The latest report from your
Fund's management team
SEMIANNUAL REPORT
Regional
Bank Fund
APRIL 30, 2000
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*
Richard S. Scipione
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and Chief Executive Officer
Osbert M. Hood
Executive Vice President and Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
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:
Over the last six months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech
stocks pushed the NASDAQ Composite Index to the stratosphere, as
investors single-mindedly pursued anything technology related. But after
setting a new high on March 10 amid significantly heightened volatility,
the tables started to turn rapidly. Concerns about Microsoft's antitrust
ruling and out-of-sight valuation levels finally triggered waves of
selling that sent the index down nearly 25% from its high by the end of
April.
In this same period, fixed-income securities of all types, including
bonds and preferred stocks, struggled as interest rates rose on fears
that the roaring U.S. economy and the rebound of many others around the
world would spark an inflation outbreak.
While the battle between old and new rages on, several things are clear:
More than ever, diversification and a long-term investment perspective
are two of an investor's best allies. Since not all parts of your
portfolio will perform equally well all the time, we believe it is
important to allocate your assets among different types of investments
and funds that target a variety of stock- and bond-market segments. This
strategy, executed under the guidance of a seasoned investment
professional, could provide you with a better chance of both realizing
longer-term results and weathering the market's changing conditions.
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
Regional bank stocks suffer downdraft
before rebounding in March
[A 3" x 2" photo at bottom right side of page of John Hancock
Regional Bank Fund. Caption below reads "Fund management team
members. Standing (l-r): Jay McKelvey, Tom Goggins and Tom
Finucane. Sitting (l-r): Lisa Welch, Jim Schmidt and Patricia
Ouimet."]
For much of the last six months, bank stocks continued to buck the stiff
headwinds of rising interest rates and a red-hot technology sector that
held investors' undivided attention. News of earnings shortfalls at
several of the well-managed and strong superregional banks further
rattled bank stocks, although overall earnings growth for the group
remained solid. Adding insult to injury, underperforming value funds
continued to fall out of favor as investors jumped on the
growth/technology bandwagon. So value fund managers, who are typically
buyers of financial stocks, either sold them to meet the tide of
redemptions, further depressing their prices, or they ignored them in
favor of technology stocks.
The tables turned decidedly positive in early March, when tech stocks
plunged from their stratospheric levels and investors finally broadened
their horizons to include bank stocks. But this encouraging upturn at
the end of the period, and the brief flurry at the beginning last
November after financial reform legislation was enacted, were by no
means enough to overcome the difficult environment in between.
"...stiff
headwinds
of rising
interest rates
and a red-hot
technology
sector..."
Good fundamentals, record low prices
In fact, when bank stocks hit bottom on March 8, they had fallen to
historically low levels by some standards. For example, the
price-earnings ratio for bank stocks was only 40% of the Standard &
Poor's 500 Index's ratio. That was at or near the level set in 1990,
when many banks were in crisis due to the economic recession and a
critical number of problem loans. Then, those stock price levels were
understandable, as many banks were on the verge of collapse.
[Table at top left hand column entitled "Top Five Common Stock
Holdings." The first listing is Firstar Corp. 3.6%, the second
is Wells Fargo 3.4%, the third FleetBoston Financial 3.3%, the
fourth Bank of New York 3.2% and the fifth AmSouth Bancorp. 2.9%.
A note below the table reads "As a percentage of net assets
on April 30, 2000."]
"...bank
fundamentals
are worlds
better."
The frustration today is that bank fundamentals are worlds better.
Earnings growth, while slower than it was several years ago, is still
averaging 12%. Loan growth remains excellent, the level of
non-performing assets is still very low, and revenue growth remains
good, especially in the non-interest income, fee-related line. Yet with
each of the half-dozen or so bank earnings disappointments announced
during this period, the market seriously overreacted, in our view,
punishing the stock not only of the offending bank, but also of regional
banks in general. In this environment, only 10 of our approximately
190 holdings managed stock price increases (excluding takeovers) over
the last six months.
[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 UnionBanCal followed by a down
arrow with the phrase "Market is suspicious of loan quality." The
second listing is Compass Bancshares followed by a down arrow with
the phrase "Engaged in spree of dilutive deals and paid the
price." The third listing is City National followed by an up arrow
with the phrase "Consistently beats earnings expectations." A note
below the table reads "See 'Schedule of Investments.' Investment
holdings are subject to change."]
Regional banks hurt fund
Although we ended April on a high note, with the Fund rebounding by
nearly 20% between early March and the end of April, the period as a
whole was a difficult and disappointing one for John Hancock Regional
Bank Fund. For the six months ended April 30, 2000, the Fund's Class A,
Class B and Class C shares posted total returns of -22.87%, -23.16%
and -23.16% at net asset value. That compared to the -8.76% return of
the average financial services fund, 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.
Our performance versus the Lipper group of financial services funds
suffered from our concentration in regional banks. The best financial
stocks to own during this period were securities brokers, money center
banks and the larger diversified firms such as American Express and AIG.
Furthermore, despite generally on-target earnings, we did have positions
in several banks whose stocks declined due to disappointing earnings,
including U.S. Bancorp and First Tennessee.
Basic strategy intact
Over the last six months 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. Because of the
steady increase in interest rates, we are especially wary of banks or
thrifts that have asset-liability mismatches that make them vulnerable
to high rates. We cut back on our positions in the larger, more liquid
and higher-priced regionals such as Wells Fargo and BB&T to meet
redemptions that occurred during the period. We applied any new money
that came into the Fund toward selected mid-sized names, such as
Commerce Bancshares and M&T Bank Corp., where we have high confidence in
the management. Some of these stocks have been out of favor and now
trade at extremely low valuation levels.
[Bar chart at top of left hand column with heading "Fund
Performance." Under the heading is a note that reads "For the six
months ended April 30, 2000." The chart is scaled in increments of
5% with -25% at the bottom and 0% at the top. The first bar
represents the -22.87% total return for John Hancock Regional Bank
Fund Class A. The second bar represents the -23.16% total return
for John Hancock Regional Bank Fund Class B. The third bar
represents the -23.16% total return for John Hancock Regional Bank
Fund Class C. The fourth bar represents the -8.76% 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 factor
Since the beginning of 2000, seven of the Fund's holdings announced they
were being taken over, a slight pickup in pace over 1999. Although the
recent merger activity has been among smaller names, the environment
remains good. The larger acquiring banks have maintained higher
price-earnings ratios than the smaller target banks, making mergers
easier to accomplish. Furthermore, 2000 is likely to be the last year
for using the more favorable "pooling" method of accounting for
acquisitions, and that could provide extra incentive for more banks to
act sooner rather than later.
One positive merger development that occurred during the period involved
Dime Bancorp., which was in the process of merging with Hudson United.
However, the price was so cheap that another bank, North Fork, entered a
hostile bid for Dime, broke up the merger and put forth an alternative
proposal. Dime was one of the stocks that made a positive contribution
to Fund performance this period. While such takeovers don't happen often
in banking, we like to see them because they usually result in higher
prices for bank shareholders. Furthermore, the periodic threat of them
prompts underperforming bank managements to pay more attention to
shareholder value.
"We are
encouraged
by the latest
upswing in
bank stock
prices..."
Reasons for optimism
We are encouraged by the latest upswing in bank stock prices and believe
there are a number of reasons for optimism. Although earnings growth for
the banks has slowed from the unsustainable levels of the past five
years, it has been far better than the performance of the stocks would
indicate. Lately investors seem to be taking notice and are turning away
from some of the higher-priced NASDAQ issues in favor of some of the
value-oriented "old economy" stocks such as banks. The belief could also
be building that the Federal Reserve is getting closer to the end of
this cycle of interest-rate hikes. We witnessed similar activity at the
start of 1995, when, after a crushing series of rate increases in 1994,
bank stocks started an explosive rally in advance of the Fed's final
tightening in February 1995. We have been through many periods before
when our stocks have been unpopular, and those companies that achieved
our earnings targets have always rewarded us eventually.
-------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
Sector investing is subject to different, and sometimes greater, risks
than the market as a whole.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Regional Bank Fund.
Total return measures the change in value of an investment from the
beginning to the end of a period, assuming all distributions were
reinvested.
For Class A shares, total return figures include an up-front maximum
applicable sales charge of 5%. Prior to August 1992, different sales
charges were in effect for Class A shares and are not reflected in the
performance data. Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years).
Class C performance includes an up-front sales charge of 1% and a
contingent deferred sales charge (1% declining to 0% after one year).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them. Please read your prospectus for risks associated with
industry segment investing before you invest or send money.
CLASS A
For the period ended March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
------ ------- --------
Cumulative Total Returns (22.41%) 101.46% 305.16%
Average Annual Total Returns (22.41%) 15.04% 18.50%
CLASS B
For the period ended March 31, 2000
ONE FIVE TEN
YEAR YEARS YEARS
------ ------- --------
Cumulative Total Returns (22.50%) 102.46% 447.94%
Average Annual Total Returns (22.50%) 15.15% 18.54%
CLASS C
For the period ended March 31, 2000
SINCE
ONE INCEPTION
YEAR (3/1/99)
------ -------
Cumulative Total Return (20.43%) (20.18%)
Average Annual Total Return (20.43%) (18.81%)
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 Standard & Poor's 500 Index and is equal to $41,779 as
of April 30, 2000. The second 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
$41,039 as of April 30, 2000. The third line represents the same
hypothetical investment made in the John Hancock Regional Bank Fund,
after sales charge, and is equal to $38,987 as of April 30, 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 Standard & Poor's 500 Index and is equal to $55,150 as
of April 30, 2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Regional
Bank Fund on October 31, 1989, before sales charge, and is equal to
$48,426 as of April 30, 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 $11,896 as
of April 30, 20000. 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
$7,750 as of April 30, 2000. The third line represents the same
hypothetical investment made in the John Hancock Regional Bank Fund,
after sales charge, and is equal to $7,673 as of April 30, 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 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
April 30, 2000 (Unaudited)
--------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C and D:
Common and preferred stocks and warrants
Unaffiliated Issuers (cost -- $1,627,977,789) $2,731,413,333
Affiliated Issuers (cost -- $29,086,268) 33,455,700
Bonds (cost -- $5,455,030) 5,214,620
Joint repurchase agreement
(cost -- $101,079,000) 101,079,000
Corporate savings account 787
-----------------
2,871,163,440
Receivable for investments sold 1,775,635
Receivable for shares sold 1,845,182
Dividends receivable 5,770,633
Interest receivable 211,500
Other assets 192,000
-----------------
Total Assets 2,880,958,390
-----------------
Liabilities:
Payable for investments purchased 5,109,857
Payable for shares repurchased 3,691,755
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B 3,445,134
Accounts payable and accrued expenses 234,516
-----------------
Total Liabilities 12,481,262
-----------------
Net Assets:
Capital paid-in 1,523,405,862
Accumulated net realized gain on
investments and foreign currency
transactions 235,466,806
Net unrealized appreciation of
investments 1,107,564,566
Undistributed net investment income 2,039,894
-----------------
Net Assets $2,868,477,128
=================
Net Asset Value Per Share:
(Based on net assets and shares
of beneficial interest outstanding --
unlimited number of shares authorized
with no par value)
Class A -- $745,199,601/21,082,908 $35.35
==============================================================
Class B -- $2,101,607,997/59,800,053 $35.14
==============================================================
Class C -- $21,669,530/616,649 -- Note A $35.14
==============================================================
Maximum Offering Price Per Share*
Class A -- ($35.35/0.95) $37.21
==============================================================
* 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
Six months ended April 30, 2000 (Unaudited)
--------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (including $905,949 received
from affiliated issuers and net of
foreign withholding taxes of $22,488) $55,728,479
Interest 3,030,481
-----------------
58,758,960
-----------------
Expenses:
Investment management fee -- Note B 13,307,526
Distribution and service fee -- Note B
Class A 1,331,271
Class B 13,079,615
Class C 60,428
Transfer agent fee -- Note B 4,592,712
Accounting and legal service fee --
Note B 337,200
Custodian fee 286,319
Trustees' fees 117,673
Miscellaneous 104,418
Printing 94,528
Registration and filing fees 42,583
Auditing fee 18,890
Legal fees 11,877
-----------------
Total Expenses 33,385,040
-----------------
Net Investment Income 25,373,920
-----------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold
(including net realized gain of
$573,133 on sales of investments in
affiliated issuers) 236,073,721
Change in net unrealized
appreciation/depreciation of
investments (1,351,265,966)
-----------------
Net Realized and Unrealized Loss on
Investments (1,115,192,245)
-----------------
Net Decrease in Net Assets Resulting
from Operations ($1,089,818,325)
=================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
-------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 2000
OCTOBER 31, 1999 (UNAUDITED)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $48,177,641 $25,373,920
Net realized gain on investments
sold 467,488,065 236,073,721
Change in net unrealized
appreciation/depreciation of
investments (204,398,999) (1,351,265,966)
----------------- -----------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 311,266,707 (1,089,818,325)
----------------- -----------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- ($0.7040 and $0.4047,
per share, respectively) (19,540,749) (8,926,363)
Class B -- ($0.3780 and $0.2591,
per share, respectively) (31,847,104) (16,703,864)
Class C** -- ($0.2622 and $0.2591,
per share, respectively) (17,644) (95,888)
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) (418,052,813)
----------------- -----------------
From Fund Share Transactions --
Net:* (1,239,045,771) (475,584,494)
----------------- -----------------
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
$2,039,894, respectively) $4,851,932,760 $2,868,477,128
================= =================
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.
<CAPTION>
Statement of Changes in Net Assets (continued)
---------------------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 2000
OCTOBER 31, 1999 (UNAUDITED)
--------------------------------------- ---------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 11,641,658 $603,173,333 3,199,886 $120,279,626
Shares issued to shareholders in
reinvestment of distributions 1,047,363 52,029,344 2,211,534 88,232,024
----------------- ----------------- ----------------- -----------------
12,689,021 655,202,677 5,411,420 208,511,650
Less shares repurchased (18,945,731) (971,792,774) (7,872,155) (293,121,506)
----------------- ----------------- ----------------- -----------------
Net decrease (6,256,710) ($316,590,097) (2,460,735) ($84,609,856)
================= ================= ================= =================
CLASS B
Shares sold 8,751,598 $443,975,183 4,935,423 $190,619,604
Shares issued to shareholders in
reinvestment of distributions 2,186,603 108,129,488 5,284,264 210,110,703
----------------- ----------------- ----------------- -----------------
10,938,201 552,104,671 10,219,687 400,730,307
Less shares repurchased (29,494,671) (1,481,370,072) (21,865,962) (809,313,786)
----------------- ----------------- ----------------- -----------------
Net decrease (18,556,470) ($929,265,401) (11,646,275) ($408,583,479)
================= ================= ================= =================
CLASS C**
Shares sold 138,401 $7,013,754 537,322 $19,539,879
Shares issued to shareholders in
reinvestment of distributions 321 15,312 15,980 630,318
----------------- ----------------- ----------------- -----------------
138,722 7,029,066 553,302 20,170,197
Less shares repurchased (4,427) (219,339) (70,948) (2,561,356)
----------------- ----------------- ----------------- -----------------
Net increase 134,295 $6,809,727 482,354 $17,608,841
================= ================= ================= =================
** Class C shares commenced 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, SIX MONTHS ENDED
----------------------------------------------------------------------------- APRIL 30, 2000
1995 1996 1997 1998 1999 (UNAUDITED)
------------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $21.52 $27.14 $33.99 $48.73 $50.34 $51.21
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income(1) 0.52 0.63 0.64 0.66 0.68 0.38
Net Realized and Unrealized
Gain (Loss) on Investments 5.92 7.04 15.02 1.99 2.36 (11.59)
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment Operations 6.44 7.67 15.66 2.65 3.04 (11.21)
------------- ------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.48) (0.60) (0.61) (0.65) (0.70) (0.40)
Distributions from Net
Realized Gain on
Investments Sold (0.34) (0.22) (0.31) (0.39) (1.47) (4.25)
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions (0.82) (0.82) (0.92) (1.04) (2.17) (4.65)
------------- ------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $27.14 $33.99 $48.73 $50.34 $51.21 $35.35
============= ============= ============= ============= ============= =============
Total Investment Return at
Net Asset Value(2) 31.00% 28.78% 46.79% 5.33% 6.24% (22.87%)(3)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $486,631 $860,843 $1,596,836 $1,500,200 $1,205,712 $745,200
Ratio of Expenses to Average
Net Assets 1.39% 1.36% 1.30% 1.24% 1.27% 1.38%(4)
Ratio of Net Investment
Income to Average Net
Assets 2.23% 2.13% 1.55% 1.23% 1.33% 1.97%(4)
Portfolio Turnover Rate 14% 8% 5% 5% 4% 1%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $21.43 $27.02 $33.83 $48.48 $50.08 $50.94
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income(1) 0.36 0.42 0.35 0.30 0.35 0.25
Net Realized and Unrealized
Gain (Loss) on Investments 5.89 7.01 14.95 1.97 2.36 (11.54)
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment Operations 6.25 7.43 15.30 2.27 2.71 (11.29)
------------- ------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.32) (0.40) (0.34) (0.28) (0.38) (0.26)
Distributions from Net
Realized Gain on
Investments Sold (0.34) (0.22) (0.31) (0.39) (1.47) (4.25)
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions (0.66) (0.62) (0.65) (0.67) (1.85) (4.51)
------------- ------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $27.02 $33.83 $48.48 $50.08 $50.94 $35.14
============= ============= ============= ============= ============= =============
Total Investment Return at
Net Asset Value(2) 30.11% 27.89% 45.78% 4.62% 5.55% (23.16%)(3)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $1,236,447 $2,408,514 $4,847,755 $4,506,983 $3,639,380 $2,101,608
Ratio of Expenses to Average
Net Assets 2.09% 2.07% 2.00% 1.92% 1.92% 2.08%(4)
Ratio of Net Investment
Income to Average Net
Assets 1.53% 1.42% 0.84% 0.56% 0.68% 1.27%(4)
Portfolio Turnover Rate 14% 8% 5% 5% 4% 1%
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
-----------------------------------------------------------------
PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO APRIL 30, 2000
OCTOBER 31, 1999 (UNAUDITED)
------------- -------------
<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 0.25
Net Realized and Unrealized
Gain (Loss) on Investments 0.21 (11.54)
------------- -------------
Total from Investment Operations 0.43 (11.29)
------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.26) (0.26)
Distributions from Net
Realized Gain on
Investments Sold -- (4.25)
------------- -------------
Total Distributions (0.26) (4.51)
------------- -------------
Net Asset Value, End of
Period $50.94 $35.14
============= =============
Total Investment Return at
Net Asset Value(2) 0.87%(3) (23.16%)(3)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $6,841 $21,670
Ratio of Expenses to Average
Net Assets 1.97%(4) 2.08%(4)
Ratio of Net Investment
Income to Average Net Assets 0.65%(4) 1.27%(4)
Portfolio Turnover Rate 4% 1%
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Not annualized.
(4) Annualized.
The Financial Highlights summarizes the impact of the following factors
on a single share for each period indicated: net investment income,
gains (losses), distributions and total investment return of the Fund.
It shows how the Fund's net asset value for a share has changed since
the end of the previous period. Additionally, important relationships
between some items presented in the financial statements are expressed
in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
April 30, 2000 (Unaudited)
------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the Regional Bank Fund on April 30, 2000. It's divided into four main
categories: common stocks and warrants, preferred stocks, bonds and
short-term investments. Common stocks are further broken down by
industry group. Short-term investments, which represent the Fund's
"cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION, STATE SHARES VALUE
-------------------------- ---------- --------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS
Money Center Banks (1.73%)
Chase Manhattan Corp. (NY) 687,540 $49,545,851
-------------
Superregional Banks (27.04%)
Bank of America Corp. (NC) 1,598,382 78,320,718
Bank of New York Co., Inc. (NY) 2,241,398 92,037,405
Bank One Corp. (OH) 1,522,941 46,449,701
First Union Corp. (NC) 1,616,244 51,517,778
FleetBoston Financial Corp. (MA) 2,641,801 93,618,823
KeyCorp (OH) 623,934 11,542,779
Mellon Financial Corp. (PA) 1,657,804 53,256,954
National City Corp. (OH) 2,630,328 44,715,576
PNC Bank Corp. (PA) 660,400 28,809,950
SunTrust Banks, Inc. (GA) 1,096,515 55,648,136
U.S. Bancorp (MN) 4,035,639 81,973,917
Wachovia Corp. (NC) 645,787 40,482,773
Wells Fargo Co. (CA) 2,371,294 97,371,260
-------------
775,745,770
-------------
Banks -- United States (51.46%)
ABC Bancorp. (GA) 209,600 2,069,800
American Bancorp. (WV) 145,000 1,721,875
AmSouth Bancorp. (AL) 5,808,222 84,582,233
Associated Banc-Corp. (WI) 304,706 7,789,047
BancFirst Corp. (OK) 294,954 7,945,323
BancFirst Ohio Corp. (OH) 43,000 833,125
BancorpSouth, Inc. (MS) 247,850 3,826,184
BancWest Corp. (HI) 2,087,780 38,232,471
Banknorth Group, Inc. (VT) 898,540 21,452,642
BB&T Corp. (NC) 2,225,490 59,253,671
Brenton Banks, Inc. (IA) 411,799 4,015,040
Bryn Mawr Bank Corp. (PA) 197,900 4,304,325
BSB Bancorp, Inc. (NY) 77,075 1,527,048
BT Financial Corp. (PA) 211,762 3,639,659
CB Bancshares, Inc. (HI) 140,600 3,515,000
CCB Financial Corp. (NC) 1,069,878 42,327,048
Centura Banks, Inc. (NC) 519,025 21,442,220
Chittenden Corp. (VT) 941,489 25,008,302
Citizens Banking Corp. (MI) 245,015 4,379,643
City National Corp. (CA) 559,800 20,607,638
Colonial BancGroup, Inc. (AL) 1,073,100 10,060,313
Comerica, Inc. (MI) 1,195,697 50,667,660
Commerce Bancshares, Inc. (MO) 1,140,282 35,206,207
Commercial Bankshares, Inc. (FL) 199,052 3,533,173
Community Bank System, Inc. (NY) 142,500 3,241,875
Community First Bankshares, Inc. (ND) 784,000 13,230,000
Compass Bancshares, Inc. (AL) 1,987,625 36,771,063
Cullen/Frost Bankers., Inc. (TX) 2,060,400 50,866,125
Eldorado Bancshares, Inc.* (CA) 269,500 1,886,500
F & M National Corp. (VA) 138,174 3,307,540
Fifth Third Bancorp (OH) 414,917 26,191,636
First Citizens BancShares, Inc. (Class A) (NC) 87,344 5,513,590
First Colonial Group, Inc. (PA) 34,517 604,048
First Republic Bank* (CA) 259,162 5,086,054
First Security Corp. (UT) 1,628,778 23,006,489
First Source Corp. (IN) 150,000 3,093,750
First State Bancorp. (NM) 159,750 2,076,750
First Tennessee National Corp. (TN) 2,820,300 53,585,700
First Virginia Banks, Inc. (VA) 96,749 3,531,339
Firstar Corp. (WI) 4,177,619 103,918,273
Firstbank Corp. (MI) 116,480 2,315,040
FirstMerit Corp. (OH) 556,981 9,120,564
F.N.B. Corp. (PA) 249,737 4,932,311
Fulton Financial Corp. (PA) 536,273 11,027,114
Gold Banc Corp. (KS) 63,856 395,109
Greater Bay Bancorp. (CA) 62,668 2,664,368
Hancock Holding Co. (MS) 326,200 11,294,675
Harleysville National Corp. (PA) 49,353 1,443,575
Hibernia Corp. (Class A) (LA) 509,800 5,416,625
Hudson United Bancorp. (NJ) 674,781 15,224,746
Huntington Bancshares, Inc. (OH) 372,137 6,791,500
Independent Bank Corp. (MA) 820,000 8,405,000
Interchange Financial Services Corp. (NJ) 323,625 4,601,559
Keystone Financial, Inc. (PA) 148,845 2,232,675
M&T Bank Corp. (NY) 55,185 24,240,010
Marshall & Ilsley Corp. (WI) 642,480 29,835,165
Mercantile Bankshares Corp. (MD) 835,550 23,813,175
MetroBanCorp. (IN) 30,781 162,564
Mississippi Valley Bancshares, Inc. (MO) 246,300 5,418,600
National City Bancshares, Inc. (IN) 95,634 2,103,948
North Fork Bancorp., Inc. (NY) 3,940,627 63,788,900
North Valley Bancorp. (CA) 189,200 1,889,048
Old Kent Financial Corp. (MI) 910,571 27,430,951
Old National Bancorp. (IN) 200,156 6,530,090
One Valley Bancorp., Inc. (WV) 261,106 8,861,285
Pacific Century Financial Corp. (HI) 1,223,266 25,153,407
Provident Bankshares Corp. (MD) 554,680 8,285,538
Provident Financial Group, Inc. (OH) 142,539 4,178,174
Regions Financial Corp. (AL) 917,500 18,751,406
Riggs National Corp. (DC) 202,000 2,739,625
Seacoast Banking Corp. (Class A) (FL) 168,300 4,333,725
Simmons First National Corp. (Class A) (AR) 303,500 7,132,250
Sky Financial Group, Inc. (OH) 346,012 5,687,572
SouthTrust Corp. (AL) 1,362,650 32,533,269
Southwest Bancorp., Inc. (OK) 127,500 2,199,375
Southwest Bancorp. of Texas, Inc.* (TX) 97,100 1,899,519
State Street Corp. (MA) 239,500 23,201,562
Sterling Bancshares, Inc. (TX) 367,130 4,038,430
Summit Bancorp. (NJ) 2,184,725 55,437,397
Susquehanna Bancshares, Inc. (PA) 669,693 9,250,135
Synovus Financial Corp. (GA) 106,800 1,982,475
TCF Financial Corp. (MN) 1,179,942 27,581,144
Texas Regional Bancshares, Inc. (Class A) (TX) 412,500 11,782,031
Three Rivers Bancorp, Inc. (PA) 103,250 909,891
TriCo Bancshares (CA) 330,075 5,281,200
Trustmark Corp. (MS) 294,000 5,402,250
UnionBanCal Corp. (CA) 1,917,900 53,101,856
Union Planters Corp. (TN) 578,067 16,366,522
U.S.B. Holding Co., Inc. (NY) 123,375 1,704,117
USBANCORP., Inc. (PA) 206,500 1,122,844
Westamerica Bancorp. (CA) 715,575 17,934,098
West Coast Bancorp. (OR) 145,095 1,505,361
Whitney Holding Corp. (LA) 428,300 14,936,962
Zions Bancorp. (UT) 909,000 37,723,500
-------------
1,475,944,612
-------------
Thrifts (15.39%)
Ambanc Holding Co., Inc. (NY) 207,100 2,925,287
Andover Bancorp., Inc. (MA) 45,000 1,229,063
Astoria Financial Corp. (NY) 880,000 24,255,000
Bank United Corp. (Class A) (TX) 188,600 6,259,162
BostonFed Bancorp., Inc. (MA) 330,700 4,381,775
Cameron Financial Corp. (MO) 82,500 1,082,813
CCF Holding Co. (GA) 49,687 652,142
Charter One Financial, Inc. (OH) 3,964,315 80,525,148
Commercial Federal Corp. (NE) 1,571,682 24,459,301
Dime Bancorp., Inc. (NY) 1,349,500 25,303,125
Dime Community Bancshares., Inc. (NY) 284,900 4,932,331
Eagle Bancshares, Inc. (GA) 21,500 299,656
ESB Financial Corp. (PA) 141,928 1,561,208
EverTrust Financial Group, Inc. (WA) 100,000 987,500
First Defiance Financial Corp. (OH) 186,000 1,627,500
First Federal Capital Corp. (WI) 280,000 3,220,000
First Financial Holdings, Inc. (SC) 177,000 2,411,625
First Washington Bancorp, Inc. (WA) 100,000 1,500,000
Flagstar Bancorp., Inc. (MI) 130,000 1,755,000
Flushing Financial Corp. (NY) 120,000 1,680,000
FMS Financial Corp. (NJ) 72,000 562,500
Frankfort First Bancorp., Inc. (KY) 72,500 824,688
GA Financial, Inc. (PA) 334,500 3,993,094
Golden State Bancorp., Inc.* (CA) 684,686 10,527,047
Granite State Bankshares, Inc. (NH) 126,600 2,057,250
GreenPoint Financial Corp. (NY) 2,702,500 50,334,063
Highland Bancorp., Inc. (CA) 175,000 4,200,000
HMN Financial, Inc. (MN) 140,000 1,592,500
Home Federal Bancorp. (IN) 166,100 2,802,938
Independence Community Bank Corp. (NY) 331,200 3,891,600
Industrial Bancorp., Inc. (OH) 140,000 1,540,000
InterWest Bancorp., Inc. (WA) 60,100 961,600
ISB Financial Corp. (LA) 320,000 4,480,000
Logansport Financial Corp. (IN) 77,500 731,406
MAF Bancorp., Inc. (IL) 526,743 9,876,431
MASSBANK Corp. (MA) 103,899 2,907,551
Medford Bancorp., Inc. (MA) 208,500 3,127,500
Mystic Financial, Inc. (MA) 59,500 609,875
OceanFirst Financial Corp. (NJ) 45,000 720,000
Pamrapo Bancorp., Inc. (NJ) 120,000 2,310,000
Peoples Heritage Financial Group, Inc. (ME) 2,117,838 27,664,259
Permanent Bancorp., Inc. (IN) 100,000 1,950,000
PFF Bancorp., Inc. (CA) 190,000 2,671,875
Prestige Bancorp., Inc. (PA) 53,015 516,896
Quaker City Bancorp., Inc.* (CA) 109,687 1,549,329
Roslyn Bancorp., Inc. (NY) 177,562 3,018,554
Southern Financial Bancorp., Inc. (VA) 64,098 905,384
Sovereign Bancorp., Inc. (PA) 59,302 407,701
Sterling Financial Corp.* (WA) 206,877 2,198,068
Texarkana First Financial Corp. (AR) 124,800 2,121,600
Washington Federal, Inc. (WA) 1,128,964 19,686,310
Washington Mutual, Inc. (WA) 2,889,474 73,862,179
Webster Financial Corp. (CT) 140,000 2,992,500
WSFS Financial Corp. (DE) 239,400 2,932,650
-------------
441,574,984
-------------
Banks -- Foreign (0.31%)
Popular, Inc. (Puerto Rico) 445,500 8,965,688
-------------
WARRANTS (0.04%)
Golden State Bancorp, Inc.* (Litigation) (CA) 270,000 1,113,750
-------------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $1,644,726,557) (95.97%) 2,752,890,655
-------------
PREFERRED STOCKS
Chevy Chase Pref. Capital Corp., Ser A, 10.375%
(MD) 18,000 864,000
Chevy Chase Savings, 13.00% (MD) 50,000 1,262,500
First Preferred Capital I, 9.25% (MO) 100,000 2,475,000
First Source Capital Trust I, 9.00% (IN) 40,000 970,000
First Source Capital Trust II, 8.14% ** (IN) 40,000 895,000
IFC Capital Trust I, 9.25% (IN) 160,000 4,100,000
Sterling Bancshares Capital Trust I, 9.28% (TX) 60,000 1,411,878
-------------
TOTAL PREFERRED STOCKS
(Cost $12,337,500) (0.42%) 11,978,378
-------------
TOTAL COMMON STOCKS, WARRANTS
AND PREFERRED STOCKS
(Cost $1,657,064,057) (96.39%) 2,764,869,033
-------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
------------------- -------- ------------ -----------
BONDS
Bank United Capital Trust, Pref Sec,
Ser A, 12-31-26 10.25% $2,000 1,720,000
Imperial Capital Trust I, Capital
Securities 12-31-26 9.98 1,500 1,387,500
Susquehanna Bancshares, Inc., Conv Sub
Deb 02-01-05 9.00 2,000 2,107,120
-------------
TOTAL BONDS
(Cost $5,455,030) (0.18%) 5,214,620
--------- -------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.52%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. -- Dated 04-28-00, due
05-01-00 (Secured by U.S. Treasury
Bonds, 5.50% thru 9.25%, due 02-15-16
thru 08-15-28) -- Note A 5.73 101,079 101,079,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate
4.85% 787
--------------
TOTAL SHORT-TERM INVESTMENTS (3.52%) 101,079,787
--------- --------------
TOTAL INVESTMENTS (100.09%) 2,871,163,440
--------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.09%) (2,686,312)
--------- --------------
TOTAL NET ASSETS (100.00%) $2,868,477,128
========= ==============
* Non-income producing security.
** Variable rate as of April 30, 2000.
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
(UNAUDITED)
NOTE A--
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust consists of three series portfolios: John Hancock Regional
Bank Fund (the "Fund"), John Hancock Financial Industries Fund and John
Hancock Small Cap Value Fund. The other series of the Trust are reported
in separate financial statements. The investment objective of the Fund
is to achieve long-term capital appreciation from a portfolio of equity
securities of regional banks and lending institutions. The Fund
suspended sales to new investors from March 12, 1997 until it was
reopened on November 4, 1998.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The
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. Beginning May 1, 2000, all retail purchases of Class C shares will
be assessed a 1% up-front sales charge.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
instruments maturing within 60 days are valued at amortized cost, which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more repurchase agreements, whose underlying securities are obligations
of the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders. Therefore, no federal
income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Fund is made aware
of the dividend. Interest income on investment securities is recorded on
the accrual basis. Foreign income may be subject to foreign withholding
taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative size of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are determined at the fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution and service fees, if any, are
calculated daily at the class level based on the appropriate net assets
of each class and the specific expense rate(s) applicable to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities purchased from either the date of issue or the date of
purchase over the life of the security, as required by the Internal
Revenue Code.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. 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 borrowings.
In addition, a commitment fee is charged based on the average daily
unused portion of the line of credit and is allocated among the
participating funds. The Fund had no borrowing activity for the period
ended April 30, 2000.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially
expressed in terms of foreign currencies are translated into U.S.
dollars based on London currency exchange quotations as of 5:00 p.m.,
London time, on the date of any determination of the net asset value of
the Fund. Transactions affecting statement of operations accounts and
net realized gain/(loss) on investments are translated at the rates
prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the trade
and settlement dates on securities transactions and the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities
other than investments in securities at fiscal year end, resulting from
changes in the exchange rate.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser, for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.80% of
the first $500,000,000 of the Fund's average daily net asset value and
(b) 0.75% of the Fund's average daily net asset value in excess
of $500,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended
April 30, 2000, net sales charges received with regard to sales of Class
A shares amounted to $380,564. Out of this amount, $183,134 was retained
and used for printing prospectuses, advertising, sales literature and
other purposes, $121,913 was paid as sales commissions to unrelated
broker-dealers and $75,517 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.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the period ended April 30, 2000, the contingent
deferred sales charges received by JH Funds amounted to $8,988,151.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market
value at the time of redemption or the original purchase cost of the
shares being redeemed. Proceeds from the CDSC are paid to JH Funds and
are used in whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class C shares. For the period ended April 30, 2000, contingent deferred
sales charges paid to JH Funds amounted to $11,127.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C pursuant to Rule
12b-1 under the Investment Company Act of 1940. Accordingly, the Fund
will make payments to JH Funds for distribution and service expenses, at
an annual rate not to exceed 0.30% of Class A average daily net assets
and 1.00% of Class B and Class C average daily net assets, to reimburse
JH Funds for its distribution and service costs. A maximum of 0.25% of
such payments may be service fees as defined by the Conduct Rules of the
National Association of Securities Dealers. Under the Conduct Rules,
curtailment of a portion of the Fund's 12b-1 payments could occur under
certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund pays transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S. Scipione
are directors and/or officers of the Adviser, and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees
is borne by the Fund. The unaffiliated Trustees may elect to defer, for
tax purposes, their receipt of this compensation under the John Hancock
Group of Funds Deferred Compensation Plan. The Fund makes investments
into other John Hancock funds, as applicable, to cover its liability for
the deferred compensation. Investments to cover the Fund's deferred
compensation liability are recorded on the Fund's books as an other
asset. The deferred compensation liability and the related other asset
are always equal and are marked to market on a periodic basis to reflect
any income earned by the investment as well as any unrealized gains or
losses. The investment had no impact on the operations of the Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended April 30, 2000, aggregated $28,980,414 and
$810,551,936, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended April 30, 2000.
The cost of investments owned at April 30, 2000 (including
short-term investments) for federal income tax purposes was
$1,763,965,921. Gross unrealized appreciation and depreciation of
investments aggregated $1,144,383,208 and $37,186,476, respectively,
resulting in net unrealized appreciation of $1,107,196,732.
NOTE D -
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the period ended
April 30, 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 -- $39,684 $4,381,775
Catskill Financial Corp. (NY) 210,000 -- -- 210,000 $2,263,753 -- $46,171 23,100 --
CCF Holding Co. (GA) 49,687 -- -- -- -- 49,687 -- 7,949 652,142
Commercial Bankshares, Inc. (FL) 189,574 -- -- -- -- 199,052(1) -- 39,804 3,533,173
Elmira Savings Bank (NY) 38,531 -- -- 38,531 431,310 -- 453,789 12,330 --
First Federal Bancorp. (MN) 126,000 -- -- 126,000 715,500 -- 245,218 -- --
First Source Capital Trust II,
8.14% (IN) 40,000 -- -- -- -- 40,000 -- 36,450 895,000
Frankfort First Bancorp., Inc. (KY) 72,500 -- -- -- -- 72,500 -- 34,800 824,688
GA Financial, Inc. (PA) 384,500 -- -- 50,000 575,000 334,500 34,104 130,730 3,993,094
IFC Capital Trust I, 9.25% (IN) 160,000 -- -- -- -- 160,000 -- 185,000 4,100,000
Independent Bank Corp. (MA) 820,000 -- -- -- -- 820,000 -- 164,000 8,405,000
Logansport Financial Corp. (IN) 77,500 -- -- -- -- 77,500 -- 17,050 731,406
North Valley Bancorp. (CA) 181,700 7,500 $79,281 189,200 -- 37,090 1,889,048
NS & L Bancorp. (MO) 42,000 -- -- 42,000 450,625 -- (33,890) 6,720 --
Prestige Bancorp., Inc. (PA) 98,015 -- -- 45,000 517,627 53,015 (69,204) 12,742 516,896
Sobieski Bancorp., Inc. (IN) 40,000 -- -- 40,000 448,750 -- (48,763) 6,400 --
Sterling Bancshares Capital Trust I,
9.28% (TX) 60,000 -- -- -- -- 60,000 -- 69,600 1,411,878
Texarkana First Financial Corp. (AR) 124,800 -- -- -- -- 124,800 -- 42,432 2,121,600
WesterFed Financial Corp. (MT) 250,426 -- -- 250,426 3,471,549 -- (54,292) 40,068 --
------- ---------- -------- -------- -----------
$79,281 $8,874,114 $573,133 $905,949 $33,455,700
======= ========== ======== ======== ===========
(1) Reflects 5% stock dividend payments as of December 10, 1999.
</TABLE>
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
Internet: www.jhfunds.com
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PAID
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Permit No. 75
This report is for the information of shareholders of the John Hancock
Regional Bank Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper."
010SA 4/00
6/00
The latest report from your
Fund's management team
SEMIANNUAL REPORT
Small Cap
Value Fund
APRIL 30, 2000
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*
Richard S. Scipione
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
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 SHAREHOLDERS:
Over the last six months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech
stocks pushed the NASDAQ Composite Index to the stratosphere, as
investors single-mindedly pursued anything technology related. But after
setting a new high on March 10 amid significantly heightened volatility,
the tables started to turn rapidly. Concerns about Microsoft's antitrust
ruling and out-of-sight valuation levels finally triggered waves of
selling that sent the index down nearly 25% from its high by the end of
April.
In this same period, fixed-income securities of all types, including
bonds and preferred stocks, struggled as interest rates rose on fears
that the roaring U.S. economy and the rebound of many others around the
world would spark an inflation outbreak.
While the battle between old and new rages on, several things are clear:
More than ever, diversification and a long-term investment perspective
are two of an investor's best allies. Since not all parts of your
portfolio will perform equally well all the time, we believe it is
important to allocate your assets among different types of investments
and funds that target a variety of stock- and bond-market segments. This
strategy, executed under the guidance of a seasoned investment
professional, could provide you with a better chance of both realizing
longer-term results and weathering the market's changing conditions.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY TIMOTHY E. QUINLISK, CFA, PORTFOLIO MANAGER
[A 1-7/8" x 2-1/8" photo at bottom center of page of John Hancock
Small Cap Value Fund. Caption below reads "Tim Quinlisk, portfolio manager."]
John Hancock
Small Cap Value Fund
Fund outpaces its peers amid market volatility
Technology continued to dominate stock market headlines during the six
months ended April 30, 2000. For most of the period, investors focused
on revenue growth and new market opportunities rather than more
traditional measures of value. This benefited growth stocks of all
sizes, especially in the technology and telecommunications sectors, each
of which posted exceptionally strong gains late last year. As the
Federal Reserve continued to ratchet up short-term interest rates in the
new year, investors avoided stocks in economically sensitive sectors
like finance and retail. But they ignored the fact that slower economic
growth could ultimately lead to lower demand for technology products and
services. As technology stocks climbed to stratospheric levels, higher
interest rates triggered concerns about valuations and companies'
abilities to meet high earnings expectations. Investors jumped ship in
March and April, sending technology stocks tumbling. This caused the
market to give back some of its earlier gains.
Performance review
Small-company stocks -- with their more reasonable prices and strong
growth prospects -- fared well, especially compared to their large-cap
counterparts. The Russell 2000 Index advanced 18.72% for the six-month
period, well ahead of the 7.18% return for the Standard & Poor's 500
Index.
"Technology
continued to
dominate
stock market
headlines..."
Strong stock selection helped John Hancock Small Cap Value Fund's Class
A, Class B and Class C shares return 47.05%, 46.46% and 46.55%,
respectively, at net asset value, during the six-month period. This
compared to a 25.43% return for the average small-cap core fund,
according to Lipper, Inc.1 (Lipper recently introduced new competitive
categories that reflect more accurately the average portfolio holdings
of the funds they track.) 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.
[Table at top left hand column entitled "Top Five Stock Holdings."
The first listing is ANTEC Corp. 4.6%, the second is Vicor Corp. 4.5%,
the third CTC Communications Group 4.4%, the fourth Dexter Corp. 4.2%
and the fifth Intermedia Communications 4.2%. A note below the table
reads "As a percentage of net assets on April 30, 2000."]
"As always,
we focused
on buying
great
businesses
selling at
a discount."
Great businesses at cheap prices
Our disciplined investment strategy led us to take major stakes in
companies that turned out to be top performers. As always, we focused on
buying great businesses selling at a discount. We also looked for
evidence of a catalyst -- such as a spin-off, restructuring, new
management or new market opportunity -- that might unlock the stock's
full potential. Although technology is not traditionally viewed as a
value category, many of our best investment opportunities came in this
sector. We added to or bought several companies that met our criteria
last fall and again this spring when stock prices were weak. Among them
were software companies that could benefit as corporations began ramping
up their technology spending in 2000, capital goods suppliers involved
with upgrading the cable infrastructure and telecommunications names
with expanding reach.
[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 CTC Communications Group followed
by an up arrow with the phrase "New generation telecommunications
infrastructure." The second listing is Financial Security
Assurance followed by an up arrow with the phrase "Acquired by
Dexia, a European insurer." The third listing is Danka Business
Systems followed by a down arrow with the phrase "Temporary
pressure on profit margins." A note below the table reads "See
'Schedule of Investments.' Investment holdings are subject to
change."]
Technology winners
One of our largest investments and best performers was Oak Industries,
which makes components for the cable, TV, wireless and fiber-optics
markets. We expected Oak to spin out or sell off its Lasertron optics
division. Instead, Corning, which makes the fiber for fiber-optics
networks, announced it was acquiring Oak, causing Oak's stock to soar.
Our subsequent stake in Corning also paid off handsomely. Another great
performer was Amphenol, which makes connectors for the cable, wireless
and aerospace industries. It did well, thanks to a positive turn in its
international business and continued strength domestically. ANTEC Corp.
also made excellent headway with a product that allows cable networks to
offer local access telephone service over existing cable
infrastructures. We also benefited from our stakes in Wind River
Systems, the leading supplier of software for embedded microprocessor
systems, and Aspen Technology, which specializes in making software for
process-oriented industries like oil, chemicals, paper and pulp. Both
businesses seemed to pick up steam in the new year. Finally, Dexter, a
specialty chemicals company with a biotechnology subsidiary, did well,
thanks largely to an unsolicited takeover offer from a company named
ISP.
[Bar chart at top of left hand column with heading "Fund
Performance." Under the heading is a note that reads "For the six
months ended April 30, 2000." The chart is scaled in increments of
10% with 0% at the bottom and 50% at the top. The first bar
represents the 47.05% total return for John Hancock Small Cap
Value Fund Class A. The second bar represents the 46.46% total
return for John Hancock Small Cap Value Fund Class B. The third
bar represents the 46.55% total return for John Hancock Small Cap
Value Fund Class C. The fourth bar represents the 25.43% 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
Last fall, we invested in CTC Communications Group. CTC, which operates
primarily on the East Coast, has historically taken Bell Atlantic lines
and resold them to small businesses. Recently, the company began
building its own next-generation telecommunications infrastructure.
CTC's stock price rose as investors anticipated the positive impact this
would have on profit margins. We also bought stock in Alaska
Communications Systems Holdings, which controls 75% of the telephone
access lines in that state. In our view, the stock price has yet to
reflect the full value of the company's unique franchise. During the
spring, we trimmed our positions in both Corning and Amphenol and used
the proceeds to take advantage of market weakness. We added to existing
investments like Vicor, a leading manufacturer of modular power systems,
and Intermedia Communications, a competitive local exchange carrier with
a strategic nationwide network plus a Web-related subsidiary. We also
acquired some new names at fire-sale prices. Among them were Corinthian
Colleges, an education company; ACNielsen, a media and consumer research
company; and Viant, an e-commerce consulting firm -- all of which have
excellent earnings growth prospects.
"...volatility
gives us a
chance to
buy stocks
we know well
at very
attractive
prices."
Favorable outlook
During the rest of the year, we expect economic growth to slow, but
remain positive and broad-based across many sectors. We believe
technology will remain the leading driver of economic growth, even as
short-term interest rates continue to rise. This combination will most
likely translate into continued stock market volatility. We're
optimistic, however, because volatility gives us a chance to buy stocks
we know well at very attractive prices. In addition, the decent economic
backdrop bodes well for value investors, since economically sensitive
companies need a healthy economy to meet or exceed earnings
expectations. Finally, we believe there's still great opportunity in
small-cap value stocks, which have participated far less than small-cap
growth stocks in the recent rally. Areas like health care and finance
look especially attractive. Whether investors continue to favor growth
stocks or shift into value names, we believe our strategy will help us
deliver strong long-term returns for Fund shareholders.
-------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's 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 (1% declining to 0% after one
year).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them. Please read your prospectus carefully before you invest or
send money.
CLASS A
For the period ended March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
------- ------- -------
Cumulative Total Returns 106.86%(2) 234.35% 274.31%
Average Annual Total Returns(1) 106.86%(2) 27.30% 23.56%
CLASS B
For the period ended March 31, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
------- ------- -------
Cumulative Total Returns 111.33%(2) 237.84% 277.08%
Average Annual Total Returns(1) 111.33%(2) 27.57% 23.71%
CLASS C
For the period ended March 31, 2000
SINCE
ONE INCEPTION
YEAR (5/1/98)
------- -------
Cumulative Total Returns 113.09%(2) 91.05%
Average Annual Total Returns(1) 113.09%(2) 40.22%
Notes to Performance
(1) From 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. This was done in order to
reduce costs borne by a limited shareholder base while the
Fund was still in its infancy. Without the limitation of
expenses, the average annual total returns for the five-year
period and since inception for Class A shares would have been
26.79% and 22.53%, respectively. The average annual total
returns for the five-year period and since inception for
Class B shares would have been 27.06% and 22.68%,
respectively. The average annual total return since inception
for Class C shares would have been 39.94%. Effective March 1,
1999, the Adviser removed the subsidy on all share classes of
the Small Cap Value Fund.
(2) The Fund's recent returns occurred during an unusual period of
performance in certain areas of the market in which the Fund invests.
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 $38,371
as of April 30, 2000. The second line represents the same
hypothetical investment made in the John Hancock Small Cap Value
Fund, after sales charge, and is equal to $36,452 as of April 30,
2000. The third line represents the Russell 2000 Index and is
equal to $21,378 as of April 30, 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 $36,673
as of April 30, 2000. The second line represents the Russell 2000
Index and is equal to $21,378 as of April 30, 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 $18,785 as of
April 30, 2000. The second line represents the same hypothetical
investment made in the John Hancock Small Cap Value Fund, after
sales charge, and is equal to $18,597 as of April 30, 2000. The
third line represents the Russell 2000 Index and is equal to
$10,746 as of April 30, 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
April 30, 2000 (Unaudited)
--------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Common stocks (cost -- $330,430,626) $403,641,439
Preferred stocks (cost -- $555,000) 527,028
Bonds (cost -- $4,281,236) 6,142,687
-----------------
410,311,154
Receivable for investments sold 13,389,697
Receivable for shares sold 2,339,999
Interest receivable 249
Other assets 1,980
-----------------
Total Assets 426,043,079
-----------------
Liabilities:
Due to Custodian 1,838,254
Payable for shares repurchased 164,249
Payable for investments purchased 7,766,058
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B 125,205
-----------------
Total Liabilities 9,893,766
-----------------
Net Assets:
Capital paid-in 323,985,425
Accumulated net realized gain on
investments, financial futures
contracts and foreign currency
transactions 17,756,972
Net unrealized appreciation of
investments 75,044,292
Accumulated net investment loss (637,376)
-----------------
Net Assets $416,149,313
=================
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 -- $171,305,408/7,271,561 $23.56
==============================================================
Class B -- $216,747,315/9,405,494 $23.04
==============================================================
Class C -- $28,096,590/1,219,713 --
Note A $23.04
==============================================================
Maximum Offering Price Per Share*
Class A -- ($23.56/0.95) $24.80
==============================================================
* 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
Six months ended April 30, 2000 (Unaudited)
--------------------------------------------------------------
<S> <C>
Investment Income:
Interest $1,230,832
Securities lending income -- Note A 94,492
Dividends (net of foreign withholding
taxes of $62,321) 339,228
-----------------
1,664,552
-----------------
Expenses:
Investment management fee -- Note B 995,983
Distribution and service fee -- Note B
Class A 169,351
Class B 779,213
Class C 75,490
Transfer agent fee -- Note B 199,417
Registration and filing fees 29,936
Accounting and legal services fee --
Note B 26,460
Custodian fee 14,228
Auditing fee 4,326
Trustees' fees 2,848
Miscellaneous 1,891
Printing 905
Legal fees 548
-----------------
Total Expenses 2,300,596
-----------------
Net Investment Loss (636,044)
-----------------
Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions:
Net realized gain on investments sold 26,019,596
Net realized loss on financial futures
contracts (7,896,772)
Net realized loss on foreign currency
transactions (289)
Change in net unrealized
appreciation/depreciation of
investments 53,959,779
-----------------
Net Realized and Unrealized Gain on
Investments, Financial Futures
Contracts and Foreign Currency
Transactions 72,082,314
-----------------
Net Increase in Net Assets Resulting
from Operations $71,446,270
=================
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
----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 2000
OCTOBER 31, 1999 (UNAUDITED)
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($762,666) ($636,044)
Net realized gain on investments
sold, financial futures contracts
and foreign currency transactions 12,813,230 18,122,535
Change in net unrealized
appreciation/depreciation of
investments 23,034,773 53,959,779
----------------- -----------------
Net Increase in Net Assets
Resulting from Operations 35,085,337 71,446,270
----------------- -----------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
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:* 42,574,046 225,143,628
----------------- -----------------
Net Assets:
Beginning of period 53,587,407 130,622,033
----------------- -----------------
End of period (including
accumulated net investment loss
of $1,332 and $637,376,
respectively) $130,622,033 $416,149,313
================= =================
Statement of Changes in Net Assets (continued)
---------------------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 2000
OCTOBER 31, 1999 (UNAUDITED)
--------------------------------------- ---------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------- ----------------- ----------------- -----------------
CLASS A
Shares sold 2,467,123 $36,131,692 5,573,131 $125,793,274
Shares reinvested 21,741 244,370 221,579 3,908,411
----------------- ----------------- ----------------- -----------------
2,488,864 36,376,062 5,794,710 129,701,685
Less shares repurchased (1,574,480) (21,507,175) (1,518,907) (33,907,511)
----------------- ----------------- ----------------- -----------------
Net increase 914,384 $14,868,887 4,275,803 $95,794,174
================= ================= ================= =================
CLASS B
Shares sold 3,082,751 $44,813,213 5,896,135 $128,310,721
Shares reinvested 28,600 318,057 286,228 4,952,933
----------------- ----------------- ----------------- -----------------
3,111,351 45,131,270 6,182,363 133,263,654
Less shares repurchased (1,548,060) (20,164,373) (1,200,458) (25,944,069)
----------------- ----------------- ----------------- -----------------
Net increase 1,563,291 $24,966,897 4,981,905 $107,319,585
================= ================= ================= =================
CLASS C
Shares sold 194,189 $2,882,311 1,098,534 $24,351,968
Shares reinvested 443 4,931 13,580 234,874
----------------- ----------------- ----------------- -----------------
194,632 2,887,242 1,112,114 24,586,842
Less shares repurchased (11,678) (148,980) (114,753) (2,556,973)
----------------- ----------------- ----------------- -----------------
Net increase 182,954 $2,738,262 997,361 $22,029,869
================= ================= ================= =================
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 the Fund.
It shows how the Fund's net asset value for a share has changed since
the end of the previous period. Additionally, important relationships
between some items presented in the financial statements are expressed
in ratio form.
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, PERIOD FROM SIX MONTHS ENDED
------------------------------------------- JANUARY 1, 1998 TO YEAR ENDED APRIL 30, 2000
1994(1) 1995 1996 1997 OCTOBER 31, 1998(8) OCTOBER 31, 1999 (UNAUDITED)
-------- ------- ------- ------ ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.50 $8.99 $10.39 $10.32 $12.27 $10.82 $17.27
-------- ------- ------- ------ ------ ------- --------
Net Investment Income
(Loss)(2) 0.18 0.21 0.14 0.06 0.02 (0.09) 0.00(9)
Net Realized and Unrealized
Gain (Loss) on Investments 0.48 1.60 1.17 2.52 (1.47) 6.67 7.66
-------- ------- ------- ------ ------ ------- --------
Total from Investment Operations 0.66 1.81 1.31 2.58 (1.45) 6.58 7.66
-------- ------- ------- ------ ------ ------- --------
Less Distributions:
Dividends from Net
Investment Income (0.17) (0.20) (0.14) (0.03) -- -- --
Distributions from Net Realized
Gain on Investments Sold -- (0.21) (1.24) (0.60) -- (0.13) (1.37)
-------- ------- ------- ------ ------ ------- --------
Total Distributions (0.17) (0.41) (1.38) (0.63) -- (0.13) (1.37)
-------- ------- ------- ------ ------ ------- --------
Net Asset Value, End of
Period $8.99 $10.39 $10.32 $12.27 $10.82 $17.27 $23.56
======== ======= ======= ====== ====== ======= ========
Total Investment Return at
Net Asset Value(3) 7.81%(4) 20.26% 12.91% 25.25% (11.82%)(4) 61.39% 47.05%(4)
Total Adjusted Investment
Return at Net Asset
Value(3,5) 7.30%(4) 19.39% 12.20% 24.65% (12.33%)(4) 61.24% --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $4,420 $12,845 $15,853 $20,961 $22,528 $51,746 $171,305
Ratio of Expenses to Average
Net Assets 0.99%(7) 0.98% 0.99% 0.99% 1.01%(7) 1.39% 1.20%(7)
Ratio of Adjusted Expenses
to Average Net Assets(6) 4.98%(7) 1.85% 1.70% 1.59% 1.62%(7) 1.54% --
Ratio of Net Investment
Income (Loss) to Average
Net Assets 2.10%(7) 2.04% 1.31% 0.47% 0.25%(7) (0.67%) (0.03%)(7)
Ratio of Adjusted Net
Investment Income (Loss) to
Average Net Assets(6) (1.89%)(7) 1.17% 0.60% (0.13%) (0.36%)(7) (0.82%) --
Portfolio Turnover Rate 0.3% 9% 72% 140% 69% 140% 30%
Fee Reduction Per Share(2) $0.34 $0.09 $0.08 $0.07 $0.06 $0.02 --
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM SIX MONTHS ENDED
------------------------------------------- JANUARY 1, 1998 TO YEAR ENDED APRIL 30, 2000
1994(1) 1995 1996 1997 OCTOBER 31, 1998(8) OCTOBER 31, 1999 (UNAUDITED)
-------- ------- ------- ------ ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.50 $9.00 $10.38 $10.31 $12.21 $10.71 $16.98
------- ------- ------- ------- ------- ------- -------
Net Investment Income
(Loss)(2) 0.13 0.12 0.07 (0.03) (0.04) (0.18) (0.08)
Net Realized and Unrealized
Gain (Loss) on Investments 0.48 1.59 1.17 2.53 (1.46) 6.58 7.51
------- ------- ------- ------- ------- ------- -------
Total from Investment Operations 0.61 1.71 1.24 2.50 (1.50) 6.40 7.43
------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net
Investment Income (0.11) (0.12) (0.07) -- -- -- --
Distributions from Net Realized
Gain on Investments Sold -- (0.21) (1.24) (0.60) -- (0.13) (1.37)
------- ------- ------- ------- ------- ------- -------
Total Distributions (0.11) (0.33) (1.31) (0.60) -- (0.13) (1.37)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period $9.00 $10.38 $10.31 $12.21 $10.71 $16.98 $23.04
======= ======= ======= ======= ======= ======= =======
Total Investment Return at
Net Asset Value(3) 7.15%(4) 19.11% 12.14% 24.41% (12.29%)(4) 60.33% 46.46%(4)
Total Adjusted Investment
Return at Net Asset
Value(3,5) 6.64%(4) 18.24% 11.43% 23.81% (12.80%)(4) 60.18% --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $3,296 $16,994 $22,097 $35,033 $30,637 $75,103 216,747
Ratio of Expenses to Average
Net Assets 1.72%(7) 1.73% 1.69% 1.69% 1.71%(7) 2.06% 1.89%(7)
Ratio of Adjusted Expenses
to Average Net Assets(6) 5.71%(7) 2.60% 2.40% 2.29% 2.32%(7) 2.21% --
Ratio of Net Investment
Income (Loss) to Average
Net Assets 1.53%(7) 1.21% 0.62% (0.24%) (0.45%)(7) (1.34%) (0.73%)(7)
Ratio of Adjusted Net
Investment Income (Loss) to
Average Net Assets(6) (2.46%)(7) 0.34% (0.09%) (0.84%) (1.06%)(7) (1.49%) --
Portfolio Turnover Rate 0.3% 9% 72% 140% 69% 140% 30%
Fee Reduction Per Share(2) $0.34 $0.09 $0.08 $0.07 $0.06 $0.02 --
<CAPTION>
Financial Highlights (continued)
----------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
MAY 1, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO YEAR ENDED APRIL 30, 2000
OCTOBER 31, 1998(8) OCTOBER 31, 1999 (UNAUDITED)
------------------- ---------------- ---------
<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) (0.08)
Net Realized and Unrealized
Gain (Loss) on Investments (2.65) 6.58 7.52
------- ------- -------
Total from Investment Operations (2.68) 6.39 7.44
------- ------- -------
Less Distributions:
Distributions from Net
Realized Gain on
Investments Sold -- (0.13) (1.37)
------- ------- -------
Net Asset Value, End of
Period $10.71 $16.97 $23.04
======= ======= =======
Total Investment Return at
Net Asset Value(3) (20.01%)(4) 60.24% 46.55%(4)
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 $28,097
Ratio of Expenses to Average
Net Assets 1.71%(7) 2.09% 1.90%(7)
Ratio of Adjusted Expenses
to Average Net Assets(6) 2.32%(7) 2.29% --
Ratio of Net Investment Loss
to Average Net Assets (0.54%)(7) (1.43%) (0.68%)(7)
Ratio of Adjusted Net
Investment Loss to Average
Net Assets(6) (1.15%)(7) (1.58%) --
Portfolio Turnover Rate 69% 140% 30%
Fee Reduction Per Share(2) $0.04 $0.02 --
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of
sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into
consideration expense reductions by the Adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
(7) Annualized.
(8) Effective October 31, 1998, the fiscal period end changed from
December 31 to October 31.
(9) Less than $0.01 per share.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
April 30, 2000 (Unaudited)
--------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the Small Cap Value Fund on April 30, 2000. It's divided into three
main categories: common stocks, preferred stocks and bonds. 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 (2.81%)
Penton Media, Inc. 352,000 $9,262,000
R.H. Donnelley Corp.* 122,700 2,454,000
------------
11,716,000
------------
Automobile/Trucks (1.10%)
Tenneco Automotive, Inc. 517,900 4,596,362
------------
Broker Services (1.01%)
Jefferies Group, Inc. 191,500 4,224,969
------------
Business Services -- Misc. (11.18%)
ACNielsen Corp.* 492,000 11,346,750
Iron Mountain, Inc.* 459,400 16,079,000
Metamor Worldwide, Inc.* 392,800 7,610,500
Sensormatic Electronics Corp.* 688,000 11,481,000
------------
46,517,250
------------
Computers (23.12%)
ARIS Corp.* 171,000 1,250,437
Aspen Technology, Inc.* 235,350 8,325,506
AXENT Technologies, Inc.* 728,800 14,667,100
Bell & Howell Co.* 139,000 3,692,188
Diversinet Corp.* (Canada) 546,150 4,676,409
DSET Corp.* 200,000 3,712,500
FVC.com, Inc.* 28,200 169,200
Hyperion Solutions Corp.* 154,150 4,675,077
NetCreations, Inc.* 62,300 2,133,775
NetRatings, Inc.* 188,650 4,999,225
NorthPoint Communications Group, Inc.* 300,000 4,837,500
Parametric Technology Corp.* 380,750 3,105,511
Student Advantage, Inc.* 879,400 4,946,625
UNOVA, Inc.* 841,000 11,774,000
Viant Corp.* 328,650 7,558,950
Wind River Systems, Inc.* 207,375 8,852,320
WorldGate Communications, Inc.* 91,000 2,144,187
Xpedior, Inc.* 288,300 4,684,875
------------
96,205,385
------------
Containers (0.96%)
Pactiv Corp.* 485,600 3,975,850
------------
Diversified Manufacturing Operations (0.75%)
Pittston Brink's Group 190,000 3,111,250
------------
Electronics (8.04%)
Amphenol Corp. (Class A)* 165,700 10,563,375
ESCO Electronics Corp.* 251,750 4,106,672
Vicor Corp.* 722,950 18,796,700
------------
33,466,747
------------
Finance (0.35%)
Core Cap, Inc. (Class A)* (r) 22,200 364,080
Federated Investors, Inc. (Class B) 38,000 1,073,500
------------
1,437,580
------------
Human Resources (1.65%)
Heidrick & Struggles International, Inc.* 191,100 6,879,600
------------
Insurance (2.03%)
Ace, Ltd. 76,375 1,828,226
Radian Group, Inc. 40,000 2,037,500
StanCorp Financial Group, Inc. 157,150 4,576,994
------------
8,442,720
------------
Resorts (1.37%)
Premier Parks, Inc. 265,200 5,718,375
------------
Manufacturing (4.21%)
Dexter Corp. (The) 319,500 17,532,563
------------
Medical (4.41%)
Covance, Inc.* 805,400 7,399,613
DENTSPLY International, Inc. 249,500 7,251,094
Genzyme Surgical Products* 115,500 988,969
I-STAT Corp.* 22,600 292,388
Shire Pharmaceuticals Group Plc* (United
Kingdom) 170,000 2,423,401
------------
18,355,465
------------
Office (0.95%)
Danka Business Systems Plc, American Depositary
Receipts (ADR) (United Kingdom) 899,067 3,933,418
------------
Oil & Gas (4.25%)
Basin Exploration, Inc. * 165,500 2,317,000
Chieftain International, Inc.* (Canada) 98,850 1,878,150
Grey Wolf, Inc.* 1,042,750 4,236,172
Tidewater, Inc. 137,600 4,093,600
Veritas DGC, Inc.* 214,950 5,158,800
------------
17,683,722
------------
Retail (1.65%)
Brightpoint, Inc.* 90,000 1,063,125
Whole Foods Market, Inc.* 136,550 5,811,909
------------
6,875,034
------------
Schools/Education (2.67%)
Corinthian Colleges, Inc.* 517,400 11,124,100
------------
Telecommunications (23.21%)
Alaska Communications Systems Holdings, Inc.* 558,300 6,699,600
ANTEC Corp.* 358,350 19,261,312
CFW Communications Co. 250,000 9,625,000
Commonwealth Telephone Enterprises, Inc.* 45,000 2,185,313
Corning, Inc. 84,516 16,691,910
CT Communications, Inc. 127,500 3,856,875
CTC Communications Group, Inc.* 539,100 18,194,625
Global Light Telecommunications, Inc.* (Canada) 198,250 2,676,375
Intermedia Communications, Inc.* 426,550 17,381,913
------------
96,572,923
------------
Transport (0.24%)
Air Canada* (Canada) 96,251 1,010,154
------------
Utilities (0.94%)
Independent Energy Holdings Plc* (ADR) (United
Kingdom) 100,148 3,905,772
------------
Waste Disposal Service & Equip. (0.09%)
Waste Systems International, Inc.* 109,600 356,200
------------
TOTAL COMMON STOCKS
(Cost $330,430,626) (96.99%) 403,641,439
-------- ------------
PREFERRED STOCKS
Finance (0.13%)
Core Cap, Inc., 10%, Ser A/l (r) 22,200 527,028
-------- ------------
TOTAL PREFERRED STOCKS
(Cost $555,000) (0.13%) 527,028
-------- ------------
INTEREST CREDIT PAR VALUE
RATE RATING** (000s OMITTED)
-------- ------- ------------
BONDS
Retail (1.48%)
Brightpoint, Inc.,
Conv Bond 03-11-18 Zero B $18,100 6,142,687
------------
TOTAL BONDS
(Cost $4,281,236) (1.48%) 6,142,687
-------- ------------
TOTAL INVESTMENTS (98.60%) 410,311,154
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.40%) 5,838,159
-------- ------------
TOTAL NET ASSETS (100.00%) $416,149,313
======== ============
* Non-income producing security.
** Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service or John Hancock Advisers, Inc.
where Standard & Poor's ratings are not available.
Parenthetical disclosure of a foreign country in the security
description represents country of foreign issuer; however, security is
U.S. dollar denominated.
(r) The securities listed below are direct placement securities and are
restricted as to resale. The Fund has limited rights to registration
under the Securities Act of 1933 with respect to restricted securities
(not including rule 144A securities). In certain circumstances the Fund
may bear a portion of the cost of such registrations; otherwise, such
costs would be borne by the issuer. Additional information on these
restricted securities is as follows:
MARKET VALUE
AS A PERCENTAGE MARKET VALUE
ACQUISITION ACQUISITION OF FUND'S AS OF
DATE COST NET ASSETS APRIL 30, 2000
---- ----- ---------- --------------
Core Cap, Inc. (Common) 10-31-97 $444,000 0.09% $364,080
Core Cap, Inc. (Preferred) 10-31-97 555,000 0.13 527,028
-------- ----- --------
$999,000 0.22% $891,108
======== ===== ========
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
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust consists of three series: John Hancock Small Cap Value Fund
(the "Fund"), John Hancock Financial Industries Fund and John Hancock
Regional Bank Fund. The other two series of the Trust are reported in
separate financial statements. 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. Beginning May 1, 2000, all retail purchases of Class C shares will
be assessed a 1.00% up-front sales charge.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost, which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders. Therefore, no federal
income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Fund is made aware
of the dividend. Interest income on investment securities is recorded on
the accrual basis. Foreign income may be subject to foreign withholding
taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution and service fees, if any, are
calculated daily at the class level based on the appropriate net assets
of each class and the specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund 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 is allocated among the participating
funds. The Fund had no borrowing activity for the period ended April 30,
2000.
SECURITIES LENDING The Fund may lend its securities to certain qualified
brokers who pay the Fund negotiated lender fees. 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 April 30,
2000, the Fund loaned securities having a market value of $22,206,456
collateralized by securities in the amount of $22,650,585.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially
expressed in terms of foreign currencies are translated into U.S.
dollars based on London currency exchange quotations as of 5:00 p.m.,
London time, on the date of any determination of the net asset value of
the Fund. Transactions affecting statement of operations accounts and
net realized gain/(loss) on investments are translated at the rates
prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the trade
and settlement dates on securities transactions and the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
or losses arise from changes in the value of assets and liabilities
other than investments in securities at fiscal year end, resulting from
changes in the exchange rate.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of 0.70% of the
Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
April 30, 2000 net sales charges received with regard to sales of Class
A shares amounted to $329,833. Out of this amount, $32,486 was retained
and used for printing prospectuses, advertising, sales literature and
other purposes, $222,955 was paid as sales commissions to unrelated
broker-dealers and $74,392 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.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the period ended April 30, 2000, contingent deferred
sales charges paid to JH Funds amounted to $121,495.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market
value at the time of redemption or the original purchase cost of the
shares being redeemed. Proceeds from the CDSC are paid to JH Funds and
are used in whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class C shares. For the period ended April 30, 2000, contingent deferred
sales charges paid to JH Funds amounted to $5,221.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C pursuant to Rule
12b-1 under the Investment Company Act of 1940. Accordingly, the Fund
will make payments to JH Funds for distribution and service expenses, at
an annual rate not to exceed 0.30% of Class A average daily net assets
and 1.00% of Class B and Class C average daily net assets, to reimburse
JH Funds for its distribution and service costs. A maximum of 0.25% of
such payments may be service fees as defined by the Conduct Rules of the
National Association of Securities Dealers. Under the Conduct Rules,
curtailment of a portion of the Fund's 12b-1 payments could occur under
certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund pays Signature Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
period was at an annual rate of less than 0.02% of the average net
assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S.
Scipione are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. The investment had no impact on the
operations of the Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended April 30, 2000, aggregated $280,382,646 and
$79,167,295, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended April 30, 2000.
The cost of investments owned at April 30, 2000 (excluding the corporate
savings account) for federal income tax purposes was $335,409,120. Gross
unrealized appreciation and depreciation of investments aggregated
$94,083,355 and $19,181,321, respectively, resulting in net unrealized
appreciation of $74,902,034.
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Permit No. 75
This report is for the information of shareholders of the John Hancock
Small Cap Value Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
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370SA 4/00
6/00
The latest report from your
Fund's management team
SEMIANNUAL REPORT
Financial
Industries Fund
APRIL 30, 2000
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*
Richard S. Scipione
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
CEO CORNER
DEAR FELLOW SHAREHOLDERS:
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and
Chief Executive Officer, flush right next to second paragraph.]
Over the last six months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech
stocks pushed the NASDAQ Composite Index to the stratosphere, as
investors single-mindedly pursued anything technology related. But after
setting a new high on March 10 amid significantly heightened volatility,
the tables started to turn rapidly. Concerns about Microsoft's antitrust
ruling and out-of-sight valuation levels finally triggered waves of
selling that sent the index down nearly 25% from its high by the end of
April.
In this same period, fixed-income securities of all types, including
bonds and preferred stocks, struggled as interest rates rose on fears
that the roaring U.S. economy and the rebound of many others around the
world would spark an inflation outbreak.
While the battle between old and new rages on, several things are clear:
More than ever, diversification and a long-term investment perspective
are two of an investor's best allies. Since not all parts of your
portfolio will perform equally well all the time, we believe it is
important to allocate your assets among different types of investments
and funds that target a variety of stock- and bond-market segments. This
strategy, executed under the guidance of a seasoned investment
professional, could provide you with a better chance of both realizing
longer-term results and weathering the market's changing conditions.
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 3" x 2" photo at bottom right side of page of John Hancock
Financial Industries Fund. Caption below reads "Fund management
team members. Standing (l-r): Jay McKelvey, Tom Goggins and Tom
Finucane. Seated (l-r): Lisa Welch, Jim Schmidt and Patricia
Ouimet."]
John Hancock
Financial Industries Fund
Fund outperforms peers in a technology-focused market
For much of the last six months, financial stocks struggled as investors
only had eyes for red-hot technology stocks. A super-robust economy that
prompted the Federal Reserve to raise interest rates three times in the
period also put a damper on financial stocks, particularly banks, due to
concerns that higher rates would eat into profits. Adding insult to
injury, underperforming value funds continued to fall out of favor as
investors jumped on the growth/technology bandwagon. So value fund
managers, who are typically buyers of financial stocks, either sold them
to meet the tide of redemptions, further depressing prices, or they
ignored them in favor of technology stocks.
The tide turned decidedly positive in early March, when tech stocks
plunged from their stratospheric levels and investors finally broadened
their horizons to include financial stocks. But this encouraging upturn,
and the brief flurry at the beginning of the period last November after
financial reform legislation was enacted, were not enough to overcome
the difficulties in between.
"...our
financial
technology
stocks
produced
some of
our best
results."
Fund performance
In this challenging environment, financial-stock investors did well just
to break even, which is about what the Fund achieved. For the six months
ended April 30, 2000, the Fund's Class A, Class B and Class C shares
posted total returns of -0.13%, -0.44% and -0.44% at net asset value.
This performance, while modest on an absolute basis, was far better than
the -8.76% return of the average financial services fund, 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 American Express 3.5%, the second is
Morgan Stanley Dean Witter 3.5%, the third Marsh & McLennan Cos.
3.2%, the fourth Citigroup 2.9% and the fifth Fiserv 2.7%. A note
below the table reads "As a percentage of net assets on April 30,
2000."]
"The positive
trend of
industry
mergers also
continued..."
Financial tech, brokers, REITs solid
Since technology was the place to be, our financial technology stocks
produced some of our best results. These included Fiserv, which provides
back-office services for banks, and Intuit, maker of financial software.
We also benefited from an overweighting in brokerage stocks and a shift
we made late last year from the smaller regional brokers to the larger
firms such as Morgan Stanley Dean Witter -- our top-performing stock --
Merrill Lynch, Lehman Brothers Holdings and Charles Schwab. There has
been a significant concentration of investment banking market share in
the hands of a few "bulge bracket" firms at the expense of some of the
regionals. Additionally, smaller firms tend to be more dependent on
retail commission revenues that are vulnerable to price competition from
on-line traders.
[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 Merrill Lynch followed by an up
arrow with the phrase "Strong investment banking." The second
listing is Protective Life followed by a down arrow with the
phrase "Short-term problems in dental subsidiary." The third
listing is Equity Office Properties followed by an up arrow with
the phrase "Strong real estate values." A note below the table
reads "See 'Schedule of Investments.' Investment holdings are
subject to change."]
Real estate investment trusts (REITs) rebounded late in the period, and
owning a stake in them gave us a performance edge over our peers who
don't typically hold them. As volatility in the tech sector increased,
undervalued REITs got attention from investors seeking a safe haven who
recognized how attractive REIT yields and stock prices were. Spieker
Properties, a commercial-office REIT whose properties are in
technology-rich Silicon Valley and San Francisco, did especially well.
After REITs rallied nicely, we took some profits, cut our stake and
redeployed the money into consumer-finance companies where valuations
seemed better.
Insurance mixed; asset managers strong
Our insurance holdings provided mixed results, mostly for
company-specific reasons. Life insurance company AXA Financial did very
well, while American General was a disappointment. Insurance broker
Marsh & McLennan Cos., with its Putnam asset management arm, was one of
our best performers. We also had success with asset managers T. Rowe
Price Associates and BlackRock. Perhaps the best moves we made involved
avoiding the blowups that occurred in the property and casualty
insurance area, which has struggled in a difficult pricing environment.
We had significantly cut our weighting in this group by the end of last
year, and so we missed a number of the headline-grabbing casualties,
such as Conseco and Progressive.
Banks: Bigger is better
Smaller-sized regional banks were the hardest hit in the recent
downdraft before they rebounded in early March. Although their stock
prices don't reflect it, bank fundamentals for the most part remain
solid, with earnings growth averaging 12%. We were well served by our
decision to cut back on some of our mid-sized banks, such as TCF
Financial, and move into the larger names such as Northern Trust, where
we anticipate stronger earnings growth. By doing so, we also avoided
several of the major earnings disappointments, including U.S. Bancorp.
Our best-performing banks were money-centers Citi group and Chase
Manhattan and superregional Wells Fargo.
[Bar chart at top of left hand column with heading "Fund
Performance." Under the heading is a note that reads "For the six
months ended April 30, 2000." The chart is scaled in increments of
2% with -10% at the bottom and 0% at the top. The first bar
represents the -0.13% total return for John Hancock Financial
Industries Fund Class A. The second bar represents the -0.44%
total return for John Hancock Financial Industries Fund Class B.
The third bar represents the -0.44% total return for John Hancock
Financial Industries Fund Class C. The fourth bar represents the
-8.76% 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."]
Mergers and financial reform
Shortly after the Gramm-Leach-Bliley Act was signed last November, we
saw the first fruits of this landmark bill that broke down
Depression-era barriers preventing banks, insurance companies and
securities brokers from affiliating. Securities broker Charles Schwab
bought U.S. Trust, a bank, while Citigroup bought the remaining portion
of Travelers Property Casualty. The positive trend of industry mergers
also continued, with several more European insurers buying U.S.
insurers, and The Hartford buying the remaining portion of Hartford
Life. Our European holdings, which remained fairly constant at 10% of
the Fund's net assets, produced mixed results, as the declining euro
currency hurt banks in EMU-member countries. On the other hand, bank
Bipop-Carire and broker Consors Discount Brokerage served us well
because of their early-mover advantage in the Internet space.
"We are
encouraged
by the latest
upswing in
financial
stocks..."
Reasons for optimism
We are encouraged by the latest upswing in financial stocks and believe
that today financial stocks hold enormous potential. Business conditions
remain basically sound for the financial companies in which we invest,
with a healthy economic background bolstering favorable earnings growth
at most financial companies. We also expect Gramm-Leach-Bliley to
produce further cross-industry consolidation. Finally, many financial
stock prices have fallen to very attractive levels and investors have
begun to take notice.
While questions about interest rates and inflation could keep the market
volatile for now, stock market history has convinced us that investors
who buy well-managed, profitable companies at inexpensive prices come
out ahead in the long run. We have been through periods before when our
stocks have been unpopular, and those companies that achieved our
earnings targets have always rewarded us eventually.
-------------------------------------------------------------------------
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 (1% declining to 0% after one
year).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them. Please read your prospectus for risks associated with
industry segment investing before you invest or send money.
CLASS A
For the period ended March 31, 2000
SINCE
ONE INCEPTION
YEAR (3/14/96)
---------- ----------
Cumulative Total Returns (3.13%) 98.01%
Average Annual Total Returns(1) (3.13%) 18.39%
CLASS B
For the period ended March 31, 2000
SINCE
ONE INCEPTION
YEAR (1/14/97)
---------- ----------
Cumulative Total Returns (3.63%) 39.97%
Average Annual Total Returns(1) (3.63%) 11.05%
CLASS C
For the period ended March 31, 2000
SINCE
ONE INCEPTION
YEAR (3/1/99)
---------- ----------
Cumulative Total Returns (0.68%) 2.98%
Average Annual Total Returns (0.68%) 2.75%
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 17.40%. The
average annualized return since inception for Class B shares would have
been 10.98%.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Financial Industries Fund would be worth, assuming all
distributions were reinvested for the period indicated. For comparison,
we've shown the same $10,000 investment in the Standard & Poor's 500
Index. The Standard & Poor's 500 Index is an unmanaged index that
includes 500 widely traded common stocks and is a commonly used measure
of stock market performance. It is not possible to invest in an index.
Past performance is not indicative of future results.
Line chart with the heading John Hancock Financial Industries Fund
Class A, representing the growth of a hypothetical $10,000
investment over the life of the fund. Within the chart are three
lines. The first line represents the Standard & Poor's 500 Index
and is equal to $24,259 as of April 30, 2000. The second line
represents the value of the hypothetical $10,000 investment made
in the John Hancock Financial Industries Fund on March 14, 1996,
before sales charge, and is equal to $20,214 as of April 30, 2000.
The third line represents the same hypothetical investment made in
the John Hancock Financial Industries Fund, after sales charge,
and is equal to $19,203 as of April 30, 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 $20,593 as of April 30, 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 $13,854 as of April 30, 2000.
The third line represents the same hypothetical investment made in
the John Hancock Financial Industries Fund, after sales charge,
and is equal to $13,554 as of April 30, 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 Standard & Poor's 500 Index
and is equal to $11,896 as of April 30, 2000. The second line
represents the value of the hypothetical $10,000 investment made
in the John Hancock Financial Industries Fund on March 1, 1999,
before sales charge, and is equal to $10,088 as of April 30, 2000.
The third line represents the same hypothetical investment made in
the John Hancock Financial Industries Fund, after sales charge,
and is equal to $9,988 as of April 30, 2000.
FINANCIAL STATEMENTS
John Hancock Funds -- Financial Industries Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
April 30, 2000 (Unaudited)
--------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Common stocks (cost -- $1,851,319,302) $2,303,969,214
Preferred stocks (cost -- $112,500) 106,830
Joint repurchase agreement
(cost -- $25,663,000) 25,663,000
Corporate savings account 285
-----------------
2,329,739,329
Receivable for investments sold 7,693,958
Receivable for shares sold 1,842,749
Dividends receivable 3,160,830
Interest receivable 12,316
Foreign tax receivable 410,711
Deferred organization expense -- Note A 4,469
Other assets 29,184
-----------------
Total Assets 2,342,893,546
--------------------------------------------------------------
Liabilities:
Payable for investments purchased 3,248,537
Payable for shares repurchased 2,807,084
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B 3,150,454
Accounts payable and accrued expenses 546,199
-----------------
Total Liabilities 9,752,274
--------------------------------------------------------------
Net Assets:
Capital paid-in 2,120,304,804
Accumulated net realized loss on
investments and foreign currency
transactions (236,206,775)
Net unrealized appreciation of
investments and foreign currency
transactions 452,589,659
Accumulated net investment loss (3,546,416)
-----------------
Net Assets $2,333,141,272
==============================================================
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 -- $552,636,020/34,750,069 $15.90
==============================================================
Class B -- $1,753,644,088/111,388,802 $15.74
==============================================================
Class C -- $26,861,164/1,706,451 -- Note A $15.74
==============================================================
Maximum Offering Price Per Share*
Class A -- ($15.90/0.95) $16.74
==============================================================
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on April 30,
2000. You'll also find the net asset value for each share as of that
date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six months ended April 30, 2000 (Unaudited)
--------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding
taxes of $472,223) $21,024,553
Interest 1,351,492
-----------------
22,376,045
-----------------
Expenses:
Investment management fee -- Note B 9,396,790
Distribution and service fee -- Note B
Class A 869,893
Class B 8,525,167
Class C 71,936
Transfer agent fee -- Note B 4,525,257
Custodian fee 310,738
Accounting and legal services fee --
Note B 235,560
Trustees' fees 78,193
Miscellaneous 74,246
Printing 69,770
Registration and filing fees 61,081
Legal fees 14,582
Auditing fee 13,385
Organization expense 2,539
-----------------
Total Expenses 24,249,137
--------------------------------------------------------------
Net Investment Loss (1,873,092)
--------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss on investments sold (84,342,412)
Net realized loss on foreign currency
transactions (331,763)
Change in net unrealized
appreciation/depreciation of
investments 42,652,386
Change in net unrealized
appreciation/depreciation of foreign
currency transactions (61,161)
-----------------
Net Realized and Unrealized Loss on
Investments (42,082,950)
--------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations ($43,956,042)
==============================================================
The Statement of Operations summarizes the Fund's investment income
earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 2000
OCTOBER 31, 1999 (UNAUDITED)
---------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) $3,032,864 ($1,873,092)
Net realized loss on investments
sold and foreign currency
transactions (139,058,040) (84,674,175)
Change in net unrealized
appreciation/depreciation of
investments and foreign currency
transactions 407,910,354 42,591,225
-------------- --------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 271,885,178 (43,956,042)
-------------- --------------
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) (450,599,052)
-------------- --------------
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 accumulated net investment
loss of $3,546,416, respectively) $2,827,696,366 $2,333,141,272
============== ==============
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:
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 2000
OCTOBER 31, 1999 (UNAUDITED)
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 22,959,873 $367,047,792 12,012,792 $182,980,656
Shares reinvested 468,813 7,018,313 -- --
----------- ------------- ----------- -------------
23,428,686 374,066,105 12,012,792 182,980,656
Less shares repurchased (40,240,885) (641,049,683) (18,655,540) (280,744,397)
----------- ------------- ----------- -------------
Net decrease (16,812,199) ($266,983,578) (6,642,748) ($97,763,741)
=========== ============= =========== =============
CLASS B
Shares sold 14,373,502 $225,776,066 9,330,820 $142,263,926
Shares reinvested 375,108 5,612,865 -- --
----------- ------------- ----------- -------------
14,748,610 231,388,931 9,330,820 142,263,926
Less shares repurchased (54,992,101) (860,455,538) (34,776,177) (515,741,278)
----------- ------------- ----------- -------------
Net decrease (40,243,491) ($629,066,607) (25,445,357) ($373,477,352)
=========== ============= =========== =============
CLASS C**
Shares sold 351,885 $5,595,717 1,497,753 $22,604,005
Less shares repurchased (10,250) (159,459) (132,937) (1,961,964)
----------- ------------- ----------- -------------
Net increase 341,635 $5,436,258 1,364,816 $20,642,041
=========== ============= =========== =============
** Class C shares commenced 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, SIX MONTHS ENDED
------------------------------------------------------- APRIL 30, 2000
1996 1997 1998 1999 (UNAUDITED)
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $8.50 $11.03 $14.26 $14.80 $15.92
-------- -------- -------- -------- --------
Net Investment Income (2) 0.02 0.14 0.15 0.10 0.02
Net Realized and Unrealized Gain on
Investments and Foreign Currency Transactions 2.51 3.77 0.52(8) 1.18 (0.04)
-------- -------- -------- -------- --------
Total from Investment Operations 2.53 3.91 0.67 1.28 (0.02)
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income -- (0.03) (0.11) (0.14) --
Distributions in Excess of Net Investment Income -- -- -- (0.02) --
Distributions from Net Realized Gains on
Investments Sold -- (0.65) (0.02) -- --
-------- -------- -------- -------- --------
Total Distributions -- (0.68) (0.13) (0.16) --
-------- -------- -------- -------- --------
Net Asset Value, End of Period $11.03 $14.26 $14.80 $15.92 $15.90
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (3) 29.76%(6) 37.19% 4.66% 8.69% (0.13%)(6)
Total Adjusted Investment Return at Net
Asset Value (3,4) 26.04%(6) 36.92% -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $895 $416,698 $861,582 $659,031 $552,636
Ratio of Expenses to Average Net Assets 1.20%(7) 1.20% 1.37% 1.39% 1.49%(7)
Ratio of Adjusted Expenses
to Average Net Assets (5) 7.07%(7) 1.47% -- -- --
Ratio of Net Investment Income
to Average Net Assets 0.37%(7) 1.10% 0.92% 0.62% 0.32%(7)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (5) (5.50%)(7) 0.83% -- -- --
Portfolio Turnover Rate 31% 6% 30% 40% 22%
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 indicated: the net investment income, gains
(losses), distributions and total investment return of the Fund. It shows
how the Fund's net asset value for a share has changed since the end of
the previous period. Additionally, important relationships between some
items presented in the financial statements are expressed in ratio form.
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
---------------------------------------- APRIL 30, 2000
1997 1998 1999 (UNAUDITED)
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
CLASS B(1)
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) (0.02)
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 2.71 0.54(8) 1.17 (0.05)
-------- -------- -------- --------
Total from Investment Operations 2.75 0.57 1.16 (0.07)
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income -- (0.03) (0.04) --
Distributions in Excess of Net Investment Income -- -- (0.01) --
Distributions from Net Realized Gains on
Investments Sold -- (0.02) -- --
-------- -------- -------- --------
Total Distributions -- (0.05) (0.05) --
-------- -------- -------- --------
Net Asset Value, End of Period $14.18 $14.70 $15.81 $15.74
======== ======== ======== ========
Total Investment Return at Net Asset Value (3) 24.06%(6) 3.95% 7.93% (0.44%)(6)
Total Adjusted Investment Return at Net
Asset Value (3,4) 23.85%(6) -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $1,308,946 $2,603,021 $2,163,265 $1,753,644
Ratio of Expenses to Average Net Assets 1.90%(7) 2.07% 2.07% 2.10%(7)
Ratio of Adjusted Expenses
to Average Net Assets (5) 2.17%(7) -- -- --
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.40%(7) 0.22% (0.07%) (0.29%)(7)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) 0.13%(7) -- -- --
Portfolio Turnover Rate 6% 30% 40% 22%
Fee Reduction Per Share (2) $0.03 -- -- --
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO APRIL 30, 2000
OCTOBER 31, 1999 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period $15.60 $15.81
-------- --------
Net Investment Loss (2) (0.00)(9) (0.02)
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 0.21 (0.05)
-------- --------
Total from Investment Operations 0.21 (0.07)
-------- --------
Net Asset Value, End of Period $15.81 $15.74
======== ========
Total Investment Return at Net Asset Value (3) 1.35%(6) (0.44%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $5,401 $26,861
Ratio of Expenses
to Average Net Assets 2.06%(7) 2.19%(7)
Ratio of Net Investment Loss
to Average Net Assets (0.14%)(7) (0.24%)(7)
Portfolio Turnover Rate 40% 22%
(1) Class A and Class B shares commenced operations on March 14, 1996 and January 14, 1997, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) An estimated total return calculation which does not take into consideration fee reductions by the
Adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Not annualized.
(7) Annualized.
(8) Amount shown for a share outstanding does not correspond with aggregate net gain (loss) on investments
for the period, due to the timing of sales and repurchases of the Fund shares in relation to fluctuating
market values of the investments of the Fund.
(9) Less than $0.01 per share.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
April 30, 2000 (Unaudited)
--------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the Financial Industries Fund on April 30, 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.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
------------------- ---------- ------------
<S> <C> <C> <C>
COMMON STOCKS
Banks -- Foreign (7.10%)
Banca Fideuram SpA (Italy) 660,000 $9,863,370
Banco Bilbao Vizcaya Argentaria, SA, American
Depositary Receipts (ADR) (Spain) 420,000 6,090,000
Banco Comercial Portugues, SA (BCP) (Portugal) 1,850,000 8,698,885
Bank of Scotland (United Kingdom) 1,306,546 11,643,285
Bipop-Carire SpA (Italy) 420,000 38,272,542
HSBC Holdings Plc (United Kingdom) 1,052,379 11,708,453
Lloyds TSB Group Plc (United Kingdom) 914,492 8,986,621
Nordic Baltic Holding AB (Sweden) 2,000,000 12,484,200
Royal Bank of Scotland Group Plc (United Kingdom) 829,753 12,938,504
Societe Generale (France) 104,000 21,588,622
Svenska Handelsbanken AB (Sweden) 480,000 6,353,376
Toronto-Dominion Bank (Canada) 740,400 17,121,750
------------
165,749,608
------------
Banks -- Midwest (2.77%)
Fifth Third Bancorp. 335,750 21,194,219
Firstar Corp. 1,445,960 35,968,255
Marshall & Ilsley Corp. 159,650 7,413,747
------------
64,576,221
------------
Banks -- Money Center (5.99%)
Bank of America Corp. 308,000 15,092,000
Bank of New York Co., Inc. 1,056,500 43,382,531
Chase Manhattan Corp. 192,100 13,843,206
Citigroup, Inc. 1,132,796 67,330,562
------------
139,648,299
------------
Banks -- Northeast (4.51%)
State Street Corp. 582,700 56,449,062
U.S. Trust Corp. 316,500 48,701,438
------------
105,150,500
------------
Banks -- Southwest (0.06%)
Cullen/Frost Bankers., Inc. 56,000 1,382,500
------------
Banks -- Super Regional (6.48%)
FleetBoston Financial Corp. 631,499 22,378,746
Mellon Financial Corp. 890,000 28,591,250
Northern Trust Corp. 461,000 29,561,625
Wachovia Corp. 352,532 22,099,350
Wells Fargo & Co. 1,180,000 48,453,750
------------
151,084,721
------------
Banks -- West (1.33%)
City National Corp. 570,537 21,002,893
Zions Bancorp. 242,000 10,043,000
------------
31,045,893
------------
Broker Services (10.45%)
Consors Discount Broker AG (Germany)* 154,000 17,387,216
Legg Mason, Inc. 270,000 10,209,375
Lehman Brothers Holdings, Inc. 521,600 42,803,800
Merrill Lynch & Co., Inc. 510,000 51,988,125
Morgan Stanley Dean Witter & Co. 1,057,200 81,140,100
Paine Webber Group Inc. 350,000 15,356,250
Schwab (Charles) Corp. 562,500 25,031,250
------------
243,916,116
------------
Computer -- Services (5.97%)
BISYS Group, Inc. (The)* 546,700 34,202,919
First Data Corp. 849,400 41,355,162
Fiserv, Inc.* 1,389,430 63,826,941
------------
139,385,022
------------
Computer -- Software (0.85%)
Intuit, Inc.* 553,000 19,873,438
------------
Finance -- Consumer Loans (11.56%)
American Express Co. 549,140 82,405,321
AmeriCredit Corp.* 300,000 5,606,250
Associates First Capital Corp. (Class A) 2,015,000 44,707,812
Capital One Financial Corp. 480,800 21,035,000
Household International, Inc. 1,000,000 41,750,000
MBNA Corp. 1,005,062 26,696,959
Metris Cos., Inc. 319,900 11,996,250
NextCard, Inc.* 680,000 7,182,500
Providian Financial Corp. 322,100 28,364,931
------------
269,745,023
------------
Finance -- Investment Management (4.72%)
Amvescap Plc (ADR) (United Kingdom) 775,000 55,412,500
BlackRock, Inc.* 400,000 10,400,000
Federated Investors, Inc. (Class B) 100,000 2,825,000
Price (T. Rowe) Associates, Inc. 669,000 25,505,625
Waddell & Reed Financial, Inc. (Class A) 600,000 15,975,000
------------
110,118,125
------------
Finance -- Savings & Loan (1.10%)
Charter One Financial, Inc. 413,244 8,394,019
Dime Bancorp., Inc. 505,000 9,468,750
Washington Mutual, Inc. 300,250 7,675,141
------------
25,537,910
------------
Finance -- SBIC & Commercial (1.33%)
CIT Group, Inc. (The) (Class A) 970,000 16,429,375
Heller Financial, Inc. 745,000 14,480,938
------------
30,910,313
------------
Insurance -- Brokers (3.21%)
Marsh & McLennan Cos., Inc. 759,800 74,887,788
------------
Insurance -- Life (12.13%)
AFLAC, Inc. 1,197,000 58,428,562
American General Corp. 629,000 35,224,000
Axa (ADR) (France) 380,000 29,165,000
AXA Financial, Inc. 1,588,000 51,808,500
Jefferson-Pilot Corp. 465,000 30,951,562
Liberty Corp. 243,000 7,973,438
Protective Life Corp. 1,575,000 37,504,688
Prudential Plc (United Kingdom) 370,000 5,708,693
Reinsurance Group of America, Inc. 1,058,650 26,333,919
------------
283,098,362
------------
Insurance -- Multi Line (5.54%)
Aegon N.V. (Netherlands) 140,000 10,084,816
Allianz AG (Germany) 18,000 6,943,185
Allmerica Financial Corp. 723,850 39,178,381
Fortis (NL) NV (Netherlands) 592,627 14,937,282
Hartford Financial Services Group, Inc. (The) 656,000 34,235,000
Skandia Forsakrings AB (Sweden) 500,000 23,959,250
------------
129,337,914
------------
Insurance -- Property & Casualty (6.39%)
Ambac Financial Group, Inc. 860,200 41,289,600
American International Group, Inc. 493,312 54,110,160
MBIA, Inc. 594,799 29,405,376
XL Capital Ltd. (Class A) 510,116 24,294,274
------------
149,099,410
------------
Mortgage & Real Estate Services (2.40%)
Countrywide Credit Industries, Inc. 500,000 13,812,500
Fannie Mae 697,325 42,057,414
------------
55,869,914
------------
Real Estate Investment Trust -- Equity Trust (4.86%)
Apartment Investment & Management Co. (Class A) 330,000 13,117,500
Arden Realty, Inc. 363,000 8,076,750
Brandywine Realty Trust 470,000 8,166,250
Colonial Properties Trust 190,000 4,738,125
Equity Office Properties Trust 535,000 14,545,312
Equity Residential Properties Trust 183,000 8,326,500
General Growth Properties, Inc. 310,000 10,191,250
Mack-Cali Realty Corp. 315,000 8,111,250
Prentiss Properties Trust 365,000 8,668,750
Prime Group Realty Trust 100,000 1,481,250
Public Storage, Inc. 48,700 983,131
Reckson Associates Realty Corp. 565,300 11,341,331
Spieker Properties, Inc. 355,000 15,730,938
------------
113,478,337
------------
Real Estate Investment Trust -- Mortgage Trust (0.00%)
Core Cap, Inc. (Class A)* (r) 4,500 73,800
------------
TOTAL COMMON STOCKS
(Cost $1,851,319,302) (98.75%) 2,303,969,214
-------------
PREFERRED STOCK
Real Estate Investment Trust -- Mortgage Trust (0.00%)
Core Cap, Inc., Ser A/I, 10.00% (r) 4,500 106,830
-------------
TOTAL PREFERRED STOCK
(Cost $112,500) (0.00%) 106,830
-------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
------------------- -------- -------------- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.10%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. -- Dated 04-28-00, due
05-01-00 (Secured by U.S. Treasury
Bonds, 5.50% thru 9.25%, due 02-15-16
thru 08-15-28) -- Note A 5.73% $25,663 $25,663,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company Daily
Interest Savings Account Current Rate 4.85% 285
--------------
TOTAL SHORT-TERM INVESTMENTS (1.10%) 25,663,285
--------- --------------
TOTAL INVESTMENTS (99.85%) 2,329,739,329
--------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.15%) 3,401,943
--------- --------------
TOTAL NET ASSETS (100.00%) $2,333,141,272
========= ==============
* Non-income producing security.
(r) The securities listed below are direct placement securities and are
restricted as to resale. The Fund has limited rights to registration
under the Securities Act of 1933 with respect to restricted securities
(not including Rule 144A securities). In certain circumstances the Fund
may bear a portion of the cost of such registrations; otherwise, such
costs would be borne by the issuer. Additional information on these
restricted securities is as follows:
MARKET
VALUE AS A MARKET
PERCENTAGE VALUE AT
ACQUISITION ACQUISITION OF FUND'S APRIL 30,
DATE COST NET ASSETS 2000
----------- ----------- ---------- -----------
Core Cap, Inc. --
Common Stock 10-31-97 $90,000 0.00% $73,800
Preferred Stock 10-31-97 112,500 0.00 106,830
----- --------
TOTAL 0.00% $180,630
===== ========
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
Portfolio Concentration (Unaudited)
----------------------------------------------------------------------------
The Financial Industries Fund invests primarily in equity securities of
issuers in the financial sector in the United States and abroad. The
concentration of investments by industry category for individual
securities held by the Fund is shown in the schedule of investments. In
addition, concentration of investments can be aggregated by various
countries. The table below shows the percentage of the Fund's
investments at April 30, 2000 assigned to the various country categories.
MARKET VALUE
AS A PERCENTAGE
COUNTRY DIVERSIFICATION OF FUND'S NET ASSETS
--------------------- --------------------
Canada 0.73%
France 2.18
Germany 1.04
Italy 2.06
Netherlands 1.07
Portugal 0.37
Spain 0.26
Sweden 1.83
United Kingdom 4.56
United States
Long Term 84.65
Short Term 1.10
-------
TOTAL INVESTMENTS 99.85%
=======
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Financial Industries Fund
UNAUDITED
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust consists of three series: John Hancock Financial Industries
Fund (the "Fund"), John Hancock Regional Bank Fund and John Hancock
Small Cap Value Fund. The other two series of the Trust are reported in
separate financial statements. The investment objective of the Fund is
to seek capital appreciation.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan. Beginning May 1, 2000, all retail purchases of Class C shares will
be assessed a 1.00% up-front sales charge.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing sources or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days or less are valued at amortized
cost, which approximates market value. All portfolio transactions
initially expressed in terms of foreign currencies have been translated
into U.S. dollars as described in "Foreign Currency Translation."
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more large repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for
ensuring that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
Capital gains realized on some foreign securities are subject to foreign
taxes, which are accrued as applicable.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders. Therefore, no federal
income tax provision is required. For federal income tax purposes as of
October 31, 1999, the Fund had $140,635,246 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforward is used by the
Fund, no capital gain distributions will be made. The carryforward
expires as follows: October 31, 2006 -- $2,259,735 and October 31, 2007
-- $138,375,511.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date, or, in the case of some
foreign securities, on the date thereafter when the Fund identifies the
dividend. Interest income on investment securities is recorded on the
accrual basis. Foreign income may be subject to foreign withholding
taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not identifiable
to a specific fund are allocated in such a manner as deemed equitable,
taking into consideration, among other things, the nature and type of
expense and the relative size of the funds.
ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to
the Fund's operations ratably over a five-year period that commenced
with the investment operations of the Fund.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. 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 unsecured lines
of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowing.
In addition, a commitment fee is charged based on the average daily
unused portion of the lines of credit and is allocated among the
participating funds. The maximum loan balance during the year amounted
to $7,203,000. The interest rate was in the range of 6.25% through
6.31%. At April 30, 2000, there were no outstanding borrowings.
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 April 30, 2000, the Fund loaned
securities having a market value of $19,837,669 collateralized by
securities in the amount of $20,234,422.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially
expressed in terms of foreign currencies are translated into U.S.
dollars based on London currency exchange quotations as of 5:00 p.m.,
London time, on the date of any determination of the net asset value of
the Fund. Transactions affecting statement of operations accounts and
net realized gain/(loss) on investments are translated at the rates
prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the trade
and settlement dates on securities transactions and the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities,
other than investments in securities at fiscal year end, resulting from
changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into
forward foreign currency exchange contracts as a hedge against the
effect of fluctuations in currency exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date at a set price. The aggregate
principal amounts of the contracts are marked to market daily at the
applicable foreign currency exchange rates. Any resulting unrealized
gains and losses are included in the determination of the Fund's daily
net assets. The Fund records realized gains and losses at the time the
forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential
inability of counterparties to meet the terms of the contract and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar.
These contracts involve market or credit risk in excess of the
unrealized gain or loss reflected in the Fund's Statement of Assets and
Liabilities. The Fund may also purchase and sell forward contracts to
facilitate the settlement of foreign currency denominated portfolio
transactions, under which it intends to take delivery of the foreign
currency. Such contracts normally involve no market risk if they are
offset by the currency amount of the underlying transaction.
At April 30, 2000, there were no open forward foreign currency exchange
contracts.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates
and other market conditions. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures
contract, it is required to deposit with its custodian a specified
amount of cash or U.S. government securities, known as "initial margin,"
equal to a certain percentage of the value of the financial futures
contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities
exchange on which it trades. Subsequent payments to and from the broker,
known as "variation margin," are made on a daily basis as the market
price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market," are recorded by
the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there
may be an illiquid market and/or that a change in the value of the
contracts may not correlate with changes in the value of the underlying
securities. In addition, the Fund could be prevented from opening or
realizing the benefits of closing out futures positions because of
position limits or limits on daily price fluctuation imposed by an
exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures
contracts.
At April 30, 2000, there were no open positions in financial futures contracts.
OPTIONS Listed options are valued at the last quoted sales price on the
exchange on which they are primarily traded. Over-the-counter options
are valued at the mean between the last bid and asked prices. Upon the
writing of a call or put option, an amount equal to the premium received
by the Fund is included in the Statement of Assets and Liabilities as an
asset and corresponding liability. The amount of the liability is
subsequently marked to market to reflect the current market value of the
written option.
The Fund may use options contracts to manage its exposure to the stock
market. Writing puts and buying calls tend to increase the Fund's
exposure to the underlying instrument and buying puts and writing calls
tend to decrease the Fund's exposure to the underlying instrument, or
hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the
face (or "notional") amount of each contract at value reflects the
maximum exposure of the Fund in these contracts, but the actual exposure
will be limited to the change in value of the contract over the period
the contract remains open.
Risks may also arise if counterparties do not perform under the
contracts' terms ("credit risk"), or if the Fund is unable to offset a
contract with a counterparty on a timely basis ("liquidity risk").
Exchange-traded options have minimal credit risk as the exchanges act as
counterparties to each transaction, and only present liquidity risk in
highly unusual market conditions. To minimize credit risk and liquidity
risks in over-the-counter option contracts, the Fund will continuously
monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's
period-end Statement of Assets and Liabilities.
At April 30, 2000, there were no written option transactions.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.80% of the
first $500,000,000 of the Fund's average daily net asset value and (b)
0.75% of the Fund's average daily net asset value in excess of
$500,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
April 30, 2000, net sales charges received with regard to sales of Class
A shares amounted to $460,076. Out of this amount, $203,356 was retained
and used for printing prospectuses, advertising, sales literature and
other purposes, $128,854 was paid as sales commissions to unrelated
broker-dealers and $127,866 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.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with sale of
Class B shares. For the period ended April 30, 2000, contingent deferred
sales charges received by JH Funds amounted to $8,713,704.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market
value at the time of redemption or the original purchase cost of the
shares being redeemed. Proceeds from the CDSC are paid to JH Funds and
are used in whole or in part to defray its expenses for providing
distribution related services to the Fund in connection with the sale of
Class C shares. For the period ended April 30, 2000, contingent deferred
sales charges received by JH Funds amounted to $8,774.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C pursuant to Rule
12b-1 under the Investment Company Act of 1940. Accordingly, the Fund
will make payments to JH Funds at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets to reimburse JH Funds for its distribution and
service costs. Up to a maximum of 0.25% of these payments may be service
fees as defined by the Conduct Rules of the National Association of
Securities Dealers. Under the Conduct Rules, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
The Fund pays transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Funds. The compensation for the
period was at an annual rate of less than 0.02% of the average net
assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S. Scipione
are directors and/or officers of the Adviser, and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees
is borne by the Fund. The unaffiliated Trustees may elect to defer, for
tax purposes, their receipt of this compensation under the John Hancock
Group of Funds Deferred Compensation Plan. The Fund makes investments
into other John Hancock funds, as applicable, to cover its liability for
the deferred compensation. Investments to cover the Fund's deferred
compensation liability are recorded on the Fund's books as an other
asset. The deferred compensation liability and the related other asset
are always equal and are marked to market on a periodic basis to reflect
any income earned by the investment as well as any unrealized gains or
losses. The investment had no impact on the operations of the Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the period ended April 30, 2000, aggregated
$550,648,007 and $931,519,535, respectively. There were no purchases or
sales of obligations of the U.S. government and its agencies during the
period ended April 30, 2000.
The cost of investments owned at April 30, 2000 (excluding the
corporate savings account) for federal income tax purposes was
$1,885,278,750. Gross unrealized appreciation and depreciation of
investments aggregated $570,349,227 and $125,888,933, respectively,
resulting in net unrealized appreciation of $444,460,294.
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circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
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This report is for the information of shareholders of the John Hancock
Financial Industries Fund. It may be used as sales literature when preceded
or accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
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Recycled Paper."
700SA 4/00
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