- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
International
Fund
SEMI-ANNUAL REPORT
April 30, 1996
<PAGE>
TRUSTEES
EDWARD J. BOUDREAU, JR.
Chairman
WILLIAM A. BARRON, III*
DOUGLAS M. COSTLE*
LELAND O. ERDAHL*
RICHARD A. FARRELL*
WILLIAM F. GLAVIN*
PATRICK GRANT*
ANNE C. HODSDON
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
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" PHOTO OF EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, FLUSH RIGHT, NEXT TO SECOND PARAGRAPH.]
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders N technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place N slow economic growth, muted inflation and decent corporate earnings N it
would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be able
to count on consistent customer service performance. At John Hancock Funds, we
never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously the
role you have entrusted to us, that of helping you achieve your financial goals.
Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By David S. Beckwith and John L.F. Wills,
Co-Portfolio Managers
John Hancock
International Fund
Japan, Hong Kong lead foreign markets; Europe lags
--------------------------------------------------
During the past six months, foreign stocks began performing more in line with
their superior valuations, making up some of the ground lost to U.S. stocks
earlier in 1995. The progress has been most pronounced in the world's emerging
markets, such as Hong Kong, and in Japan, where the Nikkei Index rose about 25%
for dollar-based investors during the period. As the Japanese economy began to
emerge from its long hibernation, the Fund added more Japanese stocks, nearly
doubling its stake from 16% of assets six months ago to 31% at the end of April.
That had a positive impact on performance, helping the Fund outperform the
market since the beginning of the calendar year. For the entire six-month
period, however, the Fund underperformed relative to its peer group for several
reasons. Those included the impact of a stronger dollar on the Fund's foreign
investments, which were not hedged against currency fluctuations, and losses
suffered late last year on two prominent Scandinavian telecommunications stocks.
For the six months ended April 30, 1996, the Fund had total returns at net
asset value of 9.09% for its Class A shares and 8.82% for its Class B shares,
compared to 11.95% for the average international fund, according to Lipper
Analytical Services.1 Here's a closer look at the Fund's performance, region by
region.
- --------------------------------------------------------------------------------
"...The Japanese economy began to emerge from its long hibernation..."
- --------------------------------------------------------------------------------
Europe
As the Fund built up its stake in Japan, European investments as a percentage of
the Fund's total assets declined slightly from 33% at the beginning of the
period to 28% at the end. We focused on the region's core economies -- Britain,
France and Germany N which together accounted for more than half of the Fund's
European investments. A second focus, albeit to a lesser degree, was
Scandinavia. In Britain, whose economic recovery is leading the rest of Europe,
we found attractive opportunities in consumer stocks, including Dixons Group, an
electronics retailer, and Thorn EMI, an entertainment company whose music
holdings have become takeover targets. In Germany, where the central bank has
been reluctant to lower interest rates despite a stalled economy, we sold the
Fund's stake in Mannesmann, an economically sensitive industrial conglomerate,
shortly
3
<PAGE>
================================================================================
John Hancock Funds - International Fund
TOP FIVE COUNTRIES
1. Japan 31.1%
2. Hong Kong 11.6%
3. United Kingdom 9.9%
4. Australia 6.6%
5. France 3.7%
As a percentage of net assets on April 30, 1996
- --------------------------------------------------------------------------------
"Investments in emerging markets totaled 21% of the Fund's net assets..."
- --------------------------------------------------------------------------------
after the period ended, keeping only Bayer, a pharmaceutical and chemical
company. In Scandinavia, after Nokia of Finland issued a disappointing earnings
report, market sentiment toward the entire cellular communications sector turned
sour, damaging Ericsson of Sweden as well. We believe both stocks suffered more
at the hands of nervous investors than conditions warranted, and we believe they
have the potential to bounce back.
Japan
The Japanese economy has shown signs within the last two months of emerging from
a long and difficult recession. Industrial production is picking up, buoyed in
part by the long-delayed rebuilding effort following the 1995 Kobe earthquake.
Throughout the Japanese economy, we see the potential for significant earnings
gains. There are growing signs of increased interest in Japan on the part of
U.S. institutional investors looking for the next big global opportunity. What's
more, as the markets have turned, Japanese investors have begun showing renewed
interest in local stocks. The weakness of the yen, while undercutting profits
for U.S. dollar-based investors, has been a boon for exporters of consumer
products, including Sony, one of the Fund's largest Japanese holdings.
Bridgestone, the tire company, has profited from renewed strength in the
Japanese auto sector. And Jusco, a retailer, has received a boost from growing
consumer confidence.
Emerging markets go higher
Investments in emerging markets totaled 21% of the Fund's net assets at the end
of April, led by Hong Kong, with 12%. Lower interest rates and a strong local
real estate market have been among the forces driving stock prices higher in
Hong Kong for more than a year. The Fund's largest holdings include HSBC
Holdings, a bank; Cheung Kong, a conglomerate with large real estate holdings
and Wharf, another conglomerate with significant interests in cable t elevision
and property development. Elsewhere in Southeast Asia, the Fund had investments
in Singapore, where our largest holding is Keppel, a conglomerate involved in
shipping, banking and property development, and Malaysia, where we own Resorts
World, a casino and resort operator. The Fund is less involved in the emerging
markets of Latin America, although it
[A 2 1/2" x 2" PHOT OF JOHN L.F. WILLS CENTERED AT BOTTOM OF PAGE. CAPTION
READS: "JOHN L.F. WILLS, CO-PORTFOLIO MANAGER."]
4
<PAGE>
================================================================================
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 SIX MONTHS ENDED APRIL 30, 1996." THE CHART IS
SCALED IN INCREMENTS OF 4% FROM BOTTOM TO TOP, WITH 12% AT THE TOP AND 0% AT THE
BOTTOM. WITHIN THE CHART, THERE ARE THREE SOLID BARS. THE FIRST REPRESENTS THE
9.09% TOTAL RETURN FOR JOHN HANCOCK INTERNATIONAL FUND: CLASS A. THE SECOND
REPRESENTS THE 8.82% TOTAL RETURN FOR JOHN HANCOCK INTERNATIONAL FUND: CLASS B.
THE THIRD REPRESENTS THE 11.95% TOTAL RETURN FOR THE AVERAGE INTERNATIONAL FUND.
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."]
has profited from a fairly large stake in Santa Isabel, which operates
supermarkets in Chile.
Australia, New Zealand
The Fund has de-emphasized this part of the world lately, going from a nearly
10% stake in Australia and New Zealand six months ago to about a 7% stake in
Australia and nothing in New Zealand by the end of April. There, our focus was
on mining and natural resource stocks, including Broken Hill Proprietary, a
conglomerate; and on two gold stocks, Newcrest Mining and Plutonic Resources,
which have profited from the recent runup in gold prices.
[A 2 1/8" x 2 1/3" PHOTO OF DAVID S. BECKWITH, FLUSH LEFT AT BOTTOM OF PAGE.
CAPTION READS: "DAVID S. BECKWITH, CO-PORTFOLIO MANAGER."]
Outlook
- --------------------------------------------------------------------------------
"...we continue to believe foreign stocks represent a significant log-term
opportunity..."
- --------------------------------------------------------------------------------
We believed last year that given the strong performance in U.S. stocks and the
relative underperformance of non-U.S. stocks, international stocks would soon
have another day in the sun. After a long fallow period, foreign markets have
shown signs lately of fulfilling the promise contained in their attractive
valuations. Even while foreign stock prices were stuck in neutral, economic
expansion and earnings growth continued unabated. Ultimately stock prices follow
earnings and for that reason, we continue to believe foreign stocks represent a
significant long-term opportunity. As always, we'll be keeping an eye on
interest rates and inflation. Higher food and energy prices in recent months
have raised some eyebrows, but we're not too concerned. Wages are the key
variables in any inflation equation, and there the trends are positive, thanks
to the global pool of cheap labor.
1 Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
This commentary reflects the views of the portfolio 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.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
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 income and capital gain
distributions, assuming reinvestment of these distributions and the change in
the price of the Fund's shares, expressed as a percentage of the Fund's net
asset value per share. Performance figures include the maximum applicable sales
charge of 5% for Class A shares. The effect of the maximum contingent deferred
sales charge for Class B shares (maximum 5% and declining to 0% over six years)
is included in Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the future.
Also, keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them. Please see your
prospectus for a discussion of the risks associated with international
investing, including currency and political risks and difference s in accounting
standards and financial reporting.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Fund: Class A(1) 5.39% (2.96%)
John Hancock International Fund: Class B(1) 4.97% (2.46%)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Fund: Class A(1,2) 5.39% (1.33%)
John Hancock International Fund: Class B(1,2) 4.97% (1.11%)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of October 31, 1995
SEC 30-DAY
YIELD
-----
John Hancock International Fund: Class A 6.38%
John Hancock International Fund: Class B 5.92%
Notes to Performance
(1) Both Class A and Class B shares commenced 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 3.63% and
(3.90%) for Class A shares and 3.21% and (3.68%) for Class B shares.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
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 April 30, 1996, assuming you had invested
on the day each class of shares started and reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Morgan Stanley EAFE
Index -- an unmanaged index that measures the performance of stock markets in
Europe, Australia and the Far East.
[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 $12,776 AS OF APRIL 30, 1996. 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 $10,551 AS OF APRIL 30, 1996. THE
THIRD LINE REPRESENTS THE INTERNATIONAL FUND AFTER SALES CHARGE AND IS EQUAL TO
$10,020 AS OF APRIL 30, 1996.]
[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 $12,776 AS OF APRIL 30, 1996. THE SECOND LINE REPRESENTS THE
INTERNATIONAL FUND AFTER CONTINGENT DEFERRED SALES CHARGE AND IS EQUAL TO
$10,373 AS OF APRIL 30, 1996. THE THIRD 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 $10,073 AS OF
APRIL 30, 1996.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $11,322,523)................................... $12,570,834
Joint repurchase agreement (cost - $1,684,000)....................... 1,684,000
-----------
14,254,834
Cash................................................................... 15,552
Foreign currency, at value (cost - $4,978)............................. 4,960
Receivable for shares sold............................................. 49,499
Receivable for investments sold........................................ 174,922
Foreign taxes receivable............................................... 1,707
Interest receivable.................................................... 249
Dividends receivable................................................... 40,896
Receivable from John Hancock Advisers, Inc. - Note B................... 27,252
Deferred organization expenses - Note A................................ 61,676
Other assets........................................................... 273
-----------
Total Assets..................... 14,631,820
---------------------------------------------------
Liabilities:
Payable for investments purchased...................................... 272,397
Payable for shares repurchased......................................... 18,230
Payable for forward foreign currency exchange contracts purchased -
Note A................................................................. 1,206
Payable to John Hancock Advisers, Inc. and affiliates - Note B......... 7,129
Accounts payable and accrued expenses.................................. 62,923
-----------
Total Liabilities................ 361,885
---------------------------------------------------
Net Assets:
Capital paid-in........................................................ 13,508,391
Accumulated net realized loss on investments and foreign currency
transactions........................................................... ( 483,133)
Net unrealized appreciation of investments and foreign currency
transactions........................................................... 1,242,502
Undistributed net investment income.................................... 2,175
-----------
Net Assets....................... $14,269,935
===================================================
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 - $6,077,684/684,182........................................... $ 8.88
=========================================================================================
Class B - $8,192,251/935,004........................................... $ 8.76
=========================================================================================
Maximum Offering Price Per Share *
Class A - ($8.88 x 105.26%)............................................ $ 9.35
=========================================================================================
</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 April 30, 1996. You'll also
find the net asset value and the maximum offering price per share as of that
date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $7,639)................. $ 69,822
Interest............................................................... 45,576
----------
115,398
----------
Expenses:
Investment management fee - Note B................................... 54,474
Distribution/service fee - Note B
Class A............................................................ 7,274
Class B............................................................ 30,227
Transfer agent fee - Note B.......................................... 26,669
Custodian fee........................................................ 35,100
Auditing fee......................................................... 17,902
Organization expense - Note A........................................ 11,477
Printing............................................................. 6,244
Trustees' fees....................................................... 829
Miscellaneous........................................................ 536
Registration and filing fees......................................... 483
----------
Total Expenses.................................. 191,215
Less expense reductions - Note B................ ( 77,992)
----------
Net Expenses.................................... 113,223
-----------------------------------------------------------------
Net Investment Income........................... 2,175
-----------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions:
Net realized gain on investments sold.................................. 71,626
Net realized loss on foreign currency transactions..................... ( 23,209)
Change in net unrealized appreciation/depreciation of
investments............................................................ 969,558
Change in net unrealized appreciation/depreciation of foreign currency
transactions........................................................... ( 5,663)
----------
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions................... 1,012,312
-----------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations...................................... $1,014,487
=================================================================
</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>
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FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
----------- ----
<S> <C> <C>
From Operations:
Net investment income.................................................................. $ 2,175 $10,619
Net realized gain (loss) on investments sold and foreign currency transactions......... 48,417 ( 563,681)
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions.................................................................. 963,895 46,088
----------- ----------
Net Increase (Decrease) in Net Assets Resulting from Operations...................... 1,014,487 ( 506,974)
Distributions to Shareholders:
Dividends from net investment income
Class A - (none and $0.0268 per share, respectively)................................. .... ( 14,822)
Distributions from net realized gain on investments sold
Class A - (none and $0.0512 per share, respectively)................................. .... ( 28,343)
Class B - (none and $0.0512 per share, respectively)................................. .... ( 25,719)
----------- ----------
Total Distributions to Shareholders................................................ .... ( 68,884)
----------- ----------
From Fund Share Transactions - Net*...................................................... 5,050,485 407,315
----------- ----------
Net Assets:
Beginning of period.................................................................... 8,204,963 8,373,506
----------- ----------
End of period (including undistributed net investment income of $2,175 and none,
respectively).......................................................................... $14,269,935 $8,204,963
=========== ==========
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
----------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
CLASS A
Shares sold......................................................... 358,490 $3,040,518 284,149 $2,274,882
Shares issued to shareholders in reinvestment of distributions .... .... 4,863 38,128
------- ---------- ------- ----------
358,490 3,040,518 289,012 2,313,010
Less shares repurchased............................................. (192,346) ( 1,629,343) (282,754) ( 2,241,182)
------- ---------- ------- ----------
Net increase........................................................ 166,144 $1,411,175 6,258 $ 71,828
======= ========== ======= ==========
CLASS B
Shares sold......................................................... 640,958 $5,309,065 255,410 $2,065,161
Shares issued to shareholders in reinvestment of distributions .... .... 2,888 22,582
------- ---------- ------- ----------
640,958 5,309,065 258,298 2,087,743
Less shares repurchased............................................. (201,304) ( 1,669,755) (221,662) ( 1,752,256)
------- ---------- ------- ----------
Net increase........................................................ 439,654 $3,639,310 36,636 $ 335,487
======= ========== ======= ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
APRIL 30, 1996 OCTOBER 31, (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) 1995 TO OCTOBER 31, 1994
----------- ---- -------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period................................ $ 8.14 $ 8.65 $ 8.50
------ ------ ------
Net Investment Income............................................... 0.02(b) 0.04 0.07(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions............................................... 0.72 ( 0.47) 0.08
------ ------ ------
Total from Investment Operations.................................. 0.74 ( 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...................................... $ 8.88 $ 8.14 $ 8.65
====== ====== ======
Total Investment Return at Net Asset Value (c)...................... 9.09%(d) ( 4.96%) 1.77%(d)
Total Adjusted Investment Return at Net Asset Value (c)(e).......... 8.37%(d) ( 8.12%) ( 0.52%)(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)........................... $6,078 $4,215 $4,426
Ratio of Expenses to Average Net Assets**........................... 1.69%* 1.64% 1.50%*
Ratio of Adjusted Expenses to Average Net Assets (a)................ 3.12%* 4.80% 3.79%*
Ratio of Net Investment Income to Average Net Assets**.............. 0.40%* 0.56% 1.02%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)..... ( 1.03%)* ( 2.60%) ( 1.27%)*
Portfolio Turnover Rate............................................. 34% 69% 50%
Average Broker Commission Rate (per share of security) (g).......... $ 0.00(f) N/A N/A
**Expense Reimbursement Per Share................................... $ 0.07(b) $ 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>
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FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Financial Highlights (continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
APRIL 30, 1996 OCTOBER 31, (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) 1995 TO OCTOBER 31, 1994
----------- ---- -------------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period................................ $ 8.05 $ 8.61 $ 8.50
------ ------ ------
Net Investment Income (Loss)........................................ ( 0.01)(b) ( 0.03) 0.02(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions 0.72 ( 0.48) 0.09
------ ------ ------
Total from Investment Operations.................................. 0.71 ( 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...................................... $ 8.76 $ 8.05 $ 8.61
====== ====== ======
Total Investment Return at Net Asset Value (c)...................... 8.82%(d) ( 5.89%) 1.29%(d)
Total Adjusted Investment Return at Net Asset Value (c)(e).......... 8.10%(d) ( 9.05%) ( 1.00%)(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)........................... $8,192 $3,990 $3,948
Ratio of Expenses to Average Net Assets**........................... 2.39%* 2.52% 2.22%*
Ratio of Adjusted Expenses to Average Net Assets (a)................ 3.82%* 5.68% 4.51%*
Ratio of Net Investment Income (Loss) to Average Net Assets**....... ( 0.25%)* ( 0.37%) 0.31%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)..... ( 1.68%)* ( 3.53%) ( 1.98%)*
Portfolio Turnover Rate............................................. 34% 69% 50%
Average Broker Commission Rate (per share of security) (g).......... $ 0.00(f) N/A N/A
**Expense Reimbursement Per Share................................... $ 0.07(b) $ 0.25(b) $ 0.16(b)
*On an annualized basis.
</TABLE>
(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.
(f) Amount represents less than $0.01 per share.
(g) Average broker commission rate (per share of security) as required by
amended disclosure requirements effective September 1, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Schedule of Investments
April 30, 1996 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Australia (6.58%)
Boral Ltd. (Building Products).............. 80,000 $ 208,641
Broken Hill Proprietary Co., Ltd.
(Diversified Operations).................. 9,350 143,886
Newcrest Mining Ltd.
(Gold Mining & Products).................. 40,000 192,616
Plutonic Resources Ltd.
(Gold Mining & Products).................. 30,000 182,639
RGC Ltd. (Metal Processing & Products)...... 40,000 211,469
----------
939,251
----------
Brazil (0.99%)
Telecomunicacoes Brasileiras S/A,
American Depositary Receipts
(ADR) (Telecommunications).................. 2,600 140,725
----------
Chile (1.62%)
Santa Isabel S.A., (ADR) (Retail)*.......... 8,000 231,000
----------
Finland (2.30%)
Amer Group, Ltd. (Diversified
Operations)............................... 10,000 185,966
Nokia AB (Telecommunications)............... 4,000 142,904
----------
328,870
----------
France (3.68%)
LVMH Moet Henessey Louis Vuitton
(Beverages)............................... 1,280 327,462
Renault SA (ADR)
(Automobile/Trucks)* (R).................. 3,000 90,000
Union des Assurances de Paris
(Insurance)............................... 5,000 108,273
----------
525,735
----------
Germany (1.74%)
Bayer AG (Chemicals)........................ 400 128,813
Mannesmann AG (Diversified
Operations)............................... 350 119,570
----------
248,383
----------
Hong Kong (11.55%)
Cheung Kong (Holdings) Ltd.
(Real Estate)............................. 35,000 249,984
CITIC Pacific Ltd. (Diversified
Operations)............................... 45,000 176,847
HSBC Holdings Ltd. (Banks).................. 10,800 161,256
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by the
International Fund on April 30, 1996. It's divided into two main categories:
common stocks and short-term investments. Common stocks are further broken down
by country. Short-term investments, which repre sent the Fund's "cash" position,
are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Hong Kong (continued)
Hutchison Whampoa Ltd.
(Diversified Operations).................. 42,000 $ 260,617
Joyce Boutique Holdings (Retail)............ 1,000,000 355,504
Swire Pacific Ltd. (Diversified
Operations)............................... 19,500 166,376
Wharf Holdings Ltd. (Diversified
Operations)............................... 75,000 277,778
----------
1,648,362
----------
Japan (31.17%)
Bridgestone Corp.
(Automobile/Trucks)................... 16,000 296,735
Fanuc Ltd. (Machinery).................. 6,000 260,982
Honda Motor Co., Ltd.
( Automobile/Trucks)................... 10,000 228,479
Itochu Corp. (Diversified Operations)... 40,000 304,766
Jusco Co., Ltd. (Retail)................ 7,000 216,816
Matsushita Electric Industrial Co.,
Ltd. (Electronics).................... 27,000 477,511
Matsushita-Kotobuki Electronics
Industries, Ltd. (Electronics).......... 9,000 240,906
Mitsubishi Heavy Industries, Ltd.
(Machinery)........................... 30,000 267,865
Nippon Steel Co. (Steel)................ 70,000 252,952
Nippon Television Network Corp.
(Broadcasting)........................ 1,000 314,516
Oki Electric Industry Co., Ltd.
(Telecommunications).................. 26,000 206,300
Rohm Co., Ltd. (Electronics)............ 4,000 254,672
Sanwa Bank Ltd. (Banks)................. 18,000 364,801
Sony Corp. (Electronics)................ 4,000 260,026
Sony Music Entertainment Inc.
(Electronics)......................... 5,000 271,020
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Japan (continued)
TDK Corp. (Electronics)..................... 4,000 $ 229,052
-----------
4,447,399
-----------
Korea (1.80%)
Korea Housing Bank (Banks)*................. 9,000 256,730
-----------
Malaysia (1.99%)
Resorts World Berhad
(Leisure & Recreation).................... 30,000 181,687
United Engineers Berhad (Engineering)....... 15,000 102,876
-----------
284,563
-----------
Mexico (0.62%)
Telefonos de Mexico S.A. de C.V.
(ADR) (Telecommunications)................ 2,600 88,400
-----------
Netherlands (1.67%)
Polygram N.V. (Audio/Video)................. 4,000 238,109
-----------
Norway (1.44%)
Hafslund Nycomed AS (Drugs)................. 7,000 205,644
-----------
Pakistan (0.03%)
Cresent Textile Mills (Textile)*............ 6,433 4,262
-----------
Singapore (2.20%)
Keppel Corp. (Diversified Operations)....... 18,000 162,612
United Overseas Bank Ltd. (Banks)........... 15,600 152,027
-----------
314,639
-----------
Spain (1.03%)
Repsol SA (Oil & Gas)....................... 4,000 146,698
-----------
Sweden (2.68%)
Investor AB (Diversified Operations)........ 6,500 259,747
Telefonaktiebolaget (LM) Ericsson
(Telecommunications)...................... 6,050 122,666
-----------
382,413
-----------
Switzerland (3.40%)
Ciba-Geigy AG (Drugs)....................... 200 232,120
SMH AG (Leisure & Recreation)............... 1,700 253,302
-----------
485,422
-----------
Thailand (1.73%)
Bangkok Bank (Banks)........................ 17,000 246,469
-----------
United Kingdom (9.87%)
British Petroleum Co. PLC (Oil & Gas)....... 30,000 270,736
Burton Group PLC (Retail)................... 150,000 352,250
Dixons Group PLC (Retail)................... 35,000 259,747
Glaxo Wellcome PLC (Drugs).................. 25,000 303,139
Thorn EMI PLC (Leisure & Recreation)........ 8,000 221,888
-----------
1,407,760
-----------
TOTAL COMMON STOCKS
(Cost $11,322,523) (88.09%) 12,570,834
------ -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE 000'S OMITTED VALUE
- ------------------- ---- ------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (11.80%)
Investment in a joint repurchase
agreement transaction
with SBC Capital Markets,
Inc. - Dated 04-30-96,
Due 05-01-96 (secured
by U.S. Treasury Bonds,
10.375% Due 11-15-12,
and 7.25% Due 05-15-16) -
Note A......... 5.33% $ 1,684 $ 1,684,000
-----------
TOTAL SHORT-TERM INVESTMENTS (11.80%) 1,684,000
------ -----------
TOTAL INVESTMENTS (99.89%) $14,254,834
====== ===========
* 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 $90,000 as of April 30, 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.
14
<PAGE>
================================================================================
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 April 30, 1996 assigned to the various investment categories.
MARKET VALUE OF SECURITIES AS A
INVESTMENT CATEGORIES % OF FUND NET ASSETS
- --------------------- --------------------
Audio/Video............................... 1.67%
Automobile/Trucks......................... 4.31
Banks..................................... 8.28
Beverages................................. 2.30
Broadcasting.............................. 2.20
Building Products......................... 1.46
Chemicals................................. 0.90
Diversified Operations.................... 14.42
Drugs..................................... 5.19
Electronics............................... 12.15
Engineering............................... 0.72
Gold Mining & Products.................... 2.63
Insurance................................. 0.76
Leisure & Recreation...................... 4.60
Machinery................................. 3.71
Metal Processing & Products............... 1.48
Oil & Gas................................. 2.93
Real Estate............................... 1.75
Retail.................................... 9.92
Steel..................................... 1.77
Telecommunications........................ 4.91
Textile................................... 0.03
Short-Term Investments.................... 11.80
-----
TOTAL INVESTMENTS 99.89%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
(UNAUDITED)
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 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.
The investment objective of the Fund is long-term growth of capital.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends, and liquidation, except that
certain expenses subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution/service expenses under terms of
a distribution plan, have exclusive voting rights 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 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. 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, the Fund has $531,550 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforward is used by the Fund, no
capital gains distributions will be made. The carryforward expires October 31,
2003. 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 principals. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
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.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investmen ts in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
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 buy contracts at April 30, 1996, were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH DEPRECIATION
- --------- ------------------- ----- ------------
SWISS FRANC 181,493 MAY 96 ($ 900)
FRENCH FRANC 652,244 MAY 96 ( 306)
------
($1,206)
======
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
17
<PAGE>
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 $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 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, 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 $30,000,00 0 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 managemen t
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 $77,992 for the period ended April 30, 1996. The Adviser
reserves the right to terminate this limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended April
30, 1996, net sales charges received with regard to sales of Class A shares
amounted to $19,795. Out of this amount, $3,164 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $5,614
was paid as sales commissions to unrelated broker dealers and $11,017 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 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 April 30, 1996,
contingent deferred sales charges paid to JH Funds amounted to $10,139.
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 pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
18
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Mr. Edward J. Boudreau, Jr. 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 April 30, 1996, the Fund's investments to
cover the deferred compensation liability had unrealized appreciation of $24.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1996, aggregated $7,101,994 and $3,238,127, respectively. There
were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1996.
The cost of investments owned at April 30, 1996 for federal income tax
purposes was $13,006,523. Gross unrealized appreciation and depreciation of
investments aggregated $1,486,967 and $238,656, respectively, resulting in net
unrealized appreciation of $1,248,311.
19
<PAGE>
================================================================================
[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
- --------------------------------------------------------------------------------
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.
[RECYCLE LOGO] Printed on Recycled Paper 400SA 4/96
696
