The latest report from your
Fund's management team
ANNUAL REPORT
Regional
Bank Fund
OCTOBER 31, 1999
TRUSTEES
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.*
William J. Cosgrove
Leland O. Erdahl
Richard A. Farrell
Maureen R. Ford
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
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive
Officer, flush right next to fourth paragraph.]
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is
to welcome you to the New Millennium! I wish you all the best for a century
filled with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make
new resolutions, or re-commit to old ones. It seems fitting, therefore, that
this special New Year 2000 coincides with a very important, although
certainly less exotic, event.
Starting last October, personalized Social Security statements are being sent
to 125 million workers over age 25, showing estimates of the retirement,
disability and survivor benefits that they and their families are eligible to
receive now and in the future.
The statements, to be sent out annually, will provide people with a glimpse
of what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for
them at all. But many people also already know that government benefits will
only fulfill a small piece of their retirement needs.
The best thing about this massive mailing is that it can serve as a wake-up
call to encourage families to focus more on planning for their financial
future.
When you receive your statement, expected to be within three months of your
next birthday, we urge you to read it carefully for accuracy, making sure
your annual earnings history and amounts you have contributed over the years
are correct. Keep in mind that the estimated benefits are precisely that, and
that rules and regulations may change by the time you retire. Also remember
that they are not inflation adjusted, so it would be unrealistic to expect
them to have the same purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your
investment professional, or to select one if you are not working with
somebody. He or she can help you focus on establishing and maintaining a
sound plan to achieve a comfortable retirement. Together, you should make
sure to maximize your participation in tax-advantaged programs like IRAs and
401(k)s.
The stakes are too high to leave your retirement lifestyle to chance.
Congress' awareness-raising effort is commendable. The next step is yours.
Mark the beginning of the New Millennium by taking it.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
THOMAS FINUCANE AND THOMAS GOGGINS, PORTFOLIO MANAGERS
John Hancock
Regional Bank Fund
Bank stocks lag the market amid inflation fears;
imminent reform legislation sparks late-year rally
[A 3-1/2" x 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."]
Bank stocks experienced a volatile 12 months, with rallies at the
beginning and end of the period framing a summer of duress. Financial
stocks fell prey to rising interest rates, inflation fears and Year 2000
("Y2K") concerns. Investors also fled the sector in pursuit of top-
performing technology stocks. However, the period ended on a high note
in the last two weeks, when investor sentiment turned sharply positive
on news that passage of long-awaited financial reform legislation
appeared imminent.
As the fiscal year began last November, banks, particularly the large
money-center banks, were rallying from last year's fears of a global
recession that never materialized. But as the U.S. economy continued to
remain stronger than expected, the Federal Reserve reversed itself and
raised interest rates twice this summer to prevent an inflation
outbreak. The moves hit bank stocks especially hard, as investors feared
rising rates would curtail bank profits. That was coupled with several
headline-grabbing earnings disappointments at Bank One and First Union,
despite the fact that, for the most part, the group's earnings growth
and fundamentals remained solid.
"...passage of
long-awaited
financial
reform
legislation
appeared
imminent."
Then, in the last two weeks of the year, bank and other financial stocks
roared back to life on the anticipation that the removal of Depression-
era barriers that had prevented banks from getting involved in other
financial service businesses would spark a new round of cross-sector
consolidation. In the last two weeks of October, for example, the Keefe,
Bruyette & Woods Bank Index that tracks the performance of the 29
largest banks rose by 26% - an astounding jump. The stocks were also
lifted by more calming news on the inflation front.
[Table at top left hand column entitled "Top Five Common Stock
Holdings." The first listing is AmSouth Bancorp 3.9%, the second is
Wells Fargo 3.8%, the third Bank of America 3.7%, the fourth Fleet
Boston 3.4% and the fifth Bank of New York 3.3%. A note below the table
reads "As a percentage of net assets on October 31, 1999."]
"...consolidation
resumed
in the
banking
industry
during the
spring..."
Fund performance modest this period
While John Hancock Regional Bank Fund participated in the late-year
rally, our overall returns this fiscal year were more modest than those
of our financial services fund peers. For the most part, it was because
we don't own non-bank financial stocks, such as investment brokerage
firms, and we remain deliberately underweighted in the large money-
center banks that have been the best performers this year. Indeed, our
focus on regional banks and thrifts held us back, since these smaller-
sized companies were decidedly out of favor.
[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 CNB Bancshares followed by an up arrow with the phrase
"Valuable Indiana franchise scooped up by Fifth Third." The second
listing is First Tennessee followed by a down arrow with the phrase
"Premium-quality bank selling at bargain-basement price." The third
listing is Regions Financial followed by a down arrow with the phrase
"Southeastern regional facing merger integration problems." A note below
the table reads "See 'Schedule of Investments.' Investment holdings are
subject to change."]
For the year ended October 31, 1999, John Hancock Regional Bank Fund's
Class A and Class B shares posted total returns of 6.24% and 5.55%,
respectively, at net asset value. That compared to the 14.39% return of
the average financial services fund, according to Lipper, Inc.1 Class C
shares, which were launched on March 1, 1999, returned 0.87% from
inception through October 31, 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.
Sector investing for the long term
Although we have been disappointed with the performance of our regional
bank stocks over the last year, this late-year market shift reinforces
the concept of sector investing as a long-term proposition. While
sector-specific funds are subject to different, and sometimes greater,
volatility than the market as a whole, they can also provide long-term
investors with greater outperformance. We've been through periods like
this several times before, and, eventually, our stocks have returned to
be among the market leaders as investor psychology changed.
Fundamentals still strong
We remain encouraged by the generally positive fundamentals we are
witnessing in our companies. The global financial crisis that was feared
last fall never materialized and economic growth has been better than we
had anticipated. As a result, our banks have shown excellent loan growth
and low credit losses.
Bank earnings are up 12% for the first nine months of 1999, even with
the rising interest-rate environment. This is further proof,
unfortunately, that the stock market, which continues to punish bank
stocks when rates rise, seems to think bank earnings are far more
sensitive to interest-rate changes than they really are. In fact, most
banks have developed the capacity to re-price both sides of their
balance sheets with equal rapidity as rates change, which helps keep
their margins and profitability on track.
[Bar chart at top of left hand column with heading "Fund Performance".
Under the heading is a note that reads "For the year ended October 31,
1999." The chart is scaled in increments of 5% with 0% at the bottom and
15% at the top. The first bar represents the 6.24% total return for John
Hancock Regional Bank Fund Class A. The second bar represents the 5.55%
total return for John Hancock Regional Bank Fund Class B. The third bar
represents the 0.87%* total return for John Hancock Regional Bank Fund
Class C. The fourth bar represents the 14.39% 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.1 See pages seven and eight for historical performance
information. *From inception March 1, 1999 through October 31, 1999."]
Consolidation process continues
After a lull late last year and early in 1999, consolidation resumed in
the banking industry during the spring, albeit at a lower level than the
extraordinary number of consolidations we saw in 1998. Although Y2K
issues were a distraction, they diminished as the year progressed, since
merging banks would not consolidate their systems until next year.
This year, 25 of the Fund's banks were involved in mergers, the most
important including BankBoston, which was bought by Fleet Bank to form
Fleet Boston; Mercantile, which was bought by Firstar; and First
American Bank, which was bought by AmSouth Bancorp. These acquisitions
were sparked by an unusual pricing environment that was favorable to
acquiring banks. Their stock prices remained strong in the spring and
summer, while the smaller banks they bought saw their stocks fall to
very attractive levels, making them solid takeover candidates. As we
have discussed in prior reports, even though it may wax and wane with
changes in the market environment, the process of industry consolidation
is destined to continue to address the overcapacity in the U.S. banking
system.
"...our banks
have shown
excellent
loan growth
and low
credit
losses."
Strategy stays constant
Throughout the year, we continued our practice of taking profits and
trimming our stakes in money-center and superregional banks that were
the best performers, including Chase Manhattan, Wells Fargo and Bank of
America. We also stuck to our consistent investment approach of buying
stocks when they were underpriced compared to the companies'
fundamentals, on the assumption that inevitably their stock prices would
catch up. This classic value-investing style has proven itself over
time. With regional bank prices compellingly attractive, we added to our
positions in such quality names as Commerce Bancshares, First Tennessee
National, M&T Bank and Comerica at bargain prices.
Reform legislation: catalyst for rebound?
At the end of this turbulent year for bank stocks, our optimistic
outlook has been fortified by several catalysts that appear poised to
spark a further rally. Perhaps the most important was the imminent
passage at the end of this reporting period of historic financial
services reform legislation. This bill amends the Glass-Steagall and
Bank Holding Company Acts to permit banks, insurance companies and
securities brokers to affiliate in the same holding company. With its
passage, we expect a period of consolidation to result, featuring just
such cross-industry combinations. Specifically, we think there will be
further cases of banks buying brokers, and, more important, for the
first time we should see banks interested in acquiring insurance
companies. This consolidation should produce more efficient and
profitable financial services providers. It will also benefit
shareholders through takeover premiums and a greater industry focus on
operating with maximum efficiency to generate shareholder value.
"...bank-stock
valuations
are very
compelling,
even after
their late-
year surge."
Interest rates, cheap stock prices
Another important catalyst is interest rates. The market has been edgy
waiting to see whether the monthly economic data would prompt the
Federal Reserve Board to continue raising interest rates in a move to
pre-empt inflation. Recent statistics have reassured investors that
inflation remains in check, and once it is clear that the Fed is done
tinkering with rates, the market should calm down.
Finally, bank-stock valuations are very compelling, even after their
late-year surge. After an 18-month battering, most companies' valuations
are much lower than those of the average stock in the S&P 500 Index. And
if banks continue to post strong earnings growth, investors will
increasingly recognize the attractive opportunities the sector currently
offers - if they haven't already begun to do so. Indeed, the earnings of
most banks are on track to outperform the market. These statistics,
coupled with the advent of landmark industry deregulation, provide two
powerful arguments for a sustained financial-stock rebound and the
biggest sources of encouragement to long-term investors in the sector.
- ---------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
Sector investing is subject to different, and sometimes greater, risks
than the market as a whole.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is
lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average
annual total returns for the John Hancock Regional Bank Fund. Total return
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 September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
------- ------- --------
Cumulative Total Returns (3.10%) 128.52% 352.04%
Average Annual Total Returns (3.10%) 17.97% 21.51%
CLASS B
For the period ended September 30, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (3.52%) 130.54% 443.97%
Average Annual Total Returns (3.52%) 18.18% 18.46%
CLASS C
For the period ended September 30, 1999
SINCE
INCEPTION
(3/1/99)
--------
Cumulative Total Return (10.62%)
Average Annual Total Return (10.62%)(1)
Note to Performance
(1) Not annualized.
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 Index - an unmanaged index
that includes 500 widely traded common stocks and is a commonly used measure
of stock market performance. It is not possible to invest in an index. 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 $53,210 as of October 31, 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
$50,549 as of October 31, 1999. The third line represents the Standard &
Poor's 500 Index and is equal to $38,979 as of October 31, 1999.
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, 1989, before sales
charge, and is equal to $63,026 as of October 31, 1999. The second line
represents the Standard & Poor's 500 Index and is equal to $51,454
as of October 31, 1999.
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 Index and is equal to $11,099
as of October 31, 1999. 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 $10,087 as
of October 31, 1999. The third line represents the value of the same
hypothetical investment made in the John Hancock Regional Bank Fund,
after sales charge, and is equal to $9,987 as of October 31, 1999.
* No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
John Hancock Funds - Regional Bank Fund
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on October 31,
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
October 31, 1999
- ------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Notes C and E:
Common and preferred stocks, warrants and other
Unaffiliated issuers (cost - $2,155,426,489) $4,602,417,818
Affiliated issuers (cost - $35,255,381) 47,247,784
Bonds (cost - $6,455,030) 6,397,980
Joint repurchase agreement (cost - $76,093,000) 76,093,000
Short-term notes (cost - $60,073,500) 59,977,350
Corporate savings account 191
---------------
4,792,134,123
Receivable for investments sold 57,958,289
Receivable for shares sold 1,937,150
Dividends receivable 7,727,383
Interest receivable 2,074,221
Other assets 192,033
---------------
Total Assets 4,862,023,199
---------------
Liabilities:
Payable for investments purchased 189,050
Payable for shares repurchased 5,155,949
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 4,470,168
Accounts payable and accrued expenses 275,272
---------------
Total Liabilities 10,090,439
---------------
Net Assets:
Capital paid-in 1,998,990,356
Accumulated net realized gain on investments and
foreign currency transactions 391,719,783
Net unrealized appreciation of investments 2,458,830,532
Undistributed net investment income 2,392,089
---------------
Net Assets $4,851,932,760
================================================================================================
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 - $1,205,711,875/23,543,643 $51.21
================================================================================================
Class B - $3,639,380,111/71,446,328 $50.94
================================================================================================
Class C* - $6,840,774/134,295 $50.94
================================================================================================
Maximum Offering Price Per Share**
Class A - ($51.21 x 105.26%) $53.90
================================================================================================
* 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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains
(losses) for the period stated.
Statement of Operations
Year ended October 31, 1999
- ------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (including $2,966,525 received from
affiliated issuers and net of foreign withholding
taxes of $25,530) $130,288,568
Interest 18,039,084
------------------
148,327,652
------------------
Expenses:
Investment management fee - Note B 43,042,062
Distribution and service fee - Note B
Class A 4,257,505
Class B 40,472,121
Class C 24,373
Transfer agent fee - Note B 9,897,407
Accounting and legal service fee - Note B 929,370
Custodian fee 667,482
Trustees' fees 319,236
Miscellaneous 190,092
Printing 173,987
Registration and filing fees 85,976
Legal fees 60,028
Auditing fee 30,372
------------------
Total Expenses 100,150,011
------------------
Net Investment Income 48,177,641
------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold
(including $6,517,158 gain on sales of investments
in affiliated issuers) 467,488,065
Change in net unrealized appreciation/depreciation
of investments (204,398,999)
------------------
Net Realized and Unrealized
Gain on Investments 263,089,066
------------------
Net Increase in Net Assets
Resulting from Operations $311,266,707
================================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $50,875,889 $48,177,641
Net realized gain on investments sold 202,591,364 467,488,065
Change in net unrealized
appreciation/depreciation of investments 53,450,817 (204,398,999)
-------------- --------------
Net Increase in Net Assets
Resulting from Operations 306,918,070 311,266,707
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6470 and $0.7040, per
share, respectively) (20,963,084) (19,540,749)
Class B - ($0.2841 and $0.3780, per
share, respectively) (27,817,233) (31,847,104)
Class C** - (none and $0.2622, per
share, respectively) -- (17,644)
Distributions from net realized gain
on investments sold
Class A - ($0.3926 and $1.4700, per
share, respectively) (13,035,642) (43,781,790)
Class B - ($0.3926 and $1.4700, per
share, respectively) (39,463,958) (132,283,160)
-------------- --------------
Total Distributions to Shareholders (101,279,917) (227,470,447)
-------------- --------------
From Fund Share Transactions - Net:* (643,047,648) (1,239,045,771)
-------------- --------------
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
$2,392,089, respectively) $6,007,182,271 $4,851,932,760
============== ==============
<CAPTION>
Statement of Changes in Net Assets (continued)
- ------------------------------------------------------------------------------------------------------------
*Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1998 1999
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 9,772,747 $519,672,746 11,641,658 $603,173,333
Shares issued to shareholders in
reinvestment of distributions 517,773 27,781,650 1,047,363 52,029,344
----------- ------------- ----------- -------------
10,290,520 547,454,396 12,689,021 655,202,677
Less shares repurchased (13,257,504) (698,208,336) (18,945,731) (971,792,774)
----------- ------------- ----------- -------------
Net decrease (2,966,984) ($150,753,940) (6,256,710) ($316,590,097)
=========== ============= =========== =============
CLASS B
Shares sold 9,602,715 $509,059,888 8,751,598 $443,975,183
Shares issued to shareholders in
reinvestment of distributions 814,268 43,409,949 2,186,603 108,129,488
----------- ------------- ----------- -------------
10,416,983 552,469,837 10,938,201 552,104,671
Less shares repurchased (20,411,405) (1,044,763,545) (29,494,671) (1,481,370,072)
----------- ------------- ----------- -------------
Net decrease (9,994,422) ($492,293,708) (18,556,470) ($929,265,401)
=========== ============= =========== =============
CLASS C**
Shares sold -- -- 138,401 $7,013,754
Shares issued to shareholders in
reinvestment of distributions -- -- 321 15,312
----------- ------------- ----------- -------------
-- -- 138,722 7,029,066
Less shares repurchased -- -- (4,427) (219,339)
----------- ------------- ----------- -------------
Net increase -- -- 134,295 $6,809,727
=========== ============= =========== =============
* Class C shares commenced operations on March 1, 1999.
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.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $21.52 $27.14 $33.99 $48.73 $50.34
-------- -------- -------- -------- --------
Net Investment Income(1) 0.52 0.63 0.64 0.66 0.68
Net Realized and Unrealized Gain on Investments 5.92 7.04 15.02 1.99 2.36
-------- -------- -------- -------- --------
Total from Investment Operations 6.44 7.67 15.66 2.65 3.04
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.48) (0.60) (0.61) (0.65) (0.70)
Distributions from Net Realized Gain on
Investments Sold (0.34) (0.22) (0.31) (0.39) (1.47)
-------- -------- -------- -------- --------
Total Distributions (0.82) (0.82) (0.92) (1.04) (2.17)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $27.14 $33.99 $48.73 $50.34 $51.21
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) 31.00% 28.78% 46.79% 5.33% 6.24%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $486,631 $860,843 $1,596,836 $1,500,200 $1,205,712
Ratio of Expenses to Average Net Assets 1.39% 1.36% 1.30% 1.24% 1.27%
Ratio of Net Investment Income to Average
Net Assets 2.23% 2.13% 1.55% 1.23% 1.33%
Portfolio Turnover Rate 14% 8% 5% 5% 4%
<CAPTION>
Financial Highlights (continued)
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $21.43 $27.02 $33.83 $48.48 $50.08
-------- -------- -------- -------- --------
Net Investment Income(1) 0.36 0.42 0.35 0.30 0.35
Net Realized and Unrealized Gain on Investments 5.89 7.01 14.95 1.97 2.36
-------- -------- -------- -------- --------
Total from Investment Operations 6.25 7.43 15.30 2.27 2.71
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.32) (0.40) (0.34) (0.28) (0.38)
Distributions from Net Realized Gain on
Investments Sold (0.34) (0.22) (0.31) (0.39) (1.47)
-------- -------- -------- -------- --------
Total Distributions (0.66) (0.62) (0.65) (0.67) (1.85)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $27.02 $33.83 $48.48 $50.08 $50.94
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) 30.11% 27.89% 45.78% 4.62% 5.55%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $1,236,447 $2,408,514 $4,847,755 $4,506,983 $3,639,380
Ratio of Expenses to Average Net Assets 2.09% 2.07% 2.00% 1.92% 1.92%
Ratio of Net Investment Income to Average
Net Assets 1.53% 1.42% 0.84% 0.56% 0.68%
Portfolio Turnover Rate 14% 8% 5% 5% 4%
<CAPTION>
Financial Highlights (continued)
- ----------------------------------------------------------------------
PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1999
----------------
<S> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period $50.77
--------
Net Investment Income(1) 0.22
Net Realized and Unrealized Gain on
Investments 0.21
--------
Total from Investment Operations 0.43
--------
Less Distributions:
Dividends from Net Investment Income (0.26)
--------
Net Asset Value, End of Period $50.94
========
Total Investment Return at Net Asset Value(2) 0.87%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $6,841
Ratio of Expenses to Average Net Assets 1.97%(4)
Ratio of Net Investment Income to Average
Net Assets 0.65%(4)
Portfolio Turnover Rate 4%
(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.
The Financial Highlights summarizes the impact of the following factors on
a single share for each period indicated: net investment income, gains
(losses), distributions and total investment return of the Fund. It shows
how the Fund's net asset value for a share has changed since the end of
the previous period. Additionally, important relationships between some
items presented in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
October 31, 1999
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Regional Bank Fund on October 31, 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.
NUMBER OF MARKET
ISSUER, DESCRIPTION, STATE SHARES VALUE
- -------------------------- ---------- --------------
<S> <C> <C> <C>
COMMON STOCKS, WARRANTS AND OTHER
Money Center Banks (1.56%)
Chase Manhattan Corp. (NY) 767,540 $67,063,807
Morgan (J.P.) & Co., Inc. (NY) 66,000 8,637,750
--------------
75,701,557
--------------
Superregional Banks (32.00%)
Bank of America Corp. (NC) 2,767,382 178,150,216
Bank of New York Co., Inc. (NY) 3,776,398 158,136,666
Bank One Corp. (OH) 3,381,441 127,015,378
First Union Corp. (NC) 3,468,244 148,050,666
Fleet Boston Corp. (MA) 3,771,801 164,544,819
KeyCorp. (OH) 1,015,934 28,382,656
Mellon Financial Corp. (PA) 1,741,804 64,337,885
National City Corp. (OH) 4,123,828 121,652,926
PNC Bank Corp. (PA) 799,900 47,694,037
SunTrust Banks, Inc. (GA) 1,636,365 119,761,463
U.S. Bancorp. (MN) 4,056,331 150,337,768
Wachovia Corp. (NC) 724,787 62,512,879
Wells Fargo Co. (CA) 3,806,392 182,231,017
--------------
1,552,808,376
--------------
Banks - United States (46.79%)
ABC Bancorp. (GA) 173,000 2,270,625
American Bancorp. (WV) 145,000 2,465,000
American Bancshares, Inc.* (FL) 69,000 957,375
AmSouth Bancorp. (AL) 7,361,722 189,564,342
ANB Corp. (IN) 152,500 5,518,594
Associated Banc-Corp. (WI) 478,206 18,396,011
BancFirst Corp. (OK) 324,954 10,479,766
BancFirst Ohio Corp. (OH) 43,000 951,375
BancorpSouth, Inc. (MS) 337,500 5,864,062
BancWest Corp. (HI) 1,079,440 45,134,085
Banknorth Group, Inc. (VT) 1,027,540 34,711,637
BB&T Corp. (NC) 2,806,990 102,104,261
Brenton Banks, Inc. (IA) 411,799 5,250,437
Bryn Mawr Bank Corp. (PA) 187,900 4,650,525
BSB Bancorp, Inc. (NY) 67,075 1,471,458
BT Financial Corp. (PA) 199,726 4,418,938
CB Bancshares, Inc. (HI) 140,600 4,209,212
CCB Financial Corp. (NC) 1,056,064 48,578,944
Centura Banks, Inc. (NC) 524,025 27,609,567
Chittenden Corp. (VT) 970,989 29,979,285
Citizens Banking Corp. (MI) 188,500 5,230,875
City National Corp. (CA) 576,550 22,341,312
CNB Bancshares, Inc. (IN) 340,701 22,102,977
Colonial BancGroup, Inc. (AL) 1,077,600 12,863,850
Comerica, Inc. (MI) 1,427,197 84,829,022
Commerce Bancshares, Inc. (MO) 1,108,365 42,949,144
Commercial Bankshares, Inc. (FL) 189,574 4,194,325
Community Bank System, Inc. (NY) 142,500 3,811,875
Community First Bankshares, Inc. (ND) 814,500 15,500,994
Compass Bancshares, Inc. (AL) 2,097,625 55,980,367
Cullen/Frost Bankers., Inc. (TX) 2,097,400 60,562,425
Eldorado Bancshares, Inc. * (CA) 273,000 2,866,500
F & M Bancorp., Inc. (WI) 5,000 180,938
F & M National Corp. (VA) 138,174 4,145,220
First Citizens BancShares, Inc. (Class A) (NC) 87,344 6,638,144
First Colonial Group, Inc. (PA) 34,517 621,306
First Merchants Corp. (IN) 202,150 4,699,987
First Republic Bank* (CA) 284,162 7,104,050
First Security Corp. (UT) 1,960,278 50,232,124
First Source Corp. (IN) 114,888 3,173,781
First State Bancorp. (NM) 96,500 2,098,875
First Tennessee National Corp. (TN) 2,885,800 98,117,200
First Virginia Banks, Inc. (VA) 117,249 5,613,296
Firstar Corp. (WI) 5,301,119 155,720,371
Firstbank Corp. (MI) 110,934 2,606,949
FirstMerit Corp. (OH) 532,981 14,090,685
F.N.B. Corp. (PA) 236,345 6,056,341
Fulton Financial Corp. (PA) 466,273 9,150,608
Grand Premier Financial, Inc. (IL) 44,279 708,464
Greater Bay Bancorp. (CA) 69,668 2,560,299
Hancock Holding Co. (MS) 326,200 12,884,900
Harleysville National Corp. (PA) 47,853 1,597,094
Hibernia Corp. (Class A) (LA) 809,800 11,489,037
Hudson United Bancorp. (NJ) 699,108 21,978,208
Huntington Bancshares, Inc. (OH) 372,137 11,024,559
Imperial Bancorp.* (CA) 264,384 6,560,028
Independent Bank Corp. (MA) 820,000 10,967,500
Interchange Financial Services Corp. (NJ) 323,625 5,501,625
Keystone Financial, Inc. (PA) 148,845 3,730,428
LSB Bancshares, Inc. (NC) 18,760 337,680
M & T Bank Corp. (NY) 53,485 26,501,817
Marshall & Ilsley Corp. (WI) 695,580 46,690,807
Mercantile Bankshares Corp. (MD) 848,550 30,547,800
Merchants Bancorp., Inc. (IL) 145,100 4,788,300
MetroBanCorp. (IN) 83,125 701,367
Michigan Financial Corp. (MI) 73,878 2,197,871
Mississippi Valley Bancshares, Inc. (MO) 244,800 7,787,700
National City Bancshares, Inc. (IN) 91,080 2,550,240
North Fork Bancorp., Inc. (NY) 4,271,627 88,369,284
North Valley Bancorp. (CA) 181,700 2,134,975
Old Kent Financial Corp. (MI) 863,405 35,183,754
One Valley Bancorp., Inc. (WV) 331,606 12,103,619
Pacific Century Financial Corp. (HI) 1,310,766 29,901,849
Peoples Bank Corp. of Indianapolis (IN) 71,100 5,652,450
Princeton National Bancorp., Inc. (IL) 56,750 716,469
Provident Bankshares Corp. (MD) 585,767 12,612,325
Provident Financial Group, Inc. (OH) 135,375 5,812,664
Regions Financial Corp. (AL) 1,131,000 34,000,687
Republic New York Corp. (NY) 79,200 5,004,450
Riggs National Corp. (DC) 339,500 5,134,937
Seacoast Banking Corp. (Class A) (FL) 165,800 4,642,400
Security Bank Holding Co. (OR) 45,412 312,208
Simmons First National Corp.
(Class A) (AR) 303,500 9,029,125
Sky Financial Group, Inc. (OH) 346,012 8,304,288
SouthTrust Corp. (AL) 1,412,650 56,506,000
Southwest Bancorp., Inc. (OK) 107,500 2,391,875
Southwest Bancorp. of Texas, Inc.* (TX) 100,600 1,747,925
State Financial Services Corp.
(Class A) (WI) 195,504 3,103,626
State Street Corp. (MA) 229,500 17,470,687
Sterling Bancshares, Inc. (TX) 363,130 4,539,125
Summit Bancorp. (NJ) 3,431,225 118,806,166
Susquehanna Bancshares, Inc. (PA) 669,693 11,133,646
Synovus Financial Corp. (GA) 156,800 3,361,400
TCF Financial Corp. (MN) 1,336,166 39,416,897
Texas Regional Bancshares, Inc.
(Class A) (TX) 416,500 11,635,969
TriCo Bancshares (CA) 324,075 6,035,897
Trustmark Corp. (MS) 314,000 7,182,750
UnionBanCal Corp. (CA) 2,321,400 100,835,812
Union Planters Corp. (TN) 1,086,067 48,329,981
U.S.B. Holding Co., Inc. (NY) 117,500 1,762,500
USBANCORP., Inc. (PA) 206,500 2,736,125
Westamerica Bancorp. (CA) 763,575 26,295,614
West Coast Bancorp. (OR) 175,527 2,424,467
Western Bancorp. (CA) 124,126 5,818,406
Whitney Holding Corp. (LA) 443,300 16,402,100
Wilmington Trust Corp. (DE) 180,000 9,765,000
Zions Bancorp. (UT) 919,000 54,163,562
--------------
2,269,955,778
--------------
Thrifts (13.61%)
Acadiana BancShares, Inc. (LA) 23,000 451,375
Ambanc Holding Co., Inc. (NY) 207,100 3,611,306
Andover Bancorp., Inc. (MA) 45,000 1,316,250
Astoria Financial Corp. (NY) 1,326,567 47,756,412
Bank United Corp. (Class A) (TX) 253,600 9,890,400
Bedford Bancshares, Inc. (VA) 40,000 445,000
BostonFed Bancorp., Inc. (MA) 330,700 5,105,181
Camco Financial Corp. (OH) 33,482 385,043
Cameron Financial Corp. (MO) 82,500 1,036,406
Catskill Financial Corp. (NY) 210,000 3,097,500
CCF Holding Co. (GA) 49,687 807,414
Charter One Financial, Inc. (OH) 4,129,315 101,426,300
Commercial Federal Corp. (NE) 2,046,682 40,166,134
Commonwealth Bancorp., Inc. (PA) 121,000 2,041,875
CSB Financial Group, Inc.* (IL) 25,000 256,279
Dime Bancorp., Inc. (NY) 1,389,500 24,837,313
Dime Community Bancshares., Inc. (NY) 284,900 5,751,419
Eagle Bancshares, Inc. (GA) 77,000 1,390,813
East Texas Financial Services, Inc. (TX) 66,000 891,000
Elmira Savings Bank (NY) 38,531 934,377
ESB Financial Corp. (PA) 141,928 1,898,287
EverTrust Financial Group, Inc. (WA) 100,000 990,630
Fidelity Financial of Ohio, Inc. (OH) 55,000 1,082,813
First Defiance Financial Corp. (OH) 210,000 2,441,250
First Federal Bancorp.* (MN) 126,000 779,625
First Federal Capital Corp. (WI) 312,334 4,919,260
First Financial Holdings, Inc. (SC) 177,000 3,307,687
First Independence Corp. (KS) 46,500 495,518
First Keystone Financial, Inc. (PA) 28,500 324,188
First Washington Bancorp, Inc. (WA) 121,000 2,057,000
Flagstar Bancorp., Inc. (MI) 130,000 2,006,875
Flushing Financial Corp. (NY) 120,000 1,882,500
FMS Financial Corp. (NJ) 72,000 702,000
Fort Thomas Financial Corp. (KY) 55,000 804,375
Frankfort First Bancorp., Inc. (KY) 72,500 1,116,957
GA Financial, Inc. (PA) 384,500 5,238,812
Granite State Bankshares, Inc. (NH) 126,600 2,840,588
GreenPoint Financial Corp. (NY) 2,954,500 84,203,250
GreenPoint Financial Corp. (NY) (r) 50,000 1,475,000
Harbor Federal Bancorp., Inc. (MD) 31,500 460,688
HF Financial Corp. (SD) 105,000 1,312,500
Highland Bancorp., Inc. (CA) 175,000 3,259,375
HMN Financial, Inc. (MN) 165,000 2,041,875
Home Federal Bancorp. (IN) 210,000 4,593,750
Industrial Bancorp., Inc. (OH) 140,000 2,485,000
InterWest Bancorp., Inc. (WA) 78,500 1,452,250
ISB Financial Corp. (LA) 320,000 5,440,000
Logansport Financial Corp. (IN) 77,500 731,406
MAF Bancorp., Inc. (IL) 584,243 12,597,740
MASSBANK Corp. (MA) 103,899 3,610,490
Medford Bancorp., Inc. (MA) 208,500 3,700,875
Mystic Financial, Inc. (MA) 104,500 1,214,812
New Hampshire Thrift Bancshares, Inc. (NH) 40,000 540,000
NS & L Bancorp. (MO) 42,000 454,125
OceanFirst Financial Corp. (NJ) 45,000 804,375
Pamrapo Bancorp., Inc. (NJ) 120,000 2,726,256
Park Bancorp., Inc.* (IL) 25,000 387,500
Patriot Bank Corp. (PA) 101,500 926,188
Peoples Heritage Financial Group, Inc. (ME) 2,212,838 42,043,922
Permanent Bancorp., Inc. (IN) 100,000 1,087,500
PFF Bancorp., Inc.* (CA) 190,000 3,871,250
Pittsburgh Home Financial Corp. (PA) 70,000 910,000
Prestige Bancorp., Inc. (PA) 98,015 1,188,432
Quaker City Bancorp., Inc.* (CA) 109,687 1,857,824
Roslyn Bancorp., Inc. (NY) 207,562 4,021,514
Sobieski Bancorp., Inc. (IN) 40,000 460,000
South Jersey Financial Corp, Inc. (NJ) 65,000 877,500
South Street Financial Corp. (NC) 55,000 371,250
Southern Banc Co., Inc. (AL) 50,500 457,656
Southern Financial Bancorp., Inc. (VA) 64,098 1,169,789
Sovereign Bancorp., Inc. (PA) 422,302 3,721,536
Statewide Financial Corp. (NJ) 160,000 3,720,000
Sterling Financial Corp.* (WA) 231,877 2,941,939
Teche Holding Co. (LA) 66,000 944,625
Texarkana First Financial Corp. (AR) 124,800 2,503,800
Washington Federal, Inc. (WA) 1,203,964 27,465,429
Washington Mutual, Inc. (WA) 3,559,474 127,918,597
Webster Financial Corp. (CT) 190,000 5,438,750
WesterFed Financial Corp. (MT) 250,426 4,210,287
WSFS Financial Corp. (DE) 239,400 3,411,450
York Financial Corp. (PA) 72,187 1,028,665
--------------
660,525,332
--------------
Other - Financial (0.64%)
Capital One Financial Corp. 195,000 10,335,000
Edwards (A.G.), Inc. 91,750 2,758,234
Fannie Mae 68,325 4,833,994
Morgan Keegan, Inc. 95,700 1,710,637
Raymond James Financial, Inc. 107,575 2,178,394
SLM Holding Corp. 190,000 9,298,125
--------------
31,114,384
--------------
Banks - Foreign (0.53%)
Popular, Inc. (Puerto Rico) 851,000 25,476,812
--------------
WARRANTS (0.38%)
Golden State Bancorp, Inc.*
(Litigation) (CA) 270,000 2,818,125
Golden State Bancorp, Inc.* (CA) 757,186 15,806,258
--------------
18,624,383
--------------
TOTAL COMMON STOCKS,
WARRANTS AND OTHER
(Cost $2,175,506,920) (95.51%) 4,634,206,622
--------- --------------
PREFERRED STOCKS (0.32%)
Chevy Chase Pref. Capital Corp., Ser A, 10.375% (MD) 18,000 936,000
Chevy Chase Savings, 13.00% (MD) 50,000 1,487,500
First Preferred Capital I, 9.25% (MO) 100,000 2,525,000
First Source Capital Trust I, 9.00% (IN) 40,000 1,020,000
First Source Capital Trust II, 7.13% ** (IN) 40,000 987,500
First Washington Realty Trust, Ser A, 9.75% (MD) 113,498 2,915,480
IFC Capital Trust I, 9.25% (IN) 160,000 4,080,000
Sterling Bancshares Capital Trust I, 9.28% (TX) 60,000 1,507,500
--------------
TOTAL PREFERRED STOCKS
(Cost $15,174,950) (0.32%) 15,458,980
--------- --------------
TOTAL COMMON AND PREFERRED STOCKS,
WARRANTS AND OTHER
(Cost $2,190,681,870) 95.83% 4,649,665,602
--------- --------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- -------- ------------ -----------
BONDS
BankUnited Capital Trust,
Pref Sec, Ser A, 12-31-26 10.250% $2,000 $1,800,000
BFC Capital Trust I,
Capital Securities, Ser A,
01-15-27 9.650 1,000 1,005,000
Imperial Capital Trust I,
Capital Securities 12-31-26 9.980 1,500 1,440,000
Susquehanna Bancshares, Inc.,
Conv Sub Deb 02-01-05 9.000 2,000 2,152,980
-----------
TOTAL BONDS
(Cost $6,455,030) (0.13%) 6,397,980
------- -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.57%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
10-29-99, due 11-01-99
(Secured by U.S. Treasury
Bonds, 7.125% thru 13.375%,
due 08-15-01 thru 02-15-23)
- - Note A 5.230 76,093 76,093,000
--------------
Short-Term Notes (1.24%)
Federal Home Loan Bank,
due 03-17-00 5.220 25,000 24,996,000
General Motors Acceptance Corp.,
due 02-23-00 5.700 10,000 9,989,100
Student Loan Marketing Association,
due 01-19-00 5.051 25,000 24,992,250
--------------
TOTAL SHORT-TERM NOTES
(Cost $60,073,500) (1.24%) 59,977,350
------- --------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.30% 191
--------------
TOTAL SHORT-TERM INVESTMENTS (2.81%) 136,070,541
------- --------------
TOTAL INVESTMENTS (98.77%) 4,792,134,123
------- --------------
OTHER ASSETS AND LIABILITIES, NET (1.23%) 59,798,637
------- --------------
TOTAL NET ASSETS (100.00%) $4,851,932,760
======= ==============
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security.
** Variable rate as of October 31, 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 cost 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 OCTOBER 31,
ISSUER, DESCRIPTION DATE COSTS NET ASSETS 1999
- ------------------- ---- ----- ---------- ----
GreenPoint Financial Corp. 03-12-99 $1,500,000 0.03% $1,475,000
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.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Regional Bank Fund
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 reopened 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 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 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.
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 year ended
October 31, 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 a distributor for shares of the Fund. For the year ended
October 31, 1999, JH Funds received net sales charges of $4,192,066 with
regard to sales of Class A shares. Out of this amount, $556,205 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $3,342,753 was paid as sales commissions to unrelated broker-
dealers and $293,108 was paid as sales commissions to sales personnel of
Signator Investors, Inc. ("Signator Investors"), a related broker-dealer. 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 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 year ended October 31,
1999, the contingent deferred sales charges received by JH Funds amounted to
$17,801,710.
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 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
year ended October 31, 1999, contingent deferred sales charges paid to JH
Funds amounted to $1,667.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A, 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. A maximum of 0.25% of such payments may be service fees as
defined by the Conduct Rules of the National Association of Securities
Dealers. Under the Conduct Rules, 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,
accounting and legal services for the Fund. The compensation for the year 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. Maureen R. Ford, 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 through
December 31, 1999. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds,
as applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are recorded
on the Fund's books as an other asset. The deferred compensation liability
and the related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as any
unrealized gains or losses. The investment had no impact on the operations of
the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of
the U.S. government and its agencies and short-term securities, during the
year ended October 31, 1999, aggregated $216,925,451 and $1,382,192,408,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the year ended October 31, 1999.
The cost of investments owned at October 31, 1999 (excluding the corporate
savings account) for federal income tax purposes was $2,333,914,416. Gross
unrealized appreciation and depreciation of investments aggregated
$2,468,925,822 and $10,706,306, respectively, resulting in net unrealized
appreciation of $2,458,219,516.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended October 31, 1999, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$74,929,805, a decrease in undistributed net investment income of $906,418
and an increase in capital paid-in of $75,836,223. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of October 31, 1999. Additional adjustments may be
needed in subsequent reporting periods. These reclassifications, which have
no impact on the net asset value of the Fund, are primarily attributable to
the treatment of real estate investment trusts in the computation of
distributable income and capital gains under federal tax rules versus
generally accepted accounting principles, and the Fund's use of the tax
accounting practice known as equalization. The calculation of net investment
income in the financial highlights excludes these adjustments.
NOTE E -
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 year ended October 31, 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 24,646 $814,554 324,954(1) $121,994 -- --
Banknorth Group,
Inc. (VT) 800,000 252,540 2,629,006 25,000 788,638 1,027,540(1) 11,336 -- --
BostonFed Bancorp.,
Inc. (MA) 330,700 -- -- -- -- 330,700 -- $185,192 $5,105,181
Calumet Bancorp,
Inc. (IL) 207,000 -- -- 207,000 3,082,000 -- 3,550,280 -- --
Catskill Financial Corp. (NY) 210,000 -- -- -- -- 210,000 -- 85,050 3,097,500
CCF Holding Co. (GA) 48,770 -- -- 3,600 37,636 49,687(2) 15,661 19,584 807,414
Commercial Bankshares,
Inc. (FL) 180,547 -- -- -- -- 189,574(3) -- 117,536 4,194,325
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) -- 24,073 934,377
First Federal Bancorp. (MN) 84,000 -- -- -- -- 126,000(6) -- -- 779,625
First Mutual Bancorp.,
Inc. (IL) 233,000 -- -- -- -- --(7) -- 18,640 --
First Source Capital Trust II,
7.13% (IN) 40,000 -- -- -- -- 40,000 -- 68,850 987,500
FNB Rochester Corp. (NY) 197,837 8,500 273,938 -- -- --(5) -- 32,334 --
GA Financial,
Inc. (PA) 392,500 -- -- 8,000 92,000 384,500 32,436 239,510 5,238,812
Harbor Federal Bancorp.,
Inc. (MD) 106,500 -- -- 75,000 936,136 31,500(1) 446,630 26,130 --
Home Federal Bancorp. (IN) 335,700 -- -- 125,700 2,576,043 210,000(1) 619,976 129,854 --
IFC Capital Trust I,
9.25% (IN) 160,000 -- -- -- -- 160,000 -- 369,996 4,080,000
Independent Bank Corp. (MA) 825,000 -- -- 5,000 51,875 820,000 33,747 328,000 10,967,500
Interchange Financial Services
Corp. (NJ) 323,625 -- -- -- -- 323,625(1) -- 148,868 --
Kentucky First Bancorp.,
Inc. (KY) 60,000 -- -- 60,000 748,142 -- (115,150) 27,663 --
Logansport Financial Corp. (IN) 77,500 -- -- -- -- 77,500 -- 34,100 731,406
NS & L Bancorp. (MO) 35,000 -- -- -- -- 42,000(8) -- 24,640 454,125
Prestige Bancorp.,
Inc. (PA) 94,300 -- -- 1,000 13,147 98,015(9) 103 22,135 1,188,432
QCF Bancorp,
Inc. (MN) 70,000 -- -- 70,000 1,041,250 -- 734,941 -- --
SFS Bancorp.,
Inc. (NY) 79,000 -- -- 79,000 1,113,375 -- 869,525 21,330 --
Simmons First National Corp.
(Class A) (AR) 303,500 -- -- -- -- 303,500(1) -- 212,450 --
Sobieski Bancorp.,
Inc. (IN) 40,000 -- -- -- -- 40,000 -- 12,800 460,000
State Financial Services Corp.
(Class A) (WI) 208,664 56,840 847,750 70,000 1,161,813 195,504(1) (1,851) 117,722 --
Sterling Bancshares Capital
Trust I, 9.28% (TX) 60,000 -- -- -- -- 60,000 -- 139,200 1,507,500
Texarkana First Financial
Corp. (AR) 124,800 -- -- -- -- 124,800 -- 81,120 2,503,800
Vermont Financial Services
Corp. (VT) 744,672 -- -- 8,000 141,917 --(10) 97,566 250,468 --
WesterFed Financial Corp. (MT) 270,426 -- -- 20,000 425,000 250,426 (25,000) 196,780 4,210,287
---------- ----------- ---------- ---------- -----------
$4,095,167 $13,983,526 $6,517,158 $2,966,525 $47,247,784
========== =========== ========== ========== ===========
(1) As of October 31, 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 M & T Bank Corp. effective June 1, 1999.
(6) Reflects 3-for-2 stock split as of May 21, 1999.
(7) Acquired by Union Planters Corp. effective February 1, 1999.
(8) Reflects 20% stock dividend payments as of April 13, 1999.
(9) Reflects 5% stock dividend payments as of February 26, 1999.
(10) Acquired by Chittenden Corp. effective June 1, 1999.
</TABLE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock Regional Bank Fund
and the Trustees of John Hancock Investment Trust II
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of John
Hancock Regional Bank Fund (the "Fund") (a series of John Hancock
Investment Trust II) at October 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities owned at October 31, 1999, by correspondence
with the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund for its fiscal year ended
October 31, 1999.
The Fund designated distributions to shareholders of $227,538,967 as
capital gain dividends.
With respect to the dividends paid by the Fund for the fiscal year ended
October 31, 1999, 100.00% of the dividends qualify for the corporate
dividends received deduction.
Shareholders will be mailed a 1999 U.S. Treasury Department Form 1099-DIV
in January 2000. This will reflect the tax character of all distributions
for the calendar year 1999.
[THIS PAGE INTENTIONALLY LEFT BLANK]
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A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
Internet: www.jhfunds.com
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PAID
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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.
A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper."
0100A 10/99
12/99
The latest report from your
Fund's management team
ANNUAL REPORT
Financial
Industries Fund
OCTOBER 31, 1999
TRUSTEES
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.*
William J. Cosgrove
Leland O. Erdahl
Richard A. Farrell
Maureen R. Ford
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
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive
Officer, flush right next to fourth paragraph.]
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is
to welcome you to the New Millennium! I wish you all the best for a century
filled with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make
new resolutions, or re-commit to old ones. It seems fitting, therefore, that
this special New Year 2000 coincides with a very important, although
certainly less exotic, event.
Starting last October, personalized Social Security statements are being sent
to 125 million workers over age 25, showing estimates of the retirement,
disability and survivor benefits that they and their families are eligible to
receive now and in the future.
The statements, to be sent out annually, will provide people with a glimpse
of what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for
them at all. But many people also already know that government benefits will
only fulfill a small piece of their retirement needs.
The best thing about this massive mailing is that it can serve as a wake-up
call to encourage families to focus more on planning for their financial
future.
When you receive your statement, expected to be within three months of your
next birthday, we urge you to read it carefully for accuracy, making sure
your annual earnings history and amounts you have contributed over the years
are correct. Keep in mind that the estimated benefits are precisely that, and
that rules and regulations may change by the time you retire. Also remember
that they are not inflation adjusted, so it would be unrealistic to expect
them to have the same purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your
investment professional, or to select one if you are not working with
somebody. He or she can help you focus on establishing and maintaining a
sound plan to achieve a comfortable retirement. Together, you should make
sure to maximize your participation in tax-advantaged programs like IRAs and
401(k)s.
The stakes are too high to leave your retirement lifestyle to chance.
Congress' awareness-raising effort is commendable. The next step is yours.
Mark the beginning of the New Millennium by taking it.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JAMES K. SCHMIDT, CFA, MANAGEMENT TEAM LEADER, AND
THOMAS FINUCANE AND THOMAS GOGGINS, PORTFOLIO MANAGERS
John Hancock
Financial Industries Fund
Rising interest rates hit financial stocks; imminent passage
of financial reform bill sparks late-year rally
[A 3-1/2" x 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."]
Financial stocks rode a roller coaster over the last 12 months, with rallies
at the beginning and end of the period book-ending a summer of duress. After
a strong rebound at the end of 1998 and in the spring, financial stocks fell
prey, along with the stock market in general, to rising interest rates and
inflation fears as 1999 progressed. Investors also fled the financial sector
in pursuit of top-performing technology stocks. As a result, most financial
stocks, with the exception of the largest money-center banks and brokerage
firms, lagged the overall market for the year.
But in the last two weeks of October, investor sentiment changed dramatically
on the eve of passage of historic financial reform legislation that would
tear down Depression-era barriers between banks, insurance and brokerage
companies. Financial stocks moved sharply higher in anticipation that passage
of this legislation would usher in a new round of cross-sector
consolidations. The group was also lifted by further signs that inflation was
staying in check -- a balm to investors who hoped that the news would keep the
Federal Reserve from raising interest rates much beyond its two hikes of the
summer.
"...rallies at
the beginning
and end of
the period
book-ending
a summer of
duress."
Fund performance
For the year ended October 31, 1999, John Hancock Financial Industries
Fund's Class A and Class B shares posted total returns of 8.69% and 7.93%,
respectively, at net asset value. That compared to the 14.39% return of the
average financial services fund, according to Lipper, Inc.1 Class C shares,
which were introduced on March 1, 1999, returned 1.35% from inception
through October 31, 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.
[Table at top left hand column entitled "Top Five Stock Holdings." The
first listing is American Express 3.1%, the second is Associates First
Capital 2.2%, the third Morgan Stanley Dean Witter 2.2%, the fourth
Citigroup 2.2% and the fifth Marsh & McLennan 2.1%. A note below the
table reads "As a percentage of net assets on October 31, 1999."]
"...anticipation
that passage
of this
legislation
would usher
in a new
round of
cross-sector
consolidations."
Insurers, euro and REITs weak
There were several reasons why the Fund's returns were more modest than that
of our peers. First, our overweighting in the insurance sector held us back.
Generally a safe harbor in market turmoil, insurance stocks did not provide
relief this time, especially the large property and casualty names, which
have struggled in a difficult pricing environment. Even though we reduced
the Fund's stake in them, eliminating our positions in Berkshire Hathaway,
Safeco and St. Paul, the stocks we continued to hold hurt us, including
Progressive, which announced earnings shortfalls and was one of our worst
performers.
[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 American Express followed by an up arrow with the phrase
"Solid travel services and IDS business." The second listing is Ace
followed by a down arrow with the phrase "Market questions Cigna
acquisition." The third listing is Bank One followed by a down arrow
with the phrase "Disappointing earnings." A note below the table reads
"See 'Schedule of Investments.' Investment holdings are subject to
change."]
In addition, the weakness of the new European currency, the euro, hurt our
holdings in EMU-member countries, as did our position in Allied Irish Banks,
which fell on concerns about the Irish economy overheating. In the long term,
however, we remain optimistic about the prospects for further consolidation
in Europe -- as evidenced by the mergers that occurred this year, including
Paribas and BNP -- and the new emphasis European financial institutions are
placing on shareholder value. As a result, we increased our European
weighting from 8% a year ago to 13% by the end of October.
Our overweighting in real estate investment trusts (REITs) also held us back
and we cut our stake almost in half, moving the proceeds into credit card
companies such as Capital One and Providian.
Sector investing for the long term
Although we have been disappointed with the performance of our financial
stocks over the last year, this late-year market shift reinforces the concept
of sector investing as a long-term proposition. While sector-specific funds
are subject to different, and sometimes greater, volatility than the market
as a whole, they can also provide long-term investors with greater
outperformance.
[Bar chart at top of left hand column with heading "Fund Performance".
Under the heading is a note that reads "For the year ended October 31,
1999." The chart is scaled in increments of 5% with 0% at the bottom and
15% at the top. The first bar represents the 8.69% total return for John
Hancock Financial Industries Fund Class A. The second bar represents the
7.93% total return for John Hancock Financial Industries Fund Class B.
The third bar represents the 1.35%* total return for John Hancock
Financial Industries Fund Class C. The fourth bar represents the 14.39%
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.1 See pages seven and eight for
historical performance information. *From inception March 1, 1999
through October 31, 1999."]
Fundamentals still strong
We remain encouraged by the generally positive fundamentals we are witnessing
in our companies. The global financial crisis that was feared last fall
never materialized and economic growth has been better than we had
anticipated. As a result, our banks have shown excellent loan growth and low
credit losses. Bank earnings are up 12% for the first nine months of 1999,
even with the rising interest-rate environment. Among the banks and thrifts,
one of the Fund's top sector weightings at 27% of net assets, our best
performers were the large money-center banks and superregionals, including
Citigroup, Chase Manhattan and Wells Fargo. Consolidation has also resumed in
the banking industry, albeit at a lower level than in 1998, reinforcing our
theory that bank mergers will continue to address the overcapacity in the
U.S. banking system.
The securities brokers have benefited from a high volume of equity offerings
and merger advisory revenues, as well as renewed trading profits. Our largest
names, such as Morgan Stanley Dean Witter, served the Fund well. We were
held back, however, by our holdings in regional brokerage houses which lost
investment-banking market share to the leading national firms throughout the
year. To reflect this, we cut back some of our regional positions in favor of
"wire houses" such as Merrill Lynch and Morgan Stanley Dean Witter. These
firms serve as major underwriters for the growing trend of corporate
consolidation in Europe and have addressed the issue of Internet investing.
We also added to our stake in Charles Schwab, which has become the model for
multi-channel financial product distribution.
"...our banks
have shown
excellent
loan growth
and low
credit losses."
Reform legislation: catalyst for rebound?
At the end of this turbulent year for financial stocks, our optimistic
outlook has been fortified by several catalysts that appear poised to spark a
further rally. Perhaps the most important was the imminent passage at the end
of this reporting period of historic financial services reform legislation.
This bill amends the Glass-Steagall and Bank Holding Company Acts to permit
banks, insurance companies and securities brokers to affiliate in the same
holding company. In fact, the potential for such deregulation was one of the
motivating factors in creating John Hancock Financial Industries Fund.
With its passage, we expect a period of consolidation to result featuring
just such cross-industry combinations. Specifically, we think there will be
further cases of banks buying brokers, and, more importantly, for the first
time we should see banks interested in acquiring insurance companies. This
consolidation should produce more efficient and profitable financial services
providers. It will also benefit shareholders through takeover premiums and a
greater industry focus on operating with maximum efficiency to generate
shareholder value.
Interest rates, inexpensive stocks
Another important catalyst is interest rates. The market has been edgy
waiting to see whether the monthly economic data would prompt the Federal
Reserve Board to continue raising interest rates in a move to pre-empt
inflation. Recent statistics have reassured investors that inflation remains
in check, and once it is clear that the Fed is done tinkering with rates, the
market should calm down.
"...financial-
stock
valuations
remain
compelling..."
Finally, financial-stock valuations remain compelling, even after their
late-year surge. After an 18-month battering, most companies' valuations are
lower than the average stock in the S&P 500 Index. And if financial companies
continue to post strong earnings growth, investors will increasingly
recognize the attractive opportunities the sector currently offers - if they
haven't already begun to do so. Indeed, the earnings of most banks are on
track to outperform the market. These statistics, coupled with the advent of
landmark industry deregulation, provide two solid arguments for a sustained
financial-stock rebound, and the biggest source of encouragement to long-term
investors in the sector.
- ---------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
Sector investing is subject to different, and sometimes greater, risks
than the market as a whole. International investing involves special risks
such as political, economic and currency risks and differences in accounting
standards and financial reporting.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is
lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average
annual total returns for the John Hancock Financial Industries Fund. Total
return 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.
CLASS A
For the period ended September 30, 1999
SINCE
ONE INCEPTION
YEAR (3/14/96)
------- ---------
Cumulative Total Returns (0.01%) 72.88%
Average Annual Total Returns(1) (0.01%) 16.68%
CLASS B
For the period ended September 30, 1999
SINCE
ONE INCEPTION
YEAR (1/14/97)
------- ---------
Cumulative Total Returns (0.53%) 22.19%
Average Annual Total Returns(1) (0.53%) 7.68%
CLASS C
For the period ended September 30, 1999
SINCE
INCEPTION
(3/1/99)
---------
Cumulative Total Return (9.76%)
Average Annual Total Return (9.76%)(2)
Notes to Performance
(1) Prior to November 1, 1997, the Adviser had agreed to limit the Fund's
expenses for Class A and Class B shares to 0.90% 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 15.56%. The average annualized
return since inception for Class B shares would have been 7.60%.
(2) Not annualized.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Financial Industries Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Standard & Poor's 500 Index. The Standard &
Poor's 500 Index is an unmanaged index that includes 500 widely traded common
stocks and is a commonly used measure of stock market performance. It is not
possible to invest in an index. 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 Index and is equal to $22,633 as of
October 31, 1999. 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
$20,252 as of October 31, 1999. The third line represents the value of
the same hypothetical investment made in the John Hancock Financial
Industries Fund, after sales charge, and is equal to $19,233 as of
October 31, 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 Index and is equal to $19,212 as of
October 31, 1999. 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 $13,916 as of October 31, 1999. The third line represents the value
of the same hypothetical investment made in the John Hancock Financial
Industries Fund, after sales charge, and is equal to $13,616 as of
October 31, 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 Standard & Poor's 500 Index and is equal to $11,099 as of
October 31, 1999. The second 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
$10,135 as of October 31, 1999. The third line represents the value of
the same hypothetical investment made in the John Hancock Financial
Industries Fund, after sales charge, and is equal to $10,035 as of
October 31, 1999.
FINANCIAL STATEMENTS
John Hancock Funds - Financial Industries Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
October 31, 1999
- ---------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $2,322,827,196) $2,732,823,823
Preferred stocks (cost - $112,500) 107,730
Joint repurchase agreement (cost - $95,336,000) 95,336,000
Corporate savings account 159
-----------
2,828,267,712
Receivable for investments sold 22,739,334
Receivable for shares sold 3,250,875
Receivable for open forward foreign
currency exchange contracts sold - Note A 1,144
Dividends receivable 2,902,726
Interest receivable 42,090
Foreign tax receivable 159,935
Deferred organization expense - Note A 6,965
Other assets 29,185
-----------
Total Assets 2,857,399,966
- --------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 23,441,598
Payable for shares repurchased 2,903,117
Payable for open forward foreign
currency exchange contracts
purchased - Note A 11,501
Payable to John Hancock Advisers,
Inc. and affiliates - Note B 2,817,094
Accounts payable and accrued expenses 530,290
-----------
Total Liabilities 29,703,600
- --------------------------------------------------------------------------
Net Assets:
Capital paid-in 2,570,903,856
Accumulated net realized loss on
investments and foreign currency transactions (151,532,600)
Net unrealized appreciation of
investments and foreign currency transactions 409,998,434
Distributions in excess of net
investment income (1,673,324)
--------------
Net Assets $2,827,696,366
==========================================================================
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 - $659,030,957/41,392,817 $15.92
==========================================================================
Class B -
$2,163,264,678/136,834,159 $15.81
==========================================================================
Class C* - $5,400,731/341,635 $15.81
==========================================================================
Maximum Offering Price Per Share**
Class A - ($15.92 x 105.26%) $16.76
==========================================================================
* 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 October 31,
1999. You'll also find the net asset value for each share as of that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year ended October 31, 1999
- ----------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign
withholding taxes of $1,097,181) $58,172,866
Interest 7,987,328
-----------
66,160,194
-----------
Expenses:
Investment management fee - Note B 25,040,294
Distribution and service fee - Note B
Class A 2,365,472
Class B 24,880,993
Class C 19,332
Transfer agent fee - Note B 9,121,486
Custodian fee 630,315
Accounting and legal services fee - Note B 539,115
Trustees' fees 183,453
Printing 177,378
Miscellaneous 98,746
Legal fees 36,450
Auditing fee 21,166
Registration and filing fees 7,968
Organization expense - Note A 5,162
-----------
Total Expenses 63,127,330
- ----------------------------------------------------------------------
Net Investment Income 3,032,864
- ----------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions:
Net realized loss on investments sold (138,849,996)
Net realized loss on foreign
currency transactions (208,044)
Change in net unrealized
appreciation/depreciation of investments 407,920,188
Change in net unrealized
appreciation/depreciation of
foreign currency transactions (9,834)
-----------
Net Realized and Unrealized Gain on
Investments 268,852,314
- ----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $271,885,178
======================================================================
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.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $13,092,229 $3,032,864
Net realized loss on investments
sold and foreign currency transactions (10,047,867) (139,058,040)
Change in net unrealized
appreciation/depreciation of
investments and foreign currency transactions (159,121,594) 407,910,354
------------- -------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (156,077,232) 271,885,178
------------- -------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.1117 and $0.1409 per
share, respectively) (3,725,901) (8,042,383)
Class B - ($0.0250 and $0.0477 per
share, respectively) (2,632,181) (8,379,524)
Distributions in excess of net
investment income
Class A - (none and $0.0151 per
share, respectively) -- (859,947)
Class B - (none and $0.0051 per
share, respectively) -- (896,029)
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 (890,613,927)
------------- -------------
Net Assets:
Beginning of period 1,725,644,511 3,464,602,998
------------- -------------
End of period (including
undistributed (distributions in
excess of) net investment income
of $13,389,043 and ($1,673,324), respectively) $3,464,602,998 $2,827,696,366
============== ==============
<CAPTION>
Statement of Changes in Net Assets (continued)
- -------------------------------------------------------------------------------------------------------------
*Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1998 1999
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 55,765,091 $897,314,850 22,959,873 $367,047,792
Shares issued to shareholders in
reinvestment of distributions 212,459 3,216,372 468,813 7,018,313
----------- ----------- ----------- -----------
55,977,550 900,531,222 23,428,686 374,066,105
Less shares repurchased (26,987,952) (385,136,154) (40,240,885) (641,049,683)
----------- ----------- ----------- -----------
Net increase (decrease) 28,989,598 $515,395,068 (16,812,199) ($266,983,578)
=========== ============ =========== ============
CLASS B
Shares sold 107,496,787 $1,727,338,249 14,373,502 $225,776,066
Shares issued to shareholders in
reinvestment of distributions 161,856 2,448,654 375,108 5,612,865
----------- ----------- ----------- -----------
107,658,643 1,729,786,903 14,748,610 231,388,931
Less shares repurchased (22,873,695) (341,492,079) (54,992,101) (860,455,538)
----------- ----------- ----------- -----------
Net increase (decrease) 84,784,948 $1,388,294,824 (40,243,491) ($629,066,607)
=========== ============ =========== ============
CLASS C
Shares sold -- -- 351,885 $5,595,717
Less shares repurchased -- -- (10,250) (159,459)
----------- ----------- ----------- -----------
Net increase -- -- 341,635 $5,436,258
=========== ============ =========== ============
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.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1996 1997 1998 1999
-------- -------- -------- --------
<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 0.10
Net Realized and Unrealized Gain on
Investments and Foreign Currency Transactions 2.51 3.77 0.52(8) 1.18
-------- -------- -------- --------
Total from Investment Operations 2.53 3.91 0.67 1.28
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income -- (0.03) (0.11) (0.14)
Distributions in Excess of Net Investment Income -- -- -- (0.02)
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 $15.92
======== ======== ======== ========
Total Investment Return at Net Asset Value (3) 29.76%(6) 37.19% 4.66% 8.69%
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 $659,031
Ratio of Expenses to Average Net Assets 1.20%(7) 1.20% 1.37% 1.39%
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% 0.62%
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (5) (5.50%)(7) 0.83% -- --
Portfolio Turnover Rate 31% 6% 30% 40%
Fee Reduction Per Share (2) $0.38 $0.03 -- --
<CAPTION>
Financial Highlights (continued)
- ------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------
1997 1998 1999
-------- -------- --------
<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 (Loss)(2) 0.04 0.03 (0.01)
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 2.71 0.54(8) 1.17
-------- -------- --------
Total from Investment Operations 2.75 0.57 1.16
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income -- (0.03) (0.04)
Distributions in Excess of Net Investment Income -- -- (0.01)
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 $15.81
======== ======== ========
Total Investment Return at Net Asset Value (3) 24.06%(6) 3.95% 7.93%
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 $2,163,265
Ratio of Expenses to Average Net Assets 1.90%(7) 2.07% 2.07%
Ratio of Adjusted Expenses
to Average Net Assets (5) 2.17%(7) -- --
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.40%(7) 0.22% (0.07%)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) 0.13%(7) -- --
Portfolio Turnover Rate 6% 30% 40%
Fee Reduction Per Share (2) $0.03 -- --
<CAPTION>
Financial Highlights (continued)
- -----------------------------------------------------------------------
FOR THE PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1999
----------------
<S> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period $15.60
--------
Net Investment Loss (2) (0.00)(9)
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 0.21
--------
Total from Investment Operations 0.21
--------
Net Asset Value, End of Period $15.81
========
Total Investment Return at Net Asset Value (3) 1.35%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $5,401
Ratio of Expenses
to Average Net Assets 2.06%(7)
Ratio of Net Investment Loss
to Average Net Assets (0.14%)(7)
Portfolio Turnover Rate 40%
(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.
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.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
October 31, 1999
- -------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Financial Industries Fund on October 31, 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.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------------------------ ---------- ------------
<S> <C> <C> <C>
COMMON STOCKS
Banks - Foreign (8.45%)
Abbey National Plc (United Kingdom) 190,000 $3,710,073
Alliance & Leicester Plc (United Kingdom) 420,000 6,119,904
Allied Irish Banks Plc, American
Depositary Receipts (ADR) (Ireland) 1,000,000 25,062,500
Anglo Irish Bank Corp. Plc
(Ireland) 524,908 1,220,936
Banco Bilbao Vizcaya, S.A. (ADR)
(Spain) 330,000 4,455,000
Banco Comercial Portugues, SA
(Portugal)* 340,000 9,570,014
Bank of Scotland (United Kingdom) 1,278,329 15,920,821
Bipop-Carire SpA (Italy)* 460,000 19,460,208
HSBC Holdings Plc (United Kingdom) 910,040 11,192,127
ING Groep NV (ADR) (Netherlands) 588,525 34,796,541
Julius Baer Holding AG
(Switzerland) 1,150 3,460,407
Lloyds TSB Group Plc (United Kingdom) 704,492 9,727,766
Merita Plc (Class A) (Finland) 1,300,000 7,528,690
National Westminster Bank Plc
(United Kingdom) 721,811 16,273,951
Nordbanken Holding AB (Sweden) 300,000 1,747,950
Royal Bank of Scotland Group Plc
(United Kingdom) 688,953 15,849,639
Societe Generale (France) 90,000 19,581,066
Svenska Handelsbanken (Sweden) 1,170,000 16,190,343
Toronto-Dominion Bank (Canada) 740,400 17,075,475
--------------
238,943,411
--------------
Banks - Midwest (3.95%)
Comerica, Inc. 160,000 9,510,000
Commerce Bancshares, Inc. 229,250 8,883,438
Community First Bankshares, Inc. 442,500 8,421,350
Fifth Third Bancorp. 84,500 6,237,156
Firstar Corp. 1,472,960 43,268,200
FirstMerit Corp. 266,000 7,032,375
Marshall & Ilsley Corp. 86,150 5,782,819
TCF Financial Corp. 767,776 22,649,392
--------------
111,784,730
--------------
Banks - Money Center (2.65%)
Chase Manhattan Corp. 159,600 13,945,050
Citigroup, Inc. 1,127,796 61,041,959
--------------
74,987,009
--------------
Banks - Northeast (2.73%)
M & T Bank Corp. 20,527 10,171,128
State Street Corp. 483,000 36,768,375
U.S. Trust Corp. 295,000 23,931,875
Wilmington Trust Corp. 114,500 6,211,625
--------------
77,083,003
--------------
Banks - Southeast (1.82%)
CCB Financial Corp. 452,314 20,806,444
First Tennessee National Corp. 732,400 24,901,600
Regions Financial Corp. 192,760 5,794,848
--------------
51,502,892
--------------
Banks - Southwest (0.59%)
Cullen/Frost Bankers, Inc. 392,000 11,319,000
Southwest Bancorp. of Texas, Inc.* 303,000 5,264,625
--------------
16,583,625
--------------
Banks - Super Regional (5.49%)
Bank One Corp. 154,948 5,820,234
Fleet Boston Corp. 704,499 30,733,769
KeyCorp. 176,521 4,931,555
National City Corp. 795,500 23,467,250
SunTrust Banks, Inc. 113,000 8,270,188
Wachovia Corp. 282,032 24,325,260
Wells Fargo Co. 1,203,500 57,617,562
--------------
155,165,818
--------------
Banks - West (1.49%)
BancWest Corp. 86,000 3,595,875
City National Corp. 579,287 22,447,371
Greater Bay Bancorp. 147,716 5,428,563
Westamerica Bancorp. 308,071 10,609,195
--------------
42,081,004
--------------
Broker Services (8.81%)
Consors Discount Broker AG
(Germany)* 240,000 13,422,336
Edwards (A.G.), Inc. 225,000 6,764,063
Legg Mason, Inc. 1,140,332 41,479,577
Lehman Brothers Holdings, Inc. 301,600 22,224,150
Merrill Lynch & Co., Inc. 560,000 43,960,000
Morgan Keegan, Inc. 300,000 5,362,500
Morgan Stanley Dean Witter & Co. 562,600 62,061,813
Paine Webber Group, Inc. 330,000 13,447,500
Raymond James Financial, Inc. 553,550 11,209,388
Schwab (Charles) Corp. 630,000 24,530,625
TD Waterhouse Group, Inc.* 370,435 4,699,894
--------------
249,161,846
--------------
Business Services - Misc. (0.18%)
Reuters Group Plc (ADR)
(United Kingdom) 90,000 4,978,125
--------------
Computer - Services (4.69%)
BISYS Group, Inc. (The)* 598,700 30,533,700
DST Systems, Inc.* 75,000 4,776,563
First Data Corp. 849,400 38,806,962
Fiserv, Inc.* 1,831,430 58,605,760
--------------
132,722,985
--------------
Computer - Software (0.63%)
Intuit, Inc.* 615,000 17,911,875
--------------
Finance - Consumer Loans (10.52%)
American Express Co. 574,140 88,417,560
AmeriCredit Corp.* 758,000 13,170,250
Associates First Capital Corp.
(Class A) 1,742,000 63,583,000
Capital One Financial Corp. 460,000 24,380,000
Household International, Inc. 1,092,984 48,774,411
MBNA Corp. 1,055,062 29,146,088
Metris Cos., Inc. 259,900 8,950,306
NextCard, Inc.* 38,200 1,191,363
Providian Financial Corp. 182,400 19,881,600
--------------
297,494,578
--------------
Finance - Investment Management (4.71%)
Affiliated Managers Group, Inc.* 222,400 5,949,200
Amvescap Plc (ADR) (United Kingdom) 775,000 34,778,125
BlackRock, Inc.* 420,000 6,405,000
Federated Investors, Inc. (Class B)* 680,000 11,730,000
Franklin Resources, Inc. 675,000 23,625,000
Kansas City Southern Industries, Inc. 80,000 3,795,000
Price (T. Rowe) Associates, Inc. 980,900 34,821,950
Waddell & Reed Financial, Inc.
(Class A) 500,000 12,000,000
--------------
133,104,275
--------------
Finance - Savings & Loan (1.50%)
Astoria Financial Corp. 230,050 8,281,800
Bank United Corp. (Class A) 216,300 8,435,700
Charter One Financial, Inc. 348,244 8,553,743
Dime Bancorp., Inc. 485,000 8,669,375
GreenPoint Financial Corp. 30,000 855,000
Washington Mutual, Inc. 210,250 7,555,859
--------------
42,351,477
--------------
Finance - SBIC & Commercial (2.42%)
CIT Group, Inc. (The) (Class A) 1,035,000 24,710,625
DVI, Inc.* 90,000 1,215,000
FINOVA Group, Inc. (The) 547,000 24,102,188
Heller Financial, Inc. 780,000 18,525,000
--------------
68,552,813
--------------
Insurance - Brokers (2.65%)
Aon Corp. 422,500 14,998,750
Marsh & McLennan Cos., Inc. 759,800 60,071,686
--------------
75,070,436
--------------
Insurance - Life (12.08%)
AFLAC, Inc. 835,000 42,689,375
American General Corp. 365,000 27,078,437
Axa (ADR) (France) 350,000 24,412,500
AXA Financial, Inc. 1,290,000 41,360,625
Jefferson Pilot Corp. 262,000 19,666,375
Liberty Corp. 330,000 15,860,625
Lincoln National Corp. 515,000 23,754,375
Mediolanum SpA (Italy) 600,000 4,874,760
Nationwide Financial Services, Inc.
(Class A) 480,000 18,180,000
Presidential Life Corp. 399,000 7,331,625
Protective Life Corp. 1,240,000 44,872,500
Reinsurance Group of America, Inc. 1,017,650 33,836,862
ReliaStar Financial Corp. 449,000 19,278,937
Torchmark Corp. 588,000 18,338,250
--------------
341,535,246
--------------
Insurance - Multi Line (4.92%)
Aegon N.V. (Netherlands) 113,000 10,421,956
Allianz AG (Germany) 7,000 2,119,653
Allied Zurich Plc (United Kingdom)* 350,000 4,221,210
Allmerica Financial Corp. 723,850 41,395,172
Companhia de Seguros Mundial
Confianca, SA (Portugal)* 200,000 9,018,020
Fortis (NL) NV (Netherlands) 532,627 18,322,848
Hartford Financial Services Group, Inc. (The) 756,000 39,170,250
Horace Mann Educators Corp. 271,600 7,655,725
Skandia Forsakrings AB (Sweden) 300,000 6,664,050
--------------
138,988,884
--------------
Insurance - Property & Casualty (8.34%)
Ace, Ltd. (Bermuda) 1,368,750 26,605,078
Ambac Financial Group, Inc. 331,500 19,807,125
American International Group, Inc. 479,312 49,339,179
Cincinnati Financial Corp. 422,000 15,112,875
Financial Security Assurance Holdings Ltd. 538,000 30,329,750
MBIA, Inc. 427,799 24,411,280
Medical Assurance, Inc.* 130,900 3,059,788
Progressive Corp. 164,000 15,180,250
Travelers Property Casualty Corp.
(Class A) 862,400 31,046,400
XL Capital Ltd. (Class A) 388,116 20,836,978
--------------
235,728,703
--------------
Mortgage & Real Estates Services (2.68%)
Countrywide Credit Industries, Inc. 898,000 30,475,875
Fannie Mae 639,000 45,209,250
--------------
75,685,125
--------------
Real Estate Investment Trust - Equity Trust (5.35%)
Apartment Investment & Management Co. (Class A) 342,000 12,867,750
Arden Realty, Inc. 443,000 8,915,375
Brandywine Realty Trust 560,000 9,415,000
Colonial Properties Trust 270,000 6,885,000
Equity Office Properties Trust 665,000 14,713,125
Equity Residential Properties Trust 210,000 8,780,625
General Growth Properties, Inc. 515,000 14,902,812
Highwood Properties, Inc. 140,000 3,386,250
Host Marriott Corp. 10,000 90,000
Macerich Co. (The) 195,000 3,900,000
Mack-Cali Realty Corp. 385,000 9,913,750
Prentiss Properties Trust 455,000 9,754,063
Reckson Associates Realty Corp. 780,000 14,430,000
SL Green Realty Corp. 434,000 7,893,375
Spieker Properties, Inc. 420,000 14,673,750
Starwood Hotels & Resorts Worldwide, Inc. 280,000 6,422,500
Vornado Realty Trust 125,000 3,960,938
Walden Residential Properties, Inc. 20,000 428,750
--------------
151,333,063
--------------
Real Estate Investment Trust -
Mortgage Trust (0.00%)
Core Cap, Inc. (Class A)* (r) 4,500 72,900
--------------
TOTAL COMMON STOCKS
(Cost $2,322,827,196) (96.65%) 2,732,823,823
------- --------------
PREFERRED STOCK
Real Estate Investment Trust -
Mortgage Trust (0.00%)
Core Cap, Inc., Ser A/I, 10.00% (r) 4,500 107,730
--------------
TOTAL PREFERRED STOCK
(Cost $112,500) (0.00%) 107,730
------- --------------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.37%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
10-29-99, due 11-01-99
(Secured by U.S. Treasury
Bonds, 7.125% thru 13.375%,
due 08-15-01 thru 02-15-23) - Note A 5.23% $95,336 95,336,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.30% 159
--------------
TOTAL SHORT-TERM INVESTMENTS (3.37%) 95,336,159
------- --------------
TOTAL INVESTMENTS (100.02%) 2,828,267,712
------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.02%) (571,346)
------- --------------
TOTAL NET ASSETS (100.00%) $2,827,696,366
======= ==============
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 OCTOBER 31,
DATE COST NET ASSETS 1999
----------- ----------- ---------- -----------
Core Cap, Inc.
Common Stock 10-31-97 $90,000 0.00% $72,900
Preferred Stock 10-31-97 112,500 0.00 107,730
------- --------
TOTAL 0.00% $180,630
======= ========
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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 October 31, 1999 assigned to the various country categories.
MARKET VALUE
AS A PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- ------------------
<S> <C>
Bermuda 0.94%
Canada 0.60
Finland 0.27
France 1.55
Germany 0.55
Ireland 0.93
Italy 0.86
Netherlands 2.25
Portugal 0.66
Spain 0.16
Sweden 0.87
Switzerland 0.12
United Kingdom 4.34
United States 85.92
------
TOTAL INVESTMENTS 100.02%
------
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Financial Industries Fund
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 Growth 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 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 under-lying 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 $140,635,246 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 as follows:October 31, 2006 - $2,259,735 and October 31, 2007 -
$138,375,511.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Fund identifies the
dividend. Interest income on investment securities is recorded on the accrual
basis. Foreign income may be subject to foreign withholding taxes, which are
accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class
of shares based on the relative net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class
level based on the appropriate net assets of each class and the specific
expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable
to an individual fund. Expenses which are not identifiable to a specific fund
are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative size 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 year ended
October 31, 1999.
SECURITIES LENDING The Fund may lend its securities to certain qualified
brokers who pay the Fund negotiated lender fees. These fees are included in
interest income. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear the
risk of delay of the loaned securities in recovery or even loss of rights in
the collateral should the borrower of the securities fail financially. At
October 31, 1999, the Fund loaned securities having a market value of
$6,626,563 collateralized by securities in the amount of $6,868,224.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments
are translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities, other than investments in securities
at fiscal year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts
are marked to market daily at the applicable foreign currency exchange rates.
Any resulting unrealized gains and losses are included in the determination
of the Fund's daily net assets. The Fund records realized gains and losses at
the time the forward foreign currency contract is closed out or offset by a
matching contract. Risks may arise upon entering these contracts from
potential inability of counterparties to meet the terms of the contract and
from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under
which it intends to take delivery of the foreign currency. Such contracts
normally involve no market risk if they are offset by the currency amount of
the underlying transaction.
At October 31, 1999, open forward foreign currency exchange contracts were
as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT DATE (DEPRECIATION)
- -------- ------------------- ---- ------------
BUYS
Euro Currency 2,054,545 NOV 99 ($9,113)
British Pound Sterling 468,891 NOV 99 (2,388)
-------
($11,501)
=======
SELLS
British Pound Sterling 224,458 NOV 99 $1,144
=======
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 October 31, 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 October 31, 1999, there were no written option transactions.
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 year ended October
31, 1999, net sales charges received with regard to sales of Class A shares
amounted to $2,952,139. Out of this amount, $283,445 was retained and used
for printing prospectuses, advertising, sales literature and other purposes,
$2,316,735 was paid as sales commissions to unrelated broker-dealers and
$351,959 was paid as sales commissions to sales personnel of Signator
Investors, Inc. ("Signator Investors"), a related broker-dealer. 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 year October 31,
1999, contingent deferred sales charges received by JH Funds amounted to
$16,378,938.
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 October 31, 1999, contingent deferred sales charges received by
JH Funds amounted to $436.
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 Conduct Rules
of the National Association of Securities Dealers. Under the Conduct Rules,
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,
accounting and legal services for the Fund. The compensation for the year 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. Maureen R. Ford, 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 through
December 31, 1999. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer, for tax purposes, their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds,
as applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are recorded
on the Fund's books as an other asset. The deferred compensation liability
and the related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as any
unrealized gains or losses. The investment had no impact on the operations of
the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the year ended October 31, 1999, aggregated
$1,247,396,189, and $1,998,936,847, respectively. There were no purchases or
sales of obligations of the U.S. government and its agencies during the year
ended October 31, 1999.
The cost of investments owned at October 31, 1999 (excluding the corporate
savings account) for federal income tax purposes was $2,430,353,946. Gross
unrealized appreciation and depreciation of investments aggregated
$526,057,185 and $128,143,578, respectively, resulting in net unrealized
appreciation of $397,913,607.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1999, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments and
foreign currency of $1,644,804, a decrease in distributions in excess of net
investment income of $82,652 and a decrease in capital paid-in of $1,727,456.
This represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of October 31, 1999. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund,
are primarily attributable to the treatment of net operating loss, of
passive foreign investment companies, of real estate investment trusts
(REITs) and of net realized loss on foreign currency transactions in the
computation of distributable income and capital gains under federal tax rules
versus generally accepted accounting principles. The calculation of net
investment income per share in the financial highlights excludes these
adjustments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Financial Industries Fund
and the Trustees of John Hancock Investment Trust II
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of John Hancock
Financial Industries Fund (the "Fund") (a series of John Hancock Investment
Trust II), at October 31, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and the
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at October 31, 1999 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 10, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October
31, 1999.
100% of the distributions qualify for the dividends received deduction
available to corporations.
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Financial Industries Fund. It may be used as sales literature when preceded
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7000A 10/99
12/99
