<PAGE> 1
John Hancock Funds
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INTERNATIONAL
FUND
ANNUAL REPORT
October 31, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
William A. Barron, III*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
William F. Glavin*
Patrick Grant*
Ralph Lowell, Jr.*
John A. Moore*
Patti McGill Peterson*
John W. Pratt*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENTS
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
INVESTMENT SUB-ADVISER
John Hancock Advisers International Limited
34 Dover Street
London, England W1X3RA
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
Price Waterhouse llp
160 Federal Street
Boston, Massachusetts 02110
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief Executive Officer,
flush right, next to first paragraph.]
Investors around the world have been watching Wall Street in awe for the better
part of 1995. Through October, the Standard & Poor's 500-Stock Index, a
widely-used barometer of stock performance, had grown by more than 25%.
Investors who stayed in the market after a disappointing 1994 have been
rewarded.
On another street, Pennsylvania Avenue, one of the hot topics many people are
watching is Medicare reform. While there's no clear-cut solution on the horizon,
today's Medicare debate should serve as another wake-up call to all Americans
about the need to have a financial plan and to save for retirement. Whether or
not the government changes the way health-care benefits are allotted to senior
citizens, the message is clear: your future security and well-being lies in your
own hands -- not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them will
perhaps scare you or make you think that the task of saving for retirement is
just too daunting. But take heart. We don't believe that and neither do many
financial experts.
Yet retirement planning is not to be taken lightly. To live the way you
want to -- the way you deserve to after all those years of hard work -- you need
to plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial adviser
about establishing your retirement planning roadmap, if you haven't already. And
educate yourself by reading some of the many articles about how to save for
retirement. Take control of your future by saving today. That way, when it comes
time for retirement, you shouldn't have to think about any street but Easy
Street.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY DAVID S. BECKWITH FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
INTERNATIONAL FUND
Surging U.S. market leaves many foreign markets behind
Declining interest rates, low inflation and steady corporate earnings in
1995 created nearly ideal market conditions in the United States, attracting
investors from all over the world and propelling domestic stocks to record
highs. The gains came at the expense of foreign stocks. Europe lagged for
reasons that had less to do with the investment climate -- which was positive --
than with the comparative allure of domestic stocks, especially technology
issues. In Japan, it seemed as if every time the market went up, the yen went
down, wiping out gains for U.S. investors. Emerging markets, meanwhile,
recovered strongly after a disastrous fourth quarter of 1994, only to fall back
again late in the period. The upshot was a disappointing year for international
investors, who did well to break even.
John Hancock International Fund lagged its peers, producing total returns at
net asset value of - 4.96% and - 5.89% for its Class A and Class B shares,
respectively, during the year that ended October 31, 1995. That compared to
- - 1.09% for the average international fund, according to Lipper Analytical
Services.(1) The Fund lagged its peers during the period because of our large
stake in emerging markets, which
[A 2 1/2" x 3 3/4" photo of David Beckwith at bottom right. Caption reads:
"David S. Beckwith."]
[CAPTION]
"...A DISAPPOINTING YEAR FOR INTERNATIONAL INVESTORS."
3
<PAGE> 4
John Hancock Funds - International Fund
[A pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into six sections. Going from top left to right:
Continental Europe 33%, Japan 16%, United Kingdom 9%, Latin America 4%, Pacific
Rim 31%, Cash & Short-Term Investments 7%. A footnote states: "As a percentage
of net assets on October 31, 1995.",]
hurt the Fund early in the period, and because of our relative overexposure to
Japan and other countries in the Pacific Rim.
EUROPE: STOCK VALUES OVERSHADOWED BY U.S. RALLY
We ended the period with about 33% of the Fund's net assets in European stocks,
up from 27% a year ago but little changed during the past six months. There was
value in Europe this past year for those who cared to notice it. Many stocks
were trading at price-to-earnings ratios that looked positively cheap compared
to their U.S. counterparts. But all that was overshadowed last year by the bull
market in the United States. Countries on the periphery of the European economy,
such as Spain and Italy, were particularly hard hit.
All the same, there were pockets of strong performance in continental Europe,
notably the United Kingdom, where the Fund had a 9% stake at the end of the
period, and Scandinavia. We made money on a number of so-called soft cyclicals,
which are stocks that tend to do well in the latter stages of an economic
recovery. Those included three U.K. stocks: Thorn EMI, a music retailer and
record company; Reed International, a publisher; and Carlton Communications, a
broadcaster. Another U.K. stock that's done well is Glaxo Wellcome, a drug
company which recently settled a threat to one of its most important products
from a generic competitor. Orkla, a Norwegian conglomerate involved with
consumer products and financial services, rose on strong earnings growth.
Investor AB, a Swedish company that owns half of Saab Moters, was a steady if
unspectacular performer. With inflationary pressures waning, we may look for
opportunities in the months ahead to replace some of the Fund's industrial
stocks such as Sweden's Atlas Copco and Germany's Mannesmann with more
rate-sensitive financial stocks.
[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 Orkla
followed by an up arrow and the phrase "Solid earnings growth." The second
listing is Olivetti followed by a down arrow and the phrase "Ongoing
difficulties in P.C. business." The third listing is Repsol followed by a flat
arrow and the phrase "Underrecognized fundamental strength." Footnote below
reads: "See "Schedule of Investments." Investment holdings are subject to
change."]
JAPAN: WAITING FOR RECOVERY
Japanese stocks totaled about 16% of the Fund, down sharply from 25% six months
ago. Everyone is still waiting for the recovery in Japan, but so far progress
has been slow. The yen rallied early in the year but any currency gains for U.S.
investors were more than offset by the yen's 25% plunge since last March. Year
to date through the end of October, the Nikkei Index was down 12% in U.S. dollar
terms. One recent purchase that has done reasonably well was Oki Electric, which
makes telecommunications equipment. We'll be paying close attention to Japanese
technology stocks in the wake of the
[CAPTION]
"...THERE WERE POCKETS OF STRONG PERFORMANCE IN EUROPE..."
4
<PAGE> 5
John Hancock Funds - International Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended October 31, 1995." The chart is
scaled in increments of 2% from bottom to top, with 0% at the top and - 6% at
the bottom. Within the chart there are three solid bars. The first represents
the - 4.96% total return for the John Hancock International Fund, Class A. The
second represents the - 5.89% total return for John Hancock International Fund,
Class B. The third represents the - 1.09% total return for the average
international fund. A footnote below reads: "Total returns for John Hancock
International Fund are at net asset value with all distributions reinvested. The
average international fund is tracked by Lipper Analytical Services. (1)" See
following page for historical performance information."]
U.S. rally. Many seem cheap now compared to their U.S. counterparts and could
profit from recent software advances that may help boost sales of personal
computers to home users. That's a huge untapped market in Japan, where only
about 10% of homes have computers, compared to almost 40% in the United States.
EMERGING MARKETS: HONG KONG SOLE BRIGHT SPOT
The Fund made money selectively in Latin America, notably Santa Isabel, a
Chilean supermarket chain. For the most part, however, Asian stocks dominated
the Fund's stake in emerging markets, led by Hong Kong with 9% of the Fund's
assets. Hong Kong was also one of the few emerging markets to finish solidly
ahead during the period. Our largest holding there was Cheung Kong, a developer
that has begun to profit from a turnaround in the local real estate market.
Outside of Hong Kong, however, the story in the emerging markets was pretty
bleak. Singapore and Malaysia, with a combined 9% of the Fund's net assets, were
both down about 5% in 1995; Thailand, where the Fund had less than a 2% stake,
was down about 18%.
AUSTRALIA AND NEW ZEALAND
With the exception of News Corp., the Australian media giant led by Rupert
Murdoch and Telecom Corporation of New Zealand, lumber and mining stocks
dominated the Fund's 10% stake in Australia and New Zealand. Prominent names
include New Zealand's Carter Holt Harvey, a forest products company, and
Australia's Western Mining, a metals producer.
OUTLOOK
After a year like the one we've had, it's important to maintain a long-term
perspective. The good news about foreign markets is that the investment climate
remains strong. Earnings in most cases have come through as expected, and most
of the foreign countries where the Fund has investments are still growing at a
faster rate than the United States, especially the emerging markets. Once
investor sentiment catches up with the market fundamentals, we could see foreign
stocks convincingly outperform domestic stocks.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and to
not take into account sales charges. Actual load-adjusted performance is lower.
[CAPTION]
"...IT'S IMPORTANT TO MAINTAIN A LONG-TERM PERSPECTIVE."
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock International Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's average net assets.
Performance figures include the maximum applicable sales charge of 5% for Class
A shares. The effect of the maximum contingent deferred sales charge for Class B
shares (maximum 5% and declining to 0% over six years) is included in Class B
performance. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them. Please see your prospectus for a discussion of
the risks associated with international investing, including currency and
political risks and differences in accounting standards and financial reporting.
Note: Participant-directed defined-contribution plans with at least 100
eligible employees at inception of the Fund account may purchase Class A shares
without an initial sales charge as of March 15, 1995. If those shares are
redeemed, however, during the year following the calendar year end during which
they were purchased, a contingent deferred sales charge will accessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
John Hancock International Fund: Class A (5.73%) (6.68%)
John Hancock International Fund: Class B (6.66%) (6.90%)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE LIFE OF
YEAR FUND(1,2)
---- ---------
<S> <C> <C>
John Hancock International Fund: Class A (5.73%) (3.89%)
John Hancock International Fund: Class B (6.66%) (4.02%)
</TABLE>
As of October 31, 1995
<TABLE>
<CAPTION>
SEC 30-DAY
YIELD
----------
<S> <C>
John Hancock International Fund: Class A 6.38%
John Hancock International Fund: Class B 5.92%
</TABLE>
NOTES TO PERFORMANCE
(1) Both Class A and Class B shares started on January 3, 1994.
(2) Without the limitation of expenses, the average annualized total returns for
the one-year period and since inception would have been (8.89%) and (6.63%)
for Class A shares and (9.82%) and (6.76%) for Class B shares. Note:
Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares
without an initial sales charge as of March 15, 1995. If those shares are
redeemed, however, during the year following the calendar year end during
which they were purchased, a contingent deferred sales charge will be
assessed.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
International Fund would be worth on October 31, 1995, 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 Morgan Stanley EAFE
Index -- an unmanaged index that measures
the performance of stock markets in
International Fund
Class A shares
[Line chart with the heading International 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 EAFE Index and is
equal to $11,268 as of October 31, 1995. The second line represents the value of
the hypothetical $10,000 investment made in the International Fund on January 3,
1994, before sales charge, and is equal to $9,672 as of October 31, 1995. The
third line represents the International Fund after sales charge and is equal to
$9,185 as of October 31, 1995.]
International Fund
Class B shares
[Line chart with the heading International 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 Morgan Stanley EAFE Index and is
equal to $11,268 as of October 31, 1995. The second line represents the value of
the hypothetical $10,000 investment made in the International Fund on January 3,
1994, before contingent deferred sales charge, and is equal to $9,532 as of
October 31, 1995. The third line represents the International Fund after
contingent deferred sales charge and is equal to $9,151 as of October 31, 1995.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $7,337,029).............................................. $7,622,806
Bonds (cost - $50,000)......................................................... 43,000
Joint repurchase agreement (cost - $647,000)................................... 647,000
----------
8,312,806
Cash............................................................................ 18,705
Foreign currency, at value (cost - $1,134)...................................... 1,135
Receivable for shares sold...................................................... 27,969
Foreign taxes receivable........................................................ 7,939
Dividends and interest receivable............................................... 8,500
Receivable from John Hancock Advisers, Inc. - Note B............................ 183,189
Deferred organization expenses - Note A......................................... 73,153
----------
Total Assets.................................................. 8,633,396
--------------------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased.................................................. 3,456
Payable to John Hancock Advisers, Inc. and affiliates - Note B.................. 237,717
Accounts payable and accrued expenses........................................... 187,260
----------
Total Liabilities............................................. 428,433
--------------------------------------------------------------------------
NET ASSETS:
Capital paid-in................................................................. 8,457,906
Accumulated net realized loss on investments and foreign currency transactions.. (531,550)
Net unrealized appreciation of investments and foreign currency transactions.... 278,607
----------
Net Assets.................................................... $8,204,963
==========================================================================
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 - $4,215,377/518,038.................................................... $ 8.14
============================================================================================
Class B - $3,989,586/495,350.................................................... $ 8.05
============================================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($8.14 x 105.26%)..................................................... $ 8.57
============================================================================================
</TABLE>
* 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, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $18,197).............................................. $ 148,360
Interest............................................................................................. 26,504
---------
174,864
---------
Expenses:
Investment management fee - Note B.................................................................. 80,348
Distribution/service fee - Note B
Class A........................................................................................... 13,071
Class B........................................................................................... 36,778
Transfer agent fee - Note B......................................................................... 42,083
Custodian fee....................................................................................... 91,327
Printing............................................................................................ 54,559
Registration and filing fees........................................................................ 47,437
Organization expense - Note A....................................................................... 23,017
Auditing fee........................................................................................ 21,000
Legal fees.......................................................................................... 8,195
Trustees' fees...................................................................................... 482
Miscellaneous....................................................................................... 167
---------
Total Expenses..................................................................... 418,464
Less expenses reimbursable by John Hancock Advisers, Inc. - Note B................. (254,219)
---------
Net Expenses....................................................................... 164,245
----------------------------------------------------------------------------------------------
Net Investment Income.............................................................. 10,619
----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments sold................................................................ (534,486)
Net realized loss on foreign currency transactions................................................... (29,195)
Change in net unrealized appreciation/depreciation of investments.................................... 42,840
Change in net unrealized appreciation/depreciation of foreign currency transactions.................. 3,248
---------
Net Realized and Unrealized Loss on Investments and Foreign Currency Transactions.. (517,593)
----------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations............................... $(506,974)
==============================================================================================
</TABLE>
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.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
JANUARY 3, 1994
YEAR ENDED (COMMENCEMENT
OCTOBER 31, OF OPERATIONS) TO
1995 OCTOBER 31, 1994
---------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................................................................... $ 10,619 $ 31,295
Net realized gain (loss) on investments sold and foreign currency transactions........... (563,681) 26,883
Change in net unrealized appreciation/depreciation of investments and foreign currency
transactions........................................................................... 46,088 232,519
---------- ----------
Net Increase (Decrease) in Net Assets Resulting from Operations......................... (506,974) 290,697
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.0268 and none per share, respectively).................................... (14,822) --
Distributions from net realized gain on investments sold
Class A - ($0.0512 and none, respectively).............................................. (28,343) --
Class B - ($0.0512 and none, respectively).............................................. (25,719) --
---------- ----------
Total Distributions to Shareholders................................................... (68,884) --
---------- ----------
FROM FUND SHARE TRANSACTIONS-- NET*........................................................ 407,315 7,582,809
---------- ----------
NET ASSETS:
Beginning of period...................................................................... 8,373,506 --
Initial investment by John Hancock Advisers, Inc. - Note A............................... -- 500,000
---------- ----------
End of period (including undistributed net investment income of none and $14,822,
respectively)......................................................................... $8,204,963 $8,373,506
========== ==========
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
OCTOBER 31, (COMMENCEMENT OF OPERATIONS)
1995 TO OCTOBER 31, 1994
---------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................ 284,149 $ 2,274,882 535,016 $4,456,147
Shares issued to shareholders in reinvestment of distributions..... 4,863 38,128 -- --
-------- ----------- ------- ----------
289,012 2,313,010 535,016 4,456,147
Less shares repurchased............................................ (282,754) (2,241,182) (82,060) (683,928)
Initial Investment by John Hancock Advisers, Inc. - Note A......... -- -- 58,824 500,000
-------- ----------- ------- ----------
Net increase....................................................... 6,258 $ 71,828 511,780 $4,272,219
======== =========== ======= ==========
CLASS B
Shares sold........................................................ 255,410 $ 2,065,161 512,942 $4,260,033
Shares issued to shareholders in reinvestment of distributions..... 2,888 22,582 -- --
-------- ----------- ------- ----------
258,298 2,087,743 512,942 4,260,033
Less shares repurchased............................................ (221,662) (1,752,256) (54,228) (449,443)
-------- ----------- ------- ----------
Net increase....................................................... 36,636 $ 335,487 458,714 $3,810,590
======== =========== ======= ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<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 FOR THE PERIOD JANUARY 3, 1994
OCTOBER 31, (COMMENCEMENT OF OPERATIONS)
1995 TO OCTOBER 31, 1994
----------- ------------------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period..................................... $ 8.65 $ 8.50
------ ------
Net Investment Income.................................................... 0.04 0.07(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions (0.47) 0.08
------ ------
Total from Investment Operations........................................ (0.43) 0.15
------ ------
Less Distributions:
Dividends from Net Investment Income..................................... (0.03) --
Distributions from Net Realized Gain on Investments Sold and Foreign
Currency Transactions (0.05) --
------ ------
Total Distributions..................................................... (0.08) --
------ ------
Net Asset Value, End of Period........................................... $ 8.14 $ 8.65
====== ======
Total Investment Return at Net Asset Value (c)........................... (4.96%) 1.77%(d)
Total Adjusted Investment Return at Net Asset Value (c)(e)............... (8.12%) (0.52%)(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................ $4,215 $4,426
Ratio of Expenses to Average Net Assets **............................... 1.64% 1.50%*
Ratio of Adjusted Expenses to Average Net Assets (a)..................... 4.80% 3.79%*
Ratio of Net Investment Income to Average Net Assets..................... 0.56% 1.02%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a).......... (2.60%) (1.27%)*
Portfolio Turnover Rate.................................................. 69% 50%
** Expense Reimbursement Per Share....................................... $ 0.25(b) $ 0.16(b)
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, AND TOTAL
INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE FOR A
SHARE HAS CHANGED SINCE THE COMMENCEMENT OF OPERATIONS. ADDITIONALLY, IMPORTANT
RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS ARE
EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
OCTOBER 31, (COMMENCEMENT OF OPERATIONS)
1995 TO OCTOBER 31, 1994
----------- ------------------------------
<S> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................................... $ 8.61 $ 8.50
------ ------
Net Investment Income (Loss)....................................................... (0.03) 0.02(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions..................................................................... (0.48) 0.09
------ ------
Total from Investment Operations.................................................. (0.51) 0.11
------ ------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold and Foreign Currency
Transactions.................................................................... (0.05) --
------ ------
Net Asset Value, End of Period..................................................... $ 8.05 $ 8.61
====== ======
Total Investment Return at Net Asset Value (c)..................................... (5.89%) 1.29%(d)
Total Adjusted Investment Return at Net Asset Value (c)(e)......................... (9.05%) (1.00%)(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).......................................... $3,990 $3,948
Ratio of Expenses to Average Net Assets **......................................... 2.52% 2.22%*
Ratio of Adjusted Expenses to Average Net Assets (a)............................... 5.68% 4.51%*
Ratio of Net Investment Income (Loss) to Average Net Assets........................ (0.37%) 0.31%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a).................... (3.53%) (1.98%)*
Portfolio Turnover Rate............................................................ 69% 50%
** Expense Reimbursement Per Share................................................. $ 0.25(b) $ 0.16(b)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) On average month end shares outstanding.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
(e) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
INTERNATIONAL FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO THREE MAIN CATEGORIES:
COMMON STOCKS, BONDS AND SHORT-TERM INVESTMENTS. COMMON STOCKS AND BONDS ARE
FURTHER BROKEN DOWN BY COUNTRY. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE
FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
AUSTRALIA (7.46%)
Amcor Ltd. (Paper) ............................. 15,000 $ 112,432
Broken Hill Proprietary Co., Ltd. ..............
(Diversified Operations) ...................... 9,350 126,632
Newcrest Mining Ltd. ...........................
(Gold Mining & Products) ...................... 20,000* 82,267
News Corp. Ltd. (The) (Publishing) ............. 29,900 150,776
Western Mining Corp. Holdings Ltd. .............
(Metal Processing & Products) ................. 21,875 140,301
----------
612,408
----------
CHILE (2.21%)
Santa Isabel S.A., American Depositary
Receipts (ADR) (Retail)** ..................... 8,000* 181,000
----------
DENMARK (2.22%)
Tele Danmark AS
(ADR) (Telecommunications) .................... 3,500* 182,559
----------
FINLAND (2.80%)
Metra AB (Machinery) ........................... 2,000* 86,637
Nokia AB (Telecommunications) .................. 2,500* 143,022
----------
229,659
----------
FRANCE (4.61%)
LVMH Moet Henessey Louis Vuitton
(Beverages) ................................... 780 155,199
Renault SA (ADR) (Automobile/Trucks)**(R) ...... 3,000* 93,000
Societe Centrale Union des Assurances
de Paris (Insurance) .......................... 5,000 129,854
----------
378,053
----------
GERMANY (4.01%)
Bayer AG (Chemicals) ........................... 400 106,394
Bayerische Motoren Werke AG
(Automobile/Trucks) ........................... 200* 107,275
Mannesmann AG (Diversified Operations) ......... 350* 115,200
----------
328,869
----------
HONG KONG (8.51%)
Cheung Kong (Holdings) Ltd. (Real Estate) ...... 20,000 112,783
CITIC Pacific Ltd. (Diversified Operations) .... 45,000 140,558
HSBC Holdings Ltd. (Banks) ..................... 7,800 113,494
Hutchison Whampoa Ltd. .........................
(Diversified Operations) ...................... 22,000 121,215
Swire Pacific Ltd. (Diversified Operations) .... 14,500 108,773
Wharf Holdings Ltd. (Diversified Operations) ... 30,000* $ 101,271
----------
698,094
----------
INDONESIA (1.46%)
PT Tambang Timah, Global Depositary Receipts
(Metal Processing & Products)** .............. 10,000* 120,250
----------
ITALY (1.68%)
Banca Commerciale Italiana S.p.A. (Banks) ...... 40,000* 77,917
Olivetti & C. S.p.A. (Computers)** ............. 80,000* 59,724
----------
137,641
----------
JAPAN (15.84%)
Fanuc Ltd. (Machinery) ......................... 3,000* 129,918
Fujisawa Pharmaceutical Co., Ltd. (Drugs) ...... 20,000* 194,731
Itochu Corp. (Diversified Operations) .......... 15,000 88,861
Jusco Co., Ltd. (Retail) ....................... 6,000 140,769
Matsushita Electric Industrial Co., Ltd. .......
(Electronics) ................................. 10,000 141,747
Nippon Television Network Corp. ................
(Broadcasting) ................................ 500* 119,263
Oki Electric Industry Co., Ltd. ................
(Telecommunications)** ........................ 10,000* 92,575
Sanwa Bank Ltd. (Banks) ........................ 6,000* 102,058
Sony Corp. (Electronics) ....................... 3,000 134,904
TDK Corp. (Electronics) ........................ 3,000* 154,553
----------
1,299,379
----------
Malaysia (2.92%)
Resorts World Berhad (Leisure & Recreation) .... 30,000 146,399
United Engineers Berhad (Engineering) .......... 15,000* 93,270
----------
239,669
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
MEXICO (0.87%)
Telefonos de Mexico S.A. de C.V. (ADR)
(Telecommunications) .......................... 2,600 $ 71,500
----------
NETHERLANDS (4.00%)
Koninklijke P.T.T. Nederland
(Telecommunications) .......................... 4,000* 140,702
Polygram N.V. (ADR)(Audio/Video) .............. 3,000 187,286
----------
327,988
----------
NEW ZEALAND (2.61%)
Carter Holt Harvey Ltd. (Paper) ................ 46,200 110,399
Telecom Corporation of New Zealand
(Telecommunications) .......................... 25,000 103,802
----------
214,201
----------
NORWAY (1.89%)
Orkla AS (Diversified Operations) .............. 3,000* 155,131
----------
PAKISTAN (0.23%)
Crescent Textile Mills (Textile)** ............. 25,127 18,910
----------
SINGAPORE (6.39%)
Fraser & Neave Ltd. ............................
(Diversified Operations) ...................... 12,000 141,826
Hongkong Land Holdings Ltd. ....................
(Real Estate) ................................. 45,000 81,000
Jardine Matheson Holdings Ltd. .................
(Diversified Operations) ...................... 10,000* 61,000
Keppel Corp. (Diversified Operations) .......... 18,000 147,771
United Overseas Bank Ltd. (Banks) .............. 10,600* 93,022
----------
524,619
----------
SPAIN (1.45%)
Repsol SA (Oil & Gas) .......................... 4,000 119,454
----------
SWEDEN (5.40%)
Atlas Copco AB (Machinery) ..................... 6,250 94,589
Hennes & Mauritz AB (Retail) ................... 2,000* 130,711
Investor AB (Diversified Operations) ........... 2,500* 89,036
Telefonaktiebolaget (LM) Ericsson
(Telecommunications) .......................... 6,050 128,460
----------
442,796
----------
SWITZERLAND (5.32%)
BBC Brown Boveri AG (Engineering) .............. 750 169,118
Ciba-Geigy AG (Drugs) .......................... 200 173,170
SMH AG (Leisure & Recreation) .................. 700* 94,028
----------
436,316
----------
THAILAND (1.68%)
Bangkok Bank (Banks) ........................... 9,000* 92,986
Italian-Thai Development Public Co., Ltd. ......
(Construction) ................................ 4,000* 45,142
----------
138,128
----------
United Kingdom (9.34%)
Carlton Communications PLC (Broadcasting) ...... 10,000 $ 152,332
Dixons Group PLC (Retail) ...................... 35,000* 211,937
Glaxo Wellcome PLC (Drugs) ..................... 15,000* 202,293
Reed International PLC (Publishing) ............ 7,000* 106,466
Thorn EMI PLC (Leisure & Recreation) ........... 4,000 93,154
----------
766,182
----------
TOTAL COMMON STOCKS
(Cost $7,337,029) (92.90%) 7,622,806
------ ----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
<S> <C> <C> <C>
BONDS
PERU (0.52%)
Tele 2000 S.A.
(Telecommunications)
Conv. Note 04-14-97 (R)......... 9.750% $ 50 43,000
-------
TOTAL BONDS
(Cost $50,000) (0.52%) 43,000
------- ---------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (7.89%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets Inc. -
Dated 10-31-95, Due 11-01-95
(secured by U.S. Treasury Bond,
8.75% Due 05-15-17, and by
U.S. Treasury Note, 5.75%
Due 09-30-97) Note A............ 5.890 647 647,000
---------
TOTAL SHORT-TERM INVESTMENTS (7.89%) 647,000
------- ---------
TOTAL INVESTMENTS (101.31%) $8,312,806
======= =========
<FN>
* Securities, other than short-term investments, newly added to the portfolio
during the year ended October 31, 1995.
** Non-income producing security.
(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. See Note A
of the Notes to Financial Statements for valuation policy. Rule
144A securities amounted to $136,000 as of October 31, 1995.
</TABLE>
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.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
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, 1995 ASSIGNED TO THE VARIOUS INVESTMENT CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE OF SECURITIES AS A
INVESTMENT CATEGORIES % OF FUND NET ASSETS
<S> <C>
Audio/Video.................................... 2.28%
Automobile/Trucks.............................. 2.44
Banks.......................................... 5.84
Beverages...................................... 1.89
Broadcasting................................... 3.31
Chemicals...................................... 1.30
Computers...................................... 0.73
Construction................................... 0.55
Diversified Operations......................... 17.03
Drugs.......................................... 6.95
Electronics.................................... 5.25
Engineering.................................... 3.20
Gold Mining & Products......................... 1.00
Insurance...................................... 1.58
Leisure & Recreation........................... 4.07
Machinery...................................... 3.79
Metal Processing & Products.................... 3.17
Oil & Gas...................................... 1.46
Paper.......................................... 2.72
Publishing..................................... 3.13
Real Estate.................................... 2.36
Retail......................................... 8.10
Telecommunications............................. 11.04
Textile........................................ 0.23
Short-Term Investments......................... 7.89
------
TOTAL INVESTMENTS 101.31%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of five series portfolios: John Hancock International Fund (the "Fund"), John
Hancock Global Fund, John Hancock Global Income Fund, John Hancock Special
Opportunities Fund, and John Hancock Short-Term Strategic Income Fund. Prior to
January 1, 1995, John Hancock International Fund was known as John Hancock
Freedom International Fund, John Hancock Global Fund was known as John Hancock
Freedom Global Fund and John Hancock Global Income Fund was known as John
Hancock Freedom Global Income Fund.
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, redemption, dividends, and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission. Shareholders of a class which bears
distribution/service expenses under the terms of a distribution plan, have
exclusive voting rights regarding such distribution plan. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt instruments 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
pur chase, 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
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $531,550 of capital loss
carryforward available, to the extent provided by regulations, to offset future
net realized capital gains. If such carryforwards are used by the Fund, no
capital gain distributions will be made. The carryforward expires October 31,
2003. For federal income tax purposes, net currency exchange gains and losses
for sales of foreign debt securities must be treated as ordinary income even
though such items are gains and losses for accounting purposes.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund 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
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
regulations, which may differ from generally accepted accounting principles.
Dividends paid by the Fund with respect to each class of shares will be
calculated in the same manner, at the same time and will be in the same amount,
except for the effect of expenses that may be applied differently to each class
as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees, if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
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.
There were no open forward foreign currency exchange contracts at October 31,
1995.
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 and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
DEFERRED ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to the
Fund's operations ratably over a five-year period that began with the
commencement of investment operations of the Fund.
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,
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
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 $250,000,000 of the
Fund's average daily net asset value, (b) 0.80% of the next $250,000,000, (c)
0.75% of the next $250,000,000 and (d) 0.625% of the Fund's average daily net
asset value in excess of $750,000,000. 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 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.
The Adviser has agreed to limit Fund expenses, including the management fee
(but not including the transfer agent fee and the 12b-1 fee), to 0.90% of the
Fund's average daily net assets. Accordingly, the reduction in the Adviser's fee
amounted to $254,219 for the period ended October 31, 1995. The Adviser reserves
the right to terminate this reduction in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. Prior to January 1, 1995, JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended October 31, 1995, JH Funds received net sales charges of $21,905
with regard to sales of Class A shares. Out of this amount, $3,910 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $3,174 was paid as sales commissions to unrelated broker-dealers and
$14,821 was paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker
Anthony") and Sutro & Co., Inc. ("Sutro"). 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 related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended October 31,
1995, contingent deferred sales charges received by JH Funds amounted to
$27,200.
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
0.30% of the Fund's average daily net assets attributable to Class A shares and
1.00% of the Fund's average daily net assets attributable to Class B shares to
reimburse JH Funds for its distribution/service costs. Up to a maximum of 0.25%
of these payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the amended
Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Prior to January 1, 1995, the Fund paid Investor Services a monthly transfer
fee equivalent, on an annual basis, to 0.30% and 0.32% of the average daily net
asset value of Class A and Class B shares of the Fund, respectively, plus
out-of-pocket expenses incurred by Fund Services on behalf of the Fund. For the
period January 1, 1995 and through September 30, 1995 Class A and Class B shares
paid transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses. For the eleven months ended September 30, 1995 the
transfer agent expense, calculated as a class specific expense was $17,261 for
Class A and $18,620 for Class B, respectively. Effective October 1, 1995
transfer agent expense is being treated as a fund expenses based on the number
of shareholder accounts in the Fund and certain out-of-pocket expenses.
Edward J. Boudreau, Jr. is a director and officer of the Adviser, and its
affiliates, as well as a Trustee of the Fund. The Adviser owns 58,824 Class A
shares of beneficial interest of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock Funds, as applicable, to
cover its liability as regards to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as an other asset. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
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, 1995 aggregated $5,835,294 and $5,282,495, respectively. There
were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended October 31, 1995.
The cost of investments owned at October 31, 1995 for federal income tax
purposes was $8,034,029. Gross unrealized appreciation and depreciation of
investments aggregated $728,075 and $449,298, respectively, resulting in net
unrealized appreciation of $278,777.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended October 31, 1995, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $32,130, a
decrease in undistributed net investment income of $10,619 and a decrease in
capital paid-in of $21,511. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1995. 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.
19
<PAGE> 20
John Hancock Funds - International Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock International 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 International Fund
(the "Fund") (formerly known as John Hancock Freedom International Fund) (a
portfolio of Freedom Investment Trust II) at October 31, 1995, 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 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, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 18, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1995.
With respect to the Fund's ordinary taxable income for the fiscal year ended
October 31, 1995, 100% of the dividends qualify for the corporate dividends
received deduction.
Shareholders will receive a 1995 U.S. Treasury Department Form 1099-DIV in
January of 1996. This will reflect the total of all distributions which are
taxable for the calendar year 1995.
20
<PAGE> 21
NOTES
John Hancock Funds - International Fund
21
<PAGE> 22
NOTES
John Hancock Funds - International Fund
22
<PAGE> 23
NOTES
John Hancock Funds - International Fund
23
<PAGE> 24
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[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."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
International 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."]
JHD 4000A 10/95
12/95
