================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
Special
Opportunities
Fund
SEMI-ANNUAL REPORT
April 30, 1996
<PAGE>
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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
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
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
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.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
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
2
<PAGE>
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BY KEVIN R. BAKER, PORTFOLIO MANAGER
John Hancock
Special Opportunities Fund
Volatility returns to stock market, but Fund
turns in strong six-month performance
Kevin R. Baker, previously a member of John Hancock Special Opportunities Fund's
management group, is now carrying out the day-to-day investment decisions for
the Fund. He is supported by a team of portfolio managers and analysts. A second
vice president of John Hancock Funds, Mr. Baker also manages John Hancock Global
Resources Fund and John Hancock Multi-Sector Growth Fund.
Over the last six months, the stock market kept producing positive results,
powered by historic levels of cash from mutual fund investors and decent
corporate earnings. However, the ride got a lot bumpier in 1996, after the
anomaly of 1995's straight-up bull market. In the period covered by this report,
fewer companies saw their stock prices rise and earnings disappointments were
met with harsher reactions. Still, the market performed admirably. From October
1995 through April, the Standard & Poor's 500-Stock Index -- one of the most
commonly used measures of the broad stock market's performance -- returned
13.76%. The Russell Midcap Growth Index, which comes closest to the Fund's focus
on mid-sized companies, returned 16.64%. John Hancock Special Opportunities Fund
significantly outpaced both this benchmark and its peers. For the six months
ended April 30, 1996, the Fund's Class A and Class B shares posted total returns
of 30.79% and 30.47%, respectively, at net asset value. In the same period, the
average capital appreciation fund returned 15.66%, according to Lipper
Analytical Services.(1)
[A 2" x 3" photo of the Special Opportunities team at bottom right. Caption
reads: "Kevin Baker (right) with Fund Management Team member James Boyd."]
"Over the last six months, the stock market kept producing positive results..."
3
<PAGE>
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John Hancock - Special Opportunities Fund
"The energy and precious metals sectors rebounded strongly."
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Chesapeake Energy 3.7% 2) Reading & Bates 3.5%
3)Diamond Offshore Drilling 3.2% 4) Falcon Drilling 3.1% 5) America Online 3.0%.
A footnote below reads: "As a percentage of net assets on April 30, 1996."]
Energy, precious metals sectors shine
The energy and precious metals sectors rebounded strongly in the last six months
and were two of the strongest performers, affirming our belief that they were
poised for price increases due to their strong supply/demand fundamentals. Our
other three categories remained technology, healthcare, and media and
information distribution, but with some shifts in weighting.
At the end of the period, we added a few stocks in two other sectors --
aerospace/defense and leisure/entertainment. Our aerospace/defense stocks are
plays on the turnaround in the airline industry and our belief that defense
spending in the United States has bottomed out. Our leisure/ entertainment
stocks focus on the gaming industry. The new LasVegas Stratosphere, the tallest
tower in the U.S. with a casino below, should draw even more tourists to Las
Vegas. Any heightened interest in gaming could have a positive spillover effect
on well-managed casinos nationwide.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers." The first listing is Chesapeake
Energy followed by an up arrow and the phrase "Increased reserves, higher
natural gas prices." The second listing is Prime Resource Group followed by an
up arrow and the phrase "Key mine boosts production and reserves." The third
listing is Cairn Energy followed by a down arrow and the phrase "Plagued by
dryholes." Footnote below reads: "See "Schedule of Investments." Investment
holdings are subject to change."]
In the near future, we'll winnow our sector count back down to five, but only
after we're satisfied that we've invested in those five with the best potential
for revenue and earnings growth.
Oil and gas
Over the last six months, we've watched the price of oil jump from $17 to $22
per barrel. The trigger was a harsh winter in much of the country which put an
extra burden on already lean inventories of natural gas and home heating oil,
sending them to their lowest levels in 20 years. The weather also sent refiners
scrambling to rebuild stockpiles in advance of the summer driving season. We
boosted our stake in energy stocks from 15% of the Fund's net assets at the end
of October 1995 to 37% by the end of April because we still believe energy
prices have more room to grow. Our drilling companies such as Falcon Drilling
and Reading & Bates served us well, as did some smaller exploration and
production companies such as Global Natural Resources, a natural gas producer
with assets worldwide and Chesapeake Energy, whose superior use of seismic and
drilling technology keep boosting its reserves. One disappointment was Cairn
Energy, whose earnings faltered on discoveries of dry holes. As a result, we
sold the stock.
Technology
Our technology holdings, at 20% of the Fund's net assets, continue to deliver
strong earnings, but we honed our list during the period and became more
selective as the industry evolved. For example, we sold all our semiconductor
stocks when it appeared that supply was catching up to demand. Our software
stocks
4
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John Hancock - Special Opportunities Fund
[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 10% from bottom to top, with 40% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 30.79% total return for John Hancock Special Opportunities Fund: Class A.
The second represents the 30.47% total return for John Hancock Special
Opportunities Fund: Class B. The third represents the 15.66% total return for
the average capital appreciation fund. Footnote below reads: "Total returns for
John Hancock Special Opportunities Fund are at net asset value with all
distributions reinvested. The average capital appreciation fund is tracked by
Lipper Analytical Services. (1) See following page for historical performance
information."]
fared better, such as Microsoft and Parametric, a company that dominates the
market in engineering design software. Internet stocks still figure in our
portfolio through such companies as Cascade Communications, which makes network
switches for the Internet, and Sun Microsystems.
Healthcare
Health-care stocks stood at 13% of the Fund's net assets by the end of the
period. Positive fundamentals and substantial earnings growth have characterized
much of the sector recently, especially as fears of dramatic health-care reform
subsided. We are satisfied with the gains we have made in the sector and going
forward we expect to put less emphasis on this group.
Media/Information Distribution
This sector accounted for 2% of the Fund's net assets in April. During the
period, we added several small radio companies, including Clear Channel
Communications, which have experienced strong advertising revenue growth because
of the presidential election and the Olympics. In fact, we underestimated the
impact of ad revenue on some other broadcasters and wish we hadn't sold the few
we did last year.
Precious metals
Precious metals was another category where our decision to boost holdings, from
4% six months ago to 12% in April, benefited the Fund. As gold prices rose to a
five-year high and stronger economic data prompted inflation fears, the sector
made significant contributions to the Fund's strong performance during the
period. One of our best performers was Newmont Gold, which has had great success
in growing both production and reserve supply.
"Volatility has returned to the stock market in 1996."
Going forward
Volatility has returned to the stock market in 1996. A rising tide won't lift
all boats this year, so careful stock selection will be especially critical. So,
even though we'll continue to focus on choosing five sectors that we believe
have the best potential for growth, we'll also continue to apply our disciplined
analysis -- for both buying and selling -- to each stock candidate and choose
each name in each sector thoughtfully, one by one.
- ----------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
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.
5
<PAGE>
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A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Special Opportunities 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 5% 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 risks associated with industry segment investing.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
ONE LIFE OF
YEAR FUND
------ -------
John Hancock Special Opportunities Fund: Class A(1) 31.70% 26.70%
John Hancock Special Opportunities Fund: Class B(1) 32.66% 28.18%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
ONE LIFE OF
YEAR FUND
------ -------
John Hancock Special Opportunities Fund: Class A(1) 31.70% 10.33%
John Hancock Special Opportunities Fund: Class B(1) 32.66% 10.86%
Notes to Performance
(1) Both Class A and Class B shares commenced on November 1, 1993.
6
<PAGE>
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WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
[The charts on the right show how much a $10,000 investment in the John Hancock
Special Opportunities 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
Standard & Poor's 500 Stock Index -- an unmanaged index that includes 500 widely
traded common stocks and is a commonly used measure of stock market performance.
[Line chart with the heading Special Opportunities 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 Standard & Poor's 500 Stock Index and
is equal to $14,935 as of April 30, 1996. The second line represents the value
of the hypothetical $10,000 investment made in the Special Opportunities Fund on
November 1, 1993, before sales charge, and is equal to $14,341 as of April 30,
1996. The third line represents the Special Opportunities Fund after sales
charge and is equal to $13,620 as of April 30, 1996.]
[Line chart with the heading Special Opportunities Fund: Class B, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $14,935 as of April 30, 1996. The second line represents the value
of the hypothetical $10,000 investment made in the Special Opportunities Fund on
November 1, 1993, before contingent deferred sales charge, and is equal to
$14,106 as of April 30, 1996. The third line represents the Special
Opportunities Fund after contingent deferred sales charge and is equal to
$13,806 as of April 30, 1996.]
7
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $236,060,058) ..................... $ 309,075,790
Receivable for shares sold ................................ 372,001
Receivable for investments sold ........................... 10,823,334
Interest receivable ....................................... 347
Dividends receivable ...................................... 9,593
Foreign tax receivable .................................... 4,533
Deferred organization expenses - Note A ................... 65,231
Other assets .............................................. 66,420
-------------
Total Assets ............ 320,417,249
-------------------------------------------
Liabilities:
Temporary overdraft of cash ............................... 4,454,835
Payable for shares repurchased ............................ 163,091
Payable for investments purchased ......................... 5,790,527
Payable for closed forward foreign currency
exchange contracts - Note A ............................. 93,102
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ..................................... 232,329
Accrued fees and expenses ................................. 114,009
-------------
Total Liabilities ....... 10,847,893
-------------------------------------------
Net Assets:
Capital paid-in ........................................... 208,761,129
Accumulated net realized gain on investments
and foreign currency transactions ....................... 29,870,594
Net unrealized appreciation of investments
and foreign currency transactions ....................... 73,012,161
Net investment loss ....................................... (2,074,528)
-------------
Net Assets .............. $ 309,569,356
===========================================
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 - $129,114,617/10,589,973 ......................... $ 12.19
=============================================================================
Class B - $180,454,739/15,056,104 ......................... $ 11.99
=============================================================================
Maximum Offering Price Per Share *
Class A - ($12.19 x 105.26%) .............................. $ 12.83
=============================================================================
* 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, 1996. You'll also
find the net asset value and the maximum offering price per share as of that
date.
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, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest .................................................. $ 316,545
Dividends (net of foreign withholding taxes of $199) ...... 200,270
-------------
516,815
-------------
Expenses:
Investment management fee - Note B ...................... 1,054,762
Distribution/service fee - Note B
Class A ............................................... 164,476
Class B ............................................... 770,198
Transfer agent fee - Note B ............................. 456,233
Printing ................................................ 39,611
Custodian fee ........................................... 37,874
Trustees' fees .......................................... 19,602
Registration and filing fees ............................ 14,763
Organization expense - Note A ........................... 13,059
Auditing fee ............................................ 13,003
Miscellaneous ........................................... 6,299
Legal fees .............................................. 1,463
-------------
Total Expenses .......... 2,591,343
-------------------------------------------
Net Investment Loss ..... (2,074,528)
-------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ..................... 35,800,916
Net realized loss on foreign currency transactions ........ (15,878)
Change in net unrealized appreciation/depreciation
of investments .......................................... 37,869,101
Change in net unrealized appreciation/depreciation
of foreign currency transactions ........................ (15,525)
-------------
Net Realized and Unrealized
Gain on Investments and Foreign
Currency Transactions ..... 73,638,614
-------------------------------------------
Net Increase in Net Assets
Resulting from Operations .. $ 71,564,086
===========================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .................................. ($ 2,074,528) ($ 2,954,092)
Net realized gain on investments sold and foreign
currency transactions .............................. 35,785,038 17,035,683
Change in net unrealized appreciation/depreciation
of investments and foreign currency transactions ... 37,853,576 23,258,036
------------- -------------
Net Increase in Net Assets Resulting from Operations 71,564,086 37,339,627
------------- -------------
From Fund Share Transactions -- Net* ................... (920,140) (22,887,222)
------------- -------------
Net Assets:
Beginning of period .................................. 238,925,410 224,473,005
------------- -------------
End of period (including net investment loss of
$2,074,528 and none, respectively) ................. $ 309,569,356 $ 238,925,410
============= =============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1995
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ................... 3,525,489 $ 38,412,667 3,199,395 $ 27,308,044
Shares issued in reorganization -- -- 1,058,125 7,921,550
----------- ------------ ---------- ------------
3,525,489 38,412,667 4,257,520 35,229,594
Less shares repurchased ....... (3,838,403) (41,006,618) (5,001,778) (42,409,032)
----------- ------------ ---------- ------------
Net increase .................. (312,914) ($ 2,593,951) (744,258) ($ 7,179,438)
=========== ============ ========== ============
CLASS B
Shares sold ................... 2,249,636 $ 24,271,674 2,612,144 $ 21,533,048
Shares issued in reorganization -- -- 69,972 519,918
----------- ------------ ---------- ------------
2,249,636 24,271,674 2,682,116 22,052,966
Less shares repurchased ....... (2,142,637) (22,597,863) (4,494,039) (37,589,041)
----------- ------------ ---------- ------------
Net increase (decrease) ....... 106,999 $ 1,673,811 (1,811,923) ($15,536,075)
=========== ============ ========== ============
CLASS C**
Shares sold ................... 11,302 $ 89,560
Less shares repurchased ....... (32,055) (261,269)
---------- -----------
Net increase (decrease) ....... (20,753) ($ 171,709)
========== ===========
</TABLE>
** All Class C shares were redeemed on April 12, 1995.
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 gains and losses, and any
increase or decrease in money shareholders invested in the Fund. The footnote
illustrates the number of Fund shares sold during the period, along with the
corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1993
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1996 YEAR ENDED OPERATIONS)
(UNAUDITED) OCTOBER 31, 1995 TO OCTOBER 31, 1994
---------------- ---------------- -------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $ 9.32 $ 7.93 $ 8.50
--------- --------- ---------
Net Investment Loss ............................................... (0.06)(b) (0.07)(b) (0.03)(b)
Net Realized and Unrealized Gain (Loss) on Investments ............ 2.93 1.46 (0.54)
--------- --------- ---------
Total from Investment Operations ................................ 2.87 1.39 (0.57)
--------- --------- ---------
Net Asset Value, End of Period .................................... $ 12.19 $ 9.32 $ 7.93
========= ========= =========
Total Investment Return at Net Asset Value (f) .................... 30.79% 17.53% (6.71%)
Total Adjusted Investment Return at Net Asset Value (a)(f) ........ -- -- (6.83%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................... $ 129,114 $ 101,562 $ 92,325
Ratio of Expenses to Average Net Assets ** ........................ 1.56%* 1.59% 1.50%
Ratio of Adjusted Expenses to Average Net Assets (a) .............. -- -- 1.62%
Ratio of Net Investment Loss to Average Net Assets ................ (1.17%)* (0.87%) (0.41%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (a) .. -- -- (0.53%)
Portfolio Turnover Rate ........................................... 79% 155% 57%
Average Broker Commission Rate (per share of security) (g) ........ $ 0.06 N/A N/A
**Expense Reimbursement Per Share ................................. -- -- $ 0.01(b)
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $ 9.19 $ 7.87 $ 8.50
--------- --------- ---------
Net Investment Loss ............................................... (0.10)(b) (0.13)(b) (0.09)(b)
Net Realized and Unrealized Gain (Loss) on Investments ............ 2.90 1.45 (0.54)
--------- --------- ---------
Total from Investment Operations ................................ 2.80 1.32 (0.63)
--------- --------- ---------
Net Asset Value, End of Period .................................... $ 11.99 $ 9.19 $ 7.87
========= ========= =========
Total Investment Return at Net Asset Value (f) .................... 30.47% 16.77% (7.41%)
Total Adjusted Investment Return at Net Asset Value (a)(f) ........ -- -- (7.53%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................... $ 180,455 $ 137,363 $ 131,983
Ratio of Expenses to Average Net Assets** ......................... 2.26%* 2.30% 2.22%*
Ratio of Adjusted Expenses to Average Net Assets (a) .............. -- -- 2.34%*
Ratio of Net Investment Loss to Average Net Assets ................ (1.86%)* (1.55%) (1.13%)*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a) .. -- -- (1.25%)*
Portfolio Turnover Rate ........................................... 79% 155% 57%
Average Broker Commission Rate (per share of security)(g) ......... $ 0.06 N/A N/A
**Expense Reimbursement Per Share ................................. -- -- $ 0.01(b)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 6, 1994
PERIOD ENDED (COMMENCEMENT OF OPERATIONS)
APRIL 11, 1995 TO OCTOBER 31, 1994
-------------- ----------------------------
<S> <C> <C>
CLASS C (e)
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................ $ 7.94 $ 7.60
-------- --------
Net Investment Income ............................................... 0.01 --
Net Realized and Unrealized Gain on Investments ..................... 0.29(d) 0.34(d)
-------- --------
Total From Investment Operations .................................. 0.30 0.34
-------- --------
Net Asset Value, End of Period ...................................... $ 8.24 $ 7.94
======== ========
Total Investment Return at Net Asset Value (f) ...................... 3.40% (4.47%)
Total Adjusted Investment Return at Net Asset Value (a)(f) .......... -- (4.85%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ........................... $ 218 $ 165
Ratio of Expenses to Average Net Assets** ........................... 0.98%* 1.01%*
Ratio of Adjusted Expenses to Average Net Assets (a) ................ -- 1.39%*
Ratio of Net Investment Income to Average Net Assets ................ 0.23%* 0.03%*
Ratio of Adjusted Net Investment Income to Average Net Assets (a) ... -- (0.35%)*
Portfolio Turnover Rate ............................................. N/A 57%
**Expense Reimbursement Per Share ................................... -- $ 0.01(b)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) On average month end shares outstanding.
(c) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
(d) May not accord to amounts shown elsewhere in the financial statements.
(e) Per share operating performance and the ratios and supplemental data are
calculated as of April 11, 1995, the date on which Class C shares were
redeemed.
(f) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(g) Average broker commission rate (per share of security) as required by
amended disclosure requirements effective September 1, 1995.
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indicated: the net investment loss, gains
(losses), and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
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FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Schedule of Investments
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
COMMON STOCKS
Advertising (0.59%)
Outdoor Systems, Inc.* ................... 79,300 $ 1,823,900
-----------
Aerospace (2.75%)
REMEC, Inc.* ............................. 159,000 2,544,000
Wyman-Gordon Co.* ........................ 330,000 5,981,250
-----------
8,525,250
-----------
Broadcasting (1.38%)
Chancellor Broadcasting Corp.* ........... 64,000 1,632,000
Clear Channel Communications, Inc.* ...... 6,600 447,150
SFX Broadcasting, Inc. (Class A)* ........ 64,000 2,208,000
-----------
4,287,150
-----------
Computers (6.89%)
Bell & Howell Co.* ....................... 110,000 3,465,000
Microsoft Corp.* ......................... 52,500 5,952,188
Parametric Technology Co.* ............... 148,000 5,957,000
Sun Microsystems, Inc.* .................. 110,000 5,967,500
-----------
21,341,688
-----------
Diversified Operations (1.64%)
Primark Corp.* ........................... 143,000 5,076,500
-----------
Drugs (1.41%)
Elan Corp. PLC (American Depositary
Receipt) (Ireland)* .................... 66,000 4,364,250
-----------
Electronics (4.21%)
DSP Communications, Inc.* ................ 63,100 2,508,225
Input/Output, Inc.* ...................... 79,000 2,745,250
SCI Systems, Inc.* ....................... 133,600 5,728,100
Tech-Sym Corp.* .......................... 59,000 2,042,875
-----------
13,024,450
-----------
Entertainment (7.91%)
Anchor Gaming* ........................... 30,500 1,347,719
Grand Casinos, Inc.* ..................... 173,000 5,600,875
Harrah's Entertainment, Inc.* ............ 173,000 5,968,500
Showboat, Inc. ........................... 193,000 6,176,000
Stratosphere Corp.* ...................... 495,000 5,383,125
-----------
24,476,219
-----------
Healthcare (11.54%)
Access Health, Inc.* ..................... 126,000 6,977,250
HBO & Co. ................................ 58,000 6,887,500
HealthCare COMPARE Corp.* ................ 40,100 1,889,710
Healthsource, Inc.* ...................... 98,200 3,351,075
The Schedule of Investments is a complete list of all securities owned by
Special Opportunities Fund on April 30, 1996. It's divided into one main
category:common stocks. The common stocks are further broken down by industry
groups.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Healthcare (continued)
Henry Schein, Inc.* ...................... 150,000 $ 5,400,000
Home Health Corporation of America* ...... 144,400 1,877,200
Oxford Health Plans, Inc.*66,000 ......... 3,333,000
PhyCor, Inc.* ............................ 55,600 2,738,300
Universal Health Services, Inc. ..........
(Class B)* ............................. 59,000 3,274,500
-----------
35,728,535
-----------
Hotels (0.93%)
Prime Hospitality Corp.* ................. 191,000 2,888,875
-----------
Mining (11.95%)
Agnico-Eagle Mines Ltd. .................. 300,000 5,475,000
Asarco, Inc. ............................. 85,000 2,815,625
Aurora Gold Ltd. (Australia)* ............ 900,000 1,712,430
Coeur D'Alene Mines Corp. ................ 135,800 2,699,025
High River Gold Mines Ltd. (Canada)* ..... 225,000 1,008,090
Kinross Gold Corp. (Canada)* ............. 320,000 2,760,000
Newmont Gold Co. ......................... 150,000 8,700,000
Prime Resource Group, Inc. (Canada)* ..... 140,000 1,326,514
Santa Fe Pacific Gold Corp. .............. 400,000 5,950,000
Stillwater Mining Co.* ................... 70,000 1,680,000
TVX Gold, Inc. (Canada)* ................. 363,700 2,864,138
-----------
36,990,822
-----------
Oil & Gas - Equipment and Services (23.23%)
Baker Hughes, Inc. ....................... 99,000 3,143,250
Carbo Ceramics, Inc.* ................... 11,900 255,850
Diamond Offshore Drilling, Inc.* ......... 202,000 10,049,500
Falcon Drilling Co., Inc.* ............... 356,000 9,567,500
Global Marine, Inc.* ..................... 712,000 8,099,000
Nabors Industries, Inc.* ................. 540,000 8,302,500
Pride Petroleum Services, Inc.* .......... 536,800 8,790,100
Reading & Bates Corp.* ................... 440,000 10,780,000
SEE NOTES TO FINANCIAL STATEMENTS.
12
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FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Oil & Gas - Equipment and Services (continued)
Varco International, Inc.* ............... 370,000 $ 6,151,250
Weatherford Enterra, Inc.* ............... 192,000 6,768,000
-----------
71,906,950
-----------
Oil & Gas - Exploration and Production (14.32%)
Abacan Resource Corp. (Canada)* .......... 295,000 1,640,938
Benton Oil & Gas Co.* ................... 170,000 2,975,000
Chesapeake Energy Corp.* ................. 161,400 11,419,050
Flores & Rucks, Inc.* ................... 109,300 2,281,638
Global Natural Resources, Inc.* .......... 240,000 3,480,000
Lomak Petroleum, Inc. .................... 240,000 3,210,000
Nuevo Energy Co.* ........................ 237,000 6,695,250
Sonat Offshore Drilling Co. .............. 137,000 7,517,875
Swift Energy Co.* ........................ 240,000 3,720,000
Triton Energy Ltd.* ...................... 25,000 1,375,000
-----------
44,314,751
-----------
Restaurants (2.28%)
Logan's Roadhouse, Inc.* ................. 36,300 1,079,925
Planet Hollywood International, Inc.* .... 112,800 2,862,300
Rainforest Cafe, Inc.* ................... 84,000 3,108,000
-----------
7,050,225
-----------
Telecommunications (8.81%)
America Online, Inc.* ................... 145,000 9,280,000
Cascade Communications Corp.* ............ 90,000 9,022,500
Comsat Corp. ............................. 105,000 3,202,500
Tel-Save Holdings, Inc.* ................. 31,700 530,975
United States Satellite Broadcasting
Co., Inc.* ............................. 153,000 5,240,250
-----------
27,276,225
-----------
TOTAL COMMON STOCKS
(Cost $236,060,058) ......... (99.84%) 309,075,790
------- -----------
TOTAL INVESTMENTS ......... (99.84%) $309,075,790
======= ===========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Special Opportunities Fund invests primarily in securities issued in the
United States of America. The performance of the Fund is closely tied to the
economic and financial conditions within the countries in which it invests. 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 percentages of the Fund's investments at
April 30, 1996 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ---------------
Australia................................ 0.55%
Canada................................... 2.57
Ireland.................................. 1.41
United States............................ 95.31
-----
TOTAL INVESTMENTS 99.84%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
13
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
(UNAUDITED)
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 Special Opportunities Fund (the "Fund"),
John Hancock Global Fund, John Hancock Global Income Fund, John Hancock
Short-Term Strategic Income Fund and John Hancock International Fund. The
investment objective of the Fund is long-term capital appreciation.
The Trustees have authorized the issuance of two classes of the Fund, designated
as Class A and Class B. The shares of each class represent an interest in the
same portfolio of investments of the Fund and have equal rights to voting,
redemption, 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 the terms of a distribution plan, have
exclusive voting rights regarding such distribution plan. Class C shares were
outstanding during the period from July 6, 1994 through April 11, 1995, but the
Trustees abolished Class C shares as of May 1, 1995. 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 independe nt 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.
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 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.
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 of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $5,914,444 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 gain distributions will be made. The carryforward expires October 31,
2002.
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.
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 as explained previously.
14
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities 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.
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.
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 investmen ts 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
moveme nts 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 transactio ns, 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.
At April 30, 1996, there were no open forward foreign currency exchange
contracts.
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 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. Subsequent payments, known as "variation
margin," to and from the broker are made on a daily basis as the market price of
the financial futures contract fluctuates. Daily variation margin adjustments,
arising from this "mark to market," are recorded by the Fund as unrealized gains
or losses.
15
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
When the contracts are closed, the Fund recognizes a gain or loss. Ris ks
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 contract may not
correlate with changes in the value of the underlying securities.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At April 30, 1996, there were no open positions in financial futures
contracts.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
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, (b) 0.75% of the next $500,000,000 and (c)
0.70% of the Fund's average daily net asset value in excess of $1,000,000,000.
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.
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, 1996, net sales charges received with regard to sales of Class A shares
amounted to $297,896. Out of this amount, $41,248 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$122,716 was paid as sales commissions to unrelated broker-dealers and $133,932
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 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 $347,071.
In addition, to compensate JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B 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 exceed 0.30% of Class A
average daily net assets and 1.00% of Class B average daily net assets to
reimburse JH Funds for its distribution/service costs. Up to a maximum of 0.25%
of such payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the amended
Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Mr. Edward J. Boudreau, Jr. is a director and/or officer of the Adviser
and/or its affiliates, as well as a Trustee 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 makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At April 30, 1996, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $665.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than other than
obligations of the U.S. government and its agencies and short-term securities,
during the period ended April 30, 1996 aggregated $235,565,141 and $202,508,121,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the period ended April 30, 1996.
The cost of investments owned at April 30, 1996 (excluding the corporate
savings account) for Federal income tax purposes was $236,060,058. Gross
unrealized appreciation and depreciation of investments aggregated $76,172,973
and $3,157,241, respectively, resulting in net unrealized appreciation of
$73,015,732.
17
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NOTES
John Hancock Funds - Special Opportunities Fund
18
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NOTES
John Hancock Funds - Special Opportunities Fund
19
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- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Special Opportunities 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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390SA 4/96
6/96
