The latest report from your
Fund's management team
ANNUAL REPORT
Regional
Bank Fund
OCTOBER 31, 2000
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
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
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
William L. Braman
Executive Vice President and
Chief Investment 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, President and Chief
Executive Officer, flush right next to second paragraph.]
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years,
the financial markets have brought investors back down to earth in 2000.
Rising interest rates and oil prices, the prospects of a slowing economy
and earnings fears all caught up with pricey growth stocks -- technology
in particular. A dramatic plunge in the spring and again in the fall
caused the major indexes to end October in negative territory for the
year to date. The tech-heavy NASDAQ Composite Index was hardest hit,
returning -17.19% year to date through October.
But there is a silver lining. Investors have finally turned their
attention to broader swaths of the market, including old economy stocks
in sectors like financials, health care and energy, that combined both
strong fundamentals and more attractive valuation levels. Since April,
less expensive value stocks have outperformed growth stocks.
Bonds also began to make a comeback as the year progressed and investors
grew more confident that the series of Fed rate hikes might be coming to
an end. Pockets of strength have emerged there, including municipal
bonds and longer-maturity Treasury bonds. The 30-year bond, for
instance, returned 13.53% year to date through October.
The market's shifts in leadership so far this year highlight one of the
key investment tenets that we can't emphasize enough: investing should
be a marathon, not a sprint. If your portfolio is diversified and you
have an up-to-date financial plan crafted with an investment
professional to meet your goals, it becomes easier to ride out the
market's short-term ups and downs. It could also provide you with a
greater chance of success over time.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT 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
Financial stocks rebound but regional banks still lag
[A 2" x 3" photo bottom right side of John Hancock Regional Bank Fund.
Caption below reads "Fund management team members. Standing (l-r):
Jay McKelvey, Lisa Welch and Tom Finucane. Sitting (l-r): Jim Schmidt and
Tom Goggins."]
The last 12 months broke down into two distinct periods for financial
stocks. From the start of the fiscal year last November into the spring,
financial stocks were decidedly out of favor, hurt by rising interest
rates and investors' tunnel-vision focus on richly valued, red-hot
technology stocks. The picture changed dramatically in early March when
technology stocks began a swoon that has lasted through October.
Reverting to a more rational mode, investors sought out stocks with
valuations that at least bore some connection to earnings prospects.
Financial stocks were beneficiaries of this important market shift. The
interest-rate-sensitive group was further bolstered by the growing
perception that the Federal Reserve was nearing the end of its cycle of
tightening and by a summer wave of merger activity.
Bank stocks, however, were the weakest link in the financial sector over
the last 12 months. Their rebound was curtailed both in June and again
in October by news of earnings shortfalls and increases in non-
performing loans.
"Because
the Fund's
primary
focus is
on regional
banks, our
results
lagged the
group..."
Fund performance
Although the Fund ended on a high note, rebounding by 18% in the second
half of its fiscal year, the upswing was not enough to overcome the
losses in the first half, when bank stocks fell to historically low
levels. As a result, John Hancock Regional Bank Fund's Class A, Class B
and Class C shares posted total returns of -8.62%, -9.26% and -9.26%,
respectively, at net asset value for the year ended October 31, 2000. In
the same period the average financial services fund returned 12.33%,
according to Lipper, Inc.1 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.
[Table at top left-hand column entitled "Top Five Stock Holdings." The
first listing is Wells Fargo 4.1%, the second is Washington Mutual 3.9%,
the third Bank of New York 3.3%, the fourth U.S. Bancorp 3.0% and the
fifth FleetBoston 3.0%. A note below the table reads "As a percentage of
net assets on October 31, 2000."]
"...we still
anticipate
average
2001 bank
earnings
growth to
be about
8% higher
than this
year's."
Regional bank focus hurts fund
Because the Fund's primary focus is on regional banks, our results
lagged the group of Lipper financial services funds, many of which
invested in the better-performing securities brokers, asset managers and
larger diversified financial firms. Although the majority of our
holdings posted earnings results in line with our expectations, we did
experience earnings shortfalls in some instances. The problems either
stemmed from an increase in non-performing loans -- at
such banks as UnionBanCal Corp., Wachovia, SunTrust Banks, First Union
and Pacific Century Financial -- or from merger integration issues, which
bedeviled Bank One, First Union, U.S. Bancorp, AmSouth Bancorp and
Centura Banks. Finally, since we typically invest in the more
"traditional" banks, we were underweighted in those that generate mostly
fee revenue from investment and processing activities.
[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 Golden State Bancorp followed by an up arrow with the phrase "Market
embraces thrift whose earnings expand." The second listing is City
National Corp. followed by a sideways arrow with phrase "Roller coaster
ride for powerhouse regional." The third listing is Old Kent Financial
followed by a down arrow with the phrase "Rising rate concerns." A note
below the table reads "See 'Schedule of Investments,' Investment
holdings are subject to change."]
A word about asset quality
Since the early 1990s, banks operating in the United States have
benefited from an expanding economy and a favorable lending environment
that has kept the level of non-performing assets extremely low by
historical standards. Therefore, it's not surprising that a slowing
economy has caused a pickup in problem loans recently. Even with the
increase, however, the level of problem loans still remains low at 0.83%
of total assets, as measured by the Keefe Bank Composite. The area
experiencing much of the deteriorating credit quality is syndicated
loans -- large loans, shared among a consortium of banks, made
to companies that are typically rated below investment grade. In
particular, loans booked in 1997 and early 1998 -- when lending terms
were more flexible and the market was more receptive than it is today to
considering marginal credits -- are most vulnerable. While the non-
performing loan rate could rise some more, we anticipate that it should
remain at a low level (below 1% of total assets) and that the banking
industry is establishing adequate loan loss reserves. On an ongoing
basis, our team continues to carefully scrutinize the credit risks and
prospects of our banks.
Fundamentals better than market thinks
Even with an increase in non-performing assets, a slowdown in loan
growth and some compression of net interest margins, we still anticipate
average 2001 bank earnings growth to be about 8% higher than this
year's. Although this rate is slower than the unsustainable level of the
past five years, it is better than the performance of the stocks would
indicate.
[Bar chart at top of left hand column with the heading "Fund
Performance." Under the heading is a note that reads "For the year ended
October 31, 2000." The chart is scaled in increments of 5% with -10% at
the bottom and 15% at the top. The first bar represents the -8.62% total
return for John Hancock Regional Bank Fund Class A. The second bar
represents the -9.26% total return for John Hancock Regional Bank Fund
Class B. The third bar represents the -9.26% total return for John
Hancock Regional Bank Fund Class C. The fourth bar represents the 12.33%
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 the following two pages
for historical performance information."]
Mergers still a trend
The trend of industry consolidation is still alive and well, although,
as we have discussed in past reports, the level of activity will always
depend on market conditions. For much of 2000, merger activity has been
slow because banks have resisted being sold at price levels lower than
they were two years ago. What's more, investors still remember several
of the headline mergers of 1997 and 1998 that have not lived up to
expectations, primarily because of the high acquisition costs. Recently,
there has been a resurgence of activity, with FleetBoston Financial's
announced purchase of Summit Bank and Firstar's acquisition of U.S.
Bancorp. Both of these transactions were priced at more realistic
levels, thus boosting the chances of success. We could see more
consolidation as banks, struggling to increase revenues, use mergers
as a means of improving profits through gained operating efficiencies.
Basic strategy intact
Throughout the year, we maintained our long-term strategy of owning
regional banks that can produce reliable earnings growth and also have
the potential to benefit from industry consolidation. We cut back on the
larger, more liquid and higher-priced regionals such as Firstar and
Wells Fargo to meet redemptions that occurred during the year. We also
sold some of the smaller thrifts in which we had minimal stakes. Not
only did we want less exposure to these very rate-sensitive businesses,
but we also believe the franchise value that they might realize in an
acquisition has eroded.
"We are
encouraged
by the recent
turn of
events for
bank stocks."
Bank stocks remain compelling
We are encouraged by the recent turn of events for bank stocks. Even
though further asset-quality announcements could roil the group, there
are several factors working in our favor. Interest rates have
stabilized, and could even begin to come down as the economy slows, and
prospects for further merger activity are good. It appears that the
Federal Reserve may have achieved the sought-after "soft landing." This
not-too-fast, not-too-slow environment is ideal for bank results.
Furthermore, while bank earnings have indeed slowed, the situation is
not as negative as the market has reflected to date. That means bank
stock valuations remain compelling, with room to advance.
--------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the managers'
views are subject to change as market and other conditions warrant.
Sector investing is subject to greater risks than the market as a whole.
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 an up-front 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 an up-front sales charge of 1%
and a contingent deferred sales charge (maximum 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 October 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
------- ------- -------
Cumulative Total Returns (13.20%) 83.60% 361.85%
Average Annual Total Returns (13.20%) 12.92% 18.93%
CLASS B
For the period ended October 31, 2000
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- -------
Cumulative Total Returns (13.31%) 84.79% 744.55%
Average Annual Total Returns (13.31%) 13.07% 23.78%
CLASS C
For the period ended October 31, 2000
SINCE
ONE INCEPTION
YEAR (3/1/99)
------- -------
Cumulative Total Returns (10.96%) (9.38%)
Average Annual Total Returns (10.96%) (5.73%)
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 $48,621 as of October 31, 2000. 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
$46,190 as of October 31, 2000. The third line represents the Standard &
Poor's 500 Index and is equal to $41,348 as of October 31, 2000.
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, 1990, before sales
charge, and is equal to $84,456 as of October 31, 2000. The second line
represents the Standard & Poor's 500 Index and is equal to $58,993 as of
October 31, 2000.
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 $11,773 as of
October 31, 2000. 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 $9,153 as of
October 31, 2000. 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 $9,061 as of October 31, 2000.
*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,
2000. 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, 2000
--------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Notes C and D:
Common and preferred stocks:
Unaffiliated issuers (cost - $1,412,364,818) $2,898,613,961
Affiliated issuers (cost - $23,384,137) 30,470,135
Bonds (cost - $1,989,560) 2,116,520
Joint repurchase agreement (cost - $55,423,000) 55,423,000
Corporate savings account 361
---------------------
2,986,623,977
Receivable for investments sold 8,810,849
Receivable for shares sold 503,705
Dividends receivable 5,192,956
Interest receivable 55,101
Other assets 290,056
Total Assets 3,001,476,644
---------------------
Liabilities:
Payable for shares repurchased 3,366,852
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 3,468,373
Accounts payable and accrued expenses 639,177
---------------------
Total Liabilities 7,474,402
---------------------
Net Assets:
Capital paid-in 1,255,722,256
Accumulated net realized gain on investments
and foreign currency transactions 243,545,139
Net unrealized appreciation of investments 1,493,462,101
Undistributed net investment income 1,272,746
---------------------
Net Assets $2,994,002,242
=====================
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 - $788,432,771/19,024,717 $41.44
======================================================================================
Class B - $2,171,550,956/52,706,555 $41.20
======================================================================================
Class C - $34,018,515/825,674 $41.20
======================================================================================
Maximum Offering Price Per Share
Class A* - ($41.44/95%) $43.62
======================================================================================
Class C - ($41.20/99%) $41.62
======================================================================================
* 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.
</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, 2000
--------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (including $1,464,113 received from
affiliated issuers and net of foreign withholding
taxes of $22,488) $103,590,392
Interest 5,446,128
------------------
109,036,520
------------------
Expenses:
Investment management fee - Note B 24,448,382
Distribution and service fee - Note B
Class A 2,485,111
Class B 23,780,833
Class C 199,974
Transfer agent fee - Note B 8,251,552
Accounting and legal service fee - Note B 616,942
Custodian fee 448,373
Trustees' fees 243,907
Miscellaneous 212,846
Printing 174,214
Registration and filing fees 102,319
Auditing fee 36,900
Legal fees 17,796
------------------
Total Expenses 61,019,149
------------------
Net Investment Income 48,017,371
------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold
(including $1,084,337 gain on sales of investments
in affiliated issuers) 313,533,823
Change in net unrealized appreciation (depreciation)
of investments (965,368,431)
------------------
Net Realized and Unrealized
Loss on Investments (651,834,608)
------------------
Net Decrease in Net Assets
Resulting from Operations (603,817,237)
==================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $48,177,641 $48,017,371
Net realized gain on investments sold 467,488,065 313,533,823
Change in net unrealized appreciation (depreciation) of investments (204,398,999) (965,368,431)
Net Increase (Decrease) in Net Assets Resulting from Operations 311,266,707 (603,817,237)
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.7040 and $0.8076, per share, respectively) (19,540,749) (16,932,055)
Class B - ($0.3780 and $0.5306, per share, respectively) (31,847,104) (31,809,025)
Class C** - ($0.2622 and $0.5306, per share, respectively) (17,644) (299,402)
Distributions from net realized gain on investments sold
Class A - ($1.4700 and $4.2472, per share, respectively) (43,781,790) (97,505,447)
Class B - ($1.4700 and $4.2472, per share, respectively) (132,283,160) (294,149,675)
Class C** - (none and $4.2472, per share, respectively) -- (671,576)
-------------- --------------
Total Distributions to Shareholders (227,470,447) (441,367,180)
-------------- --------------
From Fund Share Transactions - Net:* 1,239,045,771) (812,746,101)
-------------- --------------
Net Assets:
Beginning of period 6,007,182,271 4,851,932,760
-------------- --------------
End of period (including undistributed net investment income
of $2,392,089 and $1,272,746, respectively) $4,851,932,760 $2,994,002,242
============== ==============
<CAPTION>
Statement of Changes in Net Assets (continued)
------------------------------------------------------------------------------------------------------------
*Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1999 2000
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 11,641,658 $603,173,333 4,727,605 $178,921,180
Shares issued to shareholders
in reinvestment of distributions 1,047,363 52,029,344 2,384,851 94,801,691
----------- -------------- ----------- -------------
12,689,021 655,202,677 7,112,456 273,722,871
Less shares repurchased (18,945,731) (971,792,774) (11,631,382) (436,243,811)
----------- -------------- ----------- -------------
Net decrease (6,256,710) ($316,590,097) (4,518,926) ($162,520,940)
=========== ============== =========== =============
CLASS B
Shares sold 8,751,598 $443,975,183 6,513,223 $250,627,021
Shares issued to shareholders
in reinvestment of distributions 2,186,603 108,129,488 5,560,487 220,513,818
----------- -------------- ----------- -------------
10,938,201 552,104,671 12,073,710 471,140,839
Less shares repurchased (29,494,671) (1,481,370,072) (30,813,483) (1,146,976,880)
----------- -------------- ----------- -------------
Net decrease (18,556,470) ($929,265,401) (18,739,773) ($675,836,041)
=========== ============== =========== =============
CLASS C**
Shares sold 138,401 $7,013,754 845,921 $31,338,415
Shares issued to shareholders
in reinvestment of distributions 321 15,312 20,243 791,546
----------- -------------- ----------- -------------
138,722 7,029,066 866,164 32,129,961
Less shares repurchased (4,427) (219,339) (174,785) (6,519,081)
----------- -------------- ----------- -------------
Net increase 134,295 $6,809,727 691,379 $25,610,880
=========== ============== =========== =============
** 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,
-----------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $27.14 $33.99 $48.73 $50.34 $51.21
------------- ------------- ------------- ------------- -------------
Net Investment Income(1) 0.63 0.64 0.66 0.68 0.78
Net Realized and Unrealized
Gain (Loss) on Investments 7.04 15.02 1.99 2.36 (5.49)
------------- ------------- ------------- ------------- -------------
Total from Investment Operations 7.67 15.66 2.65 3.04 (4.71)
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.60) (0.61) (0.65) (0.70) (0.81)
Distributions from Net
Realized Gain on
Investments Sold (0.22) (0.31) (0.39) (1.47) (4.25)
------------- ------------- ------------- ------------- -------------
Total Distributions (0.82) (0.92) (1.04) (2.17) (5.06)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $33.99 $48.73 $50.34 $51.21 $41.44
============= ============= ============= ============= =============
Total Investment Return at
Net Asset Value(2) 28.78% 46.79% 5.33% 6.24% (8.62%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $860,843 $1,596,836 $1,500,200 $1,205,712 $788,433
Ratio of Expenses to Average
Net Assets 1.36% 1.30% 1.24% 1.27% 1.37%
Ratio of Net Investment
Income to Average Net
Assets 2.13% 1.55% 1.23% 1.33% 2.01%
Portfolio Turnover Rate 8% 5% 5% 4% 5%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $27.02 $33.83 $48.48 $50.08 $50.94
------------- ------------- ------------- ------------- -------------
Net Investment Income(1) 0.42 0.35 0.30 0.35 0.50
Net Realized and Unrealized
Gain (Loss) on Investments 7.01 14.95 1.97 2.36 (5.46)
------------- ------------- ------------- ------------- -------------
Total from Investment Operations 7.43 15.30 2.27 2.71 (4.96)
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.40) (0.34) (0.28) (0.38) (0.53)
Distributions from Net
Realized Gain on
Investments Sold (0.22) (0.31) (0.39) (1.47) (4.25)
------------- ------------- ------------- ------------- -------------
Total Distributions (0.62) (0.65) (0.67) (1.85) (4.78)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $33.83 $48.48 $50.08 $50.94 $41.20
============= ============= ============= ============= =============
Total Investment Return at
Net Asset Value(2) 27.89% 45.78% 4.62% 5.55% (9.26%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $2,408,514 $4,847,755 $4,506,983 $3,639,380 $2,171,551
Ratio of Expenses to Average
Net Assets 2.07% 2.00% 1.92% 1.92% 2.07%
Ratio of Net Investment
Income to Average Net
Assets 1.42% 0.84% 0.56% 0.68% 1.31%
Portfolio Turnover Rate 8% 5% 5% 4% 5%
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
-----------------------------------------------------------------------
PERIOD ENDED YEAR ENDED
OCTOBER 31, 1999(3) OCTOBER 31, 2000
---------------- ----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning
of Period $50.77 $50.94
------------- -------------
Net Investment Income(1) 0.22 0.32
Net Realized and Unrealized
Gain (Loss) on Investments 0.21 (5.28)
------------- -------------
Total from Investment Operations 0.43 (4.96)
------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.26) (0.53)
Distributions from Net
Realized Gain on
Investments Sold -- (4.25)
------------- -------------
Total Distributions (0.26) (4.78)
------------- -------------
Net Asset Value, End of
Period $50.94 $41.20
============= =============
Total Investment Return at
Net Asset Value(2) 0.87%(4) (9.26%)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $6,841 $34,019
Ratio of Expenses to Average
Net Assets 1.97%(5) 2.07%
Ratio of Net Investment
Income to Average Net Assets 0.65%(5) 1.30%
Portfolio Turnover Rate 4% 5%
(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) Class C shares began operations on March 1, 1999.
(4) Not annualized.
(5) 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 each class. 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, 2000
------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the Regional Bank Fund on October 31, 2000. It's divided into four
main categories: common stocks, preferred stocks, bonds, and short-term
investments. Common and preferred stocks are further broken down by
industry group. Short-term investments, which represent the Fund's
"cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION, STATE SHARES VALUE
-------------------------- ---------- --------------
<S> <C> <C> <C>
COMMON STOCKS
Money Center Banks (1.67%)
Chase Manhattan Corp. (NY) 1,100,310 $50,064,105
--------------
Superregional Banks (28.15%)
Bank of America Corp. (NC) 1,471,382 70,718,297
Bank of New York Co., Inc. (NY) 1,721,398 99,087,972
Bank One Corp. (OH) 1,500,441 54,766,097
First Union Corp. (NC) 1,576,244 47,779,896
FleetBoston Financial Corp. (MA) 2,328,801 88,494,438
KeyCorp (OH) 603,934 14,909,621
Mellon Financial Corp. (PA) 1,651,554 79,687,481
National City Corp. (OH) 2,407,828 51,467,324
PNC Bank Corp. (PA) 604,900 40,452,688
SunTrust Banks, Inc. (GA) 1,121,515 54,743,951
U.S. Bancorp (MN) 3,697,139 89,424,550
Wachovia Corp. (NC) 522,787 28,230,498
Wells Fargo Co. (CA) 2,657,510 123,075,932
--------------
842,838,745
--------------
Banks - United States (51.69%)
ABC Bancorp. (GA) 209,600 1,965,000
AmSouth Bancorp. (AL) 3,896,222 54,303,594
Associated Banc-Corp. (WI) 298,176 7,174,860
BancFirst Corp. (OK) 282,454 10,238,957
BancorpSouth, Inc. (MS) 197,350 2,577,884
BancWest Corp. (HI) 2,097,780 42,873,379
Banknorth Group, Inc. (ME) 3,533,673 64,047,823
BB&T Corp. (NC) 2,544,545 81,107,372
Brenton Banks, Inc. (IA) 351,799 4,353,512
Bryn Mawr Bank Corp. (PA) 198,900 4,127,175
BSB Bancorp, Inc. (NY) 77,075 1,132,039
BT Financial Corp. (PA) 207,262 4,054,563
Centura Banks, Inc. (NC) 506,525 19,469,554
Chittenden Corp. (VT) 939,989 24,968,458
Citizens Banking Corp. (MI) 198,015 4,715,232
City National Corp. (CA) 544,800 18,727,500
Colonial BancGroup, Inc. (AL) 1,063,100 9,368,569
Comerica, Inc. (MI) 1,111,697 67,049,225
Commerce Bancshares, Inc. (MO) 1,150,282 41,338,259
Commercial Bankshares, Inc. (FL) 199,052 3,433,647
Community Bank System, Inc. (NY) 142,500 3,462,750
Community First Bankshares, Inc. (ND) 756,950 11,732,725
Compass Bancshares, Inc. (AL) 1,905,125 34,649,461
Cullen/Frost Bankers, Inc. (TX) 2,032,350 67,702,659
F & M National Corp. (VA) 139,424 3,607,596
Fifth Third Bancorp (OH) 697,375 35,827,640
Firstbank Corp. (MI) 116,480 2,344,160
First Citizens BancShares, Inc.
(Class A) (NC) 77,344 5,723,456
First Republic Bank* (CA) 259,162 7,029,769
First Source Corp. (IN) 136,500 2,141,344
First State Bancorp. (NM) 159,750 1,837,125
First Tennessee National Corp. (TN) 2,551,300 58,679,900
First Virginia Banks, Inc. (VA) 96,749 4,002,990
Firstar Corp. (WI) 3,756,619 73,958,436
FirstMerit Corp. (OH) 212,181 4,840,379
F.N.B. Corp. (PA) 250,737 5,390,845
Fulton Financial Corp. (PA) 548,086 11,989,381
Hancock Holding Co. (MS) 326,200 10,152,975
Hibernia Corp. (Class A) (LA) 439,800 5,250,112
Hudson United Bancorp. (NJ) 639,781 14,315,100
IBERIABANK Corp. (LA) 275,000 5,482,812
Independent Bank Corp. (MA) 820,000 8,815,000
Integra Bank Corp., (IN) 95,634 2,468,553
Interchange Financial Services Corp. (NJ) 323,625 4,328,484
M&T Bank Corp. (NY) 607,653 30,504,181
Marshall & Ilsley Corp. (WI) 685,480 31,060,812
Mercantile Bankshares Corp. (MD) 833,050 31,343,506
Mississippi Valley Bancshares, Inc. (MO) 250,800 6,599,175
National Commerce Bancorp. (TN) 2,576,201 54,744,271
North Fork Bancorp., Inc. (NY) 3,508,227 70,822,333
North Valley Bancorp. (CA) 204,200 2,348,300
Old Kent Financial Corp. (MI) 972,875 26,936,477
Pacific Century Financial Corp. (HI) 28,366 359,894
Provident Bankshares Corp. (MD) 409,180 7,748,846
Provident Financial Group, Inc. (OH) 151,539 4,584,055
Regions Financial Corp. (AL) 862,500 20,322,656
Riggs National Corp. (DC) 202,000 2,272,500
Seacoast Banking Corp. (Class A) (FL) 169,800 4,223,775
Simmons First National Corp.
(Class A) (AR) 306,500 6,072,531
Sky Financial Group, Inc. (OH) 333,863 5,550,472
SouthTrust Corp. (AL) 1,376,150 44,552,856
Southwest Bancorp., Inc. (OK) 135,000 1,932,188
Southwest Bancorp. of Texas, Inc.* (TX) 97,600 3,562,400
State Street Corp. (MA) 249,000 31,060,260
Sterling Bancshares, Inc. (TX) 357,430 6,143,328
Summit Bancorp. (NJ) 1,754,725 65,802,188
Susquehanna Bancshares, Inc. (PA) 669,693 9,459,414
TCF Financial Corp. (MN) 1,179,942 47,713,905
Texas Regional Bancshares, Inc.
(Class A) (TX) 412,500 12,323,438
TriCo Bancshares (CA) 332,575 5,154,913
Trustmark Corp. (MS) 297,000 5,643,000
UnionBanCal Corp. (CA) 1,952,900 41,010,900
Union Planters Corp. (TN) 578,067 19,545,891
Westamerica Bancorp. (CA) 715,575 25,715,977
Whitney Holding Corp. (LA) 427,300 15,783,394
Zions Bancorp. (UT) 936,500 53,790,219
--------------
1,547,448,309
--------------
Thrifts (15.92%)
Ambanc Holding Co., Inc. (NY) 207,100 3,197,106
Astoria Financial Corp. (NY) 855,000 32,062,500
Bank United Corp. (Class A) (TX) 153,600 8,707,200
BostonFed Bancorp., Inc. (MA) 330,700 6,035,275
Charter One Financial, Inc. (OH) 3,755,356 86,138,478
Commercial Federal Corp. (NE) 1,372,682 24,021,935
Dime Bancorp., Inc. (NY) 1,349,500 32,978,406
Dime Community Bancshares., Inc. (NY) 264,900 5,877,469
First Federal Capital Corp. (WI) 280,000 3,290,000
First Financial Holdings, Inc. (SC) 177,000 2,986,875
GA Financial, Inc. (PA) 334,500 4,683,000
Golden State Bancorp., Inc.* (CA) 954,686 24,941,172
GreenPoint Financial Corp. (NY) 2,158,000 64,200,500
Independence Community Bank
Corp. (NY) 331,200 4,864,500
MAF Bancorp., Inc. (IL) 526,743 12,641,832
MASSBANK Corp. (MA) 136,400 4,006,750
Medford Bancorp., Inc. (MA) 208,500 2,866,875
Pamrapo Bancorp., Inc. (NJ) 86,000 1,752,250
PFF Bancorp., Inc. (CA) 190,000 3,515,000
Roslyn Bancorp., Inc. (NY) 105,062 2,278,532
Washington Federal, Inc. (WA) 1,053,964 23,516,572
Washington Mutual, Inc. (WA) 2,639,474 116,136,856
Webster Financial Corp. (CT) 140,000 3,412,500
WSFS Financial Corp. (DE) 239,400 2,603,475
--------------
476,715,058
--------------
Banks - Foreign (0.30%)
Popular, Inc. (Puerto Rico) 320,500 8,913,906
--------------
TOTAL COMMON STOCKS,
(Cost $1,432,598,955) (97.73%) 2,925,980,123
--------- --------------
PREFERRED STOCKS
Banks - United States (0.10%)
Chevy Chase Pref. Capital Corp., Ser A,
10.375% (MD) 18,000 913,500
First Preferred Capital I, 9.25% (MO) 75,000 1,830,473
First Source Capital Trust I, 9.00% (IN) 15,000 360,000
--------------
TOTAL PREFERRED STOCKS,
(Cost $3,150,000) (0.10%) 3,103,973
--------- --------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost $1,435,748,955) (97.83%) 2,929,084,096
--------- --------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
------------------- -------- ------------ -----------
BONDS (0.07%)
Susquehanna Bancshares, Inc.,
Sub Deb 02-01-05 9.00% $2,000 $2,116,520
--------------
TOTAL BONDS
(Cost $1,989,560) (0.07%) 2,116,520
--------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.85%)
Investment in a joint repurchase
agreement transaction with
UBS Warburg, Inc. - Dated
10-31-00, due 11-01-00
(Secured by U.S. Treasury
Bonds, 7.125% thru 13.250%,
due 05-15-14 thru 02-15-23)
- Note A 6.56 55,423 55,423,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.20% 361
--------------
TOTAL SHORT-TERM INVESTMENTS (1.85%) 55,423,361
--------- --------------
TOTAL INVESTMENTS (99.75%) 2,986,623,977
--------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.25%) 7,378,265
--------- --------------
TOTAL NET ASSETS (100.00%) $2,994,002,242
========= ==============
* Non-income producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Regional Bank Fund
NOTE A--
ACCOUNTING POLICIES
John Hancock Regional Bank Fund (the "Fund") is a diversified series of
John Hancock Investment Trust II, an open-end management investment
company, registered under the Investment Company Act of 1940. The
investment objective of the Fund is to achieve long-term capital
appreciation primarily from a portfolio of equity securities of regional
banks and lending institutions.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost, which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more large repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for
ensuring that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
Capital gains realized on some foreign securities are subject to foreign
taxes, and are accrued as applicable.
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.
EXPENSES The majority of the expenses are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a
specific fund will be 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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund has entered into a syndicated line of credit
agreement with various banks. This agreement enables the Fund to
participate with other funds managed by the Adviser in an unsecured line
of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing.
In addition, a commitment fee is charged to each fund 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 under
the line of credit during the year ended October 31, 2000.
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 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 dividends and 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 accounting principles generally accepted in the United
States of America, incorporates estimates made by management in
determining the reported amount of assets, liabilities, revenues and
expenses of the Fund. Actual results could differ from these estimates.
NOTE B--
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser 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. To reimburse JH Funds
for the services it provides as distributor of shares of the Fund, the
Fund has adopted a Distribution Plan 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 makes 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. 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.
During the year ended October 31, 2000, JH Funds received net up-front
sales charges of $356,412 with regard to sales of Class A shares. Of
this amount, $53,496 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $188,613 was paid as
sales commissions to unrelated broker-dealers and $114,303 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 Life Insurance Company ("JHLICo"), is the indirect
sole shareholder of Signator Investors. Effective May 1, 2000, all Class
C shares retail purchases are assessed a 1.00% up-front sales charge.
During the year ended October 31, 2000, JH Funds received net up-front
sales charges of $144,821 with regard to sales of Class C shares. Of
this amount, $144,343 was paid as sales commissions to unrelated broker-
dealers and $478 was paid as sales commissions to sales personnel 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. 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 B and Class C shares. For the year ended October 31,
2000, CDSCs received by JH Funds amounted to $12,928,392 for Class B
shares and $29,447 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund pays monthly 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. Stephen L. Brown and Ms. Maureen R. Ford are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compensation Plan investments 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, 2000, aggregated $158,008,564 and
$1,230,889,781, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the year
ended October 31, 2000.
The cost of investments owned at October 31, 2000 (including short-term
investments) for federal income tax purposes was $1,494,659,805. Gross
unrealized appreciation and depreciation of investments aggregated
$1,503,394,555 and $11,430,744, respectively, resulting in net
unrealized appreciation of $1,491,963,811.
NOTE D--
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 2000, the Fund has reclassified
amounts to reflect a decrease in net realized gain on investments of
$69,381,769, a decrease in accumulated net investment income of $96,232
and an increase in capital paid-in of $69,478,001. This represents the
amount necessary to report these balances on a tax basis, excluding
certain temporary differences, as of October 31, 2000. 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 treatment of real estate investment
trusts in 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 (loss) per share 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, 2000 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>
BostonFed Bancorp., Inc.(MA) 330,700 -- -- -- -- 330,700 -- $125,666 $6,035,275
Catskill Financial Corp. (NY) 210,000 -- -- 210,000 $2,309,923 -- $46,171 23,100 --
CCF Holding Co. (GA) 49,687 -- -- 49,687 434,747 -- (33,735) 11,925 --
Commercial Bankshares, Inc. (FL) 189,574 -- -- -- -- 199,052(1) 6 107,488 3,433,647
Elmira Savings Bank (NY) 38,531 -- -- 38,531 885,099 -- 453,789 12,330 --
First Federal Bancorp (MN) 126,000 -- -- 126,000 960,718 -- 245,218 -- --
First Source Capital Trust II,
8.14% (IN) 40,000 -- -- 40,000 857,471 -- (142,529) 59,200 --
GA Financial, Inc. (PA) 384,500 -- -- 50,000 609,104 334,500 34,104 61,520 4,683,000
IFC Capital Trust I, 9.25% (IN) 160,000 -- -- 160,000 3,779,874 -- (220,126) 370,000 --
Independent Bank Corp. (MA) 820,000 -- -- -- -- 820,000 -- 328,000 8,815,000
Logansport Financial Corp. (IN) 77,500 -- -- 77,500 650,497 -- (142,982) 8,525 --
North Valley Bancorp. (CA) 181,700 22,500 $235,031 -- -- 204,200 -- 77,930 2,348,300
NS&L Bancorp. (MO) 42,000 -- -- 42,000 416,735 -- (33,890) 6,720 --
Prestige Bancorp Inc. (PA) 98,015 -- -- 98,015 970,960 -- (55,956) 12,742 --
Sobieski Bancorp., Inc. (IN) 40,000 -- -- 40,000 399,987 -- (48,763) -- --
Sterling Bancshares
Capital Trust I,
9.28% (TX) 60,000 -- -- 60,000 1,417,453 -- (82,547) 69,594 --
Texarkana First Financial Corp.
(AR) 124,800 -- -- 124,800 2,786,111 -- 1,011,285 21,216 --
TriCo Bancshares (CA) 324,075 8,500 138,406 -- -- 332,575 -- 128,089 5,154,913
WesterFed Financial Corp. (MT) 250,426 -- -- 250,426 3,525,841 -- 54,292 40,068 --
-------- ----------- ---------- ---------- -----------
$373,437 $20,004,520 $1,084,337 $1,464,113 $30,470,135
======== =========== ========== ========== ===========
(1) Reflects 5% stock dividend payments as of December 10, 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, 2000, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards generally accepted in
the United States of America, 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 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, 2000, by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 8, 2000
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, 2000.
The Fund designated distributions to shareholders of $461,823,148 as
capital gain dividends.
With respect to the dividends paid by the Fund for the fiscal year ended
October 31, 2000, 100.00% of the dividends qualify for the corporate
dividends-received deduction.
Shareholders will be mailed a 2000 U.S. Treasury Department
Form 1099-DIV in January 2001. This will reflect the tax character of
all distributions for the calendar year 2000.
NOTES
John Hancock Funds -- Regional Bank Fund
NOTES
John Hancock Funds -- Regional Bank Fund
NOTES
John Hancock Funds -- Regional Bank Fund
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
Member NASD
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of the shareholders of the John Hancock
Regional Bank Fund. It is not authorized for distribution to prospective
investors unless it is preceded or accompanied by the current prospectus,
which details charges, investment objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."]
0100A 10/00
12/00
The latest report from your
Fund's management team
ANNUAL REPORT
Small Cap
Value Fund
OCTOBER 31, 2000
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
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
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President
and Chief Executive Officer
William L. Braman
Executive Vice President
and Chief Investment 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
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years,
the financial markets have brought investors back down to earth in 2000.
Rising interest rates and oil prices, the prospects of a slowing economy
and earnings fears all caught up with pricey growth stocks - technology in
particular. A dramatic plunge in the spring and again in the fall
caused the major indexes to end October in negative territory for the
year to date. The tech-heavy NASDAQ Composite Index was hardest hit,
returning -17.19% year to date through October.
But there is a silver lining. Investors have finally turned their
attention to broader swaths of the market, including old economy stocks
in sectors like financials, health care and energy, that combined both
strong fundamentals and more attractive valuation levels. Since April,
less expensive value stocks have outperformed growth stocks.
Bonds also began to make a comeback as the year progressed and investors
grew more confident that the series of Fed rate hikes might be coming to
an end. Pockets of strength have emerged there, including municipal
bonds and longer-maturity Treasury bonds. The 30-year bond, for
instance, returned 13.53% year to date through October.
The market's shifts in leadership so far this year highlight one of the
key investment tenets that we can't emphasize enough: investing should
be a marathon, not a sprint. If your portfolio is diversified and you
have an up-to-date financial plan crafted with an investment
professional to meet your goals, it becomes easier to ride out the
market's short-term ups and downs. It could also provide you with a
greater chance of success over time.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY TIMOTHY E. QUINLISK, CFA, PORTFOLIO MANAGEMENT TEAM LEADER,
AND R. SCOTT MAYO, CFA, PORTFOLIO MANAGER
[A 2" x 3" photo bottom middle of page of John Hancock Small Cap Value
Fund. Caption below reads "Tim Quinlisk."]
John Hancock
Small Cap Value Fund
Small caps benefit as investors avoid high-priced sectors
Small-capitalization stocks posted strong gains for the year ended
October 31, 2000, with the Russell 2000 Index climbing 17.41% compared
with 6.08% for the Standard & Poor's 500 Index. Small caps first surged
ahead late last year and early this year, as investors began recognizing
how attractive their stock prices and earnings looked compared with more
expensive large-cap names. Technology and telecommunications stocks led
the market's charge until March when interest rate concerns finally
caused a shift toward stocks with more reasonable valuations. Small caps --
especially safe-haven, value sectors like financials, health care and
energy -- benefited throughout the spring and summer. Stable interest
rates also revived earnings prospects for many technology names, which
rebounded during the third quarter. But signs of slower economic growth
early in the fall hurt the earnings outlooks for many technology and
telecom companies, causing their stock prices to slide once again.
Fund strategy and performance
In this environment, John Hancock Small Cap Value Fund benefited from
sticking to its disciplined strategy of investing in great businesses
whose stocks are selling at a discount compared with the company's true
value. The Fund's Class A, Class B and Class C shares returned 37.75%,
36.73% and 36.82%, respectively, at net asset value, for the year ended
October 31, 2000. By comparison, the average small-cap core fund
returned 26.64% during the same period, according to Lipper, Inc.1 Keep
in mind that your net asset value return will differ from the Fund's
performance if you were not invested in the Fund for the entire period
and did not reinvest all distributions. For historical performance
information, please turn to pages six and seven.
"...a shift
toward
stocks
with more
reasonable
valuations."
Technology and cap goods winners
Technology, the market's top performing sector for the year, accounted
for over 20% of the Fund's net assets. Among our best performing and
largest names were Aspen Technology, a company that specializes in
making software for process-oriented industries like oil, chemicals,
paper and pulp, and Wind River Systems, the leading supplier of software
for embedded microprocessor systems. Thanks to increased demand for
their products, both companies saw their stock prices more than double
during the period. A higher-than-average stake in top-performing capital
goods stocks also boosted performance. Oak Industries, which makes
components for the cable, TV, wireless and fiber-optics markets, did
exceptionally well when it was bought out by Corning, a leading
manufacturer of fiber for fiber-optics networks. Amphenol, a
manufacturer of connectors for the cable, wireless and aerospace
industries, and Vicor, a maker of modular systems, also turned in
stellar results, thanks to strong and growing demand for their products.
[Table at top left-hand column entitled "Top Five Stock Holdings." The
first listing is Hain Celectial Group 6.6%, the second is Vicor 5.3%,
the third ACNielsen 4.5%, the fourth Alpha Industries 3.8% and the fifth
Sensormatic Electronics 3.6%. A note below the table reads "As a
percentage of net assets on October 31, 2000."]
"...disciplined
strategy of
investing in
great busi-
nesses whose
stocks are
selling at a
discount..."
[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 Vicor followed by an up arrow with the phrase "Strong products,
strong sales." The second listing is Corinthian Colleges followed by an
up arrow with phrase "Attractive revenue from growing enrollment." The
third listing is Viant followed by a down arrow with the phrase
"Slowdown in demand and funding." A note below the table reads "See
'Schedule of Investments,' Investment holdings are subject to change."]
Gains from education and buy-outs
The Fund's stake in Corinthian Colleges and Career Education, both of
which own and operate for-profit colleges, also aided performance. Each
enjoyed strong revenues, earnings and cash flows, due to growing
enrollment trends. As investors looked for less economically sensitive
names with highly predictable revenues, these stocks took off. Another
top performer was Heidrick & Struggles International, a leading
executive search firm, which we sold this summer when it reached our
price target. Finally, we owned stocks that were bought out at premiums
by larger firms that recognized their true worth. These included Dexter,
a specialty chemicals company with a biotechnology subsidiary; Financial
Security Assurance Holdings, a global municipal bond insurer; and Metamor
Worldwide, an information-technology consulting firm.
Disappointments in telecom
The Fund's higher-than-average stake in telecommunications hurt
performance. Many companies suffered earnings disappointments related to
concerns about funding the build out of their networks. This, combined
with increased competition caused all telecom stocks to suffer. We took
advantage of market weakness and boosted our stakes in companies like
Alaska Communications Systems Holdings, CFW Communications and CTC
Communications Group. We believe these are great companies with good
franchises, very little financial risk and strong long-term potential.
As investors recognize that they are performing in line with
expectations, we expect to see the stock prices improve. Our investments
in e-commerce consulting firms like Viant and Xpedior also took a
beating. Many companies in this area had their funding cut off and also
experienced a temporary slowdown in demand. We believe huge pent-up
demand will eventually re-ignite the stocks.
[Bar chart at top of left hand column with the heading "Fund
Performance." Under the heading is a note that reads "For the year ended
October 31, 2000." The chart is scaled in increments of 10% with 0% at
the bottom and 50% at the top. The first bar represents the 37.75% total
return for John Hancock Small Cap Value Fund Class A. The second bar
represents the 36.80% total return for John Hancock Small Cap Value Fund
Class B. The third bar represents the 36.82% total return for John
Hancock Small Cap Value Fund Class C. The fourth bar represents the
26.64% total return for Average small-cap core fund. A note below the
chart reads "Total returns for John Hancock Small Cap Value Fund are at
net asset value with all distributions reinvested. The average small-cap
core fund is tracked by Lipper, Inc.1 See the following two pages for
historical performance information."]
Buying opportunities
We recently built large stakes in several new names, including Hain
Celestial Group, a leader in natural, organic and specialty foods. Most
of the company's sales currently come from natural food stores. Hain is
beginning, however, to penetrate large supermarket chains, which offer
huge growth potential. In addition, we expect the company's recent
merger with Celestial Seasonings to produce new revenue synergies and
cost savings. Another recent purchase was Alpha Industries, a company
with specialized radio frequency technology that is in a strong position
to benefit from growth in both the wire-line and wireless markets. We
also added companies like Pegasus Communications, a large direct
broadcast satellite company focused on rural markets; Valassis
Communications, which does freestanding ad inserts for Sunday
newspapers; and Casella Waste Systems, a solid waste collection company.
These are excellent businesses that should do well even if the economy
slows.
"Fortunately,
investor
concerns are
already
factored into
many stock
prices."
Optimistic outlook
Small-cap valuations and growth prospects remain attractive, but
selectivity - picking the winners and sidestepping the losers - will be
key as economic growth slows. Fortunately, investor concerns are already
factored into many stock prices. Plus, economic growth is forecast to
remain positive with interest rates staying stable or heading lower. All
of this bodes well for the future. We've focused on beaten-down sectors
like technology and telecom, while trimming our stake in energy stocks,
which appear near full valuation. We're especially optimistic because so
many of the Fund's investments -- including ACNielsen, which provides
market research to retailers; Iron Mountain, a document storage company;
and Sensormatic Electronics, which makes electronic tags to prevent
shoplifting -- have great businesses with recurring revenues that are not
yet reflected in their stock prices.
------------------------------------------------------------------------
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.
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 Small Cap Value Fund.
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested.
For Class A shares, total return figures include an up-front 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 an up-front sales charge of 1%
and a contingent deferred sales charge (maximum 1% declining to 0% after
one year).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them. Please read your prospectus carefully before you invest or
send money.
CLASS A
For the period ended October 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
------- ------- -------
Cumulative Total Returns 30.85% 179.58% 241.37%
Average Annual Total Returns(1) 30.85% 22.83% 19.71%
CLASS B
For the period ended October 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
------- ------- -------
Cumulative Total Returns 31.80% 182.34% 242.38%
Average Annual Total Returns(1) 31.80% 23.07% 19.76%
CLASS C
For the period ended October 31, 2000
SINCE
ONE INCEPTION
YEAR (5/1/98)
------- -------
Cumulative Total Returns 34.47% 73.54%
Average Annual Total Returns(1) 34.47% 24.65%
Note to Performance
(1) Since its inception in 1994 until March 1999, the Adviser
voluntarily limited the Fund's expenses, including the management fee
(but not including the transfer fee and the 12b-1 fee), to the extent
required to prevent expenses from exceeding 0.40% of the Fund's net
asset value. Without the limitation of expenses, the average annual
total returns for the five-year period and since inception for Class A
would have been 22.42% and 18.79%, respectively. The average annual
total returns for the five-year period and since inception for Class B
shares would have been 22.66% and 18.84%, respectively. The average
annual total return since inception for Class C would have been 24.39%.
Effective March 1, 1999, the Adviser removed the subsidy on all share
classes of the Small Cap Value Fund.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Small Cap Value Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown
the same $10,000 investment in the Russell 2000 Index, which is an
unmanaged small-cap index composed of 2,000 U.S. stocks. It is not
possible to invest in an index. Past performance is not indicative of
future results.
Line chart with the heading John Hancock Small Cap Value Fund Class A,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines. The first line
represents the value of the hypothetical $10,000 investment made in the
John Hancock Small Cap Value Fund on January 3, 1994, before sales
charge, and is equal to $35,994 as of October 31, 2000. The second line
represents the value of the same hypothetical investment made in the
John Hancock Small Cap Value Fund, after sales charge, and is equal to
$34,147 as of October 31, 2000. The third line represents the Russell
2000 Index and is equal to $21,141 as of October 31, 2000.
Line chart with the heading John Hancock Small Cap Value Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are two lines. The first line
represents the value of the hypothetical $10,000 investment made in the
John Hancock Small Cap Value Fund on January 3, 1994, before sales
charge, and is equal to $34,238 as of October 31, 2000. The second line
represents the Russell 2000 Index and is equal to $21,141 as of October
31, 2000.
Line chart with the heading John Hancock Small Cap Value Fund Class C*,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines. The first line
represents the value of the hypothetical $10,000 investment made in the
John Hancock Small Cap Value Fund on May 1, 1998, before sales charge,
and is equal to $17,536 as of October 31, 2000. The second line
represents the value of the same hypothetical investment made in the
John Hancock Small Cap Value Fund, after sales charge, and is equal to
$17,360 as of October 31, 2000. The third line represents the Russell
2000 Index and is equal to $10,627 as of October 31, 2000.
*No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
John Hancock Funds -- Small Cap Value 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 April 30,
2000. 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, 2000
------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $557,128,170) $558,791,347
Preferred stocks (cost - $555,000) 377,400
------------
559,168,747
Receivable for investments sold 29,284,967
Receivable for shares sold 2,647,355
Other assets 3,719
------------
Total Assets 591,104,788
------------
Liabilities:
Due to custodian 5,437,101
Payable for shares repurchased 508,795
Payable for investments purchased 10,391,295
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 489,366
Accounts payable and accrued expenses 130,700
------------
Total Liabilities 16,957,257
------------
Net Assets:
Capital paid-in 527,659,045
Accumulated net realized gain on investments,
financial futures contracts and foreign currency
transactions 45,004,525
Net unrealized appreciation of investments 1,485,577
Accumulated net investment loss (1,616)
------------
Net Assets $574,147,531
============
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 - $276,104,498/12,507,825 $22.07
========================================================================
Class B - $249,039,550/11,576,175 $21.51
========================================================================
Class C - $49,003,483/2,277,668 $21.51
========================================================================
Maximum Offering Price Per Share
Class A * - ($22.07/95%) $23.23
========================================================================
Class C - ($21.51/99%) $21.73
========================================================================
* 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.
</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 for the period stated.
Statement of Operations
Year ended October 31, 2000
------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $1,568,671
Dividends (net of foreign withholding taxes of $62,321) 708,691
Securities lending income - Note A 260,567
------------
2,537,929
------------
Expenses:
Investment management fee - Note B 2,806,863
Distribution and service fee - Note B
Class A 520,935
Class B 1,995,951
Class C 273,777
Transfer agent fee - Note B 975,140
Registration and filing fees 183,062
Custodian fee 91,237
Accounting and legal services fee - Note B 75,925
Auditing fee 39,164
Miscellaneous 22,314
Interest expense 20,928
Printing 16,141
Trustees' fees 14,193
Legal fees 3,482
------------
Total Expenses 7,039,112
------------
Net Investment Loss (4,501,183)
------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transaction
Net realized gain on investments sold 63,160,881
Net realized loss on financial futures contracts (7,896,772)
Net realized loss on foreign currency transactions (117)
Change in net unrealized appreciation (depreciation)
of investments (19,598,936)
------------
Net Realized and Unrealized
Gain on Investments, Financial
Futures Contracts and Foreign
Currency Transactions 35,665,056
------------
Net Increase in Net Assets
Resulting from Operations $31,163,873
============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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.
Statement of Changes in Net Assets
-----------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($762,666) ($4,501,183)
Net realized gain on investments sold, financial futures
contracts and foreign currency transactions 12,813,230 55,263,992
Change in net unrealized appreciation (depreciation)
of investments 23,034,773 (19,598,936)
------------ ------------
Net Increase in Net Assets Resulting from Operations 35,085,337 31,163,873
------------ ------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions
Class A - ($0.1253 and $1.3733 per share, respectively) (260,355) (4,269,349)
Class B - ($0.1253 and $1.3733 per share, respectively) (359,406) (6,425,707)
Class C - ($0.1253 and $1.3733 per share, respectively) (4,996) (367,562)
------------ ------------
Total Distributions to Shareholders (624,757) (11,062,618)
------------ ------------
From Fund Share Transactions - Net:* 42,574,046 423,424,243
------------ ------------
Net Assets:
Beginning of period 53,587,407 130,622,033
------------ ------------
End of period (including accumulated net investment loss
of $1,332 and $1,616, respect $130,622,033 $574,147,531
============ ============
<CAPTION>
Statement of Changes in Net Assets (continued)
-----------------------------------------------------------------------------------------------
*Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1999 2000
----------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 2,467,123 $36,131,692 13,252,711 $306,712,105
Shares issued to shareholders in reinvestment of distributions 21,741 244,370 221,599 3,908,920
------------ ----------- ---------- ------------
2,488,864 36,376,062 13,474,310 310,621,025
Less shares repurchased (1,574,480) (21,507,175) (3,962,243) (91,425,410)
------------ ----------- ---------- ------------
Net increase 914,384 $14,868,887 9,512,067 $219,195,615
============ =========== ========== ============
CLASS B
Shares sold 3,082,751 $44,813,213 9,065,610 $201,422,685
Shares issued to shareholders in reinvestment of distributions 28,600 318,057 286,237 4,953,134
------------ ----------- ---------- ------------
3,111,351 45,131,270 9,351,847 206,375,819
Less shares repurchased (1,548,060) (20,164,373) (2,199,261) (48,686,548)
------------ ----------- ---------- ------------
Net increase 1,563,291 $24,966,897 7,152,586 $157,689,271
============ =========== ========== ============
CLASS C
Shares sold 194,189 $2,882,311 2,268,701 $51,415,807
Shares issued to shareholders in reinvestment of distributions 443 4,931 13,580 234,874
------------ ----------- ---------- ------------
194,632 2,887,242 2,282,281 51,650,681
Less shares repurchased (11,678) (148,980) (226,965) (5,111,324)
------------ ----------- ---------- ------------
Net increase 182,954 $2,738,262 2,055,316 $46,539,357
============ =========== ========== ============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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 each class. 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.
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 DECEMBER 31, YEAR ENDED OCTOBER 31,
------------------------------ PERIOD ENDED -------------------------
1995 1996 1997 OCTOBER 31, 1998(1) 1999 2000
------- ------- ------ ------------------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.99 $10.39 $10.32 $12.27 $10.82 $17.27
------- ------- ------ ------ ------- --------
Net Investment Income
(Loss)(2) 0.21 0.14 0.06 0.02 (0.09) (0.18)
Net Realized and Unrealized
Gain (Loss) on Investments 1.60 1.17 2.52 (1.47) 6.67 6.35
------- ------- ------ ------ ------- --------
Total from Investment Operations 1.81 1.31 2.58 (1.45) 6.58 6.17
------- ------- ------ ------ ------- --------
Less Distributions:
Dividends from Net
Investment Income (0.20) (0.14) (0.03) -- -- --
Distributions from Net Realized
Gain on Investments Sold (0.21) (1.24) (0.60) -- (0.13) (1.37)
------- ------- ------ ------ ------- --------
Total Distributions (0.41) (1.38) (0.63) -- (0.13) (1.37)
------- ------- ------ ------ ------- --------
Net Asset Value, End of
Period $10.39 $10.32 $12.27 $10.82 $17.27 $22.07
======= ======= ====== ====== ======= ========
Total Investment Return at
Net Asset Value(3) 20.26% 12.91% 25.25% (11.82%)(4) 61.39% 37.75%
Total Adjusted Investment
Return at Net Asset
Value(3,5) 19.39% 12.20% 24.65% (12.33%)(4) 61.24% --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $12,845 $15,853 $20,961 $22,528 $51,746 $276,104
Ratio of Expenses to Average
Net Assets 0.98% 0.99% 0.99% 1.01%(6) 1.39% 1.36%
Ratio of Adjusted Expenses
to Average Net Assets(7) 1.85% 1.70% 1.59% 1.62%(6) 1.54% --
Ratio of Net Investment
Income (Loss) to Average
Net Assets 2.04% 1.31% 0.47% 0.25%(6) (0.67%) (0.77%)
Ratio of Adjusted Net
Investment Income (Loss) to
Average Net Assets(7) 1.17% 0.60% (0.13%) (0.36%)(6) (0.82%) --
Portfolio Turnover Rate 9% 72% 140% 69% 140% 36%
Fee Reduction Per Share(2) $0.09 $0.08 $0.07 $0.06 $0.02 --
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED OCTOBER 31,
------------------------------ PERIOD ENDED -------------------------
1995 1996 1997 OCTOBER 31, 1998(1) 1999 2000
------- ------- ------ ------------------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $9.00 $10.38 $10.31 $12.21 $10.71 $16.98
------- ------- ------- ------- ------- -------
Net Investment Income
(Loss)(2) 0.12 0.07 (0.03) (0.04) (0.18) (0.31)
Net Realized and Unrealized
Gain (Loss) on Investments 1.59 1.17 2.53 (1.46) 6.58 6.21
------- ------- ------- ------- ------- -------
Total from Investment Operations 1.71 1.24 2.50 (1.50) 6.40 5.90
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net
Investment Income (0.12) (0.07) -- -- -- --
Distributions from Net Realized
Gain on Investments Sold (0.21) (1.24) (0.60) -- (0.13) (1.37)
------- ------- ------- ------- ------- -------
Total Distributions (0.33) (1.31) (0.60) -- (0.13) (1.37)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period $10.38 $10.31 $12.21 $10.71 $16.98 $21.51
======= ======= ======= ======= ======= =======
Total Investment Return at
Net Asset Value(3) 19.11% 12.14% 24.41% (12.29%)(4) 60.33% 36.80%
Total Adjusted Investment
Return at Net Asset
Value(3,5) 18.24% 11.43% 23.81% (12.80%)(4) 60.18% --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $16,994 $22,097 $35,033 $30,637 $75,103 $249,040
Ratio of Expenses to Average
Net Assets 1.73% 1.69% 1.69% 1.71%(6) 2.06% 2.06%
Ratio of Adjusted Expenses
to Average Net Assets(7) 2.60% 2.40% 2.29% 2.32%(6) 2.21% --
Ratio of Net Investment
Income (Loss) to Average
Net Assets 1.21% 0.62% (0.24%) (0.45%)(6) (1.34%) (1.38%)
Ratio of Adjusted Net
Investment Income (Loss) to
Average Net Assets(7) 0.34% (0.09%) (0.84%) (1.06%)(6) (1.49%) --
Portfolio Turnover Rate 9% 72% 140% 69% 140% 36%
Fee Reduction Per Share(2) $0.09 $0.08 $0.07 $0.06 $0.02 --
<CAPTION>
Financial Highlights (continued)
------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
PERIOD ENDED -------------------------
OCTOBER 31, 1998(8) 1999 2000
---------------- ------- -------
<S> <C> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning
of Period $13.39 $10.71 $16.97
------- ------- -------
Net Investment Loss(2) (0.03) (0.19) (0.34)
Net Realized and Unrealized
Gain (Loss) on Investments (2.65) 6.58 6.25
------- ------- -------
Total from Investment Operations (2.68) 6.39 5.91
------- ------- -------
Less Distributions:
Distributions from Net
Realized Gain on
Investments Sold -- (0.13) (1.37)
------- ------- -------
Net Asset Value, End of
Period $10.71 $16.97 $21.51
======= ======= =======
Total Investment Return at
Net Asset Value(3) (20.01%)(4) 60.24% 36.82%
Total Adjusted Investment
Return at Net Asset
Value(3,5) (20.32%)(4) 60.09% --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $422 $3,774 $49,003
Ratio of Expenses to Average
Net Assets 1.71%(6) 2.09% 2.07%
Ratio of Adjusted Expenses
to Average Net Assets(7) 2.32%(6) 2.29% --
Ratio of Net Investment Loss
to Average Net Assets (0.54%)(6) (1.43%) (1.50%)
Ratio of Adjusted Net
Investment Loss to Average
Net Assets(7) (1.15%)(6) (1.58%) --
Portfolio Turnover Rate 69% 140% 36%
Fee Reduction Per Share(2) $0.04 $0.02 --
(1) Effective October 31, 1998, the fiscal year end changed from December 31 to October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration expense reductions
by the Adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Class C shares began operations on May 1, 1998.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
October 31, 2000
------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the Small Cap Value Fund on October 31, 2000. It's divided into
two main categories: common stocks and preferred stocks. Common and
preferred stocks and bonds are further broken down by industry group.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
------------------- ---------- ------------
<S> <C> <C> <C>
COMMON STOCKS
Advertising (1.51%)
Penton Media, Inc. 284,000 $8,679,750
------------
Aerospace (0.61%)
Innovative Solutions & Support, Inc.* 194,450 3,500,100
------------
Broker Services (0.91%)
Jefferies Group, Inc. 191,500 5,218,375
------------
Business Services - Misc. (10.84%)
ACNielsen Corp.* 1,085,750 25,990,141
Iron Mountain, Inc.* 463,400 15,668,712
Sensormatic Electronics Corp* 1,144,500 20,601,000
------------
62,259,853
------------
Computers (18.25%)
Aspen Technology, Inc.* 433,850 17,923,428
AXENT Technologies, Inc.* 757,800 14,540,287
Bell & Howell Co.* 625,200 11,878,800
Diversinet Corp.* (Canada) 511,150 3,130,794
Electronics for Imaging, Inc.* 547,300 8,483,150
Hyperion Solutions Corp.* 194,150 2,718,100
NetRatings, Inc.* 227,500 4,095,000
Parametric Technology Corp.* 680,750 8,381,734
PSINet, Inc.* 701,220 4,667,531
Student Advantage, Inc.* 992,400 3,721,500
UNOVA, Inc.* 1,982,000 9,538,375
Viant Corp.* 1,018,950 6,050,016
Wind River Systems, Inc.* 207,375 8,515,336
Xpedior, Inc.* 598,300 1,121,813
------------
104,765,864
------------
Containers (2.49%)
Pactiv Corp.* 1,359,850 14,278,425
------------
Diversified Manufacturing Operations (1.87%)
Pittston Brink's Group 677,300 10,752,138
------------
Electronics (11.62%)
Alpha Industries, Inc. 543,000 21,652,125
Amphenol Corp. (Class A)* 136,700 8,782,975
ESCO Technologies, Inc. 251,750 4,578,703
Micro Component Technology, Inc.* 325,000 1,462,500
Vicor Corp.* 559,950 30,237,300
------------
66,713,603
------------
Finance (2.41%)
NOVA Corp. (Georgia)* 882,800 13,848,925
------------
Food (6.55%)
Hain Celestial Group, Inc.* 948,250 37,633,672
------------
Insurance (1.04%)
StanCorp Financial Group, Inc. 147,150 5,996,363
------------
Machinery (2.79%)
Applied Science & Technology, Inc.* 588,950 8,466,156
Zebra Technologies Corp. (Class A)* 172,150 7,542,322
------------
16,008,478
------------
Media (4.84%)
Pegasus Communications Corp.* 512,600 18,229,338
Regent Communications, Inc.* 943,100 5,658,600
Sinclair Broadcast Group, Inc. (Class A)* 423,000 3,899,552
------------
27,787,490
------------
Medical (4.00%)
Covance, Inc.* 1,223,400 10,551,825
DENTSPLY International, Inc. 257,500 8,932,031
Shire Pharmaceuticals Group Plc*
(United Kingdom) 170,000 3,455,998
------------
22,939,854
------------
Printing - Commercial (2.78%)
Valassis Communications, Inc.* 575,000 15,956,250
------------
Resorts/Theme Parks (2.60%)
Six Flags, Inc. 955,600 14,931,250
------------
Retail (2.53%)
Pathmark Stores, Inc.* 733,000 11,498,938
Ruddick Corp. 229,250 3,008,906
------------
14,507,844
------------
Schools/Education (5.83%)
Career Education Corp.* 419,800 16,241,012
Corinthian Colleges, Inc.* 249,400 17,239,775
------------
33,480,787
------------
Telecommunications (12.31%)
Alaska Communications Systems
Holdings, Inc.* 881,200 6,003,175
ANTEC Corp.* 1,249,350 15,226,453
CFW Communications Co. 644,000 12,799,500
Commonwealth Telephone
Enterprises, Inc.* 157,420 5,450,667
CT Communications, Inc. 132,500 2,658,281
CTC Communications Group, Inc.* 1,309,500 12,644,925
Intermedia Communications, Inc.* 441,550 9,769,294
Motient Corp.* 505,000 6,123,125
------------
70,675,420
------------
Waste Disposal Service & Equipment (1.54%)
Casella Waste Systems, Inc.* 1,019,500 8,856,906
------------
TOTAL COMMON STOCKS
(Cost $557,128,170) (97.32%) 558,791,347
-------- ------------
PREFERRED STOCKS
Real Estate Investment Trust (0.07%)
Anthracite Capital, Inc.,
10% Ser A/I (r) 22,200 377,400
------------
TOTAL PREFERRED STOCKS
(Cost $555,000) (0.07%) 377,400
-------- ------------
TOTAL INVESTMENTS (97.39%) 559,168,747
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (2.61%) 14,978,784
-------- ------------
TOTAL NET ASSETS (100.00%) $574,147,531
======== ============
* Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
(r) The security listed below is a direct placement security and is restricted
as to resale. The Fund has limited rights to registration under the Securities
Act of 1933 with respect to restricted securities (not including Rule 144A
securities). In certain circumstances the Fund may bear a portion of the cost
of such registrations; otherwise, such costs would be borne by the issuer.
Additional information on this restricted security is as follows:
MARKET VALUE
AS A PERCENTAGE MARKET VALUE
ACQUISITION ACQUISITION OF FUND'S AS OF
DATE COST NET ASSETS OCTOBER 31, 2000
---- ----- ---------- ------------------
Anthracite Capital, Inc.
(Preferred Stock) 5-15-00 $555,000 0.07% $377,400
======== ===== ========
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 -- Small Cap Value Fund
NOTE A--
ACCOUNTING POLICIES
John Hancock Small Cap Value Fund (the "Fund") is a diversified series
of John Hancock Investment Trust II, an open-end management investment
company, registered under the Investment Company Act of 1940. The
investment objective of the Fund is to seek capital appreciation.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost, which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more large repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for
ensuring that the agreement is fully collateralized at all times.
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, resulting from changes in the
exchange rate.
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.
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.
EXPENSES The majority of the expenses are directly identifiable to an
individual fund. Expenses, which are not readily identifiable to a
specific fund, will be allocated in such a manner as deemed equitable,
taking into consideration, among other things, the nature and type of
expense and the relative sizes of the funds.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund has entered into a syndicated line of credit
agreement with various banks. This agreement enables the Fund to
participate with other funds managed by the Adviser in an unsecured
line of credit with banks, which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing.
In addition, a commitment fee is charged to each fund based on the
average daily unused portion of the line of credit and is allocated
among the participating funds. The average daily loan balance during the
periods for which loans were outstanding amounted to $1,921,000. The
weighted average interest rate was 7.02%. Interest expense includes
$1,748 paid under the line of credit. At October 31, 2000, there were no
outstanding borrowings under the line of credit.
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, 2000, the Fund loaned securities having a
market value of $12,718,625 collateralized by securities in the amount
of $12,782,389.
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 the
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.
The Fund had no open forward foreign currency exchange contracts at
October 31, 2000.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects
of fluctuations in interest rates, currency exchange 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.
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.
The Fund had no open financial futures contracts at October 31, 2000.
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, DISTRIBUTIONS AND INTEREST 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 dividends and 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 accounting principles generally accepted in the United
States of America incorporates estimates made by management in
determining the reported amount of assets, liabilities, revenues and
expenses of the Fund. Actual results could differ from these estimates.
NOTE B--
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of 0.70%
of the Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. To reimburse JH Funds
for the services it provides as distributor of shares of the Fund, the
Fund has adopted a Distribution Plan 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 makes 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. 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.
During the year ended October 31, 2000, JH Funds received net up-front
sales charges of $773,471 with regard to sales of Class A shares. Of
this amount, $92,890 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $519,517 was paid as
sales commissions to unrelated broker-dealers and $161,064 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 Life Insurance Company ("JHLICo"), is the indirect
sole shareholder of Signator Investors. Effective May 1, 2000, all Class
C shares retail purchases are assessed a 1.00% up-front sales charge.
During the year ended October 31, 2000, JH Funds received net up-front
sales charges of $253,429 with regard to sales of Class C shares. Of
this amount, $250,157 was paid as sales commissions to unrelated broker-
dealers and $3,272 was paid as sales commissions to sales personnel 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. 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 B and Class C shares. For the year ended October 31,
2000, CDSCs received by JH Funds amounted to $349,272 for Class B shares
and $14,802 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund pays monthly 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. Stephen L. Brown and Ms. Maureen R. Ford are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compensation Plan investments 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, 2000, aggregated $651,106,888 and
$264,791,140, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the year
ended October 31, 2000.
The cost of investments owned at October 31, 2000 (excluding corporate
savings account) for federal income tax purposes was $560,723,535. Gross
unrealized appreciation and depreciation of investments aggregated
$112,165,190 and $113,719,978, respectively, resulting in net unrealized
depreciation of $1,554,788.
NOTE D--
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 2000, the Fund has reclassified
amounts to reflect a decrease in net realized gain on investments
of $9,893,904, a decrease in accumulated net investment loss of
$4,500,899 and an increase in capital paid-in of $5,393,005. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary difference, as of October 31, 2000.
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 and organizational costs 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 (loss)
per share in the financial highlights excludes these adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Investment Trust II,
John Hancock Small Cap Value Fund
We have audited the accompanying statement of assets and liabilities of
John Hancock Small Cap Value Fund (the "Fund"), one of the portfolios
constituting John Hancock Investment Trust II, including the schedule of
investments, as of October 31, 2000, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2000, by
correspondence with the custodian and brokers, and other appropriate
auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock Small Cap Value Fund portfolio of
John Hancock Investment Trust II at October 31, 2000, the results of its
operations for the year then ended, and the changes in its net assets
for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein, in conformity with
accounting principles generally accepted in the United States
of America.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
December 4, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund during its taxable year
ended October 31, 2000.
With respect to the distribution paid by the Fund for the fiscal year
ended October 31, 2000, 1.60% of the distributions qualify for the
dividends received deduction available to corporations.
The Fund designated distributions to shareholders of $3,819,093 as
long-term capital gain dividends. The Fund did not pay any ordinary
income dividends during the fiscal year ended October 31, 2000.
Shareholders will be mailed a 2000 U.S. Treasury Department Form 1099-
DIV in January of 2001. This will reflect the total of all distributions
which are taxable for calendar year 2000.
NOTES
John Hancock Funds -- Small Cap Value Fund
NOTES
John Hancock Funds -- Small Cap Value Fund
NOTES
John Hancock Funds -- Small Cap Value Fund
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
Member NASD
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This report is for the information of the shareholders of the John Hancock
Small Cap Value Fund. It is not authorized for distribution to prospective
investors unless it is preceded or accompanied by the current prospectus,
which details charges, investment objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."]
3700A 10/00
12/00
The latest report from your
Fund's management team
ANNUAL REPORT
Financial
Industries Fund
OCTOBER 31, 2000
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
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
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
William L. Braman
Executive Vice President and
Chief Investment 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, President and Chief
Executive Officer, flush right next to second paragraph.]
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years,
the financial markets have brought investors back down to earth in 2000.
Rising interest rates and oil prices, the prospects of a slowing economy
and earnings fears all caught up with pricey growth stocks -- technology
in particular. A dramatic plunge in the spring and again in the fall
caused the major indexes to end October in negative territory for the
year to date. The tech-heavy NASDAQ Composite Index was hardest hit,
returning -17.19% year to date through October.
But there is a silver lining. Investors have finally turned their
attention to broader swaths of the market, including old economy stocks
in sectors like financials, health care and energy, that combined both
strong fundamentals and more attractive valuation levels. Since April,
less expensive value stocks have outperformed growth stocks.
Bonds also began to make a comeback as the year progressed and investors
grew more confident that the series of Fed rate hikes might be coming to
an end. Pockets of strength have emerged there, including municipal
bonds and longer-maturity Treasury bonds. The 30-year bond, for
instance, returned 13.53% year to date through October.
The market's shifts in leadership so far this year highlight one of the
key investment tenets that we can't emphasize enough: investing should
be a marathon, not a sprint. If your portfolio is diversified and you
have an up-to-date financial plan crafted with an investment
professional to meet your goals, it becomes easier to ride out the
market's short-term ups and downs. It could also provide you with a
greater chance of success over time.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
THOMAS GOGGINS AND THOMAS FINUCANE, PORTFOLIO MANAGERS
[A 2" x 3" photo bottom right side of John Hancock Financial Industries
Fund. Caption below reads "Fund management team members. Standing (l-r):
Jay McKelvey, Lisa Welch and Tom Finucane. Seated (l-r): Jim Schmidt and
Tom Goggins."]
John Hancock
Financial Industries Fund
Financial stocks rebound stongly as rates stabilize,
mergers pick up
Financial stocks started the fiscal year last November in the doldrums,
hit by a combination of rising interest rates -- as the Federal Reserve
tried to slow the economy to prevent inflation -- and investors'
tunnel-vision focus on the technology sector. But the tide turned
decidedly positive this spring, when tech stocks began a swoon that has
lasted through October and interest rates stabilized. Also working in
financial stocks' favor were a series of big-name mergers that were
prompted by the passage of historic financial reform legislation at the
beginning of the Fund's fiscal year last November. The best performers
were the asset managers and brokerage houses, while some banks reported
earnings disappointments. With the favorable turn in financial stocks'
fortunes, the S&P Financial Index rose 16.30% for the year ending
October 31, 2000. That far exceeded the 6.08% result of the broader
market, as measured by the Standard & Poor's 500 Index.
"...Fund
benefited
even more
than its
peers
from the
upswing..."
Fund outperforms peers
John Hancock Financial Industries Fund benefited even more than its
peers from the upswing in financial stocks as the year progressed. For
the 12 months ended October 31, 2000, the Fund's Class A, Class B and
Class C shares posted total returns of 26.57%, 25.74% and 25.68%,
respectively, at net asset value. By contrast, the average financial
services fund returned 12.33%, according to Lipper, Inc.1 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 six and seven.
[Table at top left-hand column entitled "Top Five Stock Holdings." The
first listing is AFLAC 3.6%, the second is Marsh & McLennan 3.4%, the
third State Street Corp. 3.4%, the fourth American Express 3.3% and the
fifth Charles Schwab 3.2%. A note below the table reads "As a percentage
of net assets on October 31, 2000."]
"...biggest
contributor
to our out
performance
was our
overweighting
in the
brokers and
asset
managers."
Brokers, asset managers strong
By far the biggest contributor to our outperformance was our
overweighting in the brokers and asset managers. They rode a wave of
high-priced takeovers that emerged in the wake of the Gramm-Leach-Bliley
Act -- legislation that dropped the barriers preventing banks, brokers
and insurers from affiliating. Over the summer, Chase Manhattan bank
bought J.P. Morgan, UBS announced plans to buy investment banker
PaineWebber and Credit Suisse Group bought Donaldson, Lufkin and
Jenrette.
We also benefited from having shifted away from the regional brokers
last year to the wire house brokerage names, like Morgan Stanley Dean
Witter, Merrill Lynch, PaineWebber and Lehman Brothers Holdings.
Although these were all big contributors to our performance, they gave
back some of their gains as the tech-heavy NASDAQ Composite Index
declined, because fears rose that underwriting, trading and merger
activity would slow in the next several quarters. We're still positive
on the group, however, because the level of investment advisory activity
is still extraordinarily good and the underwriting calendar should pick
up again once the market firms up.
[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 AFLAC followed by an up arrow with the phrase "New ad campaign boosts
visibility of life insurer." The second listing is Amvescap followed by
an up arrow with phrase "Robust asset growth." The third listing is CIT
Group followed by a down arrow with the phrase "General malaise in
commercial finance." A note below the table reads "See 'Schedule of
Investments,' Investment holdings are subject to change."]
On the asset manager side, the biggest contributor to Fund performance
was Amvescap, which has increased its stature this year through the
success of asset gathering at its AIM and Invesco subsidiaries. The
stalwart insurance broker Marsh & McLennan also served us well, partly
because of the upturn in the property and casualty insurance business,
but also because of its strong Putnam asset manager arm.
Property and casualty makes a comeback
For much of the year, our life insurance companies, including AXA
Financial, AFLAC and Reinsurance Group of America, were better
performers than the property and casualty insurers, which have struggled
for the last five years in a very competitive pricing environment. But
in the last four weeks of the period, the global pricing cycle for
property and casualty companies finally began to turn upward, so we
started to shift some of our insurance assets back to this group. For
example, we took some profits in AXA Financial and bought reinsurance
property and casualty companies XL Capital Ltd., Everest Re Group, Ltd.
and Ace Ltd.
More mergers
Merger activity was not limited to the brokers and asset managers. The
ball started rolling in January when broker Charles Schwab bought U.S.
Trust. It continued in the spring when European insurance company Dexia
bought Financial Security Assurance, a U.S.-based company that provides
municipal bond insurance. Citigroup also bought the remaining portion of
Travelers Property Casualty. In September, Citigroup announced another
acquisition, of consumer lender Associates First Capital. Other deals
included life insurance company AXA Financial, which was bought back by
its French parent.
[Bar chart at top of left hand column with the heading "Fund
Performance." Under the heading is a note that reads "For the year ended
October 31, 2000." The chart is scaled in increments of 5% with 0% at
the bottom and 30% at the top. The first bar represents the 26.57% total
return for John Hancock Financial Industries Fund Class A. The second
bar represents the 25.74% total return for John Hancock Financial
Industries Fund Class B. The third bar represents the 25.68% total
return for John Hancock Financial Industries Fund Class C. The fourth
bar represents the 12.33% 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 the following two pages for historical performance
information."]
Bank selections mostly help
As the more traditional banks struggled during the year, we managed to
sidestep much of the trouble. For the most part, we focused on the trust
banks like State Street Corp., Bank of New York and Northern Trust
Corp., which have held up the best because of their recurring revenue
streams from their main advisory and custody businesses. They also have
less exposure to credit risk, since their loan activity is either small
or nonexistent. Our regional banks were mixed. Wells Fargo and
FleetBoston Financial did well, as they successfully navigated their way
through acquistions. On the other hand, First Tennessee, Wachovia and
Firstar were tarnished by earnings disappointments.
Euro decline hurts
Perhaps the biggest disappointments were our European financial stocks.
While their fundamental results were sound, the steady decline of the
euro caused erosion of value for U.S. dollar-based investors. We remain
confident that the ongoing force of mergers, pan-European activity and
the further development of European capital markets -- fostered in part
by the new euro common currency -- will provide longer-term benefits.
"The prospects
for financial
stocks
continue to
get brighter."
Outlook bright
The prospects for financial stocks continue to get brighter. In the
short term, the economic environment is improving, as it becomes clearer
that we're moving toward conditions that are better for financial
stocks: stable interest rates, more moderate, yet sustainable, economic
growth and contained inflation. What's more, we have only just begun to
see the powerful results of the merger trend spawned by the
Gramm-Leach-Bliley Act, and we expect more consolidation to follow.
Looking longer term, the demographics favor our group, as more people
seek financial help and services, to the advantage of life insurers,
brokers and asset managers in particular.
-------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards and
financial reporting. Sector investing is subject to greater risks than
the market as a whole.
1 Figures from Lipper, 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 an up-front 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 an up-front sales charge of 1%
and a contingent deferred sales charge (maximum 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 October 31, 2000
SINCE
ONE INCEPTION
YEAR (3/14/96)
------ ---------
Cumulative Total Returns 20.23% 143.44%
Average Annual Total Returns(1) 20.23% 21.17%
CLASS B
For the period ended October 31, 2000
SINCE
ONE INCEPTION
YEAR (1/14/97)
------ ---------
Cumulative Total Returns 20.74% 72.02%
Average Annual Total Returns(1) 20.74% 15.37%
CLASS C
For the period ended October 31, 2000
SINCE
ONE INCEPTION
YEAR (3/1/99)
------ ---------
Cumulative Total Returns 23.43% 26.08%
Average Annual Total Returns 23.43% 14.90%
Note 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 20.31%. The
average annualized return since inception for Class B shares would have
been 15.31%.
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 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 $25,617 as of October 31, 2000. The second line
represents the value of the same hypothetical investment made in the
John Hancock Financial Industries Fund, after sales charge, and is equal
to $24,336 as of October 31, 2000. The third line represents the
Standard & Poor's 500 Index and is equal to $24,009 as of October 31,
2000.
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 $20,380 as of
October 31, 2000. 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 $17,498 as of October 31, 2000. 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 $17,198 as of
October 31, 2000.
Line chart with the heading John Hancock Financial Industries Fund Class
C*, representing the growth of a hypothetical $10,000 investment over
the life of the fund. Within the chart are three lines. The first line
represents the value of the hypothetical $10,000 investment made in the
John Hancock Financial Industries Fund on March 1, 1999, before sales
charge, and is equal to $12,737 as of October 31, 2000. The second line
represents the value of the same hypothetical investment made in the
John Hancock Financial Industries Fund, after sales charge, and is equal
to $12,610 as of October 31, 2000. The third line represents the
Standard & Poor's 500 Index and is equal to $11,773 as of October 31,
2000.
*No contingent deferred sales charge applicable.
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on October 31,
2000. 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, 2000
--------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks
(cost - $1,903,090,210) $2,875,580,542
Joint repurchase agreement
(cost - $30,460,000) 30,460,000
Corporate savings account 266
-----------------
2,906,040,808
Receivable for investments sold 5,283,875
Receivable for shares sold 2,929,342
Dividends receivable 2,112,712
Interest receivable 5,906
Deferred organization expense - Note A 1,860
Other assets 397,792
-----------------
Total Assets 2,916,772,295
-----------------
Liabilities:
Payable for investments purchased 5,199,271
Payable for shares repurchased 1,679,934
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 2,853,768
Accounts payable and accrued expenses 421,222
-----------------
Total Liabilities 10,154,195
-----------------
Net Assets:
Capital paid-in 2,080,061,300
Accumulated net realized loss on
investments and foreign currency
transactions (145,859,537)
Net unrealized appreciation of
investments and foreign currency
transactions 972,447,839
Distributions in excess of net
investment income (31,502)
-----------------
Net Assets $2,906,618,100
=================
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 - $700,615,308/34,762,472 $20.15
==============================================================
Class B - $2,147,556,425/108,015,133 $19.88
==============================================================
Class C - $58,446,367/2,940,957 $19.87
==============================================================
Maximum Offering Price Per Share:
Class A* - ($20.15/95%) $21.21
==============================================================
Class C - ($19.87/99%) $20.07
==============================================================
* 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, 2000
--------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding
taxes of $724,526) $38,373,171
Interest (Including income from
securities loaned of $162,329) 2,495,026
-----------------
40,868,197
-----------------
Expenses:
Investment management fee - Note B 19,349,299
Distribution and service fee - Note B
Class A 1,810,936
Class B 18,283,600
Class C 279,147
Transfer agent fee - Note B 7,064,891
Custodian fee 544,462
Accounting and legal service fee --
Note B 485,718
Trustees' fees 159,230
Miscellaneous 133,764
Printing 106,251
Auditing fee 25,200
Legal fees 14,157
Registration and filing fees 11,000
Organization expense - Note A 5,105
Interest expense 2,737
-----------------
Total Expenses 48,275,497
-----------------
Net Investment loss (7,407,300)
-----------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 5,340,312
Net realized loss on foreign currency
transactions (879,221)
Change in net unrealized appreciation
(depreciation) of investments 562,498,475
Change in net unrealized appreciation
(depreciation) of foreign currency
transactions (49,070)
-----------------
Net Realized and Unrealized Gain
on Investments and Foreign Currency
Transactions 566,910,496
-----------------
Net Increase in Net Assets Resulting
from Operations $559,503,196
=================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
-------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------
1999 2000
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) $3,032,864 ($7,407,300)
Net realized gain (loss) on
investments sold and foreign
currency transactions (139,058,040) 4,461,091
Change in net unrealized
appreciation/depreciation of
investments and foreign currency
transactions 407,910,354 562,449,405
----------------- -----------------
Net Increase in Net Assets
Resulting from Operations 271,885,178 559,503,196
----------------- -----------------
Distributions to Shareholders:
Distributions from
net investment income
Class A - ($0.1409 and none per
share, respectively) (8,042,383) --
Class B - ($0.0477 and none per
share, respectively) (8,379,524) --
Distributions in excess of
net investment income
Class A - ($0.0151 and none per
share, respectively) (859,947) --
Class B - ($0.0051 and none per
share, respectively) (896,029) --
----------------- -----------------
Total Distributions to
Shareholders (18,177,883) --
----------------- -----------------
From Fund Share Transactions - Net:* (890,613,927) (480,581,462)
----------------- -----------------
Net Assets:
Beginning of period 3,464,602,998 2,827,696,366
----------------- -----------------
End of period (including
distributions in excess of net
investment income of $1,673,324
and $31,502, respectively) $2,827,696,366 $2,906,618,100
================= =================
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.
<CAPTION>
Statement of Changes in Net Assets (continued)
---------------------------------------------------------------------------------------------------------------------------
*Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------------
1999 2000
--------------------------------------- ---------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 22,959,873 $367,047,792 21,996,198 $362,140,597
Shares issued to shareholders in
reinvestment of distributions 468,813 7,018,313 -- --
----------------- ----------------- ----------------- -----------------
23,428,686 374,066,105 21,996,198 362,140,597
Less shares repurchased (40,240,885) (641,049,683) (28,626,543) (456,996,909)
----------------- ----------------- ----------------- -----------------
Net decrease (16,812,199) ($266,983,578) (6,630,345) ($94,856,312)
================= ================= ================= =================
CLASS B
Shares sold 14,373,502 $225,776,066 17,160,863 $284,568,150
Shares issued to shareholders in
reinvestment of distributions 375,108 5,612,865 -- --
----------------- ----------------- ----------------- -----------------
14,748,610 231,388,931 17,160,863 284,568,150
Less shares repurchased (54,992,101) (860,455,538) (45,979,889) (713,267,024)
----------------- ----------------- ----------------- -----------------
Net decrease (40,243,491) ($629,066,607) (28,819,026) ($428,698,874)
================= ================= ================= =================
CLASS C**
Shares sold 351,885 $5,595,717 2,946,848 $48,896,205
Less shares repurchased (10,250) (159,459) (347,526) (5,922,481)
----------------- ----------------- ----------------- -----------------
Net increase 341,635 $5,436,258 2,599,322 $42,973,724
================= ================= ================= =================
**Class C shares began operations on March 1, 1999.
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(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.50 $11.03 $14.26 $14.80 $15.92
------------- ------------- ------------- ------------- -------------
Net Investment Income(2) 0.02 0.14 0.15 0.10 0.03
Net Realized and Unrealized
Gain on Investments and
Foreign Currency
Transactions 2.51 3.77 0.52(3) 1.18 4.20
------------- ------------- ------------- ------------- -------------
Total from Investment Operations 2.53 3.91 0.67 1.28 4.23
------------- ------------- ------------- ------------- -------------
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 Gain 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 $20.15
============= ============= ============= ============= =============
Total Investment Return at
Net Asset Value(4) 29.76%(5) 37.19% 4.66% 8.69% 26.57%
Total Adjusted Investment
Return at Net Asset
Value(4,6) 26.04%(5) 36.92% -- -- --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $895 $416,698 $861,582 $659,031 $700,615
Ratio of Expenses to Average
Net Assets 1.20%(7) 1.20% 1.37% 1.39% 1.40%
Ratio of Adjusted Expenses
to Average Net Assets(8) 7.07%(7) 1.47% -- -- --
Ratio of Net Investment
Income to Average Net
Assets 0.37%(7) 1.10% 0.92% 0.62% 0.21%
Ratio of Adjusted Net
Investment Income (Loss) to
Average Net Assets(8) (5.50%)(7) 0.83% -- -- --
Portfolio Turnover Rate 31% 6% 30% 40% 48%
Fee Reduction Per Share(2) $0.38 $0.03 -- -- --
The Financial Highlights summarizes the impact of the following factors
on a single share for each period indi cated: the net investment income,
gains (losses), distributions and total investment return of each class.
It shows how the Fund's net asset value for a share has changed since
the end of the previous period. Additionally, important rela tionships
between some items presented in the financial statements are expressed
in ratio form.
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
-----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
1997(1) 1998 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $11.43 $14.18 $14.70 $15.81
------------- ------------- ------------- -------------
Net Investment Income
(Loss)(2) 0.04 0.03 (0.01) (0.07)
Net Realized and Unrealized
Gain on Investments and
Foreign Currency
Transactions 2.71 0.54(3) 1.17 4.14
------------- ------------- ------------- -------------
Total from Investment Operations 2.75 0.57 1.16 4.07
------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income -- (0.03) (0.04) --
Distributions in Excess of
Net Investment Income -- -- (0.01) --
Distributions from Net
Realized Gain on
Investments Sold -- (0.02) -- --
------------- ------------- ------------- -------------
Total Distributions -- (0.05) (0.05) --
------------- ------------- ------------- -------------
Net Asset Value, End of
Period $14.18 $14.70 $15.81 $19.88
============= ============= ============= =============
Total Investment Return at
Net Asset Value(4) 24.06%(5) 3.95% 7.93% 25.74%
Total Adjusted Investment
Return at Net Asset
Value(4,6) 23.85%(5) -- -- --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $1,308,946 $2,603,021 $2,163,265 $2,147,556
Ratio of Expenses to Average
Net Assets 1.90%(7) 2.07% 2.07% 2.05%
Ratio of Adjusted Expenses
to Average Net Assets(8) 2.17%(7) -- -- --
Ratio of Net Investment
Income (Loss) to Average
Net Assets 0.40%(7) 0.22% (0.07%) (0.44%)
Ratio of Adjusted Net
Investment Income to
Average Net Assets(8) 0.13%(7) -- -- --
Portfolio Turnover Rate 6% 30% 40% 48%
Fee Reduction Per Share(2) $0.03 -- -- --
<CAPTION>
Financial Highlights (continued)
-----------------------------------------------------------------
PERIOD ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1999(1) 2000
------------- -------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning
of Period $15.60 $15.81
------------- -------------
Net Investment Loss (2) --(9) (0.10)
Net Realized and Unrealized
Gain on Investments and
Foreign Currency
Transactions 0.21 4.16
------------- -------------
Total from Investment Operations 0.21 4.06
------------- -------------
Net Asset Value, End of
Period $15.81 $19.87
============= =============
Total Investment Return at
Net Asset Value(4) 1.35%(5) 25.68%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $5,401 $58,446
Ratio of Expenses to Average
Net Assets 2.06%(7) 2.10%
Ratio of Net Investment Loss
to Average Net Assets (0.14%)(7) (0.57%)
Portfolio Turnover Rate 40% 48%
(1) Class A, Class B and Class C shares commenced operations on March
14, 1996, January 14, 1997 and March 1, 1999, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) 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.
(4) Assumes dividend reinvestment and does not reflect the effect of
sales charges.
(5) Not annualized.
(6) An estimated total return calculation which does not take into
consideration fee reductions by the Adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Less than $0.01 per share.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Schedule of Investments is a complete list of all securities owned
by the Financial Industries Fund on October 31, 2000. It's divided into
three main categories: common stocks, preferred stock 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.
Schedule of Investments
October 31, 2000
-----------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
------------------- ---------- ------------
<S> <C> <C> <C>
COMMON STOCKS
Banks - Foreign (5.55%)
Bipop-Carire SpA (Italy) 3,500,000 $27,650,000
Dexia, SA (Belgium) 163,100 24,484,229
HSBC Holdings Plc (United Kingdom) 2,404,379 34,285,483
Julius Baer Holding Ltd. (Class B) (Switzerland) 4,705 23,288,380
Nordic Baltic Holding AB (Sweden) 4,157,367 30,658,503
Royal Bank of Scotland Group Plc (United
Kingdom) 936,753 21,043,219
------------
161,409,814
------------
Banks - Midwest (2.44%)
Fifth Third Bancorp 1,382,275 71,014,378
------------
Banks - Money Center (4.16%)
Bank of New York Co., Inc. 1,141,500 65,707,594
Citigroup, Inc. 1,050,394 55,276,984
------------
120,984,578
------------
Banks - Northeast (3.36%)
State Street Corp. 784,150 97,814,871
------------
Banks - Superregional (8.17%)
FleetBoston Financial Corp. 681,999 25,915,962
Mellon Financial Corp. 1,177,500 56,814,375
Northern Trust Corp. 768,000 65,568,000
PNC Financial Services Group 389,500 26,047,813
Wells Fargo & Co. 1,360,000 62,985,000
------------
237,331,150
------------
Broker Services (9.49%)
Consors Discount Broker AG (Germany)* 199,500 16,064,977
Legg Mason, Inc. 327,000 16,983,563
Lehman Brothers Holdings, Inc. 1,075,200 69,350,400
Merrill Lynch & Co., Inc. 1,132,400 79,268,000
Schwab (Charles) Corp. 2,677,718 94,054,845
------------
275,721,785
------------
Computer - Services (6.30%)
Automatic Data Processing, Inc. 479,000 31,284,688
BISYS Group, Inc.* 1,101,400 51,903,475
First Data Corp. 871,400 43,678,925
Fiserv, Inc.* 1,073,430 56,287,986
------------
183,155,074
------------
Computer - Software (1.40%)
Intuit, Inc.* 661,000 40,610,187
------------
Finance - Consumer Loans (11.31%)
American Express Co. 1,584,320 95,059,200
AmeriCredit Corp.* 290,000 7,793,750
Associates First Capital Corp. (Class A) 1,265,000 46,963,125
Capital One Financial Corp. 466,300 29,435,187
Household International, Inc. 1,019,000 51,268,438
MBNA Corp. 1,061,062 39,856,141
Metris Cos., Inc. 519,850 16,830,144
NextCard, Inc.* 915,000 6,976,875
Providian Financial Corp. 331,100 34,434,400
------------
328,617,260
------------
Finance - Investment Management (9.62%)
Amvescap Plc, American Depositary Receipts (ADR)
(United Kingdom) 774,000 87,752,250
Banca Fideuram SpA (Italy) 1,430,000 21,963,799
Blackrock, Inc.* 400,000 17,050,000
MLP AG (Germany) 174,500 23,666,231
Morgan Stanley Dean Witter & Co. 905,400 72,714,938
Price (T. Rowe) Associates, Inc. 737,000 34,500,813
Waddell & Reed Financial, Inc. (Class A) 689,000 21,961,875
------------
279,609,906
------------
Finance - Savings & Loan (1.44%)
Golden West Financial Corp. 403,500 22,621,219
Washington Mutual, Inc. 438,500 19,294,000
------------
41,915,219
------------
Finance - SBIC & Commercial (0.74%)
Heller Financial, Inc. 735,000 21,498,750
------------
Insurance - Brokers (3.40%)
Marsh & McLennan Cos., Inc. 755,200 98,742,400
------------
Insurance - Life (10.08%)
AFLAC, Inc. 1,414,000 103,310,375
American General Corp. 696,000 56,028,000
Jefferson-Pilot Corp. 494,500 33,996,875
Mediolanum SpA (Italy) 1,329,000 19,454,965
Protective Life Corp. 1,612,000 37,277,500
Reinsurance Group of America, Inc. 1,148,650 42,930,794
------------
292,998,509
------------
Insurance - Multi Line (4.26%)
Allmerica Financial Corp. 738,850 46,593,728
Fortis (NL) NV (Netherlands) 791,643 24,157,144
Hartford Financial Services Group, Inc. 714,700 53,200,481
------------
123,951,353
------------
Insurance - Property & Casualty (10.48%)
Ace Ltd. 525,000 20,606,250
Ambac Financial Group, Inc. 959,200 76,556,150
American International Group, Inc. 827,268 81,072,264
Everest Re Group, Ltd. (Bermuda) 470,000 27,553,750
MBIA, Inc. 804,799 58,498,827
XL Capital Ltd. (Class A) 526,116 40,445,167
------------
304,732,408
------------
Mortgage & Real Estate Services (3.18%)
Countrywide Credit Industries, Inc. 450,000 16,846,875
Fannie Mae 980,325 75,485,025
------------
92,331,900
------------
Real Estate Investment Trust - Equity Trust (3.55%)
Apartment Investment & Management Co. (Class A) 373,000 17,041,438
Arden Realty, Inc. 425,000 10,200,000
Brandywine Realty Trust 488,000 9,333,000
Equity Office Properties Trust 762,000 22,955,250
Equity Residential Properties Trust 221,000 10,400,812
General Growth Properties, Inc. 377,000 11,121,500
Mack-Cali Realty Corp. 160,000 4,340,000
Prentiss Properties Trust 150,000 3,806,250
Prime Group Realty Trust 50,000 743,750
Reckson Associates Realty Corp. 580,000 13,122,500
------------
103,064,500
------------
TOTAL COMMON STOCKS
(Cost $1,902,977,710) (98.93%) 2,875,504,042
---------- -------------
PREFERRED STOCK
Real Estate Investment Trust - Mortgage Trust (0.00%)
Anthracite Capital, Inc., Ser B, 10.00% (r) 4,500 76,500
-------------
TOTAL PREFERRED STOCK
(Cost $112,500) (0.00%) 76,500
---------- -------------
TOTAL COMMON AND PREFERRED STOCK
(Cost $1,903,090,210) (98.93%) 2,875,580,542
---------- -------------
INTEREST PAR VALUE
RATE (000s OMITTED)
---------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.05%)
Investment in a joint repurchase
agreement transaction with
UBS Warburg, Inc. -- Dated
10-31-00, due 11-01-00
(Secured by U.S. Treasury Bonds,
7.125% thru 13.250%,
due 05-15-14 thru 02-15-23) - Note A 6.56% $30,460 30,460,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
5.20% 266
--------------
TOTAL SHORT-TERM INVESTMENTS (1.05%) 30,460,266
--------- --------------
TOTAL INVESTMENTS (99.98%) 2,906,040,808
--------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.02%) 577,292
--------- --------------
TOTAL NET ASSETS (100.00%) $2,906,618,100
========= ==============
NOTES TO THE SCHEDULE OF INVESTMENTS
* Non-income producing security.
(r) The security listed below is a direct placement security and is
restricted as to resale. The Fund has limited rights to registration
under the Securities Act of 1933 with respect to restricted securities
(not including Rule 144A securities). In certain circumstances the Fund
may bear a portion of the cost of such registrations; otherwise, such
costs would be borne by the issuer. Additional information on this
restricted security is as follows:
MARKET
VALUE AS A MARKET
PERCENTAGE VALUE AT
ACQUISITION ACQUISITION OF FUND'S OCTOBER 31,
DATE COST NET ASSETS 2000
----------- ----------- ---------- ----------
Anthracite Capital, Inc.
Ser B -
Preferred Stock 05-15-00 $112,500 0.00% $76,500
===== =======
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</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, 2000 assigned to the various country categories.
MARKET VALUE
AS A PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
----------------------- -----------------
<S> <C>
Belgium 0.84%
Bermuda 0.95
Germany 1.37
Italy 2.38
Netherlands 0.83
Sweden 1.05
Switzerland 0.80
United Kingdom 4.92
United States 86.84
-------
TOTAL INVESTMENTS 99.98%
=======
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Financial Industries Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Financial Industries Fund (the "Fund") is a diversified
series of John Hancock Investment Trust II, an open-end management
investment company, registered under the Investment Company Act of 1940.
The investment objective of the Fund is to seek capital appreciation.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost, which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more large repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for
ensuring that the agreement is fully collateralized at all times.
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, resulting from changes in the
exchange rate.
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.
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.
EXPENSES The majority of the expenses are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a
specific fund will be 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 EXPENSE Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to
the Fund's operations ratably over a five-year period that began with
the commencement of the investment operations of the Fund.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund has entered into a syndicated line of credit
agreement with various banks. This agreement enables the Fund to
participate with other funds managed by the Adviser in an unsecured line
of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing.
In addition, a commitment fee is charged to each fund based on the
average daily unused portion of the line of credit and is allocated
among the participating funds. The average daily loan balance during the
period for which loans were outstanding amounted to $5,313,000. The
weighted average interest rate was 6.28%. Interest expense paid under
the line of credit amounted to $2,737. There was no outstanding
borrowing under the line of credit on October 31, 2000.
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, 2000, the Fund loaned securities having a
market value of $2,181,275 collateralized by the securities in the
amount of $3,381,326.
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 the
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.
The Fund had no open forward foreign currency exchange contracts at
October 31, 2000.
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 $125,709,051 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 Fund's carry forwards expire as follows:
October 31, 2007 -- $125,709,051.
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 dividends and 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 accounting principles generally accepted in the United
States of America incorporates estimates made by management in
determining the reported amount of assets, liabilities, revenues and
expenses of the Fund. Actual results could differ from these estimates.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser 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. To reimburse JH Funds
for the services it provides as distributor of shares of the Fund, the
Fund has adopted a Distribution Plan 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 makes 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. 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.
During the year ended October 31, 2000, JH Funds received net up-front
sales charges of $578,009 with regard to sales of Class A shares. Of
this amount, $83,609 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $238,417 was paid as
sales commissions to unrelated broker-dealers and $255,983 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 Life Insurance Company ("JHLICo"), is the indirect
sole shareholder of Signator Investors. Effective May 1, 2000, all Class
C share retail purchases are assessed a 1.00% up-front sales charge.
During the year ended October 31, 2000, JH Funds received net up-front
sales charges of $241,661 with regard to sales of Class C shares. Of
this amount, $236,285 was paid as sales commissions to unrelated
broker-dealers and $5,376 was paid as sales commissions to sales
personnel 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. 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 CDSCs are paid to
JH Funds and are used in whole or in part to defray its expenses for
providing distribution related services to the Fund in connection with
the sale of Class B and Class C shares. For the year ended October 31,
2000, CDSCs received by JH Funds amounted to $12,561,305 for Class B
shares and $26,304 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund pays monthly 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. Stephen L. Brown and Ms. Maureen R. Ford are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compensation Plan investments 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, 2000, aggregated $1,225,116,823 and
$1,649,963,101, respectively. There were no purchases or sales of
obli-gations of the U.S. government and its agencies during the year
ended October 31, 2000.
The cost of investments owned at October 31, 2000 (including short-term
investments) for federal income tax purposes was $1,951,340,585. Gross
unrealized appreciation and depreciation of investments aggregated
$996,818,205 and $42,118,248, respectively, resulting in net unrealized
appreciation of $954,699,957.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 2000, the Fund has reclassified
amounts to reflect a decrease in net realized loss on investments of
$1,211,972, a decrease in distribution in excess of net investment
income of $9,049,122 and a decrease in capital paid-in of $10,261,094.
This represents the amount necessary to report these balances on a tax
basis, excluding certain temporary difference, as of October 31, 2000.
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 (loss) per share in
the financial highlights excludes these adjustments.
REPORT OF INDEPENDENT AUDITORS
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, 2000, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards generally accepted in
the United States of America, 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 financial statements, assessing the accounting principles
used and 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 8, 2000
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
Member NASD
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of the shareholders of the John Hancock
Financial Industries Fund. It is not authorized for distribution to
prospective investors unless it is preceded or accompanied by the current
prospectus, which details charges, investment objectives and operating
policies.
[A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."]
7000A 10/00
12/00
