshares, Inc. (VA) ..... 43,000 591,250
Warwick Community Bancorp, Inc.* (NY) ...... 65,000 845,000
Washington Federal, Inc. (WA) .............. 1,203,964 26,637,704
Washington Mutual, Inc. (WA) ............... 4,032,474 165,835,493
Webster Financial Corp. (CT) ............... 205,000 6,303,750
WesterFed Financial Corp. (MT) ............. 250,426 4,194,636
WSFS Financial Corp. (DE) .................. 239,400 3,740,625
York Financial Corp. (PA) .................. 72,187 1,037,688
------------
885,675,374
------------
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Other - Financial (1.13%)
Capital One Financial Corp. ................ 68,000 $11,810,750
Edwards (A.G.), Inc. ....................... 146,750 5,136,250
Enhance Financial Services Group, Inc. ..... 158,500 3,278,969
EVEREN Capital Corp. ....................... 60,000 1,762,500
Fannie Mae ................................. 166,325 11,798,680
Legg Mason, Inc. ........................... 77,700 2,709,787
Morgan Keegan, Inc. ........................ 95,700 1,602,975
Raymond James Financial, Inc. .............. 142,575 3,074,273
RB Asset, Inc.* ............................ 145,000 797,500
SLM Holding Corp. .......................... 504,500 21,535,844
Temple-Inland, Inc. ........................ 71,206 4,913,214
------------
68,420,742
------------
Banks - Foreign (0.43%)
Popular, Inc. (Puerto Rico) ................ 851,000 26,381,000
------------
WARRANTS (0.10%)
Golden State Bancorp, Inc.* (Litigation)
(CA) ...................................... 1,288,032 2,415,060
Golden State Bancorp, Inc.* (CA) ........... 270,000 3,931,875
------------
6,346,935
------------
OTHER (0.00%)
Washington Mutual, Inc. (Coast Federal)
Litigation Contingent Payment Rights
Trust* (CA) .............................. 202,100 249,472
------------
TOTAL COMMON STOCKS, WARRANTS
AND OTHER
(Cost $2,662,120,111) (94.70%) 5,745,958,104
-------- -------------
PREFERRED STOCKS
Chevy Chase Pref. Capital Corp., Ser A,
10.375% (MD) ............................... 18,000 967,500
Chevy Chase Savings, 13.00% (MD) .......... 50,000 1,518,750
First Preferred Capital I, 9.25% (MO) .... 100,000 2,575,000
First Source Capital Trust I, 9.00% (IN) . 40,000 1,032,500
First Source Capital Trust II, 6.76% ** (IN) 40,000 972,500
First Washington Realty Trust, Ser A, 9.75%
(MD) ...................................... 113,498 3,043,165
IFC Capital Trust I, 9.25% (IN) ........... 160,000 4,180,000
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Sterling Bancshares Capital Trust I, 9.28%
(TX) ....................................... 60,000 $1,563,750
-----------
TOTAL PREFERRED STOCKS
(Cost $15,174,950) (0.26%) 15,853,165
------- -----------
TOTAL COMMON AND PREFERRED STOCKS,
WARRANTS AND OTHER
(Cost $2,677,295,061) (94.96%) 5,761,811,269
------- -------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- -------- --------------
BONDS
BFC Capital Trust I, Capital
Securities, Ser A, 01-15-27 .... 9.650% $1,000 1,057,500
BankUnited Capital Trust,
Pref Sec, Ser A, 12-31-26 ...... 10.250 2,000 1,960,000
General Motors Acceptance Corp.,
Note 06-15-99................... 8.625 6,000 6,022,860
Imperial Capital Trust I,
Capital Securities 12-31-26 .... 9.980 1,500 1,466,250
Susquehanna Bancshares, Inc.,
Conv Sub Deb 02-01-05 .......... 9.000 2,000 2,233,160
-----------
TOTAL BONDS
(Cost $12,624,710) (0.21%) 12,739,770
------- -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.23%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
04-30-99, due 05-03-99
(Secured by U.S. Treasury
Bonds, 6.625% thru 9.250%,
due 02-15-16 thru 02-15-27
and U.S. Treasury Note,
5.625%, due 04-30-00)
- Note A ....................... 4.890 135,050 135,050,000
-------------
Short-Term Notes (2.24%)
American General Corp.,
due 10-15-99 ................... 7.700 480 485,170
CIT Group Holdings, Inc.,
due 05-21-99 ................... 6.375 5,150 5,153,090
Federal Home Loan Bank,
due 10-27-99 ................... 4.920 20,000 19,975,000
Federal Home Loan Bank,
due 10-29-99.................... 5.030 14,000 13,991,180
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
================================================================================
John Hancock Funds - Regional Bank Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
Short-Term Notes (continued)
Federal Home Loan Bank,
due 03-17-00.................... 5.220% $25,000 $25,015,500
Ford Motor Credit Corp.,
due 05-17-99.................... 7.900 1,000 1,005,280
General Motors Acceptance Corp.,
due 02-23-00 ................... 5.700 10,000 10,016,700
IBM Credit Corp.,
due 06-04-99.................... 5.600 25,000 24,998,691
John Deere Capital Corp.,
due 06-01-99 .................. 6.300 10,000 10,039,600
Student Loan Marketing Association,
due 01-19-00.................... 5.051 25,000 24,976,500
------------
TOTAL SHORT-TERM NOTES
(Cost $135,787,554) (2.24%) 135,656,711
------- ------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%.............. 864
------------
TOTAL SHORT-TERM INVESTMENTS (4.47%) 270,707,575
-------- -------------
TOTAL INVESTMENTS (99.64%) 6,045,258,614
-------- -------------
OTHER ASSETS AND LIABILITIES, NET (0.36%) 22,110,687
-------- -------------
TOTAL NET ASSETS (100.00%) $6,067,369,301
======== ==============
* Non-income producing security.
** Variable rate as of April 30, 1999.
(r) The security listed below is a direct placement security and is
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 this
restricted security is as follows:
MARKET MARKET
VALUE AS A VALUE
PERCENTAGE AS OF
ACQUISITION ACQUISITION OF FUND'S APRIL 30,
ISSUER, DESCRIPTION DATE COST NET ASSETS 1999
- ------------------- ---- ---- ---------- ----
GreenPoint Financial Corp. 03-12-99 $1,500,000 0.03% $1,750,000
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
19
<PAGE>
===========================NOTES TO FINANCIAL STATEMENTS========================
John Hancock Funds - Regional Bank 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 three series portfolios: John Hancock Regional Bank Fund (the
"Fund"), John Hancock Financial Industries Fund and John Hancock Small Cap Value
Fund. Prior to June 1, 1999, John Hancock Small Cap Value Fund was known as John
Hancock Special Value Fund. The other series of the Trust are reported in
separate financial statements. The investment objective of the Fund is to
achieve long-term capital appreciation from a portfolio of equity securities of
regional banks and lending institutions. The Fund suspended sales to new
investors from March 12, 1997 until it was re-opened on November 4, 1998.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The Trustees
authorized the issuance of Class C shares, effective March 1, 1999. The shares
of each class represent an interest in the same portfolio of investments of the
Fund and have equal rights to voting, redemptions, dividends and liquidation,
except that certain expenses, subject to the approval of the Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal Revenue
Service. Shareholders of a class which bears distribution and service expenses
under terms of a distribution plan have exclusive voting rights to that
distribution plan.
Significant policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt instruments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
20
<PAGE>
===========================NOTES TO FINANCIAL STATEMENTS========================
John Hancock Funds - Regional Bank Fund
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
purchased from either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowings. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the period ended April 30, 1999.
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.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of (a) 0.80% of the first $500,000,000 of the
Fund's average daily net asset value and (b) 0.75% of the Fund's average daily
net asset value in excess of $500,000,000.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, acts as distributor for shares of the Fund. For the period ended April
30, 1999, JH Funds received net sales charges of $3,780,061 with regard to sales
of Class A shares. Out of this amount, $468,684 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$3,115,985 was paid as sales commissions to unrelated broker-dealers and
$195,392 was paid as sales commissions to sales personnel of Signator Investors,
Inc. ("Signator Investors"), a related broker-dealer, formerly know as John
Hancock Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual
Life Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
21
<PAGE>
===========================NOTES TO FINANCIAL STATEMENTS========================
John Hancock Funds - Regional Bank Fund
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended April 30, 1999,
the contingent deferred sales charges received by JH Funds amounted to
$8,981,534.
Class C shares which are redeemed within one year of purchase will be
subject to a contingent deferred sales charge ("CDSC") at a rate of 1.00% of the
lesser of the current market value at the time of redemption or the original
purchase cost of the shares being redeemed. Proceeds from the CDSC are paid to
JH Funds and are used in whole or in part to defray its expenses related to
providing distribution related services to the Fund in connection with the sale
of Class C shares. For the period ended April 30, 1999, contingent deferred
sales charges paid to JH Funds amounted to $5.
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, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets, to reimburse JH Funds for its distribution and service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the 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. , Mr. Stephen L. Brown, 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. At April 30, 1999, the
Fund's investments to cover the deferred compensation liability had unrealized
appreciation of $6,122.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1999, aggregated $181,934,796 and $570,824,193, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1999.
The cost of investments owned at April 30, 1999 (including the
short-term investments) for federal income tax purposes was $2,961,216,342.
Gross unrealized appreciation and depreciation of investments aggregated
$3,097,932,037 and $13,890,629, respectively, resulting in net unrealized
appreciation of $3,084,041,408.
22
<PAGE>
===========================NOTES TO FINANCIAL STATEMENTS========================
John Hancock Funds - Regional Bank Fund
NOTE D -
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of 1940, are those
in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer.
A summary of the Fund's transactions in the securities of these issuers
during the period ended April 30, 1999 is set forth below.
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING ------------------------------------ ENDING
SHARE SHARE SHARE SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT AMOUNT COST AMOUNT COST AMOUNT GAIN (LOSS) INCOME VALUE
- --------- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BancFirst Corp. (OK) 340,600 9,000 $344,473 -- $ -- 349,600(1) $ -- $-- $ --
Banknorth Group, Inc. (VT) 800,000 252,540 2,629,006 -- -- 1,052,540(1) -- -- --
BostonFed Bancorp., Inc. (MA) 330,700 -- -- -- -- 330,700 -- 105,824 5,952,600
CCF Holding Co. (GA) 48,770 -- -- 3,600 37,636 49,687(2) 15,661 11,634 794,992
Calumet Bancorp, Inc. (IL) 207,000 -- -- -- -- 207,000 -- -- 6,636,938
Commercial Bankshares, Inc. (FL) 180,547 -- -- -- -- 189,547(3) -- 62,559
3,886,267
Community Bank, Ser B, 13.00% (CA) 40,000 -- -- 40,000 960,000 -- 124,964 32,500 --
Elmira Savings Bank (NY) 36,697 -- -- -- -- 38,531(4) -- 11,743 900,662
FNB Rochester Corp. (NY) 197,837 8,500 273,938 -- -- 206,337 -- 32,334 7,221,795
First Federal Bancorp. (MN) 84,000 -- -- -- -- 84,000 -- -- 1,239,000
First Mutual Bancorp., Inc. (IL) 233,000 -- -- -- -- -- (5) -- 18,640 --
First Source Capital Trust II, 6.76% (IN) 40,000 -- -- -- -- 40,000 -- 34,125 972,500
GA Financial, Inc. (PA) 392,500 -- -- 8,000 92,000 384,500 32,436 116,470 6,103,937
Harbor Federal Bancorp., Inc. (MD) 106,500 -- -- 75,000 936,136 31,500(1) 446,630 17,940 --
Home Federal Bancorp. (IN) 335,700 -- -- 25,000 616,317 310,700 (41,336) 71,104 6,913,075
IFC Capital Trust I, 9.25% (IN) 160,000 -- -- -- -- 160,000 -- 185,000 4,180,000
Independent Bank Corp. (MA) 825,000 -- -- 5,000 51,875 820,000 33,747 164,000 11,018,750
Interchange Financial Services Corp. (NJ) 323,625 -- -- -- -- 323,625(1) -- 71,198 --
Kentucky First Bancorp., Inc. (KY) 60,000 -- -- -- -- 60,000 -- 15,000 720,000
Logansport Financial Corp. (IN) 77,500 -- -- -- -- 77,500 -- 17,050 932,426
NS & L Bancorp. (MO) 35,000 -- -- -- -- 42,000 (6) -- 12,320 603,750
Prestige Bancorp, Inc. (PA) 94,300 -- -- 1,000 13,147 98,015(7) 103 10,373 1,151,676
QCF Bancorp, Inc. (MN) 70,000 -- -- 70,000 1,041,250 -- 734,941 -- --
SFS Bancorp., Inc. (NY) 79,000 -- -- -- -- 79,000 -- 14,220 1,476,312
Simmons First National Corp.
(Class A) (AR) 303,500 -- -- -- -- 303,500(1) -- 103,190 --
Sobieski Bancorp., Inc. (IN) 40,000 -- -- -- -- 40,000 -- 6,400 587,500
State Financial Services Corp.
(Class A) (WI) 208,664 56,840 847,750 -- -- 265,504(1) -- 63,601 --
Sterling Bancshares Capital Trust I,
9.28% (TX) 60,000 -- -- -- -- 60,000 -- 69,600 1,563,750
23
<PAGE>
===========================NOTES TO FINANCIAL STATEMENTS========================
John Hancock Funds - Regional Bank Fund
ACQUISITIONS DISPOSITIONS
BEGINNING ------------------------------------ ENDING
SHARE SHARE SHARE SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT AMOUNT COST AMOUNT COST AMOUNT GAIN (LOSS) INCOME VALUE
- --------- ------------------------------------------------------------------------------------------
Texarkana First Financial Corp. (AR) 124,800 -- $-- -- $-- 124,800 $-- $39,936 $3,010,800
Vermont Financial Services Corp. (VT) 744,672 -- -- 8,000 268,917 736,672 97,566 250,468 22,698,706
WesterFed Financial Corp. (MT) 270,426 -- -- 20,000 425,000 250,426 (25,000) 71,567 4,194,636
---------- ---------- ---------- --------- -----------
$3,247,417 $4,442,278 $1,419,712 $1,608,795 $92,760,072
========== ========== ========== ========== ===========
</TABLE>
(1) As of April 30, 1999, no longer an affiliated issuer.
(2) Reflects 10% stock dividend payments as of March 30, 1999.
(3) Reflects 5% stock dividend payments as of December 8, 1998.
(4) Reflects 5% stock dividend payments as of March 12, 1999.
(5) Acquired by Union Planter Corp. effective February 1, 1999.
(6) Reflects 20% stock dividend payments as of April 13, 1999.
(7) Reflects 5% stock dividend payments as of February 26, 1999.
24
<PAGE>
====================================NOTES=======================================
John Hancock Funds - Regional Bank Fund
25
<PAGE>
====================================NOTES=======================================
John Hancock Funds - Regional Bank Fund
26
<PAGE>
====================================NOTES=======================================
John Hancock Funds - Regional Bank Fund
27
<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
Regional Bank Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[LOGO] Printed on Recycled Paper 010SA 4/99
6/99
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Small Cap
Value Fund
(formerly Special Value Fund)
APRIL 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
--------------------------------
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
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
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
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:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing.
These modifications and replacements are nearly done, and the tests of all our
systems are on schedule for completion by the end of July. The rest of 1999 will
be spent testing with our business partners and continuing to participate in
industry testing. We have also established additional contingency plans beyond
our regular ones to prepare for any challenges that the Year 2000 might present.
In the end, John Hancock will spend approximately $90-$95 million to ensure we
make a successful transition to the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although we
cannot make any ironclad assurances, we are confident that the steps we have
taken will provide shareholders with as smooth a transition as possible. Once
that occurs, we will happily raise our glasses to toast the New Year, future
prosperity and our hopes to serve you well into the 2000's.
Sincerely,
/s/Edward J. Boudreau, Jr.
- -------------------------------------------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Timothy E. Keefe, CFA, and Timothy E. Quinlisk, CFA,
Portfolio Managers
John Hancock
Small Cap Value Fund
Strong economy spurs small-company stocks to strong finish
----------------------------------------------------------
Effective June 1, 1999, John Hancock Special Value Fund was renamed John Hancock
Small Cap Value Fund to better describe how the Fund invests.
After a tumultuous year, small-company stocks finally took off last fall. The
Federal Reserve's decision to lower short-term interest rates restored investor
confidence, sending small-company stocks up through year end. But signs early in
1999 that the economy might be slowing sent investors back to large-company
stocks with dependable earnings growth. In addition, technology software and
service companies were hard hit by Year 2000 issues. Health-care service
companies also suffered as the government tightened reimbursement policies. Both
factors took added steam out of small-company stocks during much of the first
quarter. Signs of economic strength in late March and April, however, pushed the
sector to a healthy finish, with the Russell 2000 Index returning 15.16% between
October 31, 1998 and April 30, 1999. This, however, lagged the Standard & Poor's
500 Index - a measure of large-company stock performance - which returned
22.31%.
Performance and strategy review
John Hancock Small Cap Value Fund benefited from sticking to its disciplined
investment strategy. We continued to look for great businesses with stock prices
below what we thought they were worth. Our focus remained on companies that the
Fund could own for the long term where there was evidence of a catalyst that
could unlock the stock's full potential. Catalysts included spinouts,
restructurings and new
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Small Cap
Value Fund. Caption below reads "Fund management team members (l-r): "Tim Keefe,
Tim Quinlisk and Lisa Welch."]
- --------------------------------------------------------------------------------
"After a tumultuous year, small-company stocks finally took off last fall."
3
<PAGE>
================================================================================
John Hancock Funds - Small Cap Value Fund
"The Fund's highest concentrations were in technology and finance..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Stock Holdings." The first
listing is Total Renal Care Holdings 6.8%, the second is Pioneer Group 4.8%, the
third Oak Industries 4.3%, the fourth Vicor 4.1% and the fifth Wind River
Systems 4.1%. A note below the table reads "As a percentage of net assets on
April 30, 1999."]
- --------------------------------------------------------------------------------
management. For the six months ended April 30, 1999, our strategy rewarded
shareholders, with the Fund's Class A, Class B and Class C shares returning
26.81%, 26.34% and 26.34%, respectively, at net asset value. These returns were
well ahead of the average small-cap fund, which returned 14.68% during the same
period, according to Lipper, Inc.1 Keep in mind that your net asset value return
will differ from the Fund's performance if you were not invested in the Fund for
the entire period and did not reinvest all distributions. For historical
performance information, please turn to pages six and seven.
The market's volatility during both the third quarter of 1998 and first
quarter of 1999 gave us an opportunity to add to existing investments and buy
new names, all at attractive prices. Many of these stocks enjoyed exceptionally
strong rebounds. One of our largest investments and best performers was Nielsen
Media Research, the leading television ratings company in the United States. We
started buying Nielsen - a
- --------------------------------------------------------------------------------
[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 Calpine
followed by an up arrow with the phrase "Attractive assets in consolidating
industry." The second listing is Total Renal Care Holdings followed by an up
arrow with the phrase "Leading provider of kidney dialysis services." The third
listing is Data General followed by a down arrow with the phrase "Loss of large
customer for new storage product." A note below the table reads "See `Schedule
of Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
spin out - last summer. The stock returned nearly 100% during the period, as the
newly independent company successfully met earnings expectations and launched a
new product to monitor Internet ratings. Calpine, an energy company with a
strong base of independent, low-cost power plants, returned over 85% during the
same six months as deregulation and consolidation within the electric utility
industry made the company's assets increasingly attractive. Total Renal Care
Holdings, the second largest provider of kidney dialysis services in the world,
also did well for us. We bought this stock in February when it fell amidst
difficulties related to the integration of a new acquisition. We believed
management could resolve these problems and deliver strong operating results in
what is a high- growth, highly predictable business.
Focus on technology and finance
The Fund's highest concentrations were in technology and finance, which together
accounted for over 50% of net assets. In the technology area, we avoided
software and service companies with exposure to Y2K issues, as well as high-
priced Internet stocks. Instead, we bought stocks like CommScope, a spin out
from General Instruments that is also the leading provider worldwide of coaxial
cable to the cable industry. With cable companies upgrading their
infrastructures to support the Internet, CommScope's stock took off - returning
78% between the time we purchased it and the end of April. For similar reasons,
we boosted our stake in Oak Industries, a company that provides infrastructure
support to both the telecommunications and cable industries. Vicor, a leading
manufacturer of modular power systems with a new second-generation product, was
another
4
<PAGE>
================================================================================
John Hancock Funds - Small Cap Value Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended April 30, 1999." The
chart is scaled in increments of 5% with 0% at the bottom and 30% at the top.
The first bar represents the 26.81% total return for John Hancock Small Cap
Value Fund Class A. The second bar represents the 26.34% total return for John
Hancock Small Cap Value Fund Class B. The third bar represents the 26.34% total
return for John Hancock Small Cap Value Fund Class C, and the fourth bar
represents the 14.68% total return for Average small-cap fund. A note below the
chart reads "Total returns for John Hancock Small Cap Value Fund are at net
asset value with all distributions reinvested. The average small-cap fund is
tracked by Lipper, Inc. See the following two pages for historical performance
information. "]
- --------------------------------------------------------------------------------
new addition. We expect the stock to do well as the company irons out production
issues.
Some of our technology stocks stumbled in the near term despite strong
long-term prospects. Data General's stock fell when it lost the largest customer
for its new Clariion fiber storage product. Wind River Systems, a company that
makes imbedded operating systems, suffered when investors indiscriminately
dumped software and service stocks over Y2K concerns. The sell-off also hurt
IMRglobal, a well-managed information technology consulting firm that had
largely transitioned away from Y2K businesses into other segments.
In the finance sector, we focused on money managers and specialty
insurers - both of which did reasonably well during the period - and avoided
small banks. Among our new additions was Pioneer Group, a Boston-based mutual
fund company with diverse foreign business interests. We believe new
management's commitment to restructuring the company will help unlock the
stock's underlying asset value. We sold our stake in Executive Risk, a company
that provides directors' and officers' insurance, shortly after it was acquired
by Chubb. But we retained other specialty insurers, including Horace Mann
Educators and CMAC Investment Corp.
Outlook
Going forward, we are cautiously optimistic. We expect decent stock returns but
continued volatility. A healthy domestic economy along with stable interest
rates and low inflation bodes well. However, a pick-up in global economic growth
could boost interest rates and hurt stock prices. Although small-cap stocks have
recovered nicely from their October lows, the valuation gap between large- and
small-cap stocks has not narrowed. We believe investors will eventually
recognize the value in the small-cap sector, as well as the increased valuation
risk inherent in large caps. Our disciplined strategy should allow us to
participate fully in future upturns and deliver superior returns over time.
"...the valuation gap between large- and small-cap stocks has not narrowed."
- --------------------------------------------------------------------------------
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.
1Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
5
<PAGE>
================================================================================
John Hancock Funds - Small Cap Value 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 Small Cap Value 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). Class C performance
includes a contingent deferred sales charge (1% declining to 0% after one year).
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 carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
------- ------- ---------
Cumulative Total Returns (14.63%) 72.09% 71.90%
Average Annual Total Returns(1) (14.63%) 11.47% 10.90%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
------- ------- ---------
Cumulative Total Returns (15.14%) 72.71% 73.30%
Average Annual Total Returns(1) (15.14%) 11.55% 11.07%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended March 31, 1999
SINCE
INCEPTION
(5/1/98)
---------
Cumulative Total Return (11.61%)
Average Annual Total Return(1) (11.61%)(2)
Notes to Performance
(1) Since its inception in 1994, the Adviser has voluntarily undertaken
to limit the Fund's expenses, including the management fee (but not
including the transfer fee and the 12b-1 fee), to the extent required
to prevent expenses from exceeding 0.40% of the Fund's net asset value.
This was done in order to reduce costs borne by a limited shareholder
base while the Fund was still in its infancy. Without the limitation of
expenses, the average annual total returns for the one-year period,
five-year period and since inception for Class A shares would have been
(15.07%), 10.43% and 9.72%, respectively. The average annual total
returns for the one-year period, five-year period and since inception
for Class B shares would have been (15.57%), 10.51% and 9.89%,
respectively. The cumulative total return since inception for Class C
shares would have been (12.00%). Today, total net assets exceed $50
million. As a result, effective March 1, 1999, the Adviser removed the
subsidy on all share classes of the Small Cap Value Fund.
(2) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Small Cap Value Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Small Cap Value 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 Russell 2000 Index, which is an unmanaged small-cap index
composed of 2,000 U.S. stocks. Past performance is not indicative of future
results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Small Cap Value Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Small Cap Value
Fund on January 3, 1994, before sales charge, and is equal to $20,502 as of
April 30, 1999. The second line represents the value of the same hypothetical
investment made in the John Hancock Small Cap Value Fund, after sales charge,
and is equal to $19,472 as of April 30, 1999. The third line represents the
Russell 2000 Index and is equal to $18,053.
Line chart with the heading John Hancock Small Cap Value Fund Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Small Cap Value
Fund on January 3, 1994, before sales charge, and is equal to $19,731 as of
April 30, 1999. The second line represents the value of the same hypothetical
investment made in the John Hancock Small Cap Value Fund, after sales charge,
and is equal to $19,631 as of April 30, 1999. The third line represents the
Russell 2000 Index and is equal to $18,053.
Line chart with the heading John Hancock Small Cap Value Fund Class C,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Small Cap Value
Fund on May 1, 1998, before sales charge, and is equal to $10,105 as of April
30, 1999. The second line represents the value of the same hypothetical
investment made in the John Hancock Small Cap Value Fund, after sales charge,
and is equal to $10,005 as of April 30, 1999. The third line represents the
Russell 2000 Index and is equal to $9,075.
- --------------------------------------------------------------------------------
7
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Small Cap Value 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, 1999. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $48,497,913)......................... $56,239,753
Preferred stocks (cost - $1,911,433) ...................... 2,878,138
Joint repurchase agreement (cost - $996,000) .............. 996,000
Corporate savings account ................................. 682
--------------
60,114,573
Receivable for shares sold ................................. 19,020
Dividends receivable ....................................... 18,300
Interest receivable ........................................ 135
Other assets ............................................... 1,412
--------------
Total Assets ........................... 60,153,440
--------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................. 23,447
Payable for investments purchased .......................... 606,577
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 29,670
Accounts payable and accrued expenses ...................... 36,216
--------------
Total Liabilities ...................... 695,910
--------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 48,704,349
Accumulated net realized gain on investments ............... 2,343,049
Net unrealized appreciation of investments ................. 8,708,653
Accumulated net investment loss ............................ (298,521)
--------------
Net Assets ............................. $59,457,530
========================================================
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)
Class A - $25,524,173/1,881,611............................. $13.57
============================================================================
Class B - $33,220,158/2,483,403............................. $13.38
============================================================================
Class C - $713,199/53,319................................... $13.38
============================================================================
Maximum Offering Price Per Share*
Class A - ($13.57 x 105.26%)................................ $14.28
============================================================================
* 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 for the period
stated.
Statement of Operations
Six months ended April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends................................................... $147,790
Interest.................................................... 4,597
--------------
152,387
--------------
Expenses:
Investment management fee - Note B ........................ 191,166
Distribution and service fee - Note B
Class A .................................................. 34,358
Class B .................................................. 153,157
Class C .................................................. 2,909
Transfer agent fee - Note B ............................... 99,932
Registration and filing fees .............................. 26,495
Custodian fee ............................................. 23,496
Auditing fee .............................................. 8,160
Printing .................................................. 7,257
Organization expense - Note A ............................. 3,962
Financial services fee - Note B ........................... 3,935
Legal fees ................................................ 1,960
Trustees' fees ............................................ 1,290
Miscellaneous ............................................. 1,021
--------------
Total Expenses ............ 559,098
-------------------------------------------
Less Expense Reductions
- Note B................... (109,127)
-------------------------------------------
Net Expenses .............. 449,971
-------------------------------------------
Net Investment Loss........ (297,584)
-------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold....................... 2,540,776
Change in net unrealized appreciation/depreciation
of investments............................................. 10,658,913
--------------
Net Realized and Unrealized
Gain on Investments ....... 13,199,689
-------------------------------------------
Net Increase in Net Assets
Resulting from Operations.. $12,902,105
===========================================
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Small Cap Value Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JANUARY 1, 1998 TO APRIL 30, 1999
DECEMBER 31, 1997 OCTOBER 31, 1998(1) (UNAUDITED)
----------------- ------------------- ----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss).......................................... $18,984 ($89,535) ($297,584)
Net realized gain on investments sold and foreign currency
transactions ........................................................ 2,743,265 855,404 2,540,776
Change in net unrealized appreciation/depreciation of investments..... 5,495,186 (9,103,105) 10,658,913
------------- ------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations...... 8,257,435 (8,337,236) 12,902,105
------------- ------------- -------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.0321, none and none per share, respectively)........... (45,691) -- --
Distributions from net realized gain on investments sold
Class A - ($0.6043, none and $0.1253 per share, respectively)....... (969,735) -- (260,355)
Class B - ($0.6043, none and $0.1253 per share, respectively)....... (1,638,314) -- (359,406)
Class C** - (none, none and $0.1253 per share, respectively)........ -- -- (4,996)
------------- ------------- ------------
Total Distributions to Shareholders................................ (2,653,740) -- (624,757)
------------- ------------- ------------
From Fund Share Transactions - Net:*................................... 12,440,562 5,930,620 (6,407,225)
------------- ------------- ------------
Net Assets:
Beginning of period................................................... 37,949,766 55,994,023 53,587,407
------------- ------------- ------------
End of period (including distributions in excess of net investment
income of $855 and accumulated net investment loss of $937 and
$298,521, respectively) ............................................ $55,994,023 $53,587,407 $59,457,530
============= ============= ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment 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 three periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Small Cap Value Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JANUARY 1, 1998 TO APRIL 30, 1999
DECEMBER 31, 1997 OCTOBER 31, 1998(1) (UNAUDITED)
------------------------------ ----------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold ............. 912,881 $11,525,980 982,861 $12,094,429 482,923 $5,862,405
Shares reinvested ....... 80,006 955,849 -- -- 21,740 244,359
------------ --------------- ------------ --------------- ---------- -------------
992,887 12,481,829 982,861 12,094,429 504,663 6,106,764
Less shares repurchased . (820,449) (9,680,373) (610,415) (7,195,525) (704,426) (8,346,423)
------------ --------------- ------------ --------------- ---------- -------------
Net increase ............ 172,438 $2,801,456 372,446 $4,898,904 (199,763) ($2,239,659)
============ =============== ============ =============== ========== =============
CLASS B
Shares sold ............. 1,324,877 $16,869,969 1,152,839 $14,077,224 502,567 $5,965,823
Shares reinvested ....... 116,538 1,394,961 -- -- 28,596 317,985
------------ --------------- ------------ --------------- ---------- -------------
1,441,415 18,264,930 1,152,839 14,077,224 531,163 6,283,808
Less shares repurchased . (714,300) (8,625,824) (1,161,942) (13,479,970) (908,058) (10,613,090)
------------ --------------- ------------ --------------- ---------- -------------
Net increase (decrease) . 727,115 $9,639,106 (9,103) $597,254 (376,895) ($4,329,282)
============ =============== ============ =============== ========== =============
CLASS C **
Shares sold .............. -- -- 39,476 $435,230 21,437 $249,303
Shares reinvested ........ -- -- -- -- 441 4,899
------------ --------------- ------------ --------------- ---------- -------------
-- -- 39,476 435,230 21,878 254,202
Less shares repurchased .. -- -- (78) (768) (7,957) (92,486)
------------ --------------- ------------ --------------- ---------- -------------
Net increase ............. -- -- 39,398 $434,462 13,921 $161,716
============ =============== ============ =============== ========== =============
</TABLE>
** Class C shares commenced operations on May 1, 1998.
(1) Effective October 1, 1998, the fiscal period changed from December 31 to
October 31.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Small Cap Value Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM SIX MONTHS ENDED
--------------------------------------------- JANUARY 1, 1998 TO APRIL 30, 1999
1994(1) 1995 1996 1997 OCTOBER 31, 1998(8) (UNAUDITED)
---------- ---------- ---------- -------- ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period......... $8.50 $8.99 $10.39 $10.32 $12.27 $10.82
------- ------- -------- -------- -------- --------
Net Investment Income (Loss)(2) ............. 0.18 0.21 0.14 0.06 0.02 (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments................................. 0.48 1.60 1.17 2.52 (1.47) 2.92
------- ------- -------- -------- -------- --------
Total from Investment Operations .......... 0.66 1.81 1.31 2.58 (1.45) 2.88
------- ------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ....... (0.17) (0.20) (0.14) (0.03) -- --
Distributions from Net Realized Gain on
Investments Sold .......................... -- (0.21) (1.24) (0.60) -- (0.13)
------- ------- -------- -------- --------- --------
Total Distributions ....................... (0.17) (0.41) (1.38) (0.63) -- (0.13)
------- ------- -------- -------- --------- --------
Net Asset Value, End of Period .............. $8.99 $10.39 $10.32 $12.27 $10.82 $13.57
======= ======= ======== ======== ========= ========
Total Investment Return at Net Asset Value(3) 7.81%(4) 20.26% 12.91% 25.25% (11.82%)(4) 26.81%(4)
Total Adjusted Investment Return at
Net Asset Value(3,5) ...................... 7.30%(4) 19.39% 12.20% 24.65% (12.33%)(4) 26.61%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .... $4,420 $12,845 $15,853 $20,961 $22,528 $25,524
Ratio of Expenses to Average Net Assets ..... 0.99%(7) 0.98% 0.99% 0.99% 1.01%(7) 1.25%(7)
Ratio of Adjusted Expenses to
Average Net Assets(6) ...................... 4.98%(7) 1.85% 1.70% 1.59% 1.62%(7) 1.65%(7)
Ratio of Net Investment Income (Loss) to
Average Net Assets ........................ 2.10%(7) 2.04% 1.31% 0.47% 0.25%(7) (0.69%)(7)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets(6) ................... (1.89%)(7) 1.17% 0.60% (0.13%) (0.36%)(7) (1.09%)(7)
Portfolio Turnover Rate ..................... 0.3% 9% 72% 140% 69% 80%
Fee Reduction Per Share(2) .................. $0.34 $0.09 $0.08 $0.07 $0.06 $0.02
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........ $8.50 $9.00 $10.38 $10.31 $12.21 $10.71
------- ------- -------- -------- --------- --------
Net Investment Income (Loss)(2) ............. 0.13 0.12 0.07 (0.03) (0.04) (0.08)
Net Realized and Unrealized Gain (Loss) on
Investments ............................... 0.48 1.59 1.17 2.53 (1.46) 2.88
------- ------- -------- -------- --------- --------
Total from Investment Operations .......... 0.61 1.71 1.24 2.50 (1.50) 2.80
------- ------- -------- -------- --------- --------
Less Distributions:
Dividends from Net Investment Income ....... (0.11) (0.12) (0.07) -- -- --
Distributions from Net Realized Gain on
Investments Sold .......................... -- (0.21) (1.24) (0.60) -- (0.13)
------- ------- -------- -------- --------- --------
Total Distributions ....................... (0.11) (0.33) (1.31) (0.60) -- (0.13)
------- ------- -------- -------- --------- --------
Net Asset Value, End of Period .............. $9.00 $10.38 $10.31 $12.21 $10.71 $13.38
======= ======= ======== ======== ========= ========
Total Investment Return at Net Asset Value(3) 7.15%(4) 19.11% 12.14% 24.41% (12.29%)(4) 26.34%(4)
Total Adjusted Investment Return at
Net Asset Value(3,5) ....................... 6.64%(4) 18.24% 11.43% 23.81% (12.80%)(4) 26.14%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .... $3,296 $16,994 $22,097 $35,033 $30,637 $33,220
Ratio of Expenses to Average Net Assets ..... 1.72%(7) 1.73% 1.69% 1.69% 1.71%(7) 1.93%(7)
Ratio of Adjusted Expenses to
Average Net Assets(6) ...................... 5.71%(7) 2.60% 2.40% 2.29% 2.32%(7) 2.33%(7)
Ratio of Net Investment Income (Loss) to
Average Net Assets ......................... 1.53%(7) 1.21% 0.62% (0.24%) (0.45%)(7) (1.38%)(7)
Ratio of Adjusted Net Investment
Income (Loss) to Average Net Assets(6) ..... (2.46%)(7) 0.34% (0.09%) (0.84%) (1.06%)(7) (1.78%)(7)
Portfolio Turnover Rate ..................... 0.3% 9% 72% 140% 69% 80%
Fee Reduction Per Share(2) .................. $0.34 $0.09 $0.08 $0.07 $0.06 $0.02
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Small Cap Value Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period.................................... $13.39 $10.71
--------- ---------
Net Investment Loss(2) ................................................. (0.03) (0.08)
Net Realized and Unrealized Gain (Loss) on Investments ................. (2.65) 2.88
--------- ---------
Total from Investment Operations .................................... (2.68) 2.80
--------- ---------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ............ -- (0.13)
--------- ---------
Net Asset Value, End of Period ......................................... $10.71 $13.38
========= =========
Total Investment Return at Net Asset Value(3) .......................... (20.01%)(4) 26.34%(4)
Total Adjusted Investment Return at Net Asset Value(3,5) ............... (20.32%)(4) 26.14%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................... $422 $713
Ratio of Expenses to Average Net Assets ................................ 1.71%(7) 1.97%(7)
Ratio of Adjusted Expenses to Average Net Assets(6) .................... 2.32%(7) 2.37%(7)
Ratio of Net Investment Loss to Average Net Assets ..................... (0.54%)(7) (1.42%)(7)
Ratio of Adjusted Net Investment Loss to Average Net Assets(6) ......... (1.15%)(7) (1.82%)(7)
Portfolio Turnover Rate ................................................ 69% 80%
Fee Reduction Per Share(2) ............................................. $0.04 $0.02
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
expense reductions by the Adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
(7) Annualized.
(8) Effective October 31, 1998, the fiscal period end changed from December 31
to October 31.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Small Cap Value Fund
Schedule of Investments
April 30, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Cap Value Fund on April 30, 1999. It's divided into three main categories:
common stocks, preferred stocks and short-term investments. Common and preferred
stocks are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
COMMON STOCKS
Advertising (1.43%)
Penton Media, Inc. ...................... 10,000 $237,500
R.H. Donnelley Corp. .................... 37,000 610,500
----------
848,000
----------
Broker Services (2.85%)
Investment Technology Group, Inc. ....... 29,500 1,021,438
Jefferies Group, Inc. ................... 29,500 674,813
----------
1,696,251
----------
Business Services - Misc. (3.73%)
Nielsen Media Research .................. 80,933 2,215,541
----------
Chemicals (0.51%)
Sybron Chemicals, Inc.* ................. 18,900 303,581
----------
Computers (15.10%)
Data General Corp. * .................... 185,100 2,163,356
Etec Systems, Inc.* ..................... 17,600 543,400
IMRglobal Corp.* ........................ 128,600 2,218,350
OrCAD, Inc.* ............................ 85,500 662,625
Pathways Group, Inc. (The)* ............. 71,300 623,875
SunGard Data Systems, Inc.* ............. 10,285 328,477
Wind River Systems, Inc.* ............... 162,375 2,435,625
----------
8,975,708
----------
Electronics (13.27%)
Aavid Thermal Technologies, Inc.* ....... 10,300 196,344
Amphenol Corp. (Class A)* ............... 22,300 770,744
ANADIGICS, Inc.* ........................ 40,000 955,000
CommScope, Inc.* ........................ 40,000 975,000
Oak Industries, Inc.* ................... 61,000 2,546,750
Vicor Corp.* ............................ 174,000 2,446,875
----------
7,890,713
----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Energy (3.55%)
Calpine Corp.* .......................... 49,500 $2,109,937
----------
Finance (8.47%)
Core Cap, Inc. (r) ..................... 22,200 350,760
Duff & Phelps Credit Rating Co. ......... 6,000 342,000
Eaton Vance Corp. ....................... 31,000 707,188
Federated Investors, Inc. (Class B) ..... 50,000 803,125
Pioneer Group, Inc. (The)* .............. 152,000 2,831,000
----------
5,034,073
----------
Instruments - Scientific (2.01%)
Millipore Corp. ......................... 39,000 1,196,813
----------
Insurance (8.13%)
CMAC Investment Corp. ................... 30,000 1,376,250
Financial Security Assurance Holdings Ltd. 8,200 468,425
HCC Insurance Holdings, Inc. ............ 30,200 637,975
Horace Mann Educators Corp. ............. 70,600 1,606,150
Reinsurance Group of America, Inc.
(Non Voting) ........................... 12,000 363,000
Reinsurance Group of America, Inc. ...... 9,000 384,750
----------
4,836,550
----------
Machinery (3.12%)
Applied Science & Technology, Inc.* ..... 84,700 1,201,681
SPX Corp. ............................... 10,000 653,125
----------
1,854,806
----------
Manufacturing (2.35%)
Dexter Corp. (The) ...................... 34,000 1,396,125
----------
Media (0.66%)
Holdingmaatschappij De Telegraaf
(Netherlands) .......................... 18,000 392,288
----------
Medical (12.72%)
DENTSPLY International, Inc. ............ 58,500 1,531,969
Haemonetics Corp. * ..................... 30,000 470,625
Respironics, Inc.* ...................... 14,000 197,750
Shire Pharmaceuticals Group Plc
(United Kingdom)* ...................... 183,000 1,340,658
Total Renal Care Holdings, Inc. * ....... 290,000 4,023,750
----------
7,564,752
----------
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Small Cap Value Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Oil & Gas (4.67%)
Chieftain International, Inc.* (Canada) . 25,000 $451,562
Triton Energy Ltd.* ..................... 75,000 890,625
Veritas DGC, Inc.* ...................... 70,700 1,431,675
----------
2,773,862
----------
Pollution Control (0.99%)
Newpark Resources, Inc.* ................ 64,000 588,000
----------
Retail (3.99%)
Elder-Beerman Stores Corp. (The)* ....... 110,450 931,922
Whole Foods Market, Inc.* ............... 37,000 1,443,000
----------
2,374,922
----------
Schools / Education (0.41%)
ITT Educational Services, Inc.* ......... 10,000 245,625
----------
Telecommunications (6.10%)
CFW Communications Co. .................. 13,150 304,094
Cable Design Technologies* .............. 36,300 539,962
Commonwealth Telephone Enterprises, Inc.* 48,000 1,812,000
RCN Corp.* .............................. 20,000 972,500
----------
3,628,556
----------
Waste Disposal Service & Equip. (0.53%)
Waste Systems International, Inc.* ...... 61,200 313,650
----------
TOTAL COMMON STOCKS
(Cost $48,497,913) (94.59%) 56,239,753
--------- ----------
PREFERRED STOCKS
Broker Services (3.95%)
Salomon, Inc., 7.625%, Ser FSA........... 50,000 2,350,000
----------
Finance (0.89%)
Core Cap, Inc., 10%, Ser A/I (r) ........ 22,200 528,138
----------
TOTAL PREFERRED STOCKS
(Cost $1,911,433) (4.84%) 2,878,138
--------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- -------- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.68%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
04-30-99, due 05-03-99
(Secured by U.S. Treasury Bonds,
6.625% thru 9.250%, due 02-15-16
thru 02-15-27 and U.S. Treasury
Note, 5.625% due 04-30-00)
- Note A............................. 4.89% $996 $996,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%........................... 682
-----------
TOTAL SHORT-TERM INVESTMENTS (1.68%) 996,682
-------- -----------
TOTAL INVESTMENTS (101.11%) 60,114,573
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.11%) (657,043)
-------- -----------
TOTAL NET ASSETS (100.00%) $59,457,530
======== ===========
* Non-income producing security.
(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:
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE MARKET VALUE
ACQUISITION ACQUISITION OF FUND'S AS OF
DATE COST NET ASSETS APRIL 30, 1999
---- ---- ---------- --------------
<S> <C> <C> <C> <C>
Core Cap, Inc. (Common) 10-31-97 $444,0000 .59% $350,760
Core Cap, Inc. (Preferred) 10-31-97 555,000 0.89 528,138
---------- ------ ---------
$999,000 1.48% $878,898
========== ====== =========
</TABLE>
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer; however, security is U.S. dollar
denominated.
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
14
<PAGE>
========================NOTES TO FINANCIAL STATEMENTS===========================
John Hancock Funds - Small Cap Value 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 three series: John Hancock Small Cap Value Fund (the "Fund"),
John Hancock Financial Industries Fund and John Hancock Regional Bank Fund. The
other two series of the Trust are reported in separate financial statements.
Prior to June 1, 1999, the Fund was named John Hancock Special Value Fund. The
investment objective of the Fund is to seek capital appreciation.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The shares of
each class represent an interest in the same portfolio of investments of the
Fund and have equal rights to voting, redemptions, dividends and liquidation,
except that certain expenses, subject to the approval of the Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal Revenue
Service. Shareholders of a class which bears distribution and service expenses
under terms of a distribution plan have exclusive voting rights to that
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement. Aggregate cash balances
are invested in one or more repurchase agreements, whose underlying securities
are obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
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 appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
15
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========================NOTES TO FINANCIAL STATEMENTS===========================
John Hancock Funds - Small Cap Value Fund
ORGANIZATION EXPENSE 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 began with the commencement of 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. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the period ended April 30, 1999.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of 0.70% of the Fund's average daily net asset
value.
The Adviser had agreed to limit Fund expenses, including the management
fee (but not including the transfer agent fee and the 12b-1 fee), to 0.40% of
the Fund's average daily net assets. Accordingly, the reduction in the Adviser's
fee amounted to $109,127 for the period ended April 30, 1999. The Adviser
terminated the limitation effective March 1, 1999.
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, 1999, net sales charges received with regard to sales of Class A
shares amounted to $63,283. Out of this amount, $7,750 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $45,116
was paid as sales commissions to unrelated broker-dealers and $10,417 was paid
as sales commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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
5.00% of the lesser of the current market value at the time of redemption or the
original purchase cost of the shares being
16
<PAGE>
========================NOTES TO FINANCIAL STATEMENTS===========================
John Hancock Funds - Small Cap Value Fund
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or
in part to defray its expenses related to providing distribution related
services to the Fund in connection with the sale of Class B shares. For the
period ended April 30, 1999, contingent deferred sales charges paid to JH Funds
amounted to $10,417.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market value
at the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or
in part to defray its expenses related to providing distribution related
services to the Fund in connection with the sale of Class C shares. For the
period ended April 30, 1999, contingent deferred sales charges paid to JH Funds
amounted to $521.
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, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets, to reimburse JH Funds for its distribution/service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays Signature Services a fee based on the number of shareholder accounts
and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon
and Mr. Richard S. Scipione are directors 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. At April 30, 1999, the
Fund's investments to cover the deferred compensation liability had unrealized
appreciation of $108.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1999, aggregated $44,631,786 and $51,171,813, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1999.
The cost of investments owned at April 30, 1999 (excluding the
corporate savings account) for federal income tax purposes was $51,405,346.
Gross unrealized appreciation and depreciation of investments aggregated
$13,611,312 and $4,902,767, respectively, resulting in net unrealized
appreciation of $8,708,545.
17
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=====================================NOTES======================================
John Hancock Funds - Small Cap Value Fund
18
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Small Cap Value Fund
19
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This report is for the information of shareholders of the John Hancock
Small Cap Value Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[LOGO] Printed on Recycled Paper 370SA 4/99
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