John Hancock Funds
Global
Income
Fund
SEMI-ANNUAL REPORT
April 30, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
William F. Glavin*
John A Moore*
Patti McGill Peterson*
John W. Pratt*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
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
60 State Street
Boston, Massachusetts 02109
A 1" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will
be a tough act to follow in 1996. In fact, we've already seen greater
market volatility this year, particularly among last year's leaders --
technology stocks. That's to be expected after a year that saw market
indexes soar, including the Standard & Poor's 500-Stock Index's 37%
advance. While many of the same economic conditions that fostered the
stellar 1995 market are still in place -- slow economic growth, muted
inflation and decent corporate earnings -- it would be unrealistic to
expect the market to stage a repeat in 1996. The old saying "trees don't
grow to the sky" comes to mind. Shareholders would do well to temper
expectations of investment returns and perhaps revisit their investment
allocations with their financial advisor to determine if
rebalancing their portfolio makes sense.
No matter how you scale back your market expectations, you should always
be able to count on consistent customer service performance. At John
Hancock Funds, we never stop working to find ways to sustain and improve
the quality of information and assistance we provide you. Our commitment
to this task is no less than John Hancock's loyalty was to his fledgling
country when he is said to have uttered, "if it does the public good,
burn Boston." We won't go that far, of course, but we share our
namesake's dedication to putting the public before all else.
In our case, that public is you, our shareholders. We take very
seriously the role you have entrusted to us, that of helping you achieve
your financial goals. Part of that will always involve good customer
service. So please do not hesitate to call your Customer Service
Representative at 1-800-225-5291 if you have any questions or need
information. We take pride in helping you with the same spirit that John
Hancock displayed at the dawning of America.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By Lawrence J. Daly, Anthony A. Goodchild and Janet Clay,
Co-Portfolio Managers
John Hancock
Global Income Fund
Unexpected strength in U.S. economy pushes
bond prices lower; dollar gains versus yen
The Fund's trustees have approved a name change for John Hancock Global
Income Fund. Effective July 1, 1996, the Fund will be known as John
Hancock World Bond Fund. This change is intended to reflect
management's long-standing commitment to total return as well as current
income.
For much of 1995, global bond investors profited from nearly ideal
investment conditions, defined by moderate growth, low inflation and
declining interest rates. Entering the current period this past
November, most market participants -- ourselves included -- expected
those positive trends to continue into the new year. In line with those
expectations, we positioned the Fund fairly aggressively, maintaining an
average duration of around 6.5 years. Duration measures how much a
bond's price will vary with changes in interest rates. The strategy
worked to the Fund's advantage during the final two months of 1995 and
the first month of 1996. During that time, the Federal Reserve twice
lowered the interest rate banks charge each other for overnight loans,
known as the federal funds rate. But beginning in February, a confluence
of factors which we'll discuss in more detail on the following pages,
sent the U.S. bond market reeling. As bond prices fell, the Fund
suffered disproportionately, mainly because of its above-average
duration.
A 2 1/4" x 3 1/4" photo of the Global Income Investment team at bottom
right. Caption reads: "(L-R): Anthony Goodchild, Janet Clay,
Lawrence Daly"
It was
tough
sledding for U.S. bonds
in the first
quarter.
Chart with heading "Top Five Countries" at top of left hand column. The
chart lists the top five countries: 1) United States 33% 2) Germany
15% 3) France 9% 4) United Kingdom 8% 5) Italy 7%. A footnote below
reads: "As a percentage of net assets on April 30, 1996."
"... we began
taking a
significant
portion of
the Fund's
assets out of
the United States ..."
The result was a disappointing period for the Fund. During the six
months that ended April 30, 1996, John Hancock Global Income Fund's
Class A and Class B shares had total returns of 0.63% and 0.30%,
respectively, at net asset value, compared to 3.99% for the average
general world income fund, according to Lipper Analytical Services.1
Performance recap
The critical event for global bond investors during the period was the
release in early March of the U.S. employment report for February. When
the number of new jobs created turned out to be four times larger than
most analysts had predicted, fears of inflation -- a bond's worst enemy
- -- accelerated. As a result, the bond market suffered its largest one-
day decline in several years. Since then, a stronger-than-expected
housing market, growing consumer confidence and rising food and energy
prices have added fuel to the fire, driving interest rates higher and
bond prices lower. It's not clear why analysts' expectations were so far
off, although the absence of reliable data caused by severe weather and
last winter's government shutdowns may have played a role. In other
words, the economy may not have been as weak as it seemed during the
final stages of the rally. By the same token, it may not be as strong
now as the slumping bond market suggests.
Table entitled "Scorecard" at bottom of left hand column. The header
for the left column is "Investments"; the header for the right column
is "Recent performance ... and what's behind the numbers. The first
listing is U.S. Treasuries followed by a down arrow and the phrase
"Stronger economy boosts rates." The second listing is Germany followed
by a flat arrow and the phrase "Bundesbank holds rates steady." The
third listing is Sweden followed by an up arrow and the phrase "Aggressive
rate-cutting and stronger currency." Footnote below reads: "See
"Schedule of Investments." Investment holdings are subject to change."
In any case, the shift forced us to make two important changes. First,
we lowered the Fund's average duration from a high of 6.5 years in mid-
January to about five years at the end of April. Having a shorter
average duration strengthened our defensive position and gave us more
flexibility to keep pace with current rates in a rising-rate
environment. Second, even before the bond market reversed direction, we
began taking a significant portion of the Fund's assets out of the
United States and reallocating them to Europe, especially Germany.
Accordingly, U.S. bonds as a portion of the Fund's total net assets
declined from 52% at the beginning of the period to 33% at the end,
while German bonds rose from 12% to 15%.
Still, the European bond market did not rally to the extent we thought
it would given its attractive fundamental characteristics. In Germany,
for example, where the inflation rate was 1.5% when long-term bonds were
paying 6%, interest rates appeared to have ample room to come down. So
far, however, Germany's central bank has avoided making significant
cuts, stubbornly adhering to a policy of fiscal austerity apparently
intended to strengthen Germany's position as Europe edges closer to a
unified currency. The upshot was that while we made the right call in
reducing the Fund's stake in U.S. bonds, the benefit of increasing our
stake in Europe was somewhat disappointing.
"Inflation is
the key
variable as
we look
toward the
future."
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the six months ended April 30,
1996." The chart is scaled in increments of 5% from bottom to top, with
15% at the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 0.63% total return for John
Hancock Global Income Fund: Class A. The second represents the 0.30%
total return for John Hancock Global Income Fund: Class B. The third
represents the 3.99% total return for the average global income fund.
Footnote below reads: "Total returns for John Hancock Global Income
Fund are at net asset value with all distributions reinvested. The
average global income fund is tracked by Lipper Analytical Services.
(1) See following page for historical performance information."
One asset class that performed especially well, however, was emerging
market bonds. They were up about 10% during the period. However, the
Fund's investment policies currently allow us to invest only in
securities rated A or better by one of the credit-rating agencies, and
that rules out emerging markets. Shareholders are being asked to approve
a change to the investment policies at a shareholder meeting in June
1996.
Direct currency investments had a negligible impact on performance. The
dollar rose about 20% versus the yen during the period and about 15%
versus the deutschemark. In relative terms, the Fund benefited from an
underweighted exposure to most foreign currencies: 25% overall in
Europe, compared to its 40% market weighting; and less than 10% in
Japan, compared to its 15% market weighting. Small investments in select
local currencies that appreciated versus the dollar -- Italy, Sweden,
Australia and New Zealand -- had a slight positive impact on
performance.
Outlook
Inflation is the key variable as we look toward the future. The
consensus in the marketplace is that inflationary pressures are
building, as seen by rising commodity prices and the surprisingly strong
performance of the U.S. economy. That's led most market participants to
shift their outlook 180 degrees. Whereas earlier in the year speculation
centered on when the next Fed rate cut might be, lately the debate has
focused on when the Fed might have to raise rates in order to prevent an
outbreak of inflation.
Our own sense is that inflationary fears may have gotten ahead of
underlying conditions in the global economy. Wage increases, for
example, have remained fairly tame, and labor is by far the largest
variable in corporate costs. That suggests a two-stage outlook for the
coming months: cautious in the near term, reflecting the market's unease
and the prospect for higher rates; then turning more optimistic the
closer we get to 1997, on the assumption that interest rates may have
overshot underlying conditions and therefore have some room to come back
down.
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 currency risks,
political risks and differences in accounting standards and financial
reporting. See prospectus for additional information.
1 Figures from Lipper Analytical Services 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 Global Income Fund.
Total return is a performance measure that equals the sum of all income
and capital gain distributions, assuming reinvestment of these
distributions and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 4.50%
for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six
years) is included in Class B performance. Remember that all figures
represent past performance and are no guarantee of how the Fund will
perform in the future. Also, 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 see your prospectus for a
discussion of the risks associated with international investing,
including currency and political risks and differences in accounting
standards and financial reporting.
CUMULATIVE TOTAL RETURNS
For the period ended March 31, 1996
One Five Life of
Year Years Fund
------- ------- -------
John Hancock
Global Income Fund: Class A(1) 1.89% N/A 13.00%
John Hancock
Global Income Fund: Class B(2) 1.00% 27.14% 117.42%
AVERAGE ANNUAL TOTAL RETURNS
For the period ended March 31, 1996
One Five Life of
Year Years Fund
------- ------- -------
John Hancock
Global Income Fund: Class A(1) 1.89% N/A 2.92%
John Hancock
Global Income Fund: Class B(2) 1.00% 4.92% 8.73%
YIELDS
As of April 30, 1996
SEC 30-Day
Yield
----------
John Hancock Global Income Fund: Class A 5.20%
John Hancock Global Income Fund: Class B 4.75%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
(2) Class B shares commenced on December 17, 1986.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Global Income Fund would be worth on April 30, 1996, assuming
you had invested on the day each class of shares started and reinvested
all distributions. For comparison, we've shown the same $10,000
investment in the Salomon Brothers World Government Bond Index -- an
unmanaged index that provides a benchmark bond market performance on a
worldwide basis.
Global Income Fund
Class A shares
Line chart with the heading Global Income 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 Salomon Brothers World
Government Index and is equal to $14,233 as of April 30, 1996. The
second line represents the value of the hypothetical $10,000 investment
made in the Global Income Fund on January 3, 1992, before sales charge,
and is equal to $11,859 as of April 30, 1996. The third line represents
the Global Income Fund after sales charge and is equal to $11,323 as of
April 30, 1996.
Global Income Fund
Class B shares
Line chart with the heading Global Income 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 Salomon Brothers World
Government Index and is equal to $24,229 as of April 30, 1996. The
second line represents the value of the hypothetical $10,000 investment
made in the Global Income Fund on December 17, 1986, before contingent
deferred sales charge, and is equal to $21,784 as of April 30, 1996.
*No contingent deferred sales charge applicable.
<TABLE>
<CAPTION>
Financial Statements
John Hancock Funds - Global Income Fund
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Bonds (cost - $82,539,310) $80,451,966
Joint repurchase agreement (cost - $1,846,000) 1,846,000
-----------
82,297,966
Cash 2,082
Foreign currency at value (cost - $540,422) 539,795
Receivable for shares sold 9,040
Receivable for open forward foreign currency exchange contracts - Note A 712,401
Interest receivable 2,154,651
Foreign tax receivable 99,172
Other assets 8,854
-----------
Total Assets 85,823,961
- --------------------------------------------------------------------------------------------
Liabilities:
Payable for closed forward foreign currency exchange contracts - Note A 265,453
Payable for shares repurchased 82,966
Dividend payable 11,412
Payable to John Hancock Advisers, Inc. and affiliates - Note B 80,381
Accounts payable and accrued expenses 84,582
-----------
Total Liabilities 524,794
- --------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 91,923,314
Accumulated net realized loss on investments, options, foreign currency
transactions and financial futures contracts (3,876,836)
Net unrealized depreciation of investments, foreign currency transactions
and financial futures contracts (1,400,417)
Distributions in excess of net investment income (1,346,894)
-----------
Net Assets $85,299,167
============================================================================================
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, respectively)
Class A - $31,335,898 / 3,438,869 $9.11
============================================================================================
Class B - $53,963,269 / 5,922,019 $9.11
============================================================================================
Maximum Offering Price Per Share *
Class A - ($9.11 x 104.71%) $9.54
============================================================================================
* On single retail sales of less than $100,000. On sales of $100,000
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,
1996. You'll also find the net asset value and the maximum offering
price per share as of that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (net of foreign withholding tax of $26,524) $3,245,366
----------
Expenses:
Investment management fee - Note B 350,845
Distribution/service fee - Note B
Class A 50,455
Class B 286,587
Transfer agent fee - Note B 111,951
Custodian fee 45,800
Auditing fee 37,749
Registration and filing fees 17,457
Printing 12,291
Trustees' fees 8,489
Miscellaneous 2,729
Legal 1,931
----------
Total Expenses 926,284
- ----------------------------------------------------------------------------------------------
Net Investment Income 2,319,082
- ----------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments, Financial
Futures Contracts and Foreign Currency Transactions:
Net realized gain on investments sold 3,264,538
Net realized loss on foreign currency transactions (719,684)
Net realized loss on financial futures contracts (38,501)
Change in net unrealized appreciation/depreciation of
investments (5,029,861)
Change in net unrealized appreciation/depreciation of foreign
currency transactions 770,083
----------
Net Realized and Unrealized Loss on Investments, Foreign
Currency Transactions and Financial Futures Contracts (1,753,425)
- ----------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $565,657
==============================================================================================
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, 1996 OCTOBER 31,
(UNAUDITED) 1995
---------- ----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $2,319,082 $6,833,813
Net realized gain (loss) on investments sold, foreign currency
transactions and financial futures contracts 2,506,353 (2,207,059)
Change in net unrealized appreciation/depreciation of
investments, foreign currency transactions and financial futures
contracts (4,259,778) 7,872,215
----------- -----------
Net Increase in Net Assets Resulting from Operations 565,657 12,498,969
----------- -----------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.2494 and $0.5914 per share, respectively) (904,635) (1,232,555)
Class B - ($0.2189 and $0.5322 per share, respectively) (1,414,447) (5,493,085)
Distributions from capital paid-in
Class A - (none and $0.0095 per share, respectively) -- (19,824)
Class B - (none and $0.0086 per share, respectively) -- (88,349)
----------- -----------
Total Distributions to Shareholders (2,319,082) (6,833,813)
----------- -----------
From Fund Share Transactions - Net* (13,881,810) (28,335,863)
----------- -----------
Net Assets:
Beginning of period 100,934,402 123,605,109
----------- -----------
End of period (including distributions in excess of net
investment income of $1,346,894 for both periods, respectively) $85,299,167 $100,934,402
=========== ============
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
CLASS A
Shares sold 52,855 $493,761 3,261,257 $29,997,448
Shares issued to shareholders in reinvestment
of distributions 54,819 509,959 82,340 752,217
--------- ----------- --------- -----------
107,674 1,003,720 3,343,597 30,749,665
Less shares repurchased (466,566) (4,341,922) (556,804) (5,095,717)
--------- ----------- --------- -----------
Net increase (decrease) (358,892) ($3,338,202) 2,786,793 $25,653,948
========= =========== ========= ===========
CLASS B
Shares sold 180,745 $1,697,800 304,724 $2,763,541
Shares issued to shareholders in reinvestment
of distributions 70,504 656,534 306,687 2,775,841
--------- ----------- --------- -----------
251,249 2,354,334 611,411 5,539,382
Less shares repurchased (1,379,962) (12,897,942) (6,520,105) (59,529,193)
--------- ----------- --------- -----------
Net decrease (1,128,713) ($10,543,608) (5,908,694) ($53,989,811)
========= =========== ========= ===========
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment
returns, key ratios and supplemental data are listed as follows:
- -----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1996 -----------------------------------------
(UNAUDITED) 1995 1994 1993 1992(a)
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.30 $ 8.85 $ 9.62 $ 9.76 $ 10.57
-------- -------- ------- -------- --------
Net Investment Income 0.25** 0.57** 0.64** 0.76 0.64
Net Realized and Unrealized Gain (Loss)
on Investments, Options,
Financial Futures Contracts and
Foreign Currency Transactions ( 0.19) 0.48 ( 0.78) ( 0.10) (0.74)
-------- -------- ------- -------- --------
Total from Investment Operations 0.06 1.05 ( 0.14) 0.66 (0.10)
-------- -------- ------- -------- --------
Less Distributions:
Dividends from Net Investment Income ( 0.25) ( 0.59) ( 0.11) ( 0.38) ( 0.71)
Distributions in Excess of Net
Investment Income -- -- -- ( 0.04) --
Distributions from Capital Paid-In -- ( 0.01) ( 0.52) ( 0.38) --
-------- -------- ------- -------- --------
Total Distributions ( 0.25) ( 0.60) ( 0.63) ( 0.80) ( 0.71)
-------- -------- ------- -------- --------
Net Asset Value, End of Period $ 9.11 $ 9.30 $ 8.85 $ 9.62 $ 9.76
======== ======== ======= ======== ========
Total Investment Return at Net Asset
Value (b) 0.63%(c) 12.25% ( 1.30%) 7.14% ( 0.88%)*
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $31,336 $35,334 $8,949 $12,882 $12,880
Ratio of Expenses to Average Net Assets 1.56%* 1.48% 1.59% 1.46% 1.41%*
Ratio of Net Investment Income to
Average Net Assets 5.38%* 6.43% 7.00% 7.89% 7.64%
Portfolio Turnover Rate 141% 263% 174% 363% 476%
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment
returns, key ratios and supplemental data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1996 ------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992(a) 1991
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.30 $ 8.85 $ 9.62 $ 9.74 $ 10.44 $ 10.38
-------- -------- ------- -------- -------- --------
Net Investment Income 0.22** 0.55** 0.59** 0.72 0.78 0.90
Net Realized and Unrealized Gain
(Loss) on Investments, Options,
Financial Futures Contracts and
Foreign Currency Transactions ( 0.19) 0.44 ( 0.78) ( 0.09) ( 0.59) 0.13
-------- -------- ------- -------- -------- --------
Total from Investment Operations 0.03 0.99 ( 0.19) 0.63 0.19 1.03
-------- -------- ------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ( 0.22) ( 0.53) ( 0.06) ( 0.33) ( 0.89) ( 0.73)
Distributions from Net Realized
Gain on Investments -- -- -- -- -- ( 0.24)
Distributions in Excess of Net
Investment Income -- -- -- ( 0.04) -- --
Distributions from Capital Paid-In -- ( 0.01) ( 0.52) ( 0.38) -- --
-------- -------- ------- -------- -------- --------
Total Distributions ( 0.22) ( 0.54) ( 0.58) ( 0.75) ( 0.89) ( 0.97)
-------- -------- ------- -------- -------- --------
Net Asset Value, End of Period $ 9.11 $ 9.30 $ 8.85 $ 9.62 $ 9.74 $ 10.44
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value (b) 0.30%(c) 11.51% ( 1.88%) 6.77% 1.72%* 10.44%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $53,963 $65,600 $114,656 $197,166 $199,102 $192,687
Ratio of Expenses to Average Net Assets 2.22%* 2.16% 2.17% 1.91% 1.91%* 1.90%
Ratio of Net Investment Income to
Average Net Assets 4.72%* 6.04% 6.41% 7.45% 7.59% 8.74%
Portfolio Turnover Rate 141% 263% 174% 363% 476% 159%
* On an annualized basis.
** On average month end shares outstanding.
(a) Class A shares commenced operations on January 3, 1992.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Not annualized.
The Financial Highlights summarizes the impact of the following factors on a single share for the period indicated:
the net investment income, gains (losses), distributions and total investment return of the Fund. It shows how the
Fund's net asset value for a share has changed since the end of the previous period. Additionally, important
relationships between some items presented in the financial statements are expressed in ratio form.
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
April 30, 1996 (Unaudited)
- ---------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Global Income Fund on April 30, 1996. It's divided into two main categories:
bonds, and short-term investments. The bonds are further broken down by
currency denomination.
PAR VALUE
INTEREST (000'S MARKET
ISSUER RATE OMITTED)# VALUE
- ----------------------------------- -------- ---------- -----------
<S> <C> <C> <C>
BONDS
Australia (4.13%)
Government of Australia, 01-15-01 8.750% 4,411 $ 3,520,552
-----------
Canada (6.07%)
Government of Canada, 04-01-02 8.500 6,670 5,180,973
-----------
Denmark (4.16%)
Kingdom of Denmark, 03-15-06 8.000 19,911 3,551,582
-----------
France (9.11%)
Government of France, 04-25-05 7.500 37,212 7,769,444
-----------
Germany (14.71%)
Federal Republic of Germany, 01-05-06 6.000 19,704 12,544,996
-----------
Italy (6.54%)
Republic of Italy, 11-01-00 10.500 8,280,000 5,575,066
-----------
Spain (5.11%)
Government of Spain, 06-15-02 10.300 519,330 4,364,022
-----------
Sweden (5.42%)
Kingdom of Sweden, 05-05-03 10.250 27,900 4,621,818
-----------
United Kingdom (7.88%)
United Kingdom Treasury Bonds, 12-07-06 7.500 4,640 6,717,344
-----------
United States (31.19%)
United States Treasury Notes, 02-28-98 5.125 4,870 4,794,661
United States Treasury Notes, 12-31-00 5.500 7,295 7,032,818
United States Treasury Notes, 08-15-05 5.875 15,670 14,778,690
-----------
26,606,169
-----------
TOTAL BONDS
(Cost $82,539,310) ( 94.32%) 80,451,966
-------- -----------
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER RATE OMITTED)# VALUE
- ----------------------------------- -------- ---------- -------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.16%)
Investment in a joint repurchase
agreementtransaction with SBC Capital
Markets - Dated 04-30-96, Due 05-01-96
(secured by U.S. Treasury Bonds, 7.250%
Due 05-15-16, and 10.375% Due 11-15-12) -
Note A 5.330% 1,846 $ 1,846,000
-----------
TOTAL SHORT-TERM INVESTMENTS ( 2.16%) 1,846,000
-------- -----------
TOTAL INVESTMENTS ( 96.48%) $82,297,966
======== ===========
NOTES TO SCHEDULE OF INVESTMENTS
# Par value of foreign bonds are expressed in local currency.
The percentage shown for each investment category is the total value of that category
as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Portfolio Concentration (Unaudited)
- -------------------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by companies and governments of other countries.
The performance of the Fund is closely tied to the economic conditions within the countries
in which it invests. The concentration of investment by country of denomination for
individual securities held by the fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various investment
categories. The table below shows the percentages of the Fund's investments at April 30,
1996 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
- --------------------- --------------------------
<S> <C>
Governmental - Foreign 63.13%
Governmental - United States 31.19
Short-term investments 2.16
-----
TOTAL INVESTMENTS 96.48%
=====
</TABLE>
Notes to Financial Statements
John Hancock Funds - Global Income Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust consists of five series portfolios: John Hancock Global Income
Fund (the "Fund"), John Hancock Global Fund, John Hancock International
Fund, John Hancock Short-Term Strategic Income Fund and John Hancock
Special Opportunities Fund. The investment objective of the Fund is to
achieve a high total investment return, a combination of current income
and capital appreciation, by investing in a global portfolio of high
quality, fixed income securities.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under terms of a distribution
plan, have exclusive voting rights to such distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value. All portfolio transactions initially
expressed in terms of foreign currencies have been translated into U.S.
dollars as described in "Foreign Currency Translation" below. The Fund
may invest in indexed securities whose value is linked either directly
or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities
may be more volatile than the reference instrument itself, but any loss
is limited to the amount of the original investment.
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, may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more large repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for
ensuring that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
Capital gains realized on some foreign securities are subject to foreign
taxes and are accrued, as applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all its taxable income,
including any net realized gain on investments, to its shareholders.
Therefore, no federal income tax provision is required. For federal
income tax purposes, net currency exchange gains and losses from sales
of foreign debt securities must be treated as ordinary income even
though such items are gains and losses for accounting purposes. The Fund
has $3,413,372 of a capital loss carryforward available, to the extent
provided by regulations, to offset future net realized capital gains. If
such carryforwards are used by the Fund, no capital gains distribution
will be made. The carryforward expires October 31, 2002.
DIVIDENDS, INTEREST AND DISTRIBUTIONS 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 principals. 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 as
explained previously.
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.
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.
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/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.
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.
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 other than that
offset by the currency amount of the underlying transaction.
Open foreign currency forward sell contracts at April 30, 1996 were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT DATE APPRECIATION
- ----------------- ------------------- ---------- ------------
Australian Dollar 2,280,000 MAY 96 ($ 13,292)
German Mark 29,137,096 JUNE 96 423,700
French Franc 33,782,600 JUNE 96 147,428
British Pound 1,680,000 MAY 96 13,966
Japanese Yen 1,084,447,116 MAY 96 140,599
------------
$712,401
============
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects
of fluctuations in interest rates, currency exchange rates and other
market conditions. At the time the Fund enters into a financial futures
contract, it will be 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 on the board of trade or U.S. commodities
exchange. Subsequent payments, known as "variation margin", to and from
the broker are made on a daily basis as the market price of the
financial futures contract fluctuates. Daily variation margin
adjustments, arising from this "mark to market", will be 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, 1996, there were no open position in financial
futures contracts.
OPTIONS Listed options will be valued at the last quoted sales price on
the exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid"
prices obtained from two independent brokers. Written put or call over-
the-counter options will be valued at the average of the "asked" prices
obtained from two independent brokers. Upon the writing of a call or put
option, an amount equal to the premium received by the Fund will be
included in the Statement of Assets and Liabilities as an asset and
corresponding liability. The amount of the liability will be
subsequently marked-to-market to reflect the current market value of the
written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's
exposure to the underlying instrument and buying puts and writing calls
will 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 will reflect 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
contract's terms, 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 and liquidity risks in over-the-
counter option contracts, the Fund will continuously monitor the
creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's
period-end Statement of Assets and Liabilities.
There were no written option transactions for the period ended October
31, 1995.
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) 0.75% of the
first $250,000,000 of the Fund's average daily net asset value and (b)
0.70% of the Fund's average daily net asset value in excess of
$250,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive
state limit where the Fund is registered to sell shares of beneficial
interest, the fee payable to the Adviser will be reduced to the extent
of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current limits
are 2.5% of the first $30,000,000 of the Fund's average daily net asset
value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-
Distributors for shares of the Fund. For the period ended April 30,
1996, net sales charges received with regard to sales of Class A shares
amounted to $13,239. Out of this amount, $1,324 was retained and used
for printing prospectuses, advertising, sales literature and other
purposes, $1,678 was paid as sales commissions to unrelated broker-
dealers and $10,237 was paid as sales commissions to sales personnel of
John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., ("Sutro"), all of which
are broker dealers. The Adviser's indirect parent, John Hancock Mutual
Life Insurance Company, is the indirect sole shareholder of Distributors
and John Hancock Freedom Securities Corporation and its subsidiaries
which include FDC, Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from 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, 1996, contingent deferred sales
charges paid to JH Funds amounted to $96,264.
In addition, to compensate the Co-Distributors for the services they
provide as distributors of shares of the Fund, the Fund has adopted
Distribution Plans with respect to Class A and Class B pursuant to Rule
12b-1 under the Investment Company Act of 1940. Accordingly, the Fund
will make payments to the Co-Distributors for distribution and service
expenses, at an annual rate not exceed 0.30% of Class A average daily
net assets and 1.00% of Class B average daily net assets to reimburse
the Co-Distributors for their distribution/service costs. Up to a
maximum of 0.25% of such payments may be service fees as defined by the
amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain
circumstances.
The Fund has a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly-owned subsidiary of
The Berkeley Financial Group. The Fund pays transfer agent fee based on
the number of shareholder accounts and certain out-of-pocket expenses.
Mr. Edward J. Boudreau is a director and officer of the Adviser as well
as a Trustee of the Fund. The Adviser owns 10,772 shares of beneficial
interest of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. Effective with the fees paid for 1995, 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 will make investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are
recorded on the Fund's books as an other asset. The deferred
compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by
the investment as well as any unrealized gains or losses. At April 30,
1996, the Fund's investments to cover the deferred compensation
liability had unrealized appreciation of $351.
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, 1996, aggregated $88,365,659 and
$73,870,660, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies aggregated
$37,231,072 and $67,407,548, respectively, during the period ended April
30, 1996.
The cost of investments owned at April 30, 1996 (including the joint
repurchase agreement) for Federal income tax purposes was $85,720,290.
Gross unrealized appreciation and depreciation of investments aggregated
$401,263 and $3,823,587, respectively, resulting in net unrealized
depreciation of $3,422,324.
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
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U.S. Postage
PAID
Brockton, MA
Permit No. 582
This report is for the information of shareholders of the John Hancock
Global Income 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."
090SA 4/96
6/96
- ------------------------------------------------------------------------
