John Hancock Funds
Disciplined
Growth
Fund
Annual Report
October 31, 1997
<PAGE>
John Hancock Funds - Disciplined Growth Fund
Trustees
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl *
Richard A. Farrell *
Gail D. Fosler*
William F. Glavin *
Anne C. Hodsdon
John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
* Members of the Audit Committee
Officers
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
Custodian
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
Transfer Agent
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Independant Auditors
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
<PAGE>
John Hancock Funds - Disciplined Growth Fund
Statement of Assets and Liabilities
October 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $ 94,419,863 ) $125,955,967
Joint repurchase agreement (cost - $ 6,867,000 ) 6,867,000
Corporate savings account 921
--------------------
132,823,888
Receivable for investments sold 3,050,476
Receivable for shares sold 3,986
Dividends receivable 135,319
Interest receivable 1,090
Foreign tax receivable 518
Other assets 4,162
--------------------
Total Assets 136,019,439
---------------------------------------------------
Liabilities:
Payable for investments purchased 3,099,950
Payable for shares repurchased 7,741
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 126,675
Accounts payable and accrued expenses 15,124
--------------------
Total Liabilities 3,249,490
---------------------------------------------------
Net Assets:
Capital paid-in 86,472,491
Accumulated net realized gain on investments 14,766,204
Net unrealized appreciation of investments 31,536,731
Accumulated net investment loss (5,477)
--------------------
Net Assets $132,769,949
===================================================
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)
Class A - $35,971,442 / 2,095,360 $17.17
=======================================================================================================================
Class B - $96,798,507 / 5,763,288 $16.80
=======================================================================================================================
Maximum Offering Price Per Share*
Class A - ($17.17 x 105.26%) $18.07
=======================================================================================================================
* 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.
</TABLE>
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - Disciplined Growth Fund
Statement of Operations
Year ended October 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $8,353) $1,805,538
Interest 489,986
--------------------
2,295,524
--------------------
Expenses:
Investment management fee - Note B 962,668
Distribution and service fee - Note B
Class A 97,782
Class B 953,320
Transfer agent fee - Note B 317,651
Custodian fee 40,920
Registration and filing fees 29,697
Financial services fee - Note B 23,566
Auditing fee 23,500
Trustees' fees 9,708
Printing 4,632
Miscellaneous 2,818
Legal fees 1,909
--------------------
Total Expenses 2,468,171
----------------------------------------------------------------------
Net Investment Loss (172,647)
----------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 16,517,935
Change in net unrealized appreciation/depreciation
of investments 10,036,060
--------------------
Net Realized and Unrealized Gain on
Investments 26,553,995
----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $26,381,348
======================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - Disciplined Growth Fund
Statement of Changes in Net Assets
October 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
YEAR ENDED OCTOBER 31,
-------------------------------
1996 1997
------------ ------------
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($83,995) ($172,647)
Net realized gain on investments sold 13,412,288 16,517,935
Change in net unrealized appreciation/depreciation of investments 10,413,875 10,036,060
------------ ------------
Net Increase in Net Assets Resulting from Operations 23,742,168 26,381,348
------------ ------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.1030 and $1.7182 per share, respectively) (218,913) (3,141,926)
Class B - ($0.1030 and $1.7182 per share, respectively) (691,213) (10,186,413)
------------ ------------
Total Distributions to Shareholders (910,126) (13,328,339)
------------ ------------
From Fund Share Transactions - Net: * (15,386,732) (1,598,035)
------------ ------------
Net Assets:
Beginning of period 113,869,665 121,314,975
------------ ------------
End of period (including accumulated net investment loss
of none and $5,477, respectively) $121,314,975 $132,769,949
============ ============
* Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
1996 1997
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- -----------
CLASS A
Shares sold 1,009,864 $14,846,003 444,482 $6,976,511
Shares issued to shareholders in reinvestment
of distributions 15,749 211,679 212,961 3,038,956
----------- ------------ ---------- -----------
1,025,613 15,057,682 657,443 10,015,467
Less shares repurchased (1,345,465) (19,632,832) (410,838) (6,487,188)
=========== ============ ========== ===========
Net increase (decrease) (319,852) ($4,575,150) 246,605 $3,528,279
=========== ============ ========== ===========
CLASS B
Shares sold 687,430 $9,579,944 408,644 $6,251,617
Shares issued to shareholders in reinvestment
of distributions 48,668 649,722 656,617 9,225,469
----------- ------------ ---------- -----------
736,098 10,229,666 1,065,261 15,477,086
Less shares repurchased (1,497,331) (1,041,248) (1,331,002) (20,603,400)
=========== ============ ========== ============
Net decrease (761,233) ($10,811,582) (265,741) ($5,126,314)
=========== ============ ========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - John Hancock Disciplined Growth 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>
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.99 $ 12.39 $ 12.02 $ 12.77 $ 15.56
------- ------- ------- ------- -------
Net Investment Income 0.08 (1) 0.10 0.08 (1) 0.07 (1) 0.06 (1)
Net Realized and Unrealized Gain on Investments 1.34 0.07 1.29 2.82 3.27
------- ------- ------- ------- -------
Total from Investment Operations 1.42 0.17 1.37 2.89 3.33
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.02) (0.10) (0.10) - -
Distributions from Net Realized Gain on Investment Sold - (0.44) (0.52) (0.10) (1.72)
------- ------- ------- ------- -------
Total Distributions (0.02) (0.54) (0.62) (0.10) (1.72)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.39 $ 12.02 $ 12.77 $ 15.56 $ 17.17
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) 12.97% 1.35% 12.21% 22.78% 23.63%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $23,372 $23,292 $27,692 $28,760 $35,971
Ratio of Expenses to Average Net Assets 1.60% 1.53% 1.46% 1.47% 1.40%
Ratio of Net Investment Income to Average Net Assets 0.64% 0.83% 0.69% 0.46% 0.38%
Portfolio Turnover Rate 71% 60% 65% 78% 58%
Average Broker Commission Rate (3) N/A N/A N/A $0.0698 $0.0699
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.97 $ 12.31 $ 11.95 $ 12.69 $ 15.35
------- ------- ------- ------- -------
Net Investment Income (Loss) 0.02 (1) 0.03 0.01 (1) (0.03) (1) (0.05) (1)
Net Realized and Unrealized Gain on Investments 1.33 0.07 1.28 2.79 3.22
------- ------- ------- ------- -------
Total from Investment Operations 1.35 0.10 1.29 2.76 3.17
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.01) (0.02) (0.03) - -
Distributions from Net Realized Gain on Investments Sold - (0.44) (0.52) (0.10) (1.72)
------- ------- ------- ------- -------
Total Distributions (0.01) (0.46) 0.55) (0.10) (1.72)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.31 $ 11.95 $ 12.69 $ 15.35 $ 16.80
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) 12.34% 0.78% 11.51% 21.89% 22.83%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $93,853 $94,431 $86,178 $92,555 $96,799
Ratio of Expenses to Average Net Assets 2.09% 2.10% 2.11% 2.17% 2.10%
Ratio of Net Investment Income (Loss) to 0.17% 0.25% 0.06% (0.24%) (0.31%)
Average Net Assets
Portfolio Turnover Rate 71% 60% 65% 78% 58%
Average Broker Commission Rate (3) N/A N/A N/A $0.0698 $0.0699
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - John Hancock Disciplined Growth Fund
Schedule of Investments
October 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ---------
COMMON STOCKS
Advertising (1.07%)
Interpublic Group, Inc. 30,000 $ 1,425,000
Banks - United States (4.88%)
First Tennessee National Corp 30,000 1,728,750
Mellon Bank Corp. 30,000 1,546,875
Norwest Corp. 60,000 1,923,750
Regions Financial Corp. 35,000 1,286,250
-----------
6,485,625
-----------
Beverages (1.39%)
PepsiCo, Inc. 50,000 1,840,625
-----------
Building (3.14%)
Clayton Homes, Inc. 120,000 1,972,500
Masco Corp. 50,000 2,193,750
-----------
4,166,250
-----------
Chemicals (3.86%)
Air Products & Chemicals, Inc. 15,000 1,140,000
RPM, Inc. 100,000 1,875,000
Sigma-Aldrich Corp. 60,000 2,107,500
-----------
5,122,500
-----------
Computers (12.08%)
Automatic Data Processing, Inc. 50,000 2,556,250
Cisco Systems, Inc.* 30,000 2,460,936
Computer Sciences Corp.* 15,000 1,064,062
First Data Corp. 60,000 1,743,750
Fiserv, Inc.* 45,000 2,013,750
Hewlett-Packard Co. 25,000 1,542,187
Microsoft Corp.* 20,000 2,600,000
Sun Microsystems, Inc.* 60,000 2,055,000
-----------
16,035,935
-----------
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - John Hancock Disciplined Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ---------
Containers (1.15%)
Bemis Co. 40,000 $ 1,525,000
-----------
Electronics (5.87%)
AMP, Inc. 30,000 1,350,000
BMC Industries, Inc. 29,800 959,187
Emerson Electric Co. 30,000 1,573,125
General Electric Co. 20,000 1,291,250
Parker- Hannifin Corp. 2,100 87,806
Rockwell International Corp. 25,000 1,225,000
Grainger (W.W.), Inc. 15,000 1,311,563
-----------
7,797,931
-----------
Finance (1.83%)
Franklin Resources, Inc. 27,000 2,426,625
-----------
Food (4.54%)
Archer-Daniels-Midland Co. 94,500 2,102,625
ConAgra, Inc. 46,000 1,385,750
Flowers Industries, Inc. 85,000 1,615,000
Heinz (H.J.) Co. 20,000 928,750
-----------
6,032,125
-----------
Furniture (1.73%)
Leggett & Platt, Inc. 55,000 2,296,250
-----------
Household (1.45%)
Newell Co. 50,000 1,918,750
-----------
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - John Hancock Disciplined Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ---------
Insurance (9.15%)
AFLAC, Inc. 30,000 $ 1,526,250
Chubb Corp. 24,000 1,590,000
General Re Corp. 10,000 1,971,875
HCC Insurance Holdings, Inc. 64,200 1,500,675
ReliaStar Financial Corp. 70,000 2,616,250
Travelers Group, Inc. 42,000 2,940,000
-----------
12,145,050
-----------
Leisure (1.00%)
X-Rite, Inc. 68,500 1,327,187
-----------
Linen Supply & Related (1.36%)
G & K Services, Inc. (Class A) 50,000 1,800,000
-----------
Machinery (3.63%)
Dover Corp. 40,000 2,700,000
Pentair, Inc. 55,000 2,124,375
-----------
4,824,375
-----------
Media (2.02%)
Central Newspapers, Inc. (Class A) 20,000 1,313,750
Gannett Co., Inc. 26,000 1,366,625
-----------
2,680,375
-----------
Medical (10.31%)
Abbott Laboratories 35,000 2,145,938
Baxter International, Inc. 45,000 2,081,250
Johnson & Johnson 25,000 1,434,375
Jones Medical Industries, Inc. 60,000 1,807,500
Lilly (Eli) & Co. 30,000 2,006,250
Medtronic, Inc. 40,000 1,740,000
SmithKline Beecham PLC,
American Depository Receipts
(ADR) (United Kingdom) 52,000 2,476,500
-----------
13,691,813
-----------
Oil & Gas (7.47%)
Amoco Corp. 15,000 1,375,313
Chevron Corp. 19,000 1,575,813
Enron Corp. 15,000 570,000
Enron Oil & Gas Co. 50,000 1,053,125
Mobil Corp. 34,000 2,475,625
Repsol SA (ADR) (Spain) 35,000 1,487,500
Sonat, Inc. 30,000 1,378,125
-----------
9,915,501
-----------
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - John Hancock Disciplined Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ---------
Retail (8.24%)
Arbor Drugs, Inc. 60,000 $ 1,605,000
Dayton Hudson Corp. 30,000 1,884,375
Family Dollar Stores, Inc. 90,000 2,115,000
Home Depot, Inc. 60,000 3,337,500
Sysco Corp. 50,000 2,000,000
------------
10,941,875
------------
Soap & Cleaning Preparations (1.43%)
Ecolab, Inc. 40,000 1,902,500
------------
Transport (0.04%)
C.H. Robinson Worldwide, Inc.* 2,400 52,800
------------
Utilities (7.23%)
Ameritech Corp. 10,000 650,000
Bell Atlantic Corp. 10,000 798,750
Century Telephone Enterprises, Inc. 60,000 2,546,250
National Fuel Gas Co. 30,000 1,323,750
Questar Corp. 45,000 1,738,125
SBC Communications, Inc. 40,000 2,545,000
------------
9,601,875
------------
TOTAL COMMON STOCKS
(Cost $94,419,863) (94.87%) 125,955,967
------- ------------
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - John Hancock Disciplined Growth Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE
RATE (000s OMITTED) MARKET VALUE
-------- -------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.17%)
Investment in a joint repurchase agreement
transaction with Aubrey G. Lanston & Co. -
Dated 10-31-97, Due 11-03-97 (Secured by
U.S. Treasury Notes, 5.00% thru 9.25%
Due 02-28-98 thru 04-30-02) - Note A 5.68% $ 6,867 $ 6,867,000
------------
Corporate Savings Account ( 0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 921
------------
TOTAL SHORT-TERM INVESTMENTS (5.17%) 6,867,921
------- ------------
TOTAL INVESTMENTS (100.04%) $132,823,888
--------- ============
*Non-Income producing security.
The pecentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - Disciplined Growth Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust")(formerly Freedom Investment
Trust) is a diversified open-end management investment company, registered under
the Investment Company Act of 1940. The Trust consists of three series: John
Hancock Disciplined Growth Fund (the "Fund"), John Hancock Regional Bank Fund
and John Hancock Financial Industries Fund. The other two series of the Trust
are reported in separate financial statements. The investment objective of the
Fund is to achieve long-term growth of capital by investing only in established
companies that have demonstrated both earnings growth and stability.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services,
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASEAGREEMENT 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.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, 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 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.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
<PAGE>
John Hancock Funds - Disciplined Growth Fund
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
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 amount of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other Funds managed by the Advisor in an unsecured
line of credit with banks which permit borrowings up to $600 million,
collectively. Interest is charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a
rate of 0.075% per annum based on the average daily unused portion of the line
of credit, is allocated among the participating Funds. The Fund had no borrowing
activity for the year ended October 31, 1997.
NOTE B-
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.75% of the first $500,000,000 of the Fund's
average daily net asset value and (b) 0.65% of the Fund's average daily net
asset value in excess of $500,000,000.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") acted as Co-Distributors
for shares of the Fund. For the year ended October 31, 1997, net sales charges
received with regard to sales of Class A shares amounted to $62,241. Of this
amount, $8,493 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $19,357 was paid as sales commissions to
unrelated broker-dealers and $34,391 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 related broker-dealers. The Adviser's indirect parent, John Hancock Mutual
Life Insurance Company ("JHMLICo"), is the indirect sole shareholder of
Distributors and was the indirect sole shareholder until November 29, 1996 of
John Hancock Freedom Securities Corporation and its subsidiaries, which include
FDC, Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the year ended October 31, 1997,
the contingent deferred sales charges paid to JH Funds amounted to $162,920.
In addition, to reimburse the Co-Distibutors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 1.00% of Class B average
daily net assets to reimburse the Co-Distibutors for their distribution and
service costs. Up to a maximum of 0.25% of such payments may be service fees as
defined by the amended Rules of Fair Practice of the National Association of
Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain circumstances.
<PAGE>
John Hancock Funds - Disciplined Growth Fund
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses. The Fund has an agreement with the Adviser to
perform necessary tax and financial management services for the Fund. The
compensation for the year was at an annual rate of less than 0.02% of the
average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees 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. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At October 31, 1997, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $627.
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 year
ended October 31, 1997, aggregated $70,044,480 and $84,404,164 respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1997.
The cost of investments owned at October 31, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $101,297,988. Gross
unrealized appreciation and depreciation of investments aggregated $32,958,244
and $1,433,265, respectively, resulting in net unrealized appreciation of
$31,524,979.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1997, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$1,751,672, a decrease in accumulated net investment loss of $167,170 and an
increase in capital paid-in of $1,584,502. This represents the amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1997. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to the net
investment loss and the use of tax equalization. The calculation of net
investment income per share in the financial highlights excludes these
adjustments.
NOTE E --
SUBSEQUENT EVENTS
On September 9, 1997 shareholders approved a vote on a proposed merger between
the Fund and the John Hancock Growth Fund ("Growth Fund"). The reorganization
provides for a transfer of substantially all the assets and liabilities of the
Fund to the Growth Fund. After the transaction and as of the close of business
on December 5, 1997, the Fund will be terminated.
<PAGE>
John Hancock Funds - Disciplined Growth Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Disciplined Growth Fund
and the Trustees of John Hancock Investment Trust II
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Disciplined Growth
Fund (the "Fund") (a series of John Hancock Investment Trust II) at October 31,
1997, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at October 31, 1997 by
correspondence with the custodian and the application of alternative auditing
procedures where investments purchased were not yet received by the custodian,
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 15, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund during the fiscal year ended
October 31, 1997.
The Fund designated a distribution to shareholders of $9,255,715 as
long-term capital gain dividends. These amounts were reported on the 1996 U.S.
Treasury Department Form 1099-DIV.
With respect to the dividends paid by the Fund for the fiscal year ended
October 31, 1997, 32.81% qualify for the corporate dividends received deduction.
