John Hancock Funds
World
Bond Fund
ANNUAL REPORT
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
State Street Bank & 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
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to first paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that
prospectuses are often overloaded with technical detail and are hard
for most investors to understand. Many industry observers agreed,
and rightly so.
So it is my pleasure to let you know that after being under
development for a year, John Hancock Funds has introduced new
simplified and consolidated prospectuses. The prospectuses feature
shorter, clearer language with a streamlined design, and they
incorporate several funds with similar investment objectives into
one document. They cover our income, growth, growth and income, tax-
free income, international/global and money market funds. We are
gratified at the favorable reviews that our new prospectuses have
received from shareholders, financial advisers, industry analysts
and the press. We believe they are a bold but sensible step forward.
And while they are easier to read, they still comply with all
federal and state guidelines.
We have taken the initiative to create a prospectus that
dramatically departs from the norm. Among its most innovative
features is a two-page spread highlighting each fund's goals and
investment strategy, the types of securities it buys, its portfolio
management and risk factors, all in plainer language. Fund expenses
and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other
features include a better presentation of fund services, a new
glossary of investment risks and a discussion about how funds are
organized, including a diagram showing the connection of the various
players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive
toward better mutual fund prospectuses. We hope you will agree
because in the end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY LAWRENCE J. DALY, ANTHONY A. GOODCHILD AND JANET L. CLAY,
CO-PORTFOLIO MANAGERS
John Hancock
World Bond Fund
Emerging markets' extended rallies outpace U.S., Europe
In July 1996, the Fund's trustees approved a name change for the
Fund. The Fund, formerly called John Hancock Global Income Fund, is
now John Hancock World Bond Fund.
At the start of the Fund's fiscal year in November 1995, conditions
favored global bond markets. Generally speaking, worldwide economic
growth was moderate, inflation was low and interest rates were
falling. During the fourth quarter of 1995 and early 1996, most
market participants expected those positive trends to continue
throughout this year. But to the surprise of many, the U.S. bond
market became hampered by indications that economic growth was
stronger than expected and fears that the growth could ignite
inflation. In response, U.S. bond yields rose and bond prices fell
in a downturn that lasted from early February through the end of the
summer. The market reversed itself in the fall and staged a
significant rebound after further signs that the economy was
slowing.
Overseas, things were much different. Initially, the U.S. bond
market's trouble reverberated in Europe. But later, European bonds
shrugged off the U.S.'s worries and generally continued to perform
well, as interest rates on the continent resumed their downward
trend. Meanwhile, investors hungry for higher yields than those
offered by bonds from developed G-7 countries continued to flock to
emerging markets, bidding many emerging market bonds higher.
A 2 1/4" x 3 1/2" photo of fund management team at bottom right.
Caption reads: Anthony Goodchild, Janet Clay and Lawrence Daly, Co-
Portfolio Managers."
U.S. bond
prices fell
during a
spring and
summer
downturn.
Pie Chart with the heading "Portfolio Diversification" at top left hand
column. The chart is divided into five sections. Going from top right to
left (clockwise): North America 24%; Latin America 20%; Australia 1%;
Short-Term Investments & Other 5%; Europe 50%. Footnote below states "As
a percentage of net assets on October 31, 1996."
John Hancock World Bond Fund's Class A and Class B shares had total
returns of 5.48% and 4.78%, respectively, at net asset value, for
the year ended October 31, 1996. The average global income fund rose
12.35% over the same period, according to Lipper Analytical
Services1, and the J.P. Morgan Global Government Index returned
6.10%. Please see pages six and seven for longer-term performance
information.
"...emerging
markets were
the best
performing
category..."
Performance overview
Many of the funds in the global income category have large
investments in emerging market bonds, many of which performed
extremely well over the last year. Because we were prohibited from
investing in emerging markets until a policy change in July, our
relative underperformance was disappointing, but expected. It's also
why we have provided the J.P. Morgan index as perhaps a more useful
comparison this time. Going forward, we hope to deliver more
competitive results with a more level playing field.
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 Emerging markets followed by an up arrow and the phrase "Strong
investor demand rally." The second listing is Spain, Italy, Sweden
followed by an up arrow and the phrase "Falling yields, rising bond
prices." The third listing is Long-term U.S. bonds followed by a down
arrow and the phrase "Gyrating interest rates." Footnote below reads:
"See Schedule of Investments. Investment holdings are subject to
change."
Emerging markets were the best performing category during the past
year, as evidenced by the Salomon Brothers Brady Bond Index which
was up 39.9% from a year ago. Their rise was in response to most
emerging countries' improving their fiscal policies. What's more,
their high yields made them popular with investors. We'll discuss in
more detail later how we took advantage of a new investment policy
which now allows us to invest up to 35% of assets in emerging market
debt.
Additionally, early in 1996, the Fund's performance suffered because
it had an above-average duration, at about 5.21 years, when the U.S.
market declined. Duration measures how much a bond's price will vary
with changes in interest rates; the longer the duration, the more
the bond's price will rise or fall with interest rate movements. We
moved to a more neutral duration late in the first quarter, giving
us a more conservative stance. In late summer, we lengthened our
duration once again, allowing the Fund to participate more fully in
the recent global bond market rally.
Strategic overview
By the end of the period, we had increased our emerging-market
holdings to roughly 20% after the new investment policy was
approved. In doing so, we were able to increase the Fund's yield by
approximately two percentage points. While their progress may be
bumpy at times, we believe the long-term trends for these countries
are promising, favoring steadier economic growth, greater fiscal
responsibility and lower inflation. Our emerging-market holdings are
heavily weighted toward dollar-denominated government debt from
Mexico, Brazil, Argentina and Venezuela.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended October 31,
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 5.48% total return for the John
Hancock Global Income Fund: Class A. The second represents the 4.78%
total return for John Hancock Global Income Fund: Class B. The third
represents the 12.35% total return for the average general world income
fund. A footnote below reads: "Total returns for John Hancock Global
Income Fund are at net asset value with all distributions reinvested.
The average general world income fund is tracked by Lipper Analytical
Services. (1) See following two pages for historical performance
information."
In order to balance our holdings in lower-quality, emerging-market
bonds, we continued to emphasize high-quality bonds, including those
issued in the U.S. and Europe. However, overall we reduced our stake
in U.S. bonds from 33% of net assets six months ago to 23% at the
end of October. In their place, we added higher-yielding bonds from
the "peripheral" European countries of Italy, Spain and Sweden.
The Fund's largest European holdings were in longer-term German
bonds. While German bonds posted gains during the period, they
generally lagged other European markets due to concerns about the
European Monetary Union (EMU). Our U.K. holdings performed well as
the pound sterling strengthened against the U.S. dollar. So-called
"peripheral" countries were Europe's strongest performers throughout
the year and were a boost to the Fund's performance. In order to
qualify for inclusion into the EMU, these countries have been forced
to cut interest rates, bring down budget deficits, and get inflation
under control, actions that proved to be beneficial for their bond
markets.
Outlook
As was the case six months ago, inflation is the key variable as we
look toward the future. At this point, our outlook calls for
continued slow, but steady economic growth and low inflation.
Granted, the U.S. economy is still sending off mixed signals. While
oil prices have risen and there have been spurts of tremendous job
growth, wages have remained relatively flat while housing and retail
sales are weak. As you read this, the U.S. presidential election is
behind us and there seems to be a notable shift in market sentiment,
with a developing consensus that interest rates can come down from
current levels. From a more global perspective, things look even
better. Inflation is lower in Europe than in the U.S. Along with
tight fiscal policies, this augurs well for continued low or
declining interest rates in those markets. And while emerging
markets may experience short-term setbacks, the trend is clearly
toward more integration between the developed and developing
economies. We believe that converging worldwide interest rates --
the theme that has been driving the markets for the past few years -
- - will continue to prevail, due to improving credit qualities,
enhanced global liquidity and structural changes in the global
economy. That bodes well for world bond investors.
"...our
outlook calls
for continued
slow, but
steady
economic
growth
and low
inflation."
- --------------------------------------------------------------------
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.
1Figures 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 World Bond 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 September 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
--------- --------- ----------
John Hancock World
Bond Fund: Class A 0.89% N/A 16.95%(1)
John Hancock World
Bond Fund: Class B (0.12%) 22.05% 124.34%(2)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
--------- --------- ----------
John Hancock World
Bond Fund: Class A 0.89% N/A 3.36%(1)
John Hancock World
Bond Fund: Class B (0.12%) 4.07% 8.61%(2)
YIELDS
As of October 31, 1996
SEC 30-DAY
YIELD
------------
John Hancock World
Bond Fund: Class A 5.72%
John Hancock World
Bond Fund: Class B 5.35%
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 World Bond Fund would be worth on October 31, 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.
World Bond Fund
Class A shares
Line chart with the heading World Bond 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 Bond Index and is equal to $15,015 as of
October 31, 1996. The second line represents the value of
the hypothetical $10,000 investment made in the World Bond
Fund on January 3, 1992, before sales charge, and is equal to
$12,433 as of October 31, 1996. The third line represents
the World Bond Fund, after sales charge, and is equal to
$11,871 as of October 31, 1996.
World Bond Fund
Class B shares
Line chart with the heading World Bond Fund 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 Bond Index and is equal to $25,561 as of
October 31, 1996. The second line represents the value of
the hypothetical $10,000 investment made in the World Bond
Fund on December 31, 1991, before sales charge, and is equal
to $22,760 as of October 31, 1996.
* No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 1996. You'll
also find the net asset value and the maximum offering price per share as
of that date.
Statement of Assets and Liabilities
October 31, 1996
- ------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Bonds (cost - $68,835,531) $ 70,122,135
Joint repurchase agreement (cost - $1,250,000) 1,250,000
-------------
71,372,135
Cash 404
Receivable for forward foreign currency exchange
contracts sold - Note A 16,888
Receivable for closed forward foreign currency
exchange contracts - Note A 60,673
Interest receivable 2,400,257
Other assets 8,855
-------------
Total Assets 73,859,212
- --------------------------------------------------------------------------
Liabilities:
Dividend payable 11,591
Payable for shares repurchased 1,442
Payable foreign withholding tax 31,128
Payable for forward foreign currency exchange
contracts bought - Note A 194,724
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 71,740
Accounts payable and accrued expenses 114,495
-------------
Total Liabilities 425,120
- --------------------------------------------------------------------------
Net Assets:
Capital paid-in 74,098,183
Accumulated net realized loss on investments, options,
foreign currency transactions and financial
futures contracts ( 1,672,124)
Net unrealized appreciation of investments and
foreign currency transactions 1,111,574
Distributions in excess of net investment income ( 103,541)
-------------
Net Assets $ 73,434,092
==========================================================================
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 - $27,537,484/2,967,969 $ 9.28
==========================================================================
Class B - $45,896,608/4,946,667 $ 9.28
==========================================================================
Maximum Offering Price Per Share *
Class A - ($9.28 x 104.71%) $ 9.72
==========================================================================
* 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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income
earned and expenses incurred in operating the Fund. It also shows
net gains (losses) for the period stated.
Statement of Operations
Year ended October 31, 1996
- ------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (net of foreign withholding tax of $60,036) $ 6,127,532
------------
Expenses:
Investment management fee - Note B 645,661
Distribution/service fee - Note B
Class A 93,941
Class B 530,756
Transfer agent fee - Note B 216,466
Custodian fee 86,948
Auditing fee 79,071
Registration and filing fees 27,495
Printing 18,605
Trustees' fees 14,950
Financial services fee - Note B 4,879
Legal 4,273
Miscellaneous 3,188
------------
Total Expenses 1,726,233
- ------------------------------------------------------------------------
Net Investment Income 4,401,299
- ------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency Transactions, and Financial
Futures Contracts:
Net realized gain on investments sold 2,865,380
Net realized loss on foreign currency transactions ( 1,456,145)
Net realized loss on financial futures contracts ( 108,401)
Change in net unrealized appreciation/depreciation
of investments ( 1,616,953)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ( 130,834)
------------
Net Realized and Unrealized Loss
on Investments, Foreign Currency
Transactions and Financial
Futures Contracts ( 446,953)
- ------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 3,954,346
========================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------
1995 1996
---------- ----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 6,833,813 $ 4,401,299
Net realized gain (loss) on investments
sold, foreign currency transactions,
and financial futures contracts ( 2,207,059) 1,300,834
Change in net unrealized appreciation/
depreciation of investments and foreign
currency transactions 7,872,215 ( 1,747,787)
------------ ------------
Net Increase in Net Assets
Resulting from Operations 12,498,969 3,954,346
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.5914 and $0.5025
per share, respectively) ( 1,232,555) ( 1,702,011)
Class B - ($0.5322 and $0.4418
per share, respectively) ( 5,493,085) ( 2,613,385)
Distributions from capital paid-in
Class A - ($0.0095 and $0.0100
per share, respectively) ( 19,824) ( 33,881)
Class B - ($0.0086 and $0.0088
per share, respectively) ( 88,349) ( 52,022)
------------ ------------
Total Distributions to Shareholders ( 6,833,813) ( 4,401,299)
------------ ------------
From Fund Share Transactions - Net*: ( 28,335,863) ( 27,053,357)
------------ ------------
Net Assets:
Beginning of period 123,605,109 100,934,402
------------ ------------
End of period (including distributions
in excess of net investment income of
$1,346,894 and $103,541, respectively) $100,934,402 $ 73,434,092
============ ============
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, if any, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (continued)
- ------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1995 1996
---------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 3,261,257 $29,997,448 163,813 $ 1,508,925
Shares issued to shareholders in reinvestment
of distributions 82,340 752,217 107,472 990,433
--------- ----------- --------- -----------
3,343,597 30,749,665 271,285 2,499,358
Less shares repurchased ( 556,804) ( 5,095,717) ( 1,101,077) ( 10,123,045)
--------- ----------- --------- -----------
Net increase (decrease) 2,786,793 $25,653,948 ( 829,792) ($ 7,623,687)
========= =========== ========= ===========
CLASS B
Shares sold 304,724 $ 2,763,541 237,253 $ 2,212,528
Shares issued to shareholders in reinvestment
of distributions 306,687 2,775,841 132,781 1,224,626
--------- ----------- --------- -----------
611,411 5,539,382 370,034 3,437,154
Less shares repurchased (6,520,105) ( 59,529,193) ( 2,474,099) ( 22,866,824)
--------- ----------- --------- -----------
Net decrease (5,908,694) ($53,989,811) ( 2,104,065) ($19,429,670)
========= =========== ========= ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment
returns, key ratios and supplemental data are listed as follows:
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1992(1) 1993 1994 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.57 $ 9.76 $ 9.62 $ 8.85 $ 9.30
------- ------- ------ ------- --------
Net Investment Income 0.64 0.76 0.64(3) 0.57(3) 0.51(3)
Net Realized and Unrealized Gain (Loss)
on Investments, Options,
Financial Futures Contracts and Foreign
Currency Transactions ( 0.74) ( 0.10) ( 0.78) 0.48 ( 0.02)
------- ------- ------ ------- --------
Total from Investment Operations ( 0.10) 0.66 ( 0.14) 1.05 0.49
------- ------- ------ ------- --------
Less Distributions:
Dividends from Net Investment Income ( 0.71) ( 0.38) ( 0.11) ( 0.59) ( 0.50)
Distributions in Excess
of Net Investment Income -- ( 0.04) -- -- --
Distributions from Capital Paid-In -- ( 0.38) ( 0.52) ( 0.01) ( 0.01)
------- ------- ------ ------- --------
Total Distributions ( 0.71) ( 0.80) ( 0.63) ( 0.60) ( 0.51)
------- ------- ------ ------- --------
Net Asset Value, End of Period $ 9.76 $ 9.62 $ 8.85 $ 9.30 $ 9.28
======= ======= ====== ======= ========
Total Investment Return
at Net Asset Value(2) ( 0.88%)(4) 7.14% ( 1.30%) 12.25% 5.48%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $12,880 $12,882 $8,949 $35,334 $27,537
Ratio of Expenses to Average
Net Assets 1.41%(5) 1.46% 1.59% 1.48% 1.58%
Ratio of Net Investment Income
to Average Net Assets 7.64%(5) 7.89% 7.00% 6.43% 5.54%
Portfolio Turnover Rate 476% 363% 174% 263% 214%
The Financial Highlights summarizes the impact of the following factors on a single share for each
period indicated: the net investment income, gains (losses), distributions and total investment return
of the Fund. It shows how the Fund's net asset value for a share has changed since the end of the
previous period. Additionally, important relationships between some items presented in the financial
statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- --------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.44 $ 9.74 $ 9.62 $ 8.85 $ 9.30
-------- -------- -------- ------- -------
Net Investment Income 0.78 0.72 0.59(3) 0.55(3) 0.45(3)
Net Realized and Unrealized Gain (Loss)
on Investments, Options, Financial
Futures Contracts and Foreign
Currency Transactions ( 0.59) ( 0.09) ( 0.78) 0.44 ( 0.02)
-------- -------- -------- ------- -------
Total from Investment Operations 0.19 0.63 ( 0.19) 0.99 0.43
-------- -------- -------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.89) ( 0.33) ( 0.06) ( 0.53) ( 0.44)
Distributions from Net Realized
Gain on Investments -- -- -- -- --
Distributions in Excess of Net
Investment Income -- ( 0.04) -- -- --
Distributions from Capital Paid-In -- ( 0.38) ( 0.52) ( 0.01) ( 0.01)
-------- -------- -------- ------- -------
Total Distributions ( 0.89) ( 0.75) ( 0.58) ( 0.54) ( 0.45)
-------- -------- -------- ------- -------
Net Asset Value, End of Period $ 9.74 $ 9.62 $ 8.85 $ 9.30 $ 9.28
======== ======== ======== ======= =======
Total Investment Return
at Net Asset Value(2) 1.72% 6.77% ( 1.88%) 11.51% 4.78%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $199,102 $197,166 $114,656 $65,600 $45,897
Ratio of Expenses to Average
Net Assets 1.91% 1.91% 2.17% 2.16% 2.25%
Ratio of Net Investment Income
to Average Net Assets 7.59% 7.45% 6.41% 6.03% 4.87%
Portfolio Turnover Rate 476% 363% 174% 263% 214%
(1) Class A shares commenced operations on January 3, 1992.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Not annualized.
(5) Annualized.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Schedule of Investments is a complete list of all securities owned by World Bond Fund on
October 31, 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, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---------- ---------- ----------
<S> <C> <C> <C>
BONDS
Australian Dollar (1.45%)
Commonwealth of Australia, Bond Ser 101 01-15-01 8.750% 1,260 $ 1,063,561
------------
British Pound Sterling (9.42%)
United Kingdom Treasury, Bond 12-07-06 7.500 4,290 6,921,184
------------
Canadian Dollar (2.18%)
Government of Canada, Bond 09-01-01 7.000 2,020 1,599,970
------------
Chilean Peso (1.33%)
Citibank, N.A.,
Nassau Time Deposit 01-27-97 (Time deposit
with redemption linked to Chilean Peso Fx rates)** 10.100 410,100 975,615
------------
Danish Krone (3.50%)
Kingdom of Denmark, Bond-Bullet 03-15-06 8.000 13,911 2,573,744
------------
Deutsche Mark (14.78%)
Federal Republic of Germany, Bond Ser 96 01-05-06 6.000 16,444 10,856,560
------------
French Franc (5.52%)
Republic of France, Deb 04-25-05 7.500 18,612 4,052,055
------------
Italian Lira (7.13%)
Republic of Italy Treasury, Bond 11-01-00 10.500 7,180,000 5,233,156
------------
Spanish Peseta (5.08%)
Kingdom of Spain, Deb 06-15-02 10.300 419,330 3,728,298
------------
Swedish Krona (4.51%)
Kingdom of Sweden, Bond Ser 1033 05-05-03 10.250 18,600 3,312,713
------------
U.S. Dollar (40.59%)
Empresas ICA Sociedad S.A., (Mexico),
Note Ser REGS 05-30-01 11.875 1,000 1,031,250
Federative Republic of Brazil, (Brazil),
Floating Rate Bond 04-15-09 6.563* 1,100 869,000
Impsat Corp., Gtd Deb 07-15-03 (R) 12.125 500 520,000
Klabin Fabricadora de Papel e Celuose S.A.,
(Brazil), Gtd Deb 08-12-04 11.000 500 512,500
Net Sat Servicos Ltd., (Brazil),
Sr Note 08-05-04 (R) 12.750 500 522,500
OPP Petroquimica S.A., (Brazil),
Bond 10-29-04 (R) 11.000 500 496,250
Petroleo Brasileiros S.A., (Brazil),
Bond 10-17-06 (R) 10.000 500 493,125
Republic of Argentina,
(Argentina), Floating Rate Bond 03-31-05 6.625* 1,960 1,609,650
(Argentina), Global Bond 02-23-01 9.250 1,000 976,250
Republic of Venezuela, (Venezuela),
Floating Rate Bond Ser DL 12-18-07 6.625* 2,500 2,046,875
Sprint Spectrum L.P., Sr Note 08-15-06 11.000 500 505,000
Transportacion Maritima Mexicana S.A. de C.V.,
(Mexico), Note 05-15-03 9.250 500 476,250
United Mexican States,
Global Bond 02-06-01 9.750 1,500 1,518,750
Global Bond 05-15-26 11.500 3,000 2,977,500
United States Treasury,
Note 05-31-98 6.000 640 642,899
Note 06-30-98 6.250 2,320 2,340,300
Note 12-31-00 5.500 3,000 2,940,480
Note 11-15-05 5.875 9,640 9,326,700
------------
29,805,279
------------
TOTAL BONDS
(Cost $68,835,531) (95.49%) 70,122,135
----- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.70%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc. --
Dated 10-31-96, Due 11-01-96
(secured by U.S. Treasury Bonds,
6.250% Due 08-15-23, and 7.250%
Due 05-15-16) -- Note A 5.54% 1,250 1,250,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,250,000) ( 1.70%) 1,250,000
----- ------------
TOTAL INVESTMENTS (97.19%) $ 71,372,135
===== ============
NOTES TO SCHEDULE OF INVESTMENTS
* Represents rate in effect on October 31, 1996.
** An indexed security's value is linked to changes in foreign currencies, interest rates or
other reference instruments. Indexed securities amounted to $975,615 or 1.33% of net
assets as of October 31, 1996.
# Par value of non US$ denominated foreign bonds is expressed in local currency for each
country listed.
(R) Security is exempt from registration under rule 144A of the Securities Act of 1933. Such
securities may be resold, normally to qualified institutional buyers, in transactions
exempt from registration. Rule 144A securities amounted to $2,544,375 or 3.46% of net
assets as of October 31, 1996.
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 condition
within the countries in which it invests. The concentration of investments by
currency denomination for individual securities held by the Fund is shown in the
schedule of investments. In addition, concentration of investments can be aggregated
by various investment categories. The table below shows the percentages of the
Fund's investments at October 31, 1996 assigned to the various investment
categories.
MARKET VALUE
AS A %
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ---------------
<S> <C>
Banks 1.33%
Building Products 1.40
Chemicals 0.67
Governmental - Foreign 67.19
Governmental - U.S. 20.77
Oil & Gas 0.67
Paper & Paper Products 0.70
Telecommunications 2.11
Transportation 0.65
Short-term Investments 1.70
-----
TOTAL INVESTMENTS 97.19%
=====
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - World Bond 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 six series: John Hancock World Bond Fund
(the "Fund"), John Hancock Global Fund, John Hancock International
Fund, John Hancock Short-Term Strategic Income Fund, John Hancock
Growth Fund and John Hancock Special Opportunities Fund. Prior to
July 1, 1996, the Fund was known as the Global Income Fund. The
other five series of the Trust are reported in separate financial
statements. 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
government and corporate debt 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 and service expenses under terms of a distribution plan
have exclusive voting rights to that distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are
valued on the basis of market quotations, valuations provided by
independent pricing services or, at fair value as determined in good
faith in accordance with procedures approved by the Trustees. Short-
term debt investments maturing within 60 days are valued at
amortized cost which approximates market value. 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 $938,808 of capital loss
carryforward available, to the extent provided by the regulations,
to offset future net realized capital gains. To the extent such
carryforward is used by the Fund, no capital gains distribution will
be made. The carryforward expires October 31, 2002.
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
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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities purchased from either the date of issue or the date of
purchase over the life of the security, as required by the Internal
Revenue Code.
EXPENSES The majority of the expenses 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 and service fees, if
any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles
incorporates estimates made by management in determining the
reported amounts of assets, liabilities, revenues, and expenses of
the Fund. Actual results could differ from these estimates.
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 contracts at October 31, 1996 were as
follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY COVERED BY CONTRACT DATE (DEPRECIATION)
- -------- ------------------- ---------- ------------
SELLS
French Francs 20,300,000 DEC 96 $ 16,888
BUYS
Japanese Yen 1,274,434,316 NOV 96 $(194,724)
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial
futures contracts for speculative purposes and/or to hedge against
the effects of fluctuations in interest rates, currency exchange
rates and other market conditions. Buying futures tends to increase
the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. At the time the Fund enters into a
financial futures contract, it 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 on which it trades.
Subsequent payments, known as "variation margin", to and from the
broker are made on a daily basis as the market price of the
financial futures contract fluctuates. Daily variation margin
adjustments, arising from this "mark to market", 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 October 31, 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, 1996.
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 October
31, 1996, net sales charges received with regard to sales of Class A
shares amounted to $16,669. Out of this amount, $1,709 was retained
and used for printing prospectuses, advertising, sales literature
and other purposes, $3,877 was paid as sales commissions to
unrelated broker-dealers and $11,083 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
October 31, 1996, contingent deferred sales charges paid to JH Funds
amounted to $154,544.
In addition, to reimburse 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 to 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 and
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. In order to comply
with this rule, the 12b-1 fee on Class B ranged from 0.90% to 1.00%
of average daily net assets throughout the period.
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.
On August 27, 1996, the Board of Trustees approved retroactively to
July 1, 1996, an agreement with the Adviser to perform necessary tax
and financial management services for the Fund. The compensation for
1996 is estimated to be at an annual rate of 0.01875% of the average
net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. 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 October 31,
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 then
obligations of the U.S. government and its agencies and short-term
securities, during the period ended October 31, 1996, aggregated
$112,042,184 and $107,258,321 respectively. Purchases and proceeds
from sales of obligations of the U.S. government its agencies
aggregated $64,308,465 and $98,201,893 respectively, during the
period ended October 31, 1996.
The cost of investments owned at October 31, 1996 (including the
joint repurchase agreement) for Federal income tax purposes was
$71,027,960. Gross unrealized appreciation and depreciation of
investments aggregated $1,502,220 and $1,158,045, respectively,
resulting in net unrealized appreciation of $344,175.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1996, the Fund has reclassified
amounts to reflect a decrease in accumulated net realized loss on
investments of $3,410,231, a decrease in accumulated net investment
loss of $1,243,353 and a decrease in capital paid-in of $4,653,584.
This represents the amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of October
31, 1996. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains
under federal tax rules versus generally accepted accounting principles.
The calculation of net investment income per share in the financial highlights
excludes these adjustments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock World Bond Fund
(formerly John Hancock Global Income Fund) and
the Trustees of Freedom Investment Trust II
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and the related
statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of John Hancock World Bond Fund (the "Fund")
(formerly John Hancock Global Income Fund) (a portfolio of Freedom
Investment Trust II) at October 31, 1996, and the results of its
operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
the significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31,
1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 12, 1996
SHAREHOLDER MEETING (UNAUDITED)
On July 23, 1996 a special meeting of World Bond Fund was held.
The Shareholders approved a new investment management contract
between John Hancock Advisers, Inc. and the Fund. The shareholder
votes were 4,603,037 FOR, 139,719 AGAINST and 301,250 ABSTAINING.
The Shareholders approved an Amended and Restated Declaration of
Trust. The shareholder votes were 4,510,253 FOR, 163,590 AGAINST and
352,495 ABSTAINING.
The Shareholders redesignated as nonfundamental the Fund's
fundamental investment restriction on investing in other investment
companies. The shareholder votes were 4,452,098 FOR, 218,281 AGAINST
and 355,959 ABSTAINING.
The Shareholders amended the Fund's fundamental investment
objective. The shareholder votes were 4,436,563 FOR, 224,074 AGAINST
and 365,700 ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- --------------- ----------- ------------
Dennis S. Aronowitz 5,377,455 150,074
Edward J. Boudreau, Jr. 5,375,816 151,713
Richard P. Chapman, Jr. 5,376,114 151,415
William J. Cosgrove 5,374,409 153,121
Douglas M. Costle 5,378,341 149,188
Leland O. Erdahl 5,375,796 151,733
Richard A. Farrell 5,376,752 150,777
Gail D. Fosler 5,374,876 152,654
William F. Glavin 5,375,288 152,241
Anne C. Hodsdon 5,377,223 150,306
Dr. John A. Moore 5,379,416 148,113
Patti McGill Peterson 5,378,286 149,243
John W. Pratt 5,381,497 146,033
Richard S. Scipione 5,375,288 152,241
Edward J. Spellman 5,378,723 148,806
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is
furnished with respect to the distributions of the Fund during the
fiscal year ended October 31, 1996.
None of the distributions qualify for the dividends received
deduction available to corporations.
Shareholders will be mailed a 1996 U.S. Treasury Department Form
1099-DIV in January of 1997. This will reflect the total of all
distributions which are taxable for calendar year 1996.
NOTES
John Hancock Funds - World Bond Fund
A 1/2" x 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
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John
Hancock World Bond 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 caption "Printed on
Recycled Paper." 0900A 10/96
12/96
John Hancock Funds
Global
Fund
Annual Report
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
State Street Bank & 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
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to first paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that
prospectuses are often overloaded with technical detail and are hard
for most investors to understand. Many industry observers agreed,
and rightly so.
So it is my pleasure to let you know that after being under
development for a year, John Hancock Funds has introduced new
simplified and consolidated prospectuses. The prospectuses feature
shorter, clearer language with a streamlined design, and they
incorporate several funds with similar investment objectives into
one document. They cover our income, growth, growth and income, tax-
free income, international/global and money market funds. We are
gratified at the favorable reviews that our new prospectuses have
received from shareholders, financial advisers, industry analysts
and the press. We believe they are a bold but sensible step forward.
And while they are easier to read, they still comply with all
federal and state guidelines.
We have taken the initiative to create a prospectus that
dramatically departs from the norm. Among its most innovative
features is a two-page spread highlighting each fund's goals and
investment strategy, the types of securities it buys, its portfolio
management and risk factors, all in plainer language. Fund expenses
and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other
features include a better presentation of fund services, a new
glossary of investment risks and a discussion about how funds are
organized, including a diagram showing the connection of the various
players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive
toward better mutual fund prospectuses. We hope you will agree
because in the end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY JOHN L. F. WILLS, PORTFOLIO MANAGER
John Hancock
Global Fund
International stock markets gain ground;
U.S. remains the leader
"Foreign stocks finally began to show signs of life over the past
12 months."
Foreign stocks finally began to show signs of life over the past 12
months. Declining interest rates, low inflation, steady or
rebounding economies around the world and ample liquidity fueling
the markets combined to move many foreign stocks forward. While the
progress still wasn't enough to push the major world markets ahead
of the United States, it at least narrowed the gap and gave
international investors positive returns.
For the 12 months ended October 31, 1996, John Hancock Global Fund
posted total returns for its Class A and Class B shares of 9.87% and
9.10%, respectively, at net asset value. That compared to the 15.52%
return for the average global fund, according to Lipper Analytical
Services.1 Please see pages six and seven for longer-term
performance information. There are several reasons for the Fund's
modest performance. Those included our underweighted position in the
United States and a strong position in Japan, where results were
disappointing for U.S.-dollar based investors because of a 10%
decline in the yen during the period. What's more, by trimming our
stake in continental Europe to boost our stakes in Japan and Hong
Kong, the Fund also benefited less from Europe's strong performance.
Even with currency declines, Europe turned in better dollar-based
results than Japan. Partially offsetting those drags were the Fund's
strong exposure to the United Kingdom, whose economic recovery is
leading the rest of Europe, and our increased position in Hong Kong,
whose market rose by 31% in the last 12 months. Here's a closer look
at the Fund's strategies and performance, region by region.
"Foreign stocks
finally began
to show signs
of life over
the past
12 months."
A 2" x 3 1/4" photo of the portfolio management team. Caption reads:
"John L.F. Wills (center) and Fund management team members: (l-r) Ben
Hock and Rob Hallisey".
Pie Chart with the heading "Portfolio Diversification" at top left hand
column. The chart is divided into seven sections. Going from top left to
right: Japan 18%; Continental Europe 14%; United Kingdom 7%; South
America 3%; North America 36%; Pacific Rim 6%; Hong Kong 16%. Footnote
below states "As a percentage of net assets on October 31, 1996."
"Hong Kong
dominated
the Fund's
investment
in emerging
markets."
Japan
As the Japanese economy finally began to improve early this year, we
added more Japanese stocks, raising our stake from 12% at the
beginning of the period to 18% by the end of October, although at
one point during the year we were as high as 26%. Overall, the
trends in Japan continue to be promising. While the decline of the
yen versus the dollar undercut the profits of U.S. dollar-based
investors, it also sparked a sharp rise in exports, contributing to
higher profits for Japanese companies and an accelerating economic
growth rate. Corporate restructuring efforts have also helped
profits. We focused on sectors of the Japanese market that we
believe have the best potential to perform. They include large
exporters, such as Bridgestone Tire, Honda Motors and consumer
electronics companies such as Sony and Matsushita Electric
Industrial Co. We also built up our technology holdings, including
Matsushita-Kotobuki Electronics Industries, which is involved in
digital video disc technology. We're keeping our positions in Japan,
because we expect continued strong earnings growth, while the yen
appears to have bottomed out.
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 Dixons Group followed by an up arrow and the phrase "U.K. consumer
confidence at eight-year high." The second listing is TDK followed by an
up arrow and the phrase "Weak yen aids Japanese exports." The third
listing is Plutonic Resources followed by a down arrow and the phrase
"Low inflation makes for weak gold prices." Footnote below reads: "See
Schedule of Investments. Investment holdings are subject to change."
United States
Our stake in domestic equities declined from 29% at the beginning of
the period to as low as 15% in the summer. But we've increased our
stake since then. By the end of October, we were holding 31% of the
Fund's net assets in U.S. stocks, a level we intend to maintain. Our
focus was on consumer stocks such as Colgate Palmolive and Johnson &
Johnson, one of the Fund's largest holdings, and retail stocks,
including clothes manufacturer Tommy Hilfiger, luxury department
store Neiman Marcus and slot machine maker International Game
Technology. We also boosted our exposure to the energy sector, with
Enron and Apache Corp., and cyclical companies, whose fortunes are
more sensitive to changes in the economy, such as U.S. Filter,
Eastman Chemical and Monsanto.
Hong Kong: Fund's top emerging market
Hong Kong dominated the Fund's investment in emerging markets. It
rose from 6% of the Fund's net assets at the beginning of the period
to 16% by the end of October. The main factor influencing Hong Kong
stock prices, other than U.S. interest rates, was the colony's
planned transfer to China next summer. Already, there's been a
significant influx of Chinese investment capital into Hong Kong,
much of it into real estate, which has been a key focus for the
Fund. Real estate development companies such as Cheung Kong, Sun
Hung Kai Properties and Wharf Holdings have benefited from rising
real estate prices. We've also had great success investing in
companies that do most of their business in China. First Sign
International, which has numerous chains of retail clothes stores,
has seen its stock price rise by 40% in the last six months. Two
other top performers were Hong Kong & Shanghai Hotels, the largest
hotel chain in China, and China Resources Enterprise, a huge
conglomerate supplying everything from beer to building materials.
Elsewhere in Asia, we cut the Fund's Southeast Asian holdings from
7% to 3% of net assets, eliminating our stake in Thailand in
response to rising interest rates and a sharp slowdown in the rate
of economic growth. The Fund is less involved in the emerging
markets of Latin America than in Asia, with only a few holdings in
Brazil, Argentina and Chile.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended October 31,
1996." The chart is scaled in increments of 4% from bottom to top, with
16% at the top and 0% at the bottom. Within the chart there are three
solid bars. The first represents the 9.87% total return for the John
Hancock Global Fund: Class A. The second represents the 9.10% total
return for John Hancock Global Fund: Class B. The third represents the
15.52% total return for the average global fund. A footnote below reads:
"Total returns for John Hancock Global Fund are at net asset value with
all distributions reinvested. The average global fund is tracked by
Lipper Analytical Services. (1) See following two pages for historical
performance information."
Europe
Of the Fund's 21% stake in Europe, at one stage half was in the
United Kingdom. Because interest rates are low in Britain and
consumer confidence is at an eight-year high, we've focused on
consumer stocks, such as Dixons Group, an electronics retailer;
clothing retailer Burton Group and a theme pub chain J.D.
Wetherspoon. During the last six months, we've invested more in
France because it has some very attractive exporters such as luxury
goods producer LVMH Moet Henessey Louis Vuitton. It also has the
best choices in Europe of undervalued blue-chip companies, including
Lyonnaise des Eaux Dumez, an industrial conglomerate. With the
recent jump in oil prices, we increased the Fund's energy stake by
adding Norwegian oil & gas producer Saga Petroleum. One top
performer in Europe was Switzerland's Ciba Geigy, whose stock rose
by 60% after a proposed merger with Swiss drug company Sandoz was
announced.
Australia/New Zealand
We de-emphasized our holdings in this part of the world, eliminating
New Zealand stocks, but keeping our Australian mining stocks.
Outlook
The outlook for the international markets appears promising for
several reasons. Long term, the markets should be bolstered by a
growing amount of investor cash stemming from corporate takeovers,
stock buybacks and increased equities investment by new European
private pension funds. For now, we'll continue to watch interest
rates and inflation. Even if rates rise, which they well could in
the next six to 12 months, we think it won't be by much. There are
no signs of inflation picking up but if energy prices keep rising,
it could be a cloud on the distant inflation horizon. Another reason
for optimism is that foreign stocks still look inexpensive by most
traditional standards of value.
"...foreign
stocks still
look inexpen-
sive by most
traditional
standards
of value."
- -------------------------------------------------------------------
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.
International investing involves special risks such as currency
risks, political risks and differences in accounting standards and
financial reporting. See prospectus for additional information.
1Figures 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 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. Prior to August 1992, different sales charges
were in effect for Class A shares and are not reflected in the
performance data. 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 September 30, 1996
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
--------- -------- ---------
John Hancock Global
Fund: Class A 2.57% N/A 42.34%(1)
John Hancock Global
Fund: Class B 2.27% 56.30% 132.18%
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
--------- -------- ---------
John Hancock Global
Fund: Class A 2.57% N/A 7.73%(1)
John Hancock Global
Fund: Class B 2.27% 9.34% 8.79%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the
John Hancock Global Fund would be worth on October 31, 1996,
assuming you had invested on the day each class of shares started or
have been invested for the most recent ten years and reinvested all
distributions. For comparison, we've shown the same $10,000
investment in the Morgan Stanley World Index -- an unmanaged index
that measures the performance of a diverse range of global stock
markets.
Global Fund
Class A shares
Line chart with the heading Global 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 Morgan Stanley World Index and is equal to $16,490 as of October
31, 1996. The second line represents the value of the hypothetical
$10,000 investment made in the Global Fund on January 3, 1992, before
sales charge, and is equal to $15,036 as of October 31, 1996. The third
line represents the Global Fund, after sales charge and is equal to
$14,278 as of October 31, 1996.
Global Fund
Class B shares
Line chart with the heading Global 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 Morgan Stanley World Index and is equal to $29,545 as of October 31,
1996. The second line represents the value of the hypothetical $10,000
investment made in the Global Fund, before sales charge, on October 31,
1986, and is equal to $24,351 as of October 31, 1996.
* No contingent deferred slaes charge applicable.
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance sheet and shows the
value of what the Fund owns, is due and owes on October 31, 1996. You'll also find
the net asset value and the maximum offering price per share as of that date.
Statement of Assets and Liabilities
October 31, 1996
- -----------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks and Warrant (cost - $96,100,593) $ 117,697,956
Joint repurchase agreement (cost - $5,417,000) 5,417,000
-------------
123,114,956
Cash 591
Receivable for shares sold 27,076
Interest receivable 834
Dividends receivable 182,432
Foreign tax receivable 27,273
Other assets 8,584
-------------
Total Assets 123,361,746
- -----------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 37,653
Payable for investments purchased 716,090
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 158,080
Accounts payable and accrued expenses 104,559
-------------
Total Liabilities 1,016,382
- -----------------------------------------------------------------------------------
Net Assets:
Capital paid-in 89,831,018
Accumulated net realized gain on investments
and foreign currency transactions 10,920,842
Net unrealized appreciation of investments
and foreign currency transactions 21,597,204
Accumulated net investment loss ( 3,700)
-------------
Net Assets $ 122,345,364
===================================================================================
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 - $94,746,355/7,307,652 $ 12.97
===================================================================================
Class B - $27,599,009/2,201,055 $ 12.54
===================================================================================
Maximum Offering Price Per Share *
Class A - ($12.97 x 105.26%) $ 13.65
===================================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and on
group sales the offering price is reduced.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for the
period stated.
Statement of Operations
Year ended October 31, 1996
- -----------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes
of $204,741) $ 1,817,203
Interest 255,374
-----------
2,072,577
-----------
Expenses:
Investment management fee - Note B 1,175,079
Distribution/service fee - Note B
Class A 287,162
Class B 250,860
Transfer agent fee - Note B 444,762
Custodian fee 158,807
Auditing fee 40,372
Printing 39,495
Registration and filing fees 35,066
Trustees' fees 18,058
Financial services fee - Note B 7,669
Legal fees 4,498
Miscellaneous 4,495
-----------
Total Expenses 2,466,323
- -----------------------------------------------------------------------------------
Net Investment Loss ( 393,746)
- -----------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 10,856,491
Net realized loss on foreign currency transactions ( 346,601)
Change in net unrealized appreciation/depreciation
of investments 1,332,928
Change in net unrealized appreciation/depreciation
of foreign currency transactions 24,919
-----------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions 11,867,737
- -----------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $11,473,991
===================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------
1995 1996
---------- ----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($ 455,315) ($ 393,746)
Net realized gain on investments sold
and foreign currency transactions 7,707,727 10,509,890
Change in net unrealized appreciation/
depreciation of investments ( 8,441,382) 1,357,847
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ( 1,188,970) 11,473,991
------------ ------------
Distributions to Shareholders:
Distributions from net realized gain
on investments sold and foreign
currency transactions
Class A - ($1.3307 and $0.8842
per share, respectively) ( 9,441,512) ( 6,456,924)
Class B - ($1.3307 and $0.8842
per share, respectively) ( 3,043,184) ( 1,721,689)
Class C** - ( $1.3307 and none
per share, respectively) ( 73,482) --
------------ ------------
Total Distributions to Shareholders ( 12,558,178) ( 8,178,613)
------------ ------------
From Fund Share Transactions - Net* ( 1,632,583) 882,664
------------ ------------
Net Assets:
Beginning of period 133,547,053 118,167,322
------------ ------------
End of period (including accumulated net
investment loss of none
and $3,700, respectively) $118,167,322 $122,345,364
============ ============
* and ** -- See page 10.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, if any, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (continued)
- -------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1995 1996
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Shares sold 881,102 $10,949,764 8,943,917 $114,915,031
Shares issued to shareholders in reinvestment
of distributions 781,667 9,168,928 516,713 6,236,722
--------- ----------- --------- ------------
1,662,769 20,118,692 9,460,630 121,151,753
Less shares repurchased (1,407,258) ( 17,445,162) (9,539,925) ( 122,803,879)
--------- ----------- --------- ------------
Net increase (decrease) 255,511 $ 2,673,530 ( 79,295) ($ 1,652,126)
========= =========== ========= ============
CLASS B
Shares sold 546,939 $ 6,634,570 583,478 $ 7,131,162
Shares issued to shareholders in reinvestment
of distributions 239,739 2,759,391 134,330 1,577,033
--------- ----------- --------- ------------
786,678 9,393,961 717,808 8,708,195
Less shares repurchased (1,082,302) ( 13,070,250) ( 504,739) ( 6,173,405)
--------- ----------- --------- ------------
Net increase (decrease) ( 295,624) ($ 3,676,289) 213,069 $ 2,534,790
========= =========== ========= ============
CLASS C**
Shares sold 10,813 $ 130,313
Shares issued to shareholders in reinvestment
of distributions 6,201 73,482
--------- -----------
17,014 203,795
Less shares repurchased ( 69,733) ( 833,619)
--------- -----------
Net decrease ( 52,719) ($ 629,824)
========= ===========
** All Class C shares were redeemed on March 31, 1995.
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:
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.31 $ 10.55 $ 14.30 $ 14.16 $ 12.67
------- ------- -------- ------- -------
Net Investment Loss(2) ( 0.04) ( 0.10) ( 0.07) ( 0.03) ( 0.02)
Net Realized and Unrealized Gain
(Loss) on Investments
and Foreign Currency Transactions ( 0.72) 3.85 1.24 ( 0.13) 1.20
------- ------- -------- ------- -------
Total from Investment Operations ( 0.76) 3.75 1.17 ( 0.16) 1.18
------- ------- -------- ------- -------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold and
Foreign Currency Transactions -- -- ( 1.31) ( 1.33) ( 0.88)
------- ------- -------- ------- -------
Net Asset Value, End of Period $ 10.55 $ 14.30 $ 14.16 $ 12.67 $ 12.97
======= ======= ======== ======= =======
Total Investment Return
at Net Asset Value(4) ( 6.72%)(5) 35.55% 8.64% ( 0.37%) 9.87%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $76,980 $90,787 $100,973 $93,597 $94,746
Ratio of Expenses to Average Net Assets 2.47%(6) 2.12% 1.98% 1.87% 1.88%
Ratio of Net Investment Loss
to Average Net Assets ( 0.60%)(6) ( 0.86%) ( 0.54%) ( 0.23%) (0.19%)
Portfolio Turnover Rate 69% 108% 61% 60% 98%
Average Broker Commission Rate(7) N/A N/A N/A N/A $0.0221
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.92 $ 10.50 $ 14.17 $ 13.93 $ 12.36
------- ------- -------- ------- -------
Net Investment Loss(2) ( 0.12) ( 0.15) ( 0.15) ( 0.11) ( 0.10)
Net Realized and Unrealized Gain
(Loss) on Investments
and Foreign Currency Transactions ( 0.30) 3.82 1.22 ( 0.13) 1.16
------- ------- -------- ------- -------
Total from Investment Operations ( 0.42) 3.67 1.07 ( 0.24) 1.06
------- ------- -------- ------- -------
Less Distributions:
Dividends from Net Realized Gain
on Investments Sold and Foreign
Currency Transactions -- -- ( 1.31) ( 1.33) ( 0.88)
------- ------- -------- ------- -------
Net Asset Value, End of Period $ 10.50 $ 14.17 $ 13.93 $ 12.36 $ 12.54
======= ======= ======== ======= =======
Total Investment Return
at Net Asset Value(4) ( 3.85%) 34.95% 7.97% ( 1.01%) 9.10%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $11,475 $19,340 $ 31,822 $24,570 $27,599
Ratio of Expenses to Average
Net Assets 2.68% 2.49% 2.59% 2.57% 2.54%
Ratio of Net Investment Loss
to Average Net Assets ( 1.03%) ( 1.25%) ( 1.12%) ( 0.89%) ( 0.83%)
Portfolio Turnover Rate 69% 108% 61% 60% 98%
Average Broker Commission Rate(7) N/A N/A N/A N/A $0.0221
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- -------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
------------------------------ MARCH 31, 1995
1993 1994 (UNAUDITED)
----------- ----------- --------------
<S> <C> <C> <C>
CLASS C(3)
Per Share Operating Performance
Net Asset Value, Beginning of Period $11.75 $14.34 $14.27
------ ------ ------
Net Investment Loss ( 0.02) -- --
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions 2.61 1.24 ( 0.97)
------ ------ ------
Total from Investment Operations 2.59 1.24 ( 0.97)
------ ------ ------
Less Distributions:
Distributions from Net Realized Gain
on Investments Sold and Foreign
Currency Transactions -- ( 1.31) ( 1.33)
------ ------ ------
Net Asset Value, End of Period $14.34 $14.27 $11.97
====== ====== ======
Total Investment Return
at Net Asset Value(4) 22.04% 9.15% ( 6.70%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 406 $ 752 $ 795
Ratio of Expenses to Average Net Assets 1.43%(6) 1.42% 1.37%(6)
Ratio of Net Investment Income (Loss)
to Average Net Assets ( 0.35%)(6) 0.03% 0.06%(6)
Portfolio Turnover Rate 108% 61% 60%(8)
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the
end of the period ended March 31, 1995 reflect amounts prior to the redemption of all
shares on March 31, 1995.
(4) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded. Required for the fiscal years that began September 1, 1995 or later.
(8) For the year ended October 31, 1995.
The Financial Highlights summarizes the impact of the following factors on a single share for each period
indicated: net investment income, gains (losses), distributions and total investment return of the Fund. It
shows how the Fund's net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the financial statements are expressed
in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
October 31, 1996
- ---------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Global Fund on October 31,
1996. It's divided into three main categories: common stocks, warrants and short-term investments. Common
stocks and warrants are further broken down by country. Short-term investments, which represent the Fund's
"cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------------ ------------
<S> <C> <C> <C>
COMMON STOCKS
Argentina (0.83%)
Disco S.A.* American Depositary
Receipts (ADR) (Retail) 45,000 $ 1,012,500
------------
Australia (3.20%)
Aristocrat Leisure Ltd. (Leisure) 220,000 653,932
Plutonic Resources Ltd. (Metal) 315,000 1,498,098
RGC Ltd. (formerly Renison Goldfields
Consolidated Ltd.) (Metal) 390,007 1,762,080
------------
3,914,110
------------
Brazil (0.73%)
Telecomunicacoes Brasileiras S/A (ADR)
(Telecommunications) 12,000 894,000
------------
Canada (1.44%)
CanWest Global Communications Corp.
(Media) 120,000 1,275,000
Cinar Films, Inc. (Class B)* (Leisure) 20,000 490,000
------------
1,765,000
------------
Chile (1.14%)
Santa Isabel S.A. ADR (Retail) 49,600 1,395,000
------------
France (3.21%)
LVMH Moet Hennessy Louis Vuitton
(Beverages) 9,250 2,120,489
Lyonnaise Des Eaux Dumez
(Diversified Operations) 20,500 1,812,421
------------
3,932,910
------------
Germany (1.97%)
Schering AG (Medical) 30,000 2,413,827
------------
Hong Kong (16.25%)
Cheung Kong (Holdings) Ltd.
(Real Estate Operations) 325,000 2,605,985
China Resources Enterprise Ltd.
(Real Estate Operations) 1,750,000 1,969,039
CITIC Pacific Ltd. (Diversified Operations) 500,000 2,431,391
First Sign International Holdings Ltd.
(Textile) 4,050,000 1,374,932
Hong Kong & Shanghai Hotels Ltd.
(Leisure) 1,080,000 1,983,394
HSBC Holdings Ltd. (Banks - Foreign) 100,200 2,041,010
Hutchison Whampoa Ltd.
(Diversified Operations) 400,000 2,793,513
Sun Hung Kai Properties Ltd.
(Real Estate Operations) 190,000 2,162,386
Wharf Holdings Ltd.
(Real Estate Operations) 610,000 2,516,619
------------
19,878,269
------------
Japan (17.77%)
Bridgestone Corp.
(Rubber - Tires & Misc) 153,000 2,580,124
Honda Motor Co., Ltd.
(Automobile / Trucks) 100,000 2,389,004
Matsushita Electric Industrial Co., Ltd.
(Electronics) 160,000 2,557,639
Matsushita-Kotobuki Electronics
Industries, Ltd. (Electronics) 122,000 2,818,146
Mitsubishi Heavy Industries, Ltd.
(Machinery) 350,000 2,689,825
Nippon Steel Corp. (Steel) 550,000 1,603,794
Rohm Co., Ltd. (Electronics) 32,800 1,944,579
Sony Corp. (Electronics) 42,000 2,519,520
TDK Corp. (Electronics) 45,000 2,640,200
------------
21,742,831
------------
Luxembourg (0.92%)
Scandinavian Broadcasting System SA*
(Media) 55,000 1,127,500
------------
Malaysia (0.77%)
Sime Darby Berhad
(Diversified Operations) 265,000 938,749
------------
Netherlands (1.15%)
Gucci Group, NV (Retail) 15,000 1,035,000
PolyGram NV (Household) 8,000 375,788
------------
1,410,788
------------
Norway (1.34%)
Saga Petroleum ASA (Oil & Gas) 96,300 1,637,498
------------
Pakistan (0.03%)
Crescent Textile Mills* (Textile) 119,701 36,585
------------
South Korea (2.32%)
Hanil Bank (Banks - Foreign) 126,910 1,119,726
L.G. Construction Ltd. (Building) 86,530 1,717,509
------------
2,837,235
------------
Sweden (1.56%)
Investor AB (Diversified Operations) 47,500 1,914,245
------------
Switzerland (3.91%)
Ciba Geigy AG (Medical) 2,000 2,463,608
SMH AG (Consumer Products Misc.) 16,500 2,317,049
------------
4,780,657
------------
United Kingdom (6.71%)
Burton Group PLC (Retail) 1,000,000 2,433,268
Dixons Group PLC (Retail) 325,000 2,911,987
Pearson PLC (Media) 115,000 1,418,783
Wetherspoon (J.D.) PLC (Retail) 75,000 1,446,533
------------
8,210,571
------------
United States (30.91%)
Adaptec, Inc.* (Computers) 16,000 974,000
American International Group, Inc.
(Insurance) 12,000 1,303,500
Apache Corp. (Oil & Gas) 25,000 887,500
Cisco Systems, Inc.* (Computers) 28,000 1,732,500
Colgate-Palmolive Co. (Soap &
Cleaning Preparations) 20,000 1,840,000
CUC International, Inc. * (Retail) 75,938 1,860,469
Dean Witter Discover & Co. (Finance) 25,000 1,471,875
Disney (Walt) Co., (The) (Leisure) 32,093 2,114,126
Eastman Chemical Co. (Chemicals) 10,000 527,500
Enron Corp. (Oil & Gas) 25,000 1,162,500
Gannett Co., Inc. (Media) 20,000 1,517,500
General Dynamics Corp. (Aerospace) 15,000 1,029,375
General Electric Co. (Electronics) 15,000 1,451,250
Great Western Financial Corp. (Finance) 25,000 700,000
Home Depot, Inc. (The) (Retail) 35,000 1,916,250
Intel Corp. (Electronics) 15,000 1,648,125
International Business Machines Corp.
(Computers) 15,000 1,935,000
International Game Technology (Leisure) 50,000 1,056,250
Johnson & Johnson (Medical) 60,000 2,955,000
Men's Wearhouse, Inc. (The)* (Retail) 30,000 618,750
Monsanto Co. (Chemicals) 40,000 1,585,000
Neiman Marcus Group, Inc. (The)*
(Retail) 25,000 815,625
Omnicare, Inc. (Medical) 40,000 1,090,000
Phillips Petroleum Co. (Oil & Gas) 30,000 1,230,000
Schering-Plough Corp. (Medical) 15,000 960,000
Tommy Hilfiger Corp.* (Textile) 39,400 2,048,800
US Filter Corp.* (Pollution Control) 40,000 1,380,000
------------
37,810,895
------------
TOTAL COMMON STOCKS
(Cost $96,051,407) (96.16%) 117,653,170
------------
WARRANT
Sweden (0.04%)
Scania AB (Automobile / Trucks) 47,500 44,786
------------
TOTAL WARRANT
(Cost $49,186) ( 0.04%) 44,786
------ ------------
TOTAL COMMON STOCK AND WARRANT
(Cost $96,100,593) ( 96.20%) $117,697,956
------ ------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- -------- ------------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement
(4.43%) Investment in a
joint repurchase agreement
transaction with SBC
Capital Markets, Inc. Dated
10-31-96, Due 11-01-96
(secured by U.S. Treasury
Bonds, 7.25% Due 05-15-16,
and 6.25% Due 08-15-23)
Note A. 5.54% $ 5,417 5,417,000
------------
TOTAL SHORT-TERM INVESTMENTS ( 4.43%) 5,417,000
------ ------------
TOTAL INVESTMENTS (100.63%) $123,114,956
====== ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Industry Diversification (Unaudited)
- ----------------------------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries. The performance
of the Fund is closely tied to the economic conditions within the countries it invests. The
concentration of investments by country 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 industry groups. The table below shows the percentages of the Fund's investments at
October 31, 1996 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A %
INVESTMENT CATEGORIES OF NET ASSETS
- --------------------- -------------
<S> <C>
Aerospace 1.24%
Automobile/Trucks 1.97
Banks - Foreign 2.58
Beverages 1.73
Building 1.40
Chemicals 2.16
Computers 3.79
Consumer Products Misc. 1.89
Diversified Operations 8.08
Electronics 12.73
Finance 1.78
Household 0.31
Insurance 1.07
Leisure 5.15
Machinery 2.20
Media 4.36
Medical 7.29
Metals 2.66
Oil & Gas 4.02
Pollution Control 1.13
Real Estate Operations 7.56
Retail 12.62
Rubber - Tires & Misc. 2.11
Soap & Cleaning Preparations 1.50
Steel 1.31
Telecommunications 0.73
Textile 2.83
Short-Term Investments 4.43
------
TOTAL INVESTMENTS 100.63%
======
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global 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 six series portfolios: John Hancock
Global Fund (the "Fund"), John Hancock Special Opportunities Fund,
John Hancock World Bond Fund, John Hancock Short-Term Strategic
Income Fund, John Hancock Growth Fund and John Hancock International
Fund. The other five series of the Trust are reported in separate
financial statements. The investment objective of the Fund is to
achieve long-term growth of capital primarily through investment in
common stocks of companies domiciled in foreign countries and the
United States.
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 and service expenses under terms of a distribution plan
have exclusive voting rights to that distribution plan. Class C
shares were outstanding during the period from November 1, 1994
through March 31, 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
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.
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.
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 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, 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.
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.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as
deemed equitable, taking into consideration, among other things, the
nature and type of expense and the relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles
incorporates estimates made by management in determining the
reported amounts of assets, liabilities, revenues, and expenses of
the Fund. Actual results could differ from these estimates.
CLASS ALLOCATIONS Income, common expenses and realized and
unrealized gains (losses) are determined at the Fund level and
allocated daily to each class of shares based on the relative net
assets of the respective classes. Distribution and service fees if
any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
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.
At October 31, 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. Buying futures tends to increase
the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund instruments. At the time the Fund enters into a
financial futures contract, it is required to deposit with its
custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the
value of the financial futures contract being traded. Each day, the
futures contract is valued at the official settlement price of the
board of trade or U.S. commodities exchange on which it trades.
Subsequent payments, known as "variation margin," to and from the
broker are made on a daily basis as the market price of the
financial futures contract fluctuates. Daily variation margin
adjustments, arising from this "mark to market," are recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into futures contracts include the possibility
that there may be an illiquid market and/or that a change in the
value of the 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 October 31, 1996, there were no open positions in financial
futures contracts.
NOTE B --
MANAGEMENT FEE, AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
The Adviser is solely responsible for advising the Fund with respect
to investments in the United States and Canada. The Fund and the
Adviser also have a sub-investment management contract with John
Hancock Advisers International Limited (the "Sub-Adviser"), a
wholly-owned subsidiary of the Adviser, under which the Sub-Adviser,
subject to the review of the Trustees and overall supervision of the
Adviser, provides the Fund with investment management services and
advice with respect to the portion of the Fund's assets invested in
countries other than the United States and Canada.
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) 1.00% of
the first $100,000,000 of the Fund's average daily net asset value,
(b) 0.80% of the next $200,000,000, (c) 0.75% of the next
$200,000,000 and (d) 0.625% of the Fund's average daily net asset
value in excess of $500,000,000. The Adviser pays the Sub-Adviser a
fee equivalent, on an annual basis to the sum of (a) 0.70% of the
first $200,000,000 of the Fund's average daily net asset value and
(b) 0.6375% of the Fund's average daily net asset value in excess of
$200,000,000. The Fund is not responsible for the payment of the
Sub-Adviser's fee.
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 October
31, 1996, net sales charges received with regard to sales of Class A
shares amounted to $139,302. Out of this amount, $21,673 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $43,534 was paid as sales commissions
to unrelated broker-dealers and $74,095 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 for
providing distribution related services to the Fund in connection
with the sale of Class B shares. For the period ended October 31,
1996, contingent deferred sales charges paid to JH Funds amounted to
$47,547.
In addition, to reimburse 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 to 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 and
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. In order to comply
with this rule, the 12b-1 fee on Class B ranged from 0.90% to 1.00%
of average daily net assets throughout the period.
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.
On August 27, 1996, the Board of Trustees approved retroactively to
July 1, 1996, an agreement with the Adviser to perform necessary tax
and financial management services for the Fund. The compensation for
1996 is estimated to be at an annual rate of 0.01875% of the average
net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser, and/or its
affiliates as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. 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 October 31,
1996, the Fund's investments to cover the deferred compensation
liability had unrealized appreciation of $362.
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 October 31, 1996 aggregated
$113,492,145 and $122,961,495 respectively. There were no purchases
or sales of obligations of the U.S. government and its agencies
during the period ended October 31, 1996.
The cost of investments owned at October 31, 1996 (including the
joint repurchase agreement) for Federal income tax purposes was
$101,517,593. Gross unrealized appreciation and depreciation of
investments aggregated $23,915,739 and $2,318,376, respectively,
resulting in net unrealized appreciation of $21,597,363.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1996, the Fund has reclassified
amounts to reflect an increase in accumulated net realized gain on
investments of $411,052, a decrease in accumulated net investment
loss of $390,046 and a decrease in capital paid-in of $801,098. This
represents the amount necessary to report these balances on a tax
basis, excluding certain temporary differences, as of October 31,
1996. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net
asset value of the Fund, are primarily attributable to the treatment
of net operating losses in the computation of distributable income
and capital gains under federal tax rules versus generally accepted
accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Global Fund
and the Trustees of Freedom Investment Trust II
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and the related
statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of John Hancock Global Fund (the "Fund") (a
series of Freedom Investment Trust II) at October 31, 1996, and the
results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements
and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
the significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31,
1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 12, 1996
SHAREHOLDER MEETING (UNAUDITED)
On June 26, 1996, a special meeting of John Hancock Global Fund was
held.
The Shareholders approved a new investment management contract
between John Hancock Advisers, Inc. and the Fund. The shareholder
votes were 5,003,860 FOR, 128,240 AGAINST and 418,038 ABSTAINING.
The Shareholders approved an Amended and Restated Declaration of
Trust. The shareholder votes were 4,921,570 FOR, 148,677 AGAINST and
424,438 ABSTAINING.
The Shareholders eliminated the Fund's fundamental investment
restriction on investing in a single class of securities of an
issuer. The shareholder votes were 4,897,857 FOR, 140,875 AGAINST
and 455,953 ABSTAINING.
The Shareholders redesignated as nonfundamental the Fund's
fundamental investment restriction on investing in other investment
companies. The shareholder votes were 4,828,255 FOR, 195,933 AGAINST
and 470,496 ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- --------------- ------------ -------------
Dennis S. Aronowitz 5,751,069 181,143
Edward J. Boudreau, Jr. 5,748,166 184,046
Richard P. Chapman, Jr. 5,757,339 174,874
William J. Cosgrove 5,733,263 198,949
Douglas M. Costle 5,758,277 173,936
Leland O. Erdahl 5,749,243 182,969
Richard A. Farrell 5,757,757 174,456
Gail D. Fosler 5,741,218 190,994
William F. Glavin 5,731,282 200,930
Anne C. Hodsdon 5,756,182 176,030
Dr. John A. Moore 5,741,218 190,994
Patti McGill Peterson 5,756,029 176,183
John W. Pratt 5,751,505 180,707
Richard S. Scipione 5,732,077 200,135
Edward J. Spellman 5,757,992 174,220
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is
furnished with respect to the distributions of the Fund during the
fiscal year ended October 31, 1996.
The Fund designated distributions to shareholders of $8,178,613 as a
long-term capital gain dividend. These amounts were reported on 1995
U.S. Treasury Department Form 1099-DIV in January 1996 representing
their proportionate share. It is anticipated that there will be a
distribution from net realized gains from sales of securities to
shareholders of record on December 3, 1996, and payable on December
30, 1996. Shareholders will receive a 1996 U.S. Treasury Department
Form 1099-DIV in January 1997 representing their proportionate
share. The Fund did not pay any ordinary income dividends during the
fiscal year ended October 31, 1996.
None of the distributions qualify for the dividend received
deduction available to corporations.
NOTES
John Hancock Funds - Global Fund
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NOTES
John Hancock Funds - Global Fund
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A 1/2" x 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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PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John
Hancock Global 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 caption "Printed on
Recycled Paper." 0300A 10/96
12/96
John Hancock Funds
Short-Term
Strategic
Income
Fund
Annual Report
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
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
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that prospectuses
are often overloaded with technical detail and are hard for most
investors to understand. Many industry observers agreed, and rightly so.
So it is my pleasure to let you know that after being under development
for a year, John Hancock Funds has introduced new simplified and
consolidated prospectuses. The prospectuses feature shorter, clearer
language with a streamlined design, and they incorporate several funds
with similar investment objectives into one document. They cover our
income, growth, growth and income, tax-free income, international/global
and money market funds. We are gratified at the favorable reviews that
our new prospectuses have received from shareholders, financial
advisers, industry analysts and the press. We believe they are a bold
but sensible step forward. And while they are easier to read, they still
comply with all federal and state guidelines.
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page
spread highlighting each fund's goals and investment strategy, the types
of securities it buys, its portfolio management and risk factors, all in
plainer language. Fund expenses and financial highlights are now found
here, too, as is a new bar chart that shows year-to-year volatility for
each fund. Other features include a better presentation of fund
services, a new glossary of investment risks and a discussion about how
funds are organized, including a diagram showing the connection of the
various players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive toward
better mutual fund prospectuses. We hope you will agree because in the
end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to first paragraph.
By Lawrence J. Daly, Anthony A. Goodchild and Janet L. Clay,
Co-Portfolio Managers
John Hancock
Short-Term Strategic Income Fund
Emerging markets rally with nearly 40% gains
"...global bond
markets have
experienced
a series of
twists and
turns."
Since the start of the Fund's fiscal year in November, global bond
markets have experienced a series of twists and turns. A year ago,
conditions were quite favorable for many bond markets around the world
and they generally moved in lockstep. Interest rates were falling in the
U.S., Europe and the emerging markets, the latter of which got an added
boost from significantly improving fiscal and economic conditions.
In early 1996, stronger-than-expected economic growth and fears of
renewed inflation caused the yields on longer-term U.S. bonds to rise
dramatically (and therefore, prices to fall), although shorter-term
securities -- like the ones we emphasize in the Fund -- fared much
better. Despite the trouble in the U.S., short-term European bonds
continued to perform well, as interest rates on the continent maintained
their downward trend, due to the fact that many countries were trying to
meet fiscal requirements laid out in the Maastricht treaty on European
union. Meanwhile, investors hungry for higher yields than those offered
by U.S., European and Japanese bonds continued to flock to emerging
markets, bidding their prices higher. From the spring through the
summer, the performance of most emerging markets, and to a lesser extent
Europe, outpaced the U.S. market. But in September and October, the U.S.
market staged a significant rally amid indications that the economy was
again weakening and inflation wasn't a real threat.
A 2 1/4" x 3 1/4" photo of fund management team at bottom right.
Caption reads: Anthony Goodchild, Janet Clay and Lawrence Daly, Co-
Portfolio Managers."
Against that backdrop, the Fund enjoyed a strong year both in relative
and absolute terms. For the year ended October 31, 1996, John Hancock
Short-Term Strategic Income Fund's Class A and Class B shares had total
returns of 8.60% and 7.89%, respectively, at net asset value, compared
to 5.44% for the average short-term investment grade bond fund,
according to Lipper Analytical Services.1 Please see pages six and seven
for longer-term performance information.
Chart with heading "Top Five Sectors" at top of left hand column. The
chart lists five sectors: 1) Foreign Governments 47% 2) Banks 12% 3)
U.S. Government/Agencies 10% 4) Steel 6% 5) Transportation 4% . A
footnote below reads "As a percentage of net assets on October 31,
1996."
"Our large
stake in
dollar-
denominated
debt helped
the Fund's
performance."
Strategic overview
We balance our lower-rated emerging-market securities and U.S. corporate
bonds with higher-rated U.S. government securities in order to achieve
an average portfolio credit rating of single A, which is toward the mid-
range of investment-quality bonds. The breakdown at the end of October
was roughly as follows: 50% emerging market bonds (up from 45% a year
ago); 10% in U.S. government securities and the balance made up of small
positions in high-yield domestic bonds and high-quality foreign
government bonds. Our large stake in dollar-denominated debt helped the
Fund's performance as the dollar strengthened against most currencies
during the year. Finally, we actively managed the Fund's duration --
which measures how sensitive the fund's share price is to changes in
interest rates -- in response to market conditions. The longer a fund's
duration, the more sensitive it is to changes in interest rates;
conversely, the shorter, the less sensitive. From the early part of 1996
through the spring, we got more conservative, shortening duration to
help insulate the Fund from the U.S. market's decline. More recently, we
lengthened duration once again in expectation of a more benign
inflationary environment.
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 Emerging markets followed by an up arrow and the phrase "High yields
attract investors." The second listing is Italy, Spain, Sweden followed
by an up arrow and the phrase "Fiscal policy changes for the better."
The third listing is South Africa followed by a down arrow and the
phrase "Unfavorable currency movements" Footnote below reads: "See
Schedule of Investments. Investment holdings are subject to change.
Emerging markets
The past year was a great one for emerging markets. Investors were
encouraged that these countries have made great progress in getting
their fiscal policies in order by reducing debt, stabilizing their
currencies and keeping inflation manageable. Plus, the high yields these
bonds tend to offer were in high demand from investors faced with
declining yields in the U.S., Europe and Asia. For the year ended
October 31, 1996, the Salomon Brothers Brady Bond index, which is one
measure of the performance of bonds issued by emerging countries, was up
39.9%. The Fund's holdings in government debt issued in Brazil, Mexico,
Argentina and Panama were some of its best performers throughout the
year.
U.S. and Europe
To balance our holdings in lower-quality, emerging-market bonds, we
continued to emphasize high-quality bonds, including those issued in the
U.S. Early in the period we had significant holdings in floating-rate
notes. That was a positive in early 1996 when inflationary fears had a
disruptive effect on the bond markets. But as the year wore on, we
reduced our stake in floating-rate securities, replacing them with U.S.
Treasury securities. Not only did these Treasuries offer higher yields
than the floating-rate notes, they also performed well when the bond
market rallied in the fall.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended October 31,
1996." The chart is scaled in increments of 5% from bottom to top, with
10% at the top and 0% at the bottom. Within the chart there are three
solid bars. The first represents the 8.60% total return for the John
Hancock Short-Term Strategic Income Fund, Class A. The second represents
the 7.89% total return for John Hancock Short-Term Strategic Income
Fund, Class B. The third represents the 5.44% total return for the
average short-term investment grade bond fund. A footnote below reads:
"Total returns for John Hancock Short-Term Strategic Income Fund are at
net asset value with all distributions reinvested. The average short-
term investment grade bond fund is tracked by Lipper Analytical
Services. (1) See following page for historical performance
information."
In Europe, the Fund was heavily weighted toward Denmark's high-quality,
dollar-denominated holdings, which made up 22% of investments at the end
of the period. So-called "peripheral" countries -- Italy, Spain and
Sweden -- were Europe's strongest performers throughout the year and
were a boost to the Fund's performance. To qualify for inclusion into
the European Monetary Union (EMU), these countries have been forced to
cut interest rates, bring down budget deficits and get inflation under
control, actions that proved to be beneficial for their bond markets.
Outlook
"...our
outlook calls
for continued
slow, but
steady
economic
growth and
low
inflation."
As was the case six months ago, inflation is the key variable as we look
toward the future. At this point, our outlook calls for continued slow
but steady economic growth and low inflation. Granted, the U.S. economy
is still sending off mixed signals. While oil prices have risen and
there have been spurts of tremendous job growth, wages have remained
relatively flat while housing and retail sales are weak. As you read
this report, the U.S. presidential election is behind us and there seems
to be a notable shift in market sentiment, with a consensus developing
that interest rates can come down from current levels. From a more
global perspective, things look even better. Inflation is lower in
Europe than in the U.S. Along with tight fiscal policies, this augurs
well for continued low or declining interest rates in those markets. And
while emerging markets may experience short-term setbacks, the trend is
clearly toward more integration between the developed and developing
economies. We believe that converging worldwide interest rates -- the
theme that has been driving the markets for the past few years -- will
continue to prevail, due to improving credit qualities, enhanced global
liquidity and structural changes in the global economy. That bodes well
for world bond investors.
- -----------------------------------------------------------------------
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.
1Figures 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 Short-Term Strategic
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 3%
for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 3% and declining to 0% over four
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 international investing, including currency and
political risks and differences in accounting standards and financial
reporting.
CUMULATIVE TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
------ ------ -------
John Hancock
Short-Term Strategic
Income Fund: Class A 5.39% N/A 26.74%(1)
John Hancock
Short-Term Strategic
Income Fund: Class B 4.93% 27.40% 36.01%(2)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
------ ------ -------
John Hancock
Short-Term Strategic
Income Fund: Class A 5.39% N/A 5.13%(1)
John Hancock
Short-Term Strategic
Income Fund: Class B 4.93% 4.96% 5.48%(2)
YIELDS
As of October 31, 1996
SEC 30-Day
Yield
----------
John Hancock Short-Term
Strategic Income Fund: Class A 6.32%
John Hancock Short-Term
Strategic Income Fund: Class B 5.82%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
(2) Class B shares commenced on December 28, 1990.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the
John Hancock Short-Term Strategic Income Fund would be worth on
October 31, 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
Money Market Index -- an unmanaged index that is composed of various
non-U.S.-currency-denominated bonds, usually with an average maturity of
three years or less.
Short-Term Strategic Income Fund
Class A shares
Line chart with the heading Short-Term Strategic 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 hypothetical $10,000
investment made in the Short-Term Strategic Income Fund on January 3,
1992, before sales charge, and is equal to $13,140 as of October 31,
1996. The second line represents the value of the Salomon Brothers World
Government Bond Index and is equal to $12,988 as of October 31, 1996.
The third line represents the Short-Term Strategic Income Fund, after
sales charge, and is equal to $12,752 as of October 31, 1996.
Short-Term Strategic Income Fund
Class B shares
Line chart with the heading Short-Term Strategic 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 Salomon Brothers World Government
Bond Index and is equal to $14,193 as of October 31, 1996. The second
line represents the value of the hypothetical $10,000 investment made in
the Short-Term Strategic Income Fund on December 28, 1990, and is equal
to $13,676 as of October 31, 1996.
*No contingent deferred sales charge applicable.
<TABLE>
<CAPTION>
John Hancock Funds - Short-Term Strategic Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on October 31, 1996.
You'll also find the net asset value and the maximum offering price per
share as of that date.
Statement of Assets and Liabilities
October 31, 1996
- -----------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Bonds (cost - $88,399,118) $90,590,253
Joint repurchase agreement (cost - $5,448,000) 5,448,000
-----------
96,038,253
Cash 1,963
Receivable for shares sold 58,966
Interest receivable 2,669,607
Other assets 11,479
-----------
Total Assets 98,780,268
- -----------------------------------------------------------------------
Liabilities:
Dividend payable 7,744
Payable for shares repurchased 35,911
Payable for investments purchased 1,057,292
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 82,345
Payable for foreign taxes 4,656
Accounts payable and accrued expenses 116,739
-----------
Total Liabilities 1,304,687
- -----------------------------------------------------------------------
Net Assets:
Capital paid-in 124,014,023
Accumulated net realized loss on investments and
foreign currency transactions (28,719,289)
Net unrealized appreciation of investments and
foreign currency transactions 2,184,002
Distributions in excess of net investment income (3,155)
-----------
Net Assets $97,475,581
=======================================================================
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 - $49,338,312/5,832,864 $8.46
=======================================================================
Class B - $48,137,269/5,697,720 $8.45
=======================================================================
Maximum Offering Price Per Share*
Class A - ($8.46 x 103.09%) $8.72
=======================================================================
* 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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains (losses)
for the period stated.
Statement of Operations
Year ended October 31, 1996
- -----------------------------------------------------------------------
<S> <C>
Investment Income:
Interest (net of foreign withholding taxes of $12,610) $9,023,172
-----------
Expenses:
Distribution/service fee - Note B
Class A 99,415
Class B 634,513
Investment management fee - Note B 640,833
Transfer agent fee - Note B 210,708
Custodian fee 124,321
Auditing fee 69,772
Registration and filing fees 27,927
Printing 26,207
Trustees' fees 14,884
Miscellaneous 9,726
Organization expense - Note A 8,623
Financial services fee - Note B 6,208
Legal fees 4,907
-----------
Total Expenses 1,878,044
- -----------------------------------------------------------------------
Net Investment Income 7,145,128
- -----------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions
Net realized loss on investments sold (810,397)
Net realized loss on foreign currency transactions (39,556)
Change in net unrealized appreciation/depreciation
of investments 1,354,958
Change in net unrealized appreciation/depreciation
of foreign currency transactions 17,928
-----------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions 522,933
- -----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $7,668,061
=======================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------
1995 1996
------------ -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $8,936,129 $7,145,128
Net realized loss on investments
sold and foreign currency transactions (5,911,889) (849,953)
Change in net unrealized appreciation/
depreciation of investments and
foreign currency transactions 5,061,667 1,372,886
Net Increase in Net Assets Resulting ------------ ------------
from Operations 8,085,907 7,668,061
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6084 and $0.5702 per
share, respectively) (1,163,444) (2,214,100)
Class B - ($0.5592 and $0.5203 per
share, respectively) (5,943,424) (4,078,534)
Distributions from capital paid-in
Class A - ($0.1566 and $0.0773 per
share, respectively) (299,463) (299,953)
Class B - ($0.1439 and $0.0706 per
share, respectively) (1,529,798) (552,541)
------------ ------------
Total Distributions to Shareholders (8,936,129) (7,145,128)
------------ ------------
From Fund Share Transactions - Net* (9,033,071) (4,644,938)
------------ ------------
Net Assets:
Beginning of period 111,480,879 101,597,586
------------ ------------
End of period (including distributions
in excess of net investment income of
$15,650, and $3,155, respectively) $101,597,586 $97,475,581
============ ============
* Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1995 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A
Shares sold 1,378,812 $11,536,477 5,224,426 $44,002,197
Shares issued to shareholders in ------------ ------------ ------------ ------------
reinvestment of distributions 123,825 1,038,224 173,166 1,459,286
------------ ------------ ------------ ------------
1,502,637 12,574,701 5,397,592 45,461,483
Less shares repurchased (1,027,565) (8,585,443) (1,584,884) (13,356,794)
------------ ------------ ------------ ------------
Net increase 475,072 $3,989,258 3,812,708 $32,104,689
============ ============ ============ ============
CLASS B
Shares sold 2,159,157 $18,090,152 1,947,251 $16,384,501
Shares issued to shareholders in
reinvestment of distributions 493,658 4,130,850 276,956 2,329,163
------------ ------------ ------------ ------------
2,652,815 22,221,002 2,224,207 18,713,664
Less shares repurchased (4,211,675) (35,243,331) (6,595,024) (55,463,291)
------------ ------------ ------------ ------------
Net decrease (1,558,860) ($13,022,329) (4,370,817) ($36,749,627)
============ ============ ============ ============
The Statement of Changes in Net Assets shows how the value of the Fund's
net assets has changed since the end of the previous period. The difference
reflects earnings less expenses, any investment and foreign currency gains
and losses, distributions paid to shareholders, if any, and any increase or
decrease in money shareholders invested in the Fund. The footnote illustrates
the number of Fund shares sold, reinvested and repurchased during the last two
periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
each period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- ------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $9.86 $9.32 $9.12 $8.47 $8.41
------- ------- ------- ------- -------
Net Investment Income 0.65 0.83(2) 0.76(2) 0.77(2) 0.65
Net Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency Transactions (0.55) (0.20) (0.53) (0.06) 0.05
------- ------- ------- ------- -------
Total from Investment Operations 0.10 0.63 0.23 0.71 0.70
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.64) (0.83) (0.62) (0.61) (0.57)
Distributions in Excess of Net
Investment Income -- -- (0.04) -- --
Distributions in Excess of Net
Realized Gain on Investments Sold -- -- (0.12) -- --
Distributions from Capital Paid-in -- -- (0.10) (0.16) (0.08)
------- ------- ------- ------- -------
Total Distributions (0.64) (0.83) (0.88) (0.77) (0.65)
------- ------- ------- ------- -------
Net Asset Value, End of Period $9.32 $9.12 $8.47 $8.41 $8.46
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value(3) 1.16%(4) 6.78% 2.64% 8.75% 8.60%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $20,468 $11,130 $13,091 $16,997 $49,338
Ratio of Expenses to Average
Net Assets 1.37%(4) 1.21% 1.26% 1.33% 1.48%
Ratio of Net Investment Income
to Average Net Assets 8.09%(4) 8.59% 8.71% 9.13% 7.59%
Portfolio Turnover Rate 86% 306% 150% 147% 77%
The Financial Highlights summarizes the impact of the following factors
on a single share for each period indicated: net investment income, gains
(losses), dividends 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.
CLASS B (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.01 $9.31 $9.11 $8.46 $8.40
------- ------- ------- ------- -------
Net Investment Income 0.87 0.75(2) 0.70(2) 0.70(2) 0.59
Net Realized and Unrealized Gain
(Loss) on Investments
and Foreign Currency Transactions (0.80) (0.20) (0.53) (0.06) 0.05
------- ------- ------- ------- -------
Total from Investment Operations 0.07 0.55 0.17 0.64 0.64
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.77) (0.75) (0.56) (0.56) (0.52)
Distributions in Excess of Net
Investment Income -- -- (0.04) -- --
Distributions in Excess of Net
Realized Gain on Investments Sold -- -- (0.12) -- --
Distributions from Capital Paid-in -- -- (0.10) (0.14) (0.07)
------- ------- ------- ------- -------
Total Distributions (0.77) (0.75) (0.82) (0.70) (0.59)
------- ------- ------- ------- -------
Net Asset Value, End of Period $9.31 $9.11 $8.46 $8.40 $8.45
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value (3) 0.64% 5.98% 1.93% 7.97% 7.89%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $236,059 $142,873 $98,390 $84,601 $48,137
Ratio of Expenses to Average
Net Assets 2.07% 2.01% 1.99% 2.07% 2.12%
Ratio of Net Investment Income
to Average Net Assets 8.69% 7.81% 8.00% 8.40% 7.07%
Portfolio Turnover Rate 86% 306% 150% 147% 77%
(1) Class A shares and Class B shares commenced operations on January 3, 1992 and
December 28, 1990, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Annualized.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
October 31, 1996
- -----------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Fund on October 31, 1996. It's divided into two main categories: bonds
and short-term investments. Bonds are further broken down by currency
denomination. Short-term investments, which represent the Fund's "cash"
position, are listed last.
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- -------------------------------------- -------- ------------ --------
<S> <C> <C> <C>
BONDS
Australian Dollar (4.19%)
State of Queensland Treasury,
Gtd Deb Ser 99 07-14-99 8.000% 5,000 $4,085,473
-----------
Canadian Dollar (0.80%)
Republic of Argentina, (Argentina),
Deb Ser EMTN 10-14-97 10.500 1,000 775,656
-----------
Chilean Peso (3.40%)
Citibank, N.A., Nassau Time
Deposit 11-18-96 (Time deposit
with redemption linked to
Chilean Peso Fx rates)** 12.000 466,776 1,110,445
Citibank, N.A., Nassau Time
Deposit 03-17-97 (Time
deposit with redemption linked
to Chilean Peso Fx rates)** 12.800 924,685 2,199,798
-----------
3,310,243
-----------
Czech Koruna (2.66%)
SKOFIN,Gtd Deb 02-09-98 11.625 70,000 2,596,640
-----------
Greek Drachma (0.63%)
Hellenic Republic Treasury,
Bill 01-31-97 Zero 150,000 612,424
-----------
Hungarian Forint (0.90%)
Republic of Hungary,
Floating Rate Bond
Ser 97/L 02-01-97 31.600 136,000 881,121
-----------
Italian Lira (1.14%)
Republic of Italy Treasury,
Bond 12-01-97 9.500 1,650,000 1,109,654
-----------
Spanish Peseta (2.04%)
Kingdom of Spain,
Deb 10-31-98 9.900 240,000 1,990,850
-----------
Swedish Krona (1.08%)
Kingdom of Sweden, Bond
Ser 1020 01-23-97 10.750 6,800 1,047,542
-----------
U.S. Dollar (76.10%)
Banco Central de Costa Rica,
(Costa Rica), Floating Rate
Bond Ser A 05-21-05 6.344* 1,023 951,576
(Costa Rica), Floating Rate
Note Ser B 05-21-05 6.344* 1,023 951,576
Banco Central de Brazil, (Brazil),
Floating Rate Note 10-15-99 6.469* 1,821 1,798,662
Banco Credibanco S.A., (Brazil),
Deb Ser EMTN 11-25-97 11.625 1,376 1,420,720
Banco de Galica y Bueno
Aries S.A., (Argentina),
Floating Rate Note
Ser EMTN 04-15-99 9.263* 1,500 1,533,750
Banco Nacional de
Comericio Exterior, S.N.C.,
(Mexico), Floating Rate
Note 06-23-97 (R) 10.758* 1,000 1,026,250
Bridas Corp., (British Virgin
Islands), Sr Note 11-15-99 12.500 1,500 1,582,500
Centrais Electricas
Brasileiras S.A., (Brazil),
Sr Unsub Deb 10-30-98 (R) 10.000 1,000 1,037,500
Empresas ICA Sociedad S.A.
de C.V., (Mexico), Note
05-30-01 (R) 11.875 2,000 2,062,500
Essar Gujarat Ltd., (India),
Floating Rate
Note 07-15-99 (R) 8.537* 2,000 1,940,000
Federative Republic of
Brazil, (Brazil), Floating
Rate Bond Ser EI-L 04-15-06 6.500* 3,200 2,528,000
Financiera Energetica Nacional
S.A., (Colombia), Unsub Deb
Ser REGS 06-15-06 9.375 1,000 1,023,750
Government of Barbados,
(Barbados), Unsub
Deb 06-09-97 (R) 10.500 1,000 1,010,000
ING Bank Sao Paolo,
(Brazil), Deb 10-19-97 10.250 400 410,000
Kingdom of Denmark, (Denmark),
Floating Rate Note 09-10-97 5.531* 21,000 21,000,000
Klabin Fabricadora de Papel e
Celulose S.A., (Brazil), Gtd
Deb 08-12-04 (R) 11.000 500 512,500
Northwest Airlines, Inc.,
Sr Note 12-31-00 12.092 2,765 2,844,993
OPP Petroquimica S.A.,
(Brazil), Bond 10-29-04 (R) 11.000 500 496,250
PT Semen Cibinong, (Indonesia),
Note 12-15-98 9.000 2,000 2,045,000
Petroleo Brasileiro S.A., (Brazil),
Floating Rate Note 06-08-98 10.150* 2,000 2,075,000
Republic of Argentina, (Argentina),
Global Bond 02-23-01 9.250 2,000 1,952,500
Republic of Panama, (Panama),
Floating Rate Note 05-10-02 6.629* 4,846 4,652,323
Republic of Venezuela,
(Venezuela), Floating Rate
Bond Ser DL 12-18-07 6.625* 3,000 2,456,250
Siderar S.A.I.C., (Argentina),
Note 10-18-97 (R) 11.000 1,000 1,020,000
Transportacion Maritima
Mexicana S.A. de C.V., (Mexico),
Note 05-15-03 9.250 1,500 1,428,750
Tubos de Acero de Mexico,
(Mexico), Unsub Deb
Ser REGS 12-08-99 13.750 2,500 2,781,250
United Mexican States,
(Mexico), Note 02-06-01 9.750 1,500 1,518,750
United States Treasury,
Note 05-15-99 6.375 10,000 10,120,300
-----------
74,180,650
-----------
TOTAL BONDS
(Cost $88,399,118) (92.94%) 90,590,253
-------- -----------
<CAPTION>
<S>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.59%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc. -
Dated 10-31-96, Due 11-01-96
(secured by U.S. Treasury Bonds,
6.250% Due 08-15-23, and
7.250% Due 05-15-16) -
Note A 5.54% $5,448 $5,448,000
-----------
TOTAL SHORT-TERM INVESTMENTS (5.59%) 5,448,000
-------- -----------
TOTAL INVESTMENTS (98.53%) $96,038,253
======== ===========
NOTES TO SCHEDULE OF INVESTMENTS
* Represents rate in effect on October 31, 1996.
** An indexed security's value is linked to changes in foreign currencies, interest rates or other
reference instruments. Indexed securities amounted to $3,310,243 or 3.40% as of October 31, 1996.
# Par value of non US$ denominated foreign bonds is expressed in local currency for each country listed.
(R) Security is exempt from registration under rule 144A of the Securities Act of 1933. Such securities
may be resold, normally to qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $9,105,000 or 9.34% as of October 31, 1996.
EMTN Euro Medium Term Note
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 condition within the countries in which it invests. The concentration
of investments by currency denomination for individual securities held by the
Fund is shown in the schedule of investments. In addition, concentration of
investments can be aggregated by various investment categories. The table below
shows the percentages of the Fund's investments at October 31, 1996 assigned
to the various investment categories.
MARKET VALUE AS A
INVESTMENT CATEGORIES % OF NET ASSETS
- --------------------------------------------------------------------
<S> <C>
Automobile/Trucks 2.66%
Banks 11.70
Building Products 2.10
Construction 2.12
Chemicals 0.51
Finance 1.05
Governmental - Foreign 46.80
Governmental - U.S. Agencies 10.38
Oil & Gas 3.75
Paper & Paper Products 0.53
Steel 5.89
Transportation 4.39
Utility 1.06
Short-term Investments 5.59
--------
TOTAL INVESTMENTS 98.53%
========
See notes to financial statements.
</TABLE>
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is a diversified open-end
management investment company, registered under the Investment Company
Act of 1940. The Trust consists of six series: John Hancock Short-Term
Strategic Income Fund (the "Fund"), John Hancock Global Fund, John
Hancock World Bond Fund, John Hancock Special Opportunities Fund, John
Hancock Growth Fund and John Hancock International Fund. The other five
series of the Trust are reported in separate financial statements. The
investment objective of the Fund is to achieve a high level of current
income by investing primarily in debt securities of foreign governments
and companies including those in emerging markets, as well as the U.S.
Government, its agencies and instrumentalities and U.S. companies. The
Fund maintains an average portfolio maturity of three years or less.
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 and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value. 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. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
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 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, 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 $28,719,289 capital loss carryforwards available, to the extent
provided by regulations, to offset future net realized capital gains.
To the extent such carryforwards are used by the Fund, no capital gains
distribution will be made. The carryforwards expire as follows: October 31,
1999 -- $470,652, October 31, 2000 -- $17,243,199, October 31, 2001 --
$3,127,414, October 31, 2002 -- $2,774,082, and October 31, 2003 -- $5,103,942.
Expired capital loss carryforwards are reclassified to capital paid-in, in the
year of expiration.
DISTRIBUTIONS AND INTEREST 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.
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 relative net assets of the respective
classes. Distribution and service fees if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
securities from either the date of issue or the date of purchase over
the life of the security, as required by the Internal Revenue Code.
ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Fund were capitalized and were charged to the Fund's
operations ratably over a five year period that commenced with the
investment operations 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 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.
At October 31, 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. Buying futures tends to increase the Fund's exposure
to the underlying instrument. Selling futures tends to decrease the
Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures
contract, it 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 on which it trades. Subsequent payments, known as "variation
margin", to and from the broker are made on a daily basis as the market
price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", 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 October 31, 1996, there were no open positions 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 ("credit risk"), or if the Fund is unable to offset a
contract with a counterparty on a timely basis ("liquidity risk").
Exchange-traded options have minimal credit risk as the exchanges act as
counterparties to each transaction, and only present liquidity risk in
highly unusual market conditions. To minimize credit 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, 1996.
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) 0.65% of the
first $500,000,000 of the Fund's average daily net asset value and (b)
0.60% of the Fund's average daily net asset value in excess of
$500,000,000.
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, 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 October 31,
1996, net sales charges received with regard to sales of Class A shares
amounted to $127,241. Of this amount, $17,608 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$50,778 was paid as sales commissions to unrelated broker-dealers and
$58,855 was paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., Inc. ("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 four years of purchase (three
years for purchases prior to January 1, 1994) will be subject to a
contingent deferred sales charge ("CDSC") at declining rates beginning
at 3.0% 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 the CDSC are paid to JH Funds and are used in whole or in
part to defray its expenses related to providing distribution related
services to the Fund in connection with the sale of Class B shares. For
the period ended October 31, 1996, the contingent deferred sales charges
paid to JH Funds amounted to $79,038.
In addition, to reimburse 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 to 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 and 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. In order to comply with this rule, the 12b-1 fee on Class
B ranged from 0.90% to 1.00% of average daily net assets throughout the
period.
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 Investor Services a fee
based on the number of shareholder accounts and certain out-of-pocket
expenses.
On August 27, 1996, the Board of Trustees approved retroactively to July
1, 1996, an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996 is
estimated to be at an annual rate of 0.01875% of the average net assets
of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. 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
October 31, 1996, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $321.
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 October 31, 1996, aggregated $61,056,675 and
$72,773,885, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies aggregated
$9,990,625 and $6,021,563, respectively, during the period ended October
31, 1996.
The cost of investments owned at October 31, 1996 (including the joint
repurchase agreement) for federal income tax purposes was $93,847,118.
Gross unrealized appreciation and depreciation of investments aggregated
$2,612,021 and $420,886, respectively, resulting in net unrealized
appreciation of $2,191,135.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1996, the Fund has reclassified
amounts to reflect a decrease in accumulated net realized loss on
investments of $1,347,025, a decrease in distributions in excess of net
investment income of $12,495 and a decrease in capital paid-in of
$1,359,520. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of
October 31, 1996. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on the
net asset value of the Fund, are primarily attributable to the treatment
of organization expense, net realized foreign currency transactions, and
return of capital distributions in the computation of distributable
income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income
per share in the financial highlights excludes these adjustments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Short-Term Strategic Income Fund and
the Trustees of Freedom Investment Trust II
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of John
Hancock Short-Term Strategic Income Fund (the "Fund") (a series of
Freedom Investment Trust II) at October 31, 1996, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at October 31,
1996 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 12, 1996
SHAREHOLDER MEETING (UNAUDITED)
On June 28, 1996, a special meeting of John Hancock Short-Term Strategic
Fund was held.
The Shareholders approved a new investment management contract between
John Hancock Advisers, Inc. and the Fund. The shareholder votes were
5,519,097 FOR, 157,685 AGAINST and 295,607 ABSTAINING.
The Shareholders approved an Amended and Restated Declaration of Trust.
The shareholder votes were 5,370,408 FOR, 146,841 AGAINST and 438,541
ABSTAINING.
The Shareholders redesignated as nonfundamental the Fund's fundamental
investment restriction on investing in other investment companies. The
shareholder votes were 5,313,850 FOR, 160,227 AGAINST and 481,713
ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ------------------------ --------- --------
Dennis S. Aronowitz 6,295,757 142,447
Edward J. Boudreau, Jr. 6,294,042 144,162
Richard P. Chapman, Jr. 6,294,463 143,742
William J. Cosgrove 6,295,757 142,447
Douglas M. Costle 6,294,938 143,266
Leland O. Erdahl 6,294,860 143,344
Richard A. Farrell 6,294,860 143,344
Gail D. Fosler 6,295,757 142,447
William F. Glavin 6,294,463 143,742
Anne C. Hodsdon 6,284,286 153,918
Dr. John A. Moore 6,294,938 143,266
Patti McGill Peterson 6,284,286 153,918
John W. Pratt 6,295,757 142,447
Richard S. Scipione 6,294,463 143,742
Edward J. Spellman 6,295,757 142,447
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund during the fiscal year
ended October 31, 1996.
None of the distributions qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1996 U.S. Treasury Department Form 1099-
DIV in January of 1997. This will reflect the total of all distributions
which are taxable for calendar year 1996.
NOTES
John Hancock Funds - Short-Term Strategic Income Fund
[THIS PAGE INTENITONALLY LEFT BLANK]
NOTES
John Hancock Funds - Short-Term Strategic Income Fund
[THIS PAGE INTENITONALLY LEFT BLANK]
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Permit No. 75
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A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper." 3200A 10/96
12/96
John Hancock Funds
Growth
Fund
Annual Report
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costile*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
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
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at
least one group has already studied the problem, and experts and
politicians alike have weighed in with a slew of prescriptions.
Legislative action could be in the offing in 1997.
The problem stems from demographic and societal changes. The number
of retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect to use
their own savings or employer-sponsored pensions for their retirement.
Yet, remarkably, another EBRI survey revealed that only slightly more
than half of America's current workers are saving money for retirement.
Fewer than half own IRAs or participate in employer-sponsored pension or
savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
By Bernice Behar, CFA, Portfolio Manager
John Hancock
Growth Fund
Large company growth stocks lead market's advance
"...growth
stocks rallied
significantly
during the
past year."
Recently, the Fund's fiscal year end changed from December to October.
What follows is a discussion of the Fund's performance for the 12 months
ended October 31, 1996.
With corporate profits growing, the economy moving along at a moderate
pace, inflation low, and interest rates subdued, growth stocks rallied
significantly during the past year. Corporate earnings were the key
ingredient to the market's strength. While the market punished those
companies that disappointed investors with lower-than-expected earnings
(especially small companies and technology concerns) by pushing their
stocks lower, it handsomely rewarded those that continued posting strong
earnings gains.
Among the market's big winners this year were many high-profile, blue-
chip growth stocks. Throughout much of the period, investors favored
these stable growth companies, which they viewed as being better able to
sustain their earnings growth even if the economy were to slow. The
Fund's relatively large holdings in these stocks helped it post a strong
performance during the period. For the year ended October 31, 1996, John
Hancock Growth Fund Class A and Class B shares posted total returns at
net asset value of 18.37% and 17.52%, respectively. That was in
comparison to the average growth fund's return of 18.47%, according to
Lipper Analytical Services.1 Please see pages six and seven for longer-
term Fund performance information.
Strategy overview
A 2 1/4" x 3 1/4" photo of fund management team at bottom right. Caption
reads: "Fund Management Team Members (l-r): Rob Hallisey, Bernice Behar,
Anurag Pandit, Andrew Slabin".
Roughly six months ago, we began reducing the Fund's stake in consumer
non-durable stocks such as pharmaceuticals. We replaced them with stocks
that we believed were likely to exhibit strong earnings growth as the
economy's growth accelerated. For example, we had a sense that economic
growth could set off a wave of investment spending on technology and
telecommunications. That's why we added Cascade Communications, a
company that makes products that aid in networking, and Intel, the
semiconductor chip manufacturer. Not only was economic growth a little
better than most observers expected, but these stocks got an added boost
from the fact that investors favored them over smaller, less well-known
stocks where future earnings were less certain. Throughout the past six
months, we continued on a course of emphasizing large, well-known growth
stocks. Our commitment to owning the best companies available in the
growth arena paid off. That said, here's a closer look at the
performance of some of our top holdings:
Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) Adaptec 2.8% 2) Paychex 2.7%
3) Gillette 2.7% 4) Intel 2.5% 5) HBO & Co. 2.4%. A footnote below reads
"As a percentage of net assets on October 31, 1996."
"...we
continued on
a course of
emphasizing
large,
well-known
growth
stocks."
Table entitled "Scorecard" at bottom left hand column. The heading for
the left column is "Investment"; the heading for the center column is
"Recent performance... and what's behind the numbers". The first listing
is "Lucent Technologies" followed by an up arrow and the phrase "Growth
in telecom infrastructure". The second listing is "Nike" followed by an
up arrow and the phrase "Leading sporting goods manufacturer." The third
listing is "Clear Channel Communications" followed by a down arrow and
the phrase "Stock price with profit taking." Footnote below reads "See
Schedule of Investments. Investment holdings are subject to change."
Paychex: The stock price of this payroll-processing and payroll-tax-
preparation company rose more than 20% over the past six months. The
company serves businesses that are outsourcing their payroll functions.
Adaptec: A leading maker of small computer system interface systems used
to connect peripherals to computers, Adaptec suffered along with most
technology companies in the summer. But since then, the stock has
bounced back.
APAC Teleservices: Up roughly 40% from six months ago, this company
provides outsourced telephone-based sales, marketing and customer-
management services. Its customers are large companies with very large
inbound and outbound annual call volume, including credit-card issuers
and telecommunications companies.
Coca-Cola: The world's largest producer of soft-drink concentrates
continued to grab market share from its competitors while maintaining
healthy earnings growth. Its stock rose roughly 20% over the past six
months.
Cisco Systems: Despite the correction technology stocks suffered during
the summer, Cisco, which produces network equipment and software, rose
to $62 at the end of the period, up about 20% from six months earlier.
Cardinal Health: A distributor of health and beauty-care products,
pharmaceuticals, surgical and hospital supplies, its stock rose about
$20 from six months ago, ending the period at $83.
Intel: The stock price of this leading maker of microcomputer components
and related products rose an impressive $40 over the most recent six
month period, to close the period at roughly $110. Much of the stock's
rise came after the company announced a 40% income jump for the third
quarter.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the six months ended October 31,
1996." The chart is scaled in increments of 5% from bottom to top, with
20% at the top and 0% at the bottom. Within the chart there are three
solid bars. The first represents the 18.37% total return for the John
Hancock Growth Fund: Class A. The second represents the 17.52% total
return for the John Hancock Growth Fund: Class B. The third represents
the 18.47% total return for the average growth fund. A footnote below
reads: "The total returns for John Hancock Growth Fund are at net asset
value with all distributions reinvested. The average growth fund is
tracked by Lipper Analytical Services. See following two pages for
historical performance information."
"...growth
stocks still
have room to
continue to
move
higher..."
Gillette: This well-known consumer products company, which produces
toiletries, including razors, electric shavers and dental products, as
well as products ranging from coffee makers to Paper Mate and Parker
pens, rose from about $55 six months ago to nearly $75 at the end the
end of October.
Many of our smaller holdings also performed well. Our energy stocks,
including Diamond Offshore Drilling and Reading & Bates, benefited from
rising oil and gas prices as well as increased global demand. Some of
our retail stocks, including Nike and Saks Holdings (the parent company
of Saks Fifth Avenue), benefited from a rise in consumer confidence. As
always, there were some disappointments. Corrections Corp. of America,
which operates prisons, and Clear Channel Communications, which operates
radio and television stations, both suffered from a round of profit
taking late in the period.
Outlook
In our view, growth stocks still have room to continue to move higher,
assuming good earnings growth. We anticipate that earnings will remain
strong for the fourth quarter of this year, although they are not likely
to be as robust as we saw in the third quarter. We don't see any real
threat of inflation over the next six months and believe that interest
rates should remain stable, if not decline somewhat. Given that view,
it's likely that we'll remain committed to owning many of the same
dynamic companies with their superior track records of growing earnings.
- -----------------------------------------------------------------------
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.
1Figures 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 Growth 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 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. Performance is affected by a
12b-1 plan, which commenced on January 1, 1990 and January 3, 1994 for
Class A and Class B shares, respectively. 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.
CUMULATIVE TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
------ ------ --------
John Hancock Growth
Fund: Class A 12.87% 80.83% 232.99%
John Hancock Growth
Fund: Class B 12.99% N/A 39.22%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
------ ------ --------
John Hancock Growth
Fund: Class A 12.87% 12.58% 12.78%
John Hancock Growth
Fund: Class B 12.99% N/A 12.84%(1)
Notes to Performance
(1) Class B shares commenced on January 3, 1994.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Growth Fund would be worth on October 31, 1996, assuming you
have been invested on the day each class of shares started or have been
invested for the most recent ten years and have 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 used often as a measure
of stock market performance.
Growth Fund
Class A shares
Line chart with the heading Growth 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 $39,194 as of October 31, 1996.
The second line represents the value of the hypothetical $10,000
investment made in the Growth Fund on October 31, 1986, before sales
charge, and is equal to $32,800 as of October 31, 1996.
The third line represents the Growth Fund, after sales charge, and is
equal to $31,163 as of October 31, 1996.
Growth Fund
Class B shares
Line chart with the heading Growth 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 $16,250 as of October 31, 1996.
The second line represents the value of the hypothetical $10,000
investment made in the Growth Fund, before sales charge, on January 3,
1994, and is equal to $13,965 as of October 31, 1996.
The third line represents the value of the Growth Fund, after sales
charge, and is equal to $13,665 as of October 31, 1996.
<TABLE>
<CAPTION>
John Hancock Funds - Growth Fund
Statement of Assets and Liabilities
October 31, 1996
- ----------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks (cost $174,301,069) $280,851,563
Joint repurchase agreement (cost - $24,312,000) 24,312,000
Corporate savings account 512
------------
305,164,075
Receivable for shares sold 10,602
Dividends receivable 98,756
Interest receivable 3,833
Other assets 27,871
------------
Total Assets 305,305,137
- ----------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 18,440
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 309,405
Accounts payable and accrued expenses 78,272
------------
Total Liabilities 406,117
- ----------------------------------------------------------------------
Net Assets:
Capital paid-in 168,641,451
Accumulated net realized gain on investments 29,715,818
Net unrealized appreciation of investments 106,551,500
Accumulated net investment loss (9,749)
------------
Net Assets $304,899,020
======================================================================
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 - $279,425,384/12,004,765 $23.28
======================================================================
Class B - $25,473,636/1,115,600 $22.83
======================================================================
Maximum Offering Price Per Share*
Class A - ($23.28 x 105.26%) $24.51
======================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 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
- -------------------------------------------------------------------------------------------
YEAR ENDED, PERIOD FROM
DECEMBER 31, JANUARY 1, 1996 TO
1995 OCTOBER 31, 1996(1)
-------------- ------------------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding
taxes of $14,730 and $6,297,
respectively) $1,202,907 $1,252,865
Interest 785,627 536,990
---------- ----------
1,988,534 1,789,855
---------- ----------
Expenses:
Investment management fee - Note B 1,561,020 1,884,304
Distribution/service fee - Note B
Class A 559,382 659,141
Class B 82,591 176,381
Transfer agent fee - Note B 578,813 629,454
Printing 46,658 31,624
Custodian fee 43,950 47,233
Auditing fee 32,214 33,973
Registration and filing fees 29,808 77,260
Trustees' fees 15,625 21,212
Miscellaneous 10,421 8,722
Legal fees 1,633 27,099
Financial services fee - Note B -- 44,503
---------- ----------
Total Expenses 2,962,115 3,640,906
- -------------------------------------------------------------------------------------------
Net Investment Loss (973,581) (1,851,051)
- -------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain on investments
sold 9,207,214 29,604,241
Change in net unrealized appreciation/
depreciation of investments 30,638,725 21,436,182
---------- ----------
Net Realized and Unrealized Gain on
Investments 39,845,939 51,040,423
- -------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations $38,872,358 $49,189,372
===========================================================================================
(1) Effective October 31, 1996, the fiscal period changed from December 31 to October 31.
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains (losses)
for the period stated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
--------------------------- JANUARY 1, 1996
1994 1995 TO OCTOBER 31, 1996(1)
------------ ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($986,780) ($973,581) ($1,851,051)
Net realized gain on investments sold 1,529,276 9,207,214 29,604,241
Change in net unrealized appreciation/
depreciation of investments (13,091,731) 30,638,725 21,436,182
------------ ------------ ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (12,549,235) 38,872,358 49,189,372
------------ ------------ ------------
Distributions to Shareholders:
Distributions from net realized gain
on investments sold
Class A - ($0.2020, $0.6945,
and none per share, respectively) (1,850,208) (8,391,968) --
Class B - ($0.2020, $0.6945,
and none per share, respectively) (43,984) (552,264) --
Class C - ($0.2020, none, and
none per share, respectively) (18,255) -- --
------------ ------------ ------------
(1,912,447) (8,944,232) --
------------ ------------ ------------
From Fund Share Transactions - Net*: 2,086,820 75,837,052 (1,902,994)
------------ ------------ ------------
Net Assets:
Beginning of period 164,222,326 151,847,464 257,612,642
------------ ------------ ------------
End of period (including accumulated
net investment loss of none, none, and
$9,749, respectively) $151,847,464 $257,612,642 $304,899,020
============ ============ ============
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, distributions
paid to shareholders, and any increase or decrease in money shareholders invested
in the Fund. The footnote illustrates the number of Fund shares sold, reinvested
and redeemed during the last two periods, along with the corresponding dollar
value.
* Analysis of Fund Share Transactions:
YEAR ENDED DECEMBER 31,
------------------------------------------------------ PERIOD FROM JANUARY 1, 1996
1994 1995 TO OCTOBER 31, 1996 (1)
---------------------------- ------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ------------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold 4,198,071 $71,177,794 1,671,481 $32,932,574 2,868,866 $62,914,842
Shares issued in reorganization -
Note D -- -- 3,788,495 77,588,384 -- --
Shares issued to shareholders in
reinvestment of distributions 110,953 1,738,305 402,050 7,803,606 -- --
----------- ----------- ----------- ----------- ----------- -----------
4,309,024 72,916,099 5,862,026 118,324,564 2,868,866 62,914,842
Less shares repurchased (4,457,375) (75,094,698) (2,691,827) (52,370,704) (3,252,462) (70,867,350)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) (148,351) ($2,178,599) 3,170,199 $65,953,860 (383,596) ($7,952,508)
=========== =========== =========== =========== =========== ===========
CLASS B
Shares sold 259,658 $4,192,534 333,335 $6,333,583 2,230,077 $49,208,673
Shares issued in reorganization -
Note D -- -- 471,911 9,563,328 -- --
Shares issued to shareholders in
reinvestment of distributions 2,737 42,721 27,495 526,875 -- --
----------- ----------- ----------- ----------- ----------- -----------
262,395 4,235,255 832,741 16,423,786 2,230,077 49,208,673
Less shares repurchased (21,948) (347,495) (246,690) (4,843,723) (1,940,975) (43,159,159)
----------- ----------- ----------- ----------- ----------- -----------
Net increase 240,447 $3,887,760 586,051 $11,580,063 289,102 $6,049,514
=========== =========== =========== =========== =========== ===========
CLASS C **
Shares sold 30,518 $480,690 841 $15,270
Shares issued to shareholders
in reinvestment of distributions 1,121 17,646 -- --
----------- ----------- ----------- -----------
31,639 498,336 841 15,270
Less shares repurchased (7,014) (120,677) (99,061) ( 1,712,141
----------- ----------- ----------- -----------
Net increase (decrease) 24,625 $377,659 (98,220) ($1,696,871)
=========== =========== =========== ===========
** All Class C shares were redeemed on March 31, 1995.
(1) Effective October 31, 1996, the fiscal period changed from December 31 to October 31.
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:
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------------------------------- JANUARY 1 1996
1992 1993 1994 1995 TO OCTOBER 31, 1996(9)
-------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.48 $17.32 $17.40 $15.89 $19.51
-------- -------- -------- -------- --------
Net Investment Income (Loss) (0.06) (0.11) (0.10) (0.09)(1) (0.13)(1)
Net Realized and Unrealized Gain (Loss)
on Investments 1.10 2.33 (1.21) 4.40 3.90
-------- -------- -------- -------- --------
Total from Investment Operations 1.04 2.22 (1.31) 4.31 3.77
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold (1.20) (2.14) (0.20) (0.69) --
-------- -------- -------- -------- --------
Total Distributions (1.20) (2.14) (0.20) (0.69) --
-------- -------- -------- -------- --------
Net Asset Value, End of Period $17.32 $17.40 $15.89 $19.51 $23.28
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) 6.06% 13.03% (7.50%) 27.17% 19.32%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $153,057 $162,937 $146,466 $241,700 $279,425
Ratio of Expenses to Average Net Assets 1.60% 1.56% 1.65% 1.48% 1.48%(7)
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.36%) (0.67%) (0.64%) (0.46%) (0.73%)(7)
Portfolio Turnover Rate 71% 68% 52% 68%(3) 59%
Average brokerage commission rate(4) N/A N/A N/A N/A $0.0695
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------ JANUARY 1, 1996
1994(5) 1995 TO OCTOBER 31, 1996(9)
-------- -------- --------------------
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.16 $15.83 $19.25
-------- -------- --------
Net Investment Loss(1) (0.20) (0.26) (0.26)
Net Realized and Unrealized Gain (Loss)
on Investments (0.93) 4.37 3.84
-------- -------- --------
Total from Investment Operations (1.13) 4.11 3.58
-------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold (0.20) (0.69) --
-------- -------- --------
Net Asset Value, End of Period $15.83 $19.25 $22.83
======== ======== ========
Total Investment Return at Net Asset Value(2) (6.56%)(6) 26.01% 18.60%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $3,807 $15,913 $25,474
Ratio of Expenses to Average Net Assets 2.38%(7) 2.31% 2.18%(7)
Ratio of Net Investment Loss to Average Net Assets (1.25%)(7) (1.39%) (1.42%)(7)
Portfolio Turnover Rate 52% 68%(3) 59%
Average brokerage commission rate(4) N/A N/A $0.0695
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PERIOD ENDED
1993 1994 MARCH 31, 1995
-------- -------- --------
CLASS C (8)
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.05 $17.46 $16.02
-------- -------- --------
Net Investment Income (Loss) (0.02) (0.01) 0.02(1)
Net Realized and Unrealized Gain (Loss) on Investments 2.57 (1.23) 1.28
-------- -------- --------
Total from Investment Operations 2.55 (1.24) 1.30
-------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold (2.14) (0.20) --
-------- -------- --------
Net Asset Value, End of Period $17.46 $16.02 $17.32
======== ======== ========
Total Investment Return at Net Asset Value(2) (15.18%)(6) (7.07%) 8.11%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $1,285 $1,574 $1,672
Ratio of Expenses to Average Net Assets 1.05%(7) 1.12% 1.05%(7)
Ratio of Net Investment Income (Loss) to Average Net Assets (0.17%)(7) (0.08%) 0.44%(7)
Portfolio Turnover Rate 68% 52% 39%
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Excludes merger activity.
(4) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(5) Class B shares commenced operations on January 3, 1994.
(6) Not annualized.
(7) Annualized.
(8) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the
end of the period reflect amounts prior to the redemption of all shares on March 31, 1995.
(9) Effective October 31, 1996, the fiscal period changed from December 31 to October 31.
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated:
net investment income, gains (losses), dividends 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>
The Schedule of Investments is a complete list of all securities owned by the Growth
Fund on October 31, 1996. It's divided into two main categories: common stocks and
short-term investments. Common stocks are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are listed last.
Schedule of Investments
October 31, 1996
- -------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
Banks -- United States (1.76%)
Chase Manhattan Corp. 62,400 $5,350,800
------------
Beverages (1.99%)
Coca-Cola Co. 120,000 6,060,000
------------
Business Services - Misc (7.53%)
APAC Teleservices, Inc.* 141,000 6,503,625
Corrections Corp. of America* 120,000 3,120,000
DST Systems, Inc.* 50,000 1,537,500
Paychex, Inc. 146,250 8,336,250
Sabre Group Holding, Inc.* 20,000 610,000
Sterling Commerce, Inc.* 101,00 2,840,625
------------
22,948,000
------------
Computers (16.33%)
Adaptec, Inc.* 140,000 8,522,500
Baan Co., N.V. (Netherlands) * 50,000 1,850,000
Cabletron Systems, Inc.* 50,000 3,118,750
cisco Systems, Inc.* 110,000 6,806,250
Computer Sciences Corp.* 30,000 2,227,500
HBO & Co. 120,000 7,215,000
McAfee Associates, Inc.* 33,000 1,501,500
Microsoft Corp.* 25,000 3,431,250
Netscape Communications Corp.* 70,000 3,097,500
Oracle Corp.* 140,000 5,923,750
Sun Microsystems, Inc.* 100,000 6,100,000
------------
49,794,000
------------
Cosmetics & Personal Care (4.65%)
Avon Products, Inc. 110,000 5,967,500
Gillette Co. 110,000 8,222,500
------------
14,190,000
------------
Electronics (3.15%)
DSP Communications, Inc.* 50,000 1,900,000
Intel Corp. 70,000 7,691,250
------------
9,591,250
------------
Finance (7.76%)
Associates First Capital Corp.
(Class A) 102,500 4,445,938
Concord EFS, Inc.* 40,000 1,160,000
First Data Corp. 60,000 4,785,000
First USA, Inc. 80,000 4,600,000
MBNA Corp. 180,000 6,795,000
National Processing, Inc.* 98,000 1,862,000
------------
23,647,938
------------
Leisure (2.39%)
HFS, Inc.* 80,000 5,860,000
Marriott International, Inc. 25,000 1,421,875
------------
7,281,875
------------
Linen Supply & Related (1.72%)
Cintas Corp. 90,000 5,242,500
------------
Media (5.08%)
Clear Channel Communications, Inc.* 82,500 6,022,500
Gannett Co., Inc. 55,000 4,173,125
Jacor Communications, Inc.* 28,900 809,200
Tribune Co. 55,000 4,496,250
------------
15,501,075
------------
Medical (13.00%)
American Home Products Corp. 40,000 2,450,000
Amgen, Inc.* 60,000 3,678,750
Cardinal Health, Inc. 82,500 6,476,250
Health Care & Retirement Corp. * 195,000 4,801,875
Health Management Associates, Inc.
(Class A) * 232,500 5,115,000
Johnson & Johnson 130,000 6,402,500
Merck & Co., Inc. 50,000 3,706,250
Omnicare, Inc. 75,000 2,043,750
Pfizer, Inc. 60,000 4,965,000
------------
39,639,375
------------
Oil & Gas (7.71%)
Diamond Offshore Drilling, Inc.* 100,000 6,087,500
Halliburton Co. 70,000 3,963,750
Reading & Bates Corp.* 200,000 5,750,000
Schlumberger Ltd. 45,000 4,460,625
Western Atlas, Inc.* 46,600 3,232,875
------------
23,494,750
------------
Retail (9.77%)
CUC International, Inc. * 213,750 5,236,875
Home Depot, Inc. 74,500 4,078,875
Landry's Seafood Restaurants, Inc. * 150,000 3,075,000
McDonald's Corp. 70,000 3,106,250
Men's Wearhouse, Inc. (The) * 75,000 1,546,875
PETsMART, Inc.* 200,000 5,400,000
Saks Holdings, Inc.* 107,000 3,745,000
Starbucks Corp.* 70,000 2,275,000
Wal-Mart Stores, Inc. 50,000 1,331,250
------------
29,795,125
------------
Schools / Education (1.28%)
Apollo Group, Inc. (Class A)* 141,950 3,903,625
------------
Shoes & Related Apparel (1.16%)
Nike, Inc. (Class B) 60,000 3,532,500
------------
Telecommunications (5.48%)
Cascade Communications Corp.* 70,000 5,083,750
Lucent Technologies, Inc. 100,000 4,700,000
McLeod, Inc. (Class A)* 90,000 2,925,000
MFS Communications Co., Inc.* 80,000 4,010,000
------------
16,718,750
------------
Textile (1.36%)
Tommy Hilfiger Corp.* 80,000 4,160,000
------------
TOTAL COMMON STOCK
(Cost $174,301,069) (92.12%) $280,851,563
--------- ------------
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER,DESCRIPTION RATE OMITTED) VALUE
- --------------------------------- -------- -------- --------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (7.97%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 10-31-96, Due 11-01-96
(secured by US Treasury Bond,
10.375% Due 11-15-12,
12.00% Due 8-15-13, 11.25%
Due 2-15-15 and 6.25%
Due 8-15-23) Note A 5.54% $24,312 $24,312,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 512
------------
TOTAL SHORT-TERM INVESTMENTS (7.97%) 24,312,512
--------- ------------
TOTAL INVESTMENTS (100.09%) $305,164,075
========= ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
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.
Until July 1, 1996 the Fund was a series of of John Hancock Capital
Series. The Trust consists of six series: John Hancock Growth Fund (the
"Fund") and John Hancock Global Fund, John Hancock World Bond Fund, John
Hancock Short-Term Strategic Income Fund, John Hancock Special
Opportunities Fund, and John Hancock International Fund. On May 21, 1996
the Board of Trustees voted to change the fiscal period end from
December 31 to October 31. This change is effective October 31, 1996.
The other five series of the Trust are reported in separate financial
statements. The investment objective of the Fund is to seek long-term
capital appreciation through investment in stocks that are diversified
with regard to industries and issuers.
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 and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more repurchase agreements, whose underlying securities are obligations
of the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis for
both financial reporting and federal income tax purposes.
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 investments, to its
shareholders. Therefore, no federal income tax provision is required.
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 principles. Dividends paid by
the Fund, if any, 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 effect of expenses that may be applied differently to
each class as explained previously.
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 fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are determined at the Fund level and allocated daily to
each class of shares based on the relative net assets of the respective
classes. Distribution and service fees if any, are calculated daily at
the class level based on the appropriated 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. Actual results
could differ from these estimates.
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 $250,000,000 of the Fund's average daily net asset value, (b)
0.75% of the next $250,000,000 and (c) 0.70% of the Fund's average daily
net asset value in excess of $500,000,000.
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
October 31, 1996, JH Funds received net sales charges of $327,255. Out
of this amount, $42,144 was retained and used for printing
prospectuses, advertising, sales literature, and other purposes,
$113,023 was paid as sales commissions to unrelated broker-dealers, and
$172,088 was paid as sales commissions to personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., Inc. ("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 the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended October 31, 1996, contingent deferred sales
charges amounted to $24,916.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution
Plan with respect to Class A and Class B shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. Accordingly, the Fund will
make payments to JH Funds for distribution and service expenses at an
annual rate not to exceed 0.25% of Class A average daily net assets and
1.00% of Class B average daily net assets to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.30% 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 Corp. ("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.
On March 5, 1996, the Board of Trustees approved retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary tax
and financial management services for the Fund. The compensation for
1996 is estimated to be at an annual rate of 0.01875% of the average net
assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. 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
October 31, 1996, the Fund's investment to cover the deferred
compensation had unrealized appreciation of $1,006.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended October 31, 1996 aggregated
$160,198,737 and $181,563,386, respectively.
The cost of investments owned at October 31, 1996 (excluding the
corporate savings account), for Federal income tax purposes was
$198,613,069. Gross unrealized appreciation and depreciation of
investments aggregated $111,703,275 and $5,152,781, respectively,
resulting in net unrealized appreciation of $106,550,494.
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of John Hancock Capital Growth
Fund (JHCGF) approved a plan of reorganization between JHCGF and the
Fund providing for the transfer of substantially all of the assets and
liabilities of JHCGF to the Fund in exchange solely for Class A and
Class B shares of the Fund. The acquisition was accounted for as a tax
free exchange of 3,788,495 Class A shares, and 471,911 Class B shares of
John Hancock Growth Fund for the net assets of JHCGF, which amounted to
$77,588,384 and $9,563,328 for Class A and B shares, respectively,
including $20,624,702 of unrealized appreciation, after the close of
business on September 15, 1995.
NOTE E --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1996, the Fund has reclassified the
accumulated net investment loss of $1,841,302 to capital paid-in. This
represents the cumulative amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of October 31,
1996. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset
value of the Fund, are primarily attributable to the treatment of net
operating losses in the computation of distributable income and capital
gains under federal tax rules versus generally accepted accounting
principle. The calculation of net investment income per share in the
financial highlights excludes these adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Freedom Investment Trust II
John Hancock Growth Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock Growth Fund (the "Fund"), one of the portfolios
constituting John Hancock Freedom Investment Trust II, including the
schedule of investments, as of October 31, 1996, and the related
statements of operations for the period from January 1, 1996 to October
31, 1996 and for the year ended December 31, 1995, and the statement of
changes in net assets and the financial highlights for each of the
periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1996, by
correspondence with the custodian and brokers, and other auditing procedures
when replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock Growth Fund portfolio of John
Hancock Freedom Investment Trust II at October 31, 1996, the results of
its operations for the period from January 1, 1996 to October 31, 1996
and the year ended December 31, 1995, and the changes in its net assets
and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
/S/Ernst & Young LLP
Boston, Massachusetts
December 10, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished
with respect to the distributions of the Fund during its fiscal year
ended October 31, 1996.
The Fund designated distributions to shareholders of 29,715,818 as long-
term capital gain dividends. Shareholders will be mailed a 1996 U.S.
Treasury Department Form 1099-DIV in January 1997 representing their
proportionate share. The Fund has not paid any distributions of ordinary
income dividends during the fiscal year ended October 31, 1996.
None of the distributions noted above qualify for the corporate
dividends received deduction.
SHAREHOLDER MEETING (UNAUDITED)
On June 26, 1996, a special meeting of John Hancock Growth Fund was
held.
The Shareholders approved an Agreement and Plan of Reorganization for
the Fund. The shareholder votes were 7,179,931 FOR, 160,816 AGAINST and
640,860 ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- -------------------- --------- ---------
Dennis S. Aronowitz 7,941,304 291,693
Edward J. Boudreau 7,951,696 281,300
Richard P. Chapman 7,951,852 281,144
William J. Cosgrove 7,947,660 285,337
Douglas M. Costle 7,949,952 283,044
Leland O. Erdahl 7,946,132 286,864
Richard A. Farrell 7,951,243 281,754
Gail D. Fosler 7,949,690 283,306
William F. Glavin 7,933,386 299,611
Anne C. Hodsdon 7,952,849 280,148
Dr. John A. Moore 7,947,906 285,091
Patti McGill Peterson 7,948,493 284,503
John W. Pratt 7,945,169 287,827
Richard S. Scipione 7,933,061 299,936
Edward J. Spellman 7,945,134 287,863
NOTES
John Hancock Funds - Growth Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - Growth Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - Growth Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
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Growth Fund. It may be used as sales literature when preceded or
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