================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
Money
Market
Fund
SEMI-ANNUAL REPORT
April 30, 1996
<PAGE>
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DIRECTORS
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*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 and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
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BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Money Market Fund
Volatile market calls for flexible strategy
Volatility has been the watchword in the financial markets for the last six
months. At the end of 1995 and for the first few months of 1996, it looked as if
slow growth and low inflation -- which are typically positive conditions in the
market -- would persist. In fact, many feared that economic growth was so slow
that a recession was around the corner. At the end of January, the Federal
Reserve Board even cut short-term interest rates to spur the economy and many
were expecting further rate cuts in the following months.
But in early March, the mood changed suddenly. A surprisingly strong
February employment report fueled fears that the economy was more robust than
expected. That, combined with the unwinding of the federal budget talks in
Washington and strength in commodity prices and labor wages, sent short-term
rates back up.
On April 30, 1996, John Hancock Money Market Fund had a 7-day average yield
of 4.37% for Class A shares and 3.52% for Class B shares. By comparison, the
average taxable money fund had a 7-day average yield of 4.79%, according to
IBC/Donoghue's Money Fund Report.
[A 2 1/4" x 2 1/4" photo of Dawn Baillie at bottom center. Caption reads: "Dawn
Baillie, Portfolio Manager."]
"Volatility has been the watchword in the financial markets for the last six
months."
Flexible strategy
Given the market volatility, we've maintained a flexible investment strategy
during the period, adjusting the maturities of the Fund's holdings accordingly.
Late last year, with expectations for slower growth and lower rates, we began to
take a more aggressive approach by lengthening our maturity. Longer maturit y
helped us lock in higher yields when the Fed cut short-term rates at the end of
January.
By the start of 1996, we had extended the Fund's average maturity to nearly
60 days, which was slightly longer than 54-day maturity for the average taxable
money market fund. With signs
3
<PAGE>
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"...it's too early to tell exactly which direction the economy will take."
[Bar chart with heading "7-Day Yield" at top of left hand column. Under the
heading is the footnote: "As of April 30, 1996." The chart is scaled in
increments of 2% from top to bottom, with 6% on the top and 0% at the bottom.
Within the chart, there are three solid bars. The first represents the 4.37%
7-day yield for John Hancock Money Market Fund: Class A. The second represents
the 3.52% 7-day yield for John Hancock Money Market Fund: Class B. The third
represents the 4.79% 7-day yield for the average taxable money market fund.
Footnote below reads: "The average taxable money market fund is tracked by
IBC/Donoghue's Money Fund report."]
of stronger growth in early March, however, we took a more defensive stance by
shortening our maturity to 50 days, right around the average for taxable money
funds. Because we didn't expect the Federal Reserve to raise or lower rates any
time soon, we moved into this "neutral" position.
In the near term, we're likely to see short-term interest rates continue
their upward trend as investors try to figure out where the economy is headed.
Concerns about stronger growth, higher commodity prices and, more importantly,
rising labor costs will probably continue to pressure yields.
As we move toward the end of the year, however, we're likely to see a more
marked trend of slower growth. The gross domestic product (GDP) -- the total
value of goods and services produced in the United States -- is driven by four
areas: consumer spending, government spending, exports and investment. From
where we sit right now, none of these areas appears to hold much growth
potential. Consumers are strapped with debt right now, and the recent back-up in
interest rates has taken away significant purchasing power. Government spending
isn't likely to grow much, especially with the upcoming election, and exports
will probably be lackluster. Finally, investment is likely to wane as
corporations feel the strain of slower earnings. The net result should be slower
growth and a drop in short-term interest rates.
Until the clouds lift from the economic picture, we plan to stick with our
neutral strategy of maintaining an average maturity in the 48- to 50-day range.
This approach will allow us to remain flexible and respond quickly to changes in
the economic environment, while providing the major benefit of investing in a
money market fund, namely, stability of principal.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio management team through
the end of the Fund's period discussed in this report. Of course, the team's
views are subject to change as market and other conditions warrant.
The Fund is neither insured nor guaranteed by the U.S. government. There can
be no assurances that the Fund will be able to maintain a net asset value of
$1.00 per share.
4
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments, in money market instruments,
at value - Note C:
Commercial paper (cost - $211,034,352) ...................... $211,034,352
Negotiable bank certificates of deposit
(cost - $58,404,818) ...................................... 58,404,818
Corporate interest-bearing obligations
(cost - $58,982,121) ...................................... 58,982,121
Joint repurchase agreement (cost - $22,327,000) ............. 22,327,000
------------
350,748,291
Cash .......................................................... 821,360
Receivable for shares sold .................................... 446,751
Interest receivable ........................................... 1,526,750
Prepaid Expenses .............................................. 34,896
Other assets .................................................. 24,357
------------
Total Assets ............ 353,602,405
----------------------------------------
Liabilities:
Payable for fund shares repurchased ........................... 3,865,142
Dividend payable .............................................. 35,130
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ......................................... 134,655
------------
Total Liabilities ....... 4,034,927
----------------------------------------
Net Assets:
Capital paid-in ............................................... 349,567,478
------------
Net Assets .............. $349,567,478
========================================
Net Asset Value, Offering Price and Redemption Price Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - 3,500,000,000 shares
authorized with $0.01 per share par value)
Class A - $259,715,727/259,811,957 ............................ $ 1.00
==============================================================================
Class B - $89,851,751/89,875,522 .............................. $ 1.00
==============================================================================
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 as of
that date.
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund.
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ........................................................ $8,471,241
----------
Expenses:
Investment management fee - Note B ............................ 602,297
Transfer agent fee - Note B ................................... 516,223
Distribution/service fee - Note B
Class A ..................................................... 174,787
Class B ..................................................... 302,712
Registration and filing fees .................................. 119,785
Custodian fee ................................................. 40,202
Printing ...................................................... 32,838
Legal fees .................................................... 22,859
Financial services fee ........................................ 20,025
Trustees' fees ................................................ 14,824
Auditing fee .................................................. 10,840
Advisory board fee ............................................ 8,899
Miscellaneous ................................................. 2,954
----------
Total Expenses ............ 1,869,245
----------------------------------------
Net Investment Income ..... 6,601,996
----------------------------------------
Net Increase in Net Assets
Resulting from Operations . $6,601,996
========================================
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment Income ..................................... $ 6,601,996 $ 2,184,101
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A** - ($0.0231 and $0.0066 per share, respectively) (5,370,593) (71,384)
Class B - ($0.0192 and $0.0401 per share, respectively) . (1,231,403) (2,112,717)
------------- -------------
Total Distributions to Shareholders ................... (6,601,996) (2,184,101)
------------- -------------
From Fund Share Transactions - Net* ......................... 274,312,471 16,889,418
------------- -------------
Net Assets:
Beginning of year ......................................... 75,255,007 58,365,589
------------- -------------
End of year ............................................... $ 349,567,478 $ 75,255,007
============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996
(UNAUDITED) YEAR ENDED
---------------------------------- OCTOBER 31,
SHARES AMOUNT 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
CLASS A **
Shares sold .................................................. 758,373,715 $ 758,373,715 $ 47,205,231
Shares issued in reorganization - Note D ..................... 241,738,168 241,651,168 --
Shares issued to shareholders in reinvestment of distributions 4,650,016 4,650,016 55,602
--------------- --------------- ---------------
1,004,761,899 1,004,674,899 47,260,833
Less shares repurchased ...................................... (765,892,004) (765,901,234) (26,318,771)
--------------- --------------- ---------------
Net increase ................................................. 238,869,895 $ 238,773,665 $ 20,942,062
=============== =============== ===============
CLASS B
Shares sold .................................................. 323,328,591 $ 323,328,591 $ 223,741,024
Shares issued to shareholders in reinvestment of distributions 853,422 853,422 1,684,942
--------------- --------------- ---------------
324,182,013 324,182,013 225,425,966
Less shares repurchased ...................................... (288,619,436) (288,643,207) (229,478,610)
--------------- --------------- ---------------
Net increase (decrease) ...................................... 35,562,577 $ 35,538,806 ($ 4,052,644)
=============== =============== ===============
</TABLE>
** Class A shares commenced operations on September 12, 1995.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, distributions paid to shareholders and any increase or
decrease in money shareholders invested in the Fund. The footnote illustrates
the number of Fund shares sold, reinvested and redeemed during the last two
periods.
SEE NOTES TO FINANCIAL STATEMENTS.
6
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FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 12, 1995
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1996 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1995
---------------- ------------------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $ 1.00 $ 1.00
-------- --------
Net Investment Income .............................. 0.02 0.01
-------- --------
Less Distributions:
Dividends from Net Investment Income ............... (0.02) (0.01)
-------- --------
Net Asset Value, End of Period ..................... $ 1.00 $ 1.00
======== ========
Total Investment Return at Net Asset Value (d) ..... 2.33%(e) 0.64%(e)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .......... $259,716 $ 20,942
Ratio of Expenses to Average Net Assets ............ 1.08%* 1.07%*
Ratio of Net Investment Income to Average Net Assets 4.61%* 4.94%*
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1996 -----------------------------------------------
(UNAUDITED) 1995(b) 1994 1993 1992 1991
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net Investment Income ........................................... 0.02 0.04 0.02 0.01 0.02 0.05
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ............................ (0.02) (0.04) (0.02) (0.01) (0.02) (0.05)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (d) .................. 1.93%(e) 4.07% 1.87% 0.85% 1.73% 4.61%
Total Adjusted Investment Return at Net Asset Value (a) (c) ..... -- -- -- -- -- 4.49%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ....................... $89,852 $54,313 $58,366 $31,546 $31,480 $20,763
Ratio of Expenses to Average Net Assets ......................... 1.88%* 1.92% 2.06% 2.44% 2.47% 2.11%
Ratio of Adjusted Expenses to Average Net Assets (a) ............ -- -- -- -- -- 2.23%(a)
Ratio of Net Investment Income to Average Net Assets ............ 3.82%* 3.96% 1.97% 0.85% 1.69% 4.45%
Ratio of Adjusted Net Investment Income to Average Net Assets (a) -- -- -- -- -- 4.33%(a)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) On December 22, 1994 John Hancock Advisers, Inc. became the Investment
Adviser of the Fund.
(c) An estimated total return calculation takes into consideration fees and
expenses waived or borne by the adviser during the periods shown.
(d) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(e) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
Schedule of Investments
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Money
Market Fund on April 30, 1996. It's divided into four types of short-term
investments. Most categories of short-term investments are further broken down
by industry group.
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
COMMERCIAL PAPER
Banking (4.66%)
Barnett Banks Inc.,
05-14-96 ................ 5.320% Tier 1 $ 2,300 $ 2,295,581
Barnett Banks Inc.,
05-15-96 ................ 5.320 Tier 1 14,000 13,971,036
------------
16,266,617
------------
Banking - Foreign (3.27%)
Banque Nationale de Paris,
05-15-96 ................ 5.350 Tier 1 4,000 3,991,678
Banque Nationale de Paris,
06-03-96 ................ 5.350 Tier 1 4,000 3,980,383
Unifunding Inc.,
07-10-96 ................ 5.310 Tier 1 3,500 3,463,863
------------
11,435,924
------------
Broker Services (11.30%)
Bear Stearns Cos., Inc.,
05-08-96 ................ 5.330 Tier 1 4,000 3,995,854
Bear Stearns Cos., Inc.,
05-09-96 ................ 5.340 Tier 1 6,000 5,992,880
Bear Stearns Cos., Inc.,
05-14-96 ................ 5.330 Tier 1 8,000 7,984,602
Goldman Sachs Group., L.P.
05-31-96 ................ 5.300 Tier 1 5,000 4,977,917
Merrill Lynch & Co., Inc.,
05-01-96 ................ 5.350 Tier 1 3,300 3,300,000
Merrill Lynch & Co., Inc.,
05-01-96 ................ 5.400 Tier 1 210 210,000
Merrill Lynch & Co., Inc.,
05-13-96 ................ 5.350 Tier 1 2,700 2,695,185
Merrill Lynch & Co., Inc.,
05-21-96 ................ 5.310 Tier 1 4,000 3,988,200
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
Broker Services (continued)
Merrill Lynch & Co., Inc.,
06-03-96 ................ 5.280% Tier 1 $ 2,000 $ 1,990,320
Merrill Lynch & Co., Inc.,
06-11-96 ................ 5.330 Tier 1 4,400 4,373,291
------------
39,508,249
------------
Finance (10.46%)
American Honda Finance Corp.,
05-01-96 ................ 5.200 Tier 1 2,000 2,000,000
American Honda Finance Corp.,
05-06-96 ................ 5.300 Tier 1 5,400 5,396,025
American Honda Finance Corp.,
05-16-96 ................ 5.370 Tier 1 1,950 1,945,637
American Honda Finance Corp.,
05-28-96 ................ 5.360 Tier 1 1,000 995,980
American Honda Finance Corp.,
06-10-96 ................ 5.380 Tier 1 2,000 1,988,044
American Honda Finance Corp.,
06-17-96 ................ 5.330 Tier 1 1,300 1,290,954
American Honda Finance Corp.,
06-18-96 ................ 5.350 Tier 1 5,000 4,964,333
Heller Financial Inc.,
05-07-96 ................ 5.380 Tier 1 6,000 5,994,620
Heller Financial Inc.,
05-08-96 ................ 5.380 Tier 1 12,000 11,987,447
------------
36,563,040
------------
Manufacturing (2.86%)
Cooper Industries Inc.,
05-09-96 ................ 5.340 Tier 1 10,000 9,988,133
------------
Mortgage Banking (4.51%)
Countrywide Funding Corp.,
05-02-96 ................ 5.370 Tier 1 6,800 6,798,986
Countrywide Funding Corp.,
05-17-96 ................ 5.380 Tier 1 8,000 7,980,871
Countrywide Funding Corp.,
05-22-96 ................ 5.330 Tier 1 1,000 996,891
------------
15,776,748
------------
Retail Stores (3.75%)
Sears Roebuck Acceptance Corp.,
05-10-96 ................ 5.370 Tier 1 5,900 5,892,079
Sears Roebuck Acceptance Corp.,
05-23-96 ................ 5.350 Tier 1 1,500 1,495,096
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
Retail Stores (continued)
Sears Roebuck Acceptance Corp.,
05-28-96 ................ 5.310% Tier 1 $ 4,000 $ 3,984,070
Sears Roebuck Acceptance Corp.,
06-10-96 ................ 5.360 Tier 1 1,750 1,739,578
------------
13,110,823
------------
Tobacco (1.43%)
Philip Morris Cos., Inc.,
05-03-96 ................ 5.340 Tier 1 5,000 4,998,517
------------
Utilities - Electric (2.51%)
Oklahoma Gas & Electric Co.,
05-03-96 ................ 5.230 Tier 1 205 204,940
Pacific Gas and Electric Co.,
05-01-96 ................ 5.320 Tier 1 5,000 5,000,000
Pacific Gas and Electric Co.,
05-03-96 ................ 5.310 Tier 1 2,447 2,446,278
Pacific Gas and Electric Co.,
05-15-96 ................ 5.340 Tier 1 1,132 1,129,649
------------
8,780,867
------------
Utilities - Telephone (15.62%)
Bell Atlantic Financial Services.,
05-07-96 ................ 5.340 Tier 1 5,000 4,995,550
GTE Corp.,
05-06-96 ................ 5.390 Tier 1 1,845 1,843,619
GTE Corp.,
06-05-96 ................ 5.380 Tier 1 8,000 7,958,156
GTE Corp.,
06-06-96 ................ 5.370 Tier 1 3,000 2,983,890
GTE Corp.,
06-10-96 ................ 5.370 Tier 1 3,750 3,727,625
GTE Northwest, Inc.,
05-03-96 ................ 5.330 Tier 1 5,000 4,998,519
GTE Northwest, Inc.,
05-03-96 ................ 5.350 Tier 1 1,412 1,411,580
GTE Northwest, Inc.,
05-08-96 ................ 5.310 Tier 1 3,080 3,076,820
GTE Northwest, Inc.,
05-09-96 ................ 5.300 Tier 1 1,040 1,038,775
GTE Northwest, Inc.,
05-20-96 ................ 5.270 Tier 1 4,000 3,988,874
NYNEX Corp.,
05-09-96 ................ 5.420 Tier 1 10,000 9,987,956
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
Utilities - Telephone (continued)
NYNEX Corp.,
05-15-96 ................ 5.350% Tier 1 $ 7,000 $ 6,985,436
NYNEX Corp.,
05-15-96 ................ 5.370 Tier 1 1,612 1,608,634
------------
54,605,434
------------
TOTAL COMMERCIAL PAPER
(Cost $211,034,352) (60.37%) 211,034,352
------- ------------
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT
U.S Branches of Foreign Banks (14.13%)
Banque Nationale de Paris,
05-01-96 ................ 5.390 Tier 1 4,405 4,405,000
Banque Nationale de Paris,
06-06-96 ................ 5.300 Tier 1 1,000 999,773
Deutsche Bank., AG
01-22-97 ................ 5.530 Tier 1 10,000 10,000,000
International Bank of Japan Ltd.,
05-22-96 ................ 5.380 Tier 1 15,000 15,000,087
Mitsubishi Bank Ltd.,
05-07-96 ................ 5.280 Tier 1 5,000 4,999,842
Sanwa Bank Ltd.,
05-13-96 ................ 5.490 Tier 1 14,000 14,000,046
------------
49,404,748
------------
U.S. Dollar Euro Certificates of Foreign Banks (2.58%)
Bank of Tokyo Ltd.,
05-29-96 ................ 5.400 Tier 1 9,000 9,000,070
------------
TOTAL NEGOTIABLE BANK
CERTIFICATES OF DEPOSIT
(Cost $58,404,818) (16.71%) 58,404,818
------- ------------
CORPORATE INTEREST BEARING OBLIGATIONS
Automotive (7.45%)
Ford Motor Credit Co.,
05-15-96 ................ 8.250 Tier 1 2,000 2,001,764
Ford Motor Credit Co.,
10-03-96 ................ 8.300 Tier 1 3,150 3,186,412
Ford Motor Credit Co.,
01-15-97 ................ 7.875 Tier 1 1,010 1,024,495
Ford Motor Credit Co.,
03-06-97 ................ 7.650 Tier 1 2,000 2,031,842
General Motors Acceptance Corp.,
05-20-96** .............. 5.580 Tier 1 5,650 5,650,000
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
Automotive (continued)
General Motors Acceptance Corp.,
06-07-96** .............. 5.580% Tier 1 $ 1,000 $ 1,000,000
General Motors Acceptance Corp.,
07-17-96 ................ 9.000 Tier 1 1,000 1,005,679
General Motors Acceptance Corp.,
11-13-96 ................ 7.800 Tier 1 5,000 5,056,329
General Motors Acceptance Corp.,
01-13-97 ................ 8.250 Tier 1 5,000 5,087,380
------------
26,043,901
------------
Banking (1.45%)
BankAmerica Corp.,
02-03-97 ................ 7.250 Tier 1 2,200 2,231,781
NBD Bancorp, Inc.,
06-03-96 ................ 6.125 Tier 1 250 250,018
PNC Bank NA,
09-18-96 ................ 5.650 Tier 1 2,600 2,598,114
------------
5,079,913
------------
Beverage (0.29%)
PepsiCo Inc.,
08-15-96 ................ 7.875 Tier 1 1,000 1,006,794
------------
Diversified (0.29%)
General Electric Co.,
05-01-96 ................ 7.875 Tier 1 1,000 1,000,000
------------
Finance (1.95%)
American Express Credit Corp.,
03-01-97 ................ 7.750 Tier 1 1,700 1,734,972
Beneficial Corp.,
10-01-96 ................ 9.125 Tier 1 5,000 5,073,155
------------
6,808,127
------------
Food (0.86%)
Heinz (H.J) Co.,
10-01-96 ................ 7.500 Tier 1 3,000 3,020,399
------------
Retail Stores (0.85%)
Sears Roebuck Acceptance Corp.,
02-24-97 ................ 5.250 Tier 1 3,000 2,987,582
------------
Tobacco (2.86%)
Philip Morris Cos., Inc.,
07-01-96 ................ 8.875 Tier 1 7,380 7,412,364
Philip Morris Cos., Inc.,
07-09-96 ................ 8.625 Tier 1 1,043 1,048,847
Philip Morris Cos., Inc.,
12-01-96 ................ 8.750 Tier 1 500 508,839
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
Tobacco (continued)
Philip Morris Cos., Inc.,
04-02-97 ................ 7.500% Tier 1 $ 1,000 $ 1,013,890
------------
9,983,940
------------
Utilities - Electric (0.87%)
Houston Lighting & Power Co.,
03-01-97 ................ 7.625 Tier 1 3,000 3,051,465
------------
TOTAL CORPORATE INTEREST
BEARING OBLIGATIONS
(Cost $58,982,121) (16.87%) 58,982,121
------- ------------
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc., Dated 04-30-96,
due 5-01-96 (Secured by U.S. Treasury Bonds
10.375% due 11-15-12, and 7.250% due 05-15-16)
- Note A................. 5.33 -- 22,327 22,327,000
------------
TOTAL JOINT REPURCHASE AGREEMENT
(Cost $22,327,000) (6.39%) 22,327,000
------- ------------
TOTAL INVESTMENTS (100.34%) $350,748,291
======= ============
* Quality ratings indicate the categories of eligible securities, as defined
by Rule 2a-7 of the Investment Company Act of 1940, owned by the Fund.
** Floating rate note, interest rate effective April 30, 1996.
The percentage shown for each investment category is the total value of that
category expressed as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940. The Corporation consists of six series portfolios: John Hancock Money
Market Fund (the "Fund"), John Hancock Emerging Growth Fund, John Hancock Global
Resources Fund, John Hancock High Yield Tax Free Fund, John Hancock High Yield
Bond Fund and John Hancock Government Income Fund (collectively, the "Funds").
The investment objective of the Fund is to provide maximum current income
consistent with capital preservation and liquidity.
The Board of Directors have authorized the issuance of multiple classes of
shares of the Fund, designated as Class A, Class B and Class S 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 Board
of Directors, 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. No Class S shares had been issued as of
April 30, 1996. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS The Board of Directors have determined appropriate
methods for valuing portfolio securities. Accordingly, portfolio securities are
valued at amortized cost, in accordance with Rule 2a-7 of the Investment Company
Act of 1940, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and the cost of the security to the Fund. Interest income on
certain portfolio securities such as negotiable bank certificates of deposit and
interest bearing notes is accrued daily and included in interest receivable.
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.
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.
Accordingly, the Fund will not be subject to federal income tax on taxable
earnings which are distributed to shareholders.
DIVIDENDS The Fund records all distributions to shareholders from net investment
income 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 for the effect of expenses that may be applied differently to
each class as explained previously.
EXPENSES The majority of the expenses of the Corporation 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.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
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.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Prior to November 17, 1995, the Fund paid a monthly management fee to the
Adviser for a continuous investment program equivalent, on an annual basis, to
the sum of (a) 0.50% of the first $500,000,000 of the Fund's average daily net
asset value, (b) 0.425% of the next $250,000,000 and (c) 0.375% of the Fund's
average daily net asset value in excess of $750,000,000.
Effective November 17, 1995, 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) 0.40% of the first $750,000,000 of the Fund's average daily net
asset value, (b) 0.375% of the next $250,000,000, (c) 0.350% of the next
$500,000,000, (d) 0.325% of the next $500,000,000, (e) 0.30% of the next
$500,000,000 and (f) 0.275% of the Fund's average daily net asset value in
excess of $2,500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
John Hancock Funds, Inc. ("JH Funds"), a wholly-owned subsidiary of the
Adviser, is the principal underwriter of the Fund.
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 $204,135.
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 0.15% 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. Under the amended
Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances. In order to comply with this Rule, the
12b-1 fee on Class B shares was reduced to 0.90% effective November 1, 1995 and
was increased to 1.00% effective March 1, 1996.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
On March 26, 1996, the Board of Directors approved retroactively to January
1, 1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Funds. The
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Money Market Fund
compensation for 1996 is estimated to be at an annual rate of 0.01875% of the
average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are directors and/or officers of the Adviser and/or its affiliates, as
well as a Directors of the Fund. The compensation of unaffiliated Directors is
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Directors 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.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Board of Directors in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities, including discount earned on
investment securities, other than obligations of the U.S. government and its
agencies, during the period ended April 30, 1996, aggregated $4,871,752,450 and
$4,593,939,248, respectively. Purchases and proceeds from maturities of
obligations of the U.S. government and its agencies aggregated $21,866,874 and
$28,460,100, respectively, during the period ended April 30, 1996.
The cost of investments owned at April 30, 1996 for federal income tax
purposes was $350,748,291.
NOTE D --
REORGANIZATION
On November 15, 1995, the shareholders of John Hancock Cash Management Fund
("CMF") approved a plan of reorganization between CMF and the Fund providing for
the transfer of substantially all of the assets and liabilities of CMF to the
Fund in exchange solely for Class A shares of the Fund. The acquisition was
accounted for as a tax free exchange of 241,738,168 Class A shares of CMF for
the net assets of the Fund, which amounted to $241,651,168, after the close of
business on November 17, 1996.
16
<PAGE>
================================================================================
NOTES
John Hancock Funds - Money Market Fund
17
<PAGE>
================================================================================
NOTES
John Hancock Funds - Money Market Fund
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Money Market Fund
19
<PAGE>
================================================================================
[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
101 Huntington Avenue Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
This report is for the information of shareholders of the John Hancock
Money Market 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 the caption "Printed on Recycled
Paper."]
440SA 4/96
6/96
<PAGE>
================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
Global
Resources
Fund
SEMI-ANNUAL REPORT
April 30, 1996
<PAGE>
================================================================================
DIRECTORS
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*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 and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY KEVIN R. BAKER, PORTFOLIO MANAGER
John Hancock
Global Resources Fund
Rising commodities prices, strong demand for
energy fuel Fund's performance
After struggling through difficult conditions in 1995 and missing much of 1995's
bull market, natural resource stocks had a spectacular rebound in the last six
months. The main contributor was oil prices, which jumped from $17 to $22 per
barrel in the period fueled by a tug of war between supply and demand. An
unusually long, cold winter was the main catalyst in the United States, which
sent oil inventories to their lowest levels in 20 years. The corresponding jump
in prices at the gas pumps across the United States became headline news and
grist for the political mill. Demand for gasoline, meanwhile, just keeps growing
worldwide. Americans are driving more and faster in their bigger, gas guzzling
vehicles and the developing countries such as China and India are having an
impact as well.
[A 2 1/4" x 2 3/4" photo of Kevin Baker and James Boyd at bottom center. Caption
reads: "Kevin Baker (right) with Fund management team member James Boyd."]
Also stoking the natural resource rally was the run-up in gold prices at
the beginning of the year as speculators worried about a shortage in supply.
Gold hit a five-year high in February, when the price rose over the benchmark
$400 per ounce mark up to $420. Even though it came back down to its current
$390 range later in the period, the price of gold stocks remained higher than
when the period began. Silver and the other precious metals also enjoyed similar
success during the period. The prices of agricultural commodities such as corn
and wheat also jumped to record highs at the end of the period on bad weather,
dwindling stocks of grain and strong worldwide demand.
"... natural resource stocks had a spectacular rebound in the last six months."
The Fund benefited to an even greater extent than its peers in this
environment. For the six months ended April 30, 1996, the Fund's Class A and
Class B shares posted total returns of 34.57% and 34.05%, respectively, at net
3
<PAGE>
================================================================================
John Hancock Funds - Global Resources Fund
"As oil prices rose, we further increased our exposure to oil
and gas companies..."
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Chesapeake Energy 4.6% 2) Reading & Bates 4.0%
3) Oregon Metallurgical 3.4% 4) Global Marine 3.3% 5) Agnico-Eagle Mines 3.2%. A
footnote below reads: "As a percentage of net assets on April 30, 1996."]
asset value. By comparison, the average natural resources fund returned 26.20%,
according to Lipper Analytical Services.(1)
Above-average energy
exposure boosts performance
Our decision to keep our above-average exposure to energy-related stocks,
which held us back last year when low energy prices dragged the sector down,
proved to be the right one over the last six months. The trigger was this harsh
winter, which put an extra burden on already lean inventories of natural gas and
home heating oil. Now producers are trying to catch up on inventory and even
still will probably wind up at a level that's significantly lower than where
they began last November. Predictably, energy prices rose accordingly and the
energy industry, already downsized and more cost efficient after 10 lean years,
reaped the reward -- from drilling, refining, exploration and production
companies to oil service suppliers and pipeline companies.
[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 Chesapeake
Energy followed by an up arrow and the phrase "Surpassing analysts' production
and reserve estimates." The second listing is Diamond Offshore Drilling followed
by an up arrow and the phrase "Rising daily lease rates." The third listing is
Culbro Corp. followed by a flat arrow and the phrase "Premium cigar company
caught in tobacco stock downdraft." Footnote below reads: "See "Schedule of
Investments." Investment holdings are subject to change."]
As oil prices rose, we further increased our exposure to oil and gas
companies, which represented 56% of the Fund's net assets by the end of April.
We focused on companies that have the ability not only to increase their
revenues and earnings by at least 25% a year, but also have the ability to grow
their production and reserves, since natural resources (such as barrels of oil
or cubic feet of natural gas) get depleted and need replenishing. We also
increased our stake in U.S. companies because of their proximity to the Gulf of
Mexico, which has become the prominent spot for drilling and discovery now that
technology developed within the last five years is allowing access to the Gulf's
deeper water reserves. At the same time, deep water drilling rigs are expensive
and in short supply, which has caused their daily rental rates to more than
double over the last year, especially in the Gulf region, from $60,000 per day
to $130,000 per day. Our U.S. deep-water drilling companies were some of the
Fund's strongest performers during the period, including a steady favorite,
Reading & Bates. We also added two new U.S. deep drillers, Sonat Offshore and
Diamond Offshore.
One of our largest holdings, which was also a stellar performer during
the period, was another new addition, Chesapeake Energy. An Oklahoma-based
natural gas production and exploration company, Chesapeake's expert use of
drilling and seismic technology has let them succeed where others have not in
discovering long-lived
4
<PAGE>
================================================================================
John Hancock Funds - Global Resources Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1996." The chart is
scaled in increments of 10% from top to bottom, with 40% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 34.57% total return for John Hancock Global Resources Fund: Class A. The
second represents the 34.05% total return for John Hancock Global Resources
Fund: Class B. The third represents the 26.20% return for the average natural
resources fund. Footnote below reads: "Total returns for John Hancock Global
Resources Fund are at net asset value with all distributions reinvested. The
average natural resources fund is tracked by Lipper Analytical Services.(1) See
following page for historical performance information."]
reserves in a particularly rich oil-producing region of Texas.
Gold and silver glitter; paper, base metals tarnish
By the end of April, the Fund's second largest category, at 26% of the Fund's
net assets, was precious metals, primarily gold stocks. One of our best
performers was Newmont Gold, a company which has had great success in growing
both it's production and reserve supply. We also boosted our exposure to silver,
which we believe could see greater price increases this year than gold. So we
added Aurora Gold, an Australian company that also mines silver, and
Canadian-based Prime Resources. Because they are smaller, foreign companies,
their stocks were also cheap compared to the more well known mining names. A
third silver play is our investment in Coeur D'Alene Mines, which has the
largest percentage of its revenues coming from silver production among all the
large North American mining companies.
One group that lagged during the period was the paper and base metal stocks
(such as lead, zinc, copper and nickel). As a result, we sold them before their
prices languished on sluggishness in the housing market and a buildup of
inventories on the London commodities exchange.
"...the last several years have been difficult for the global resources sector."
Outlook
As you know, the last several years have been difficult for the global resources
sector. The recent signs of improvement, particularly for energy stocks, make
the short-term outlook brighter than it has been for some time in that area.
However, we're less certain about the prospects for a broader-based, long-term
advance. But for now, our view is that oil should remain trading at $20 per
barrel or more for a while longer, given the favorable supply and demand
imbalance that exists today. The energy industry should benefit in the coming
months after emerging stronger from the lean years and better armed with
technology. The increasing specter of inflation could also be a contributing
factor.
- ----------
(1) Figures from the Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
This commentary reflects the views of the portfolio manager through the end
of the Fund's period discussed in this report. Of course, the manager's
view are subject to change as market and other conditions warrant.
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 Global Resources Fund. Total return is a
performance measure that equals the sum of all income and capital gain
distributions, assuming reinvestment of these distributions and the change in
the price of the Fund's shares, expressed as a percentage of the Fund's net
asset value per share. Performance figures include the maximum applicable sales
charge of 5% for Class A shares. (Prior to May 15, 1995, the maximum applicable
sales charge for Class A shares was 5.75%.) 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 information regarding the risks associated with
international and industry segment investing.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
------ ------ -------
John Hancock
Global Resources Fund: Class A(1) 18.36% 10.27% N/A
John Hancock
Global Resources Fund: Class B(2) 18.73% 44.46% 117.77%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
------ ------ -------
John Hancock
Global Resources Fund: Class A(1) 18.36% 5.61% N/A
John Hancock
Global Resources Fund: Class B(2) 18.73% 7.63% 9.67%
Notes to Performance
(1) Class A shares started on June 15, 1994.
(2) Class B shares started on October 26, 1987.
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
Global Resources Fund would be worth on April 30,1996, assuming you had invested
on the day each class of shares started and reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Standard & Poor's 500
Stock Index -- an unmanaged index that includes 500 widely traded common stocks
and is a commonly used measure of stock market performance.
[Line chart with the heading Global Resources Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $15,042 as of April 30, 1996. The second line represents the value
of the hypothetical $10,000 investment made in the Global Resources Fund on June
15, 1994, before sales charge, and is equal to $12,653 as of April 30, 1996. The
third line represents the Global Resources Fund after sales charge and is equal
to $12,023 as of April 30, 1996.]
[Line chart with the heading Global Resources Fund: Class B*, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $26,499 as of April 30, 1996. The second line represents the value
of the hypothetical $10,000 investment made in the Global Resources Fund on
October 26, 1987, before contingent deferred sales charge, and is equal to
$23,731 as of April 30, 1996.
* No contingent deferred sales charges applicable.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $32,649,932) ....................... $ 43,423,797
Options (cost - $0) ...................................... 84,132
Joint repurchase agreement ($2,815,000) .................. 2,815,000
Corporate savings account ................................ 9,048
------------
46,331,977
Foreign currency, at value (cost - $30,275) ............... 30,522
Receivable for shares sold ................................. 587,462
Receivable for investments sold ............................ 475,562
Dividend and interest receivable ........................... 685
Foreign tax receivable ..................................... 5,029
Miscellaneous receivable ................................... 10,317
Other assets ............................................... 5,146
------------
Total Assets ............. 47,446,700
-------------------------------------------
Liabilities:
Payable for investments purchased .......................... 651,703
Payable for shares repurchased ............................. 432,943
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ........................................ 45,388
Accounts payable and accrued expenses ...................... 42,748
------------
Total Liabilities ........ 1,172,782
-------------------------------------------
Net Assets:
Capital paid-in ............................................ 36,146,797
Accumulated net realized loss on investments and
foreign currency transactions ............................ (418,219)
Net unrealized appreciation of investments and
foreign currency transactions .............................. 10,857,891
Net investment loss ........................................ (312,551)
------------
Net Assets ............... $ 46,273,918
===========================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - 75,000,000 shares authorized
with $0.01 per share par value, respectively)
Class A - $7,436,459 / 394,706 ............................. $ 18.84
=============================================================================
Class B - $38,837,459 / 2,090,637 .......................... $ 18.58
=============================================================================
Maximum Offering Price Per Share*
Class A - ($18.84 x 105.26%) ............................... $ 19.83
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1996. You'll also
find the net asset value and the maximum offering price per share as of that
date.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $1,114) ...... $ 47,806
Interest .................................................... 30,008
------------
77,814
------------
Expenses:
Investment management fee - Note B ........................ 122,970
Distribution/service fee - Note B
Class A ................................................. 4,335
Class B ................................................. 141,968
Transfer agent fee - Note B ............................... 57,822
Custodian fee ............................................. 27,271
Registration and filing fees .............................. 14,744
Printing .................................................. 6,613
Auditing fee .............................................. 6,178
Trustees' fees ............................................ 3,453
Miscellaneous ............................................. 2,585
Financial services fee .................................... 2,190
Legal fees ................................................ 236
------------
Total Expenses ............ 390,365
-------------------------------------------
Net Investment Loss ....... (312,551)
-------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Net realized gain on investments sold ................... 13,723
Net realized loss on foreign currency transactions ...... (10,221)
Change in net unrealized appreciation/depreciation
of investments .......................................... 10,314,416
Change in net unrealized appreciation/depreciation
of foreign currency transactions ........................ (344)
------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions 10,317,574
-------------------------------------------
Net Increase in Net Assets
Resulting from Operations . $ 10,005,023
===========================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
---------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .............................. ($ 312,551) ($ 472,186)
Net realized gain (loss) on investments sold
and foreign currency transactions .............. 3,502 (312,178)
Change in net unrealized appreciation/depreciation
of investments and foreign currency transactions 10,314,072 (3,606,873)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations .............................. 10,005,023 (4,391,237)
------------ ------------
From Fund Share Transactions -- Net* ............... 7,542,725 (9,191,467)
------------ ------------
Net Assets:
Beginning of period .............................. 28,726,170 42,308,874
------------ ------------
End of period (including net investment loss of
$312,551 and none, respectively) ............... $ 46,273,918 $ 28,726,170
============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ -------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........... 1,160,266 $ 19,503,104 106,612 $ 1,595,642
Less shares repurchased (931,512) (15,441,733) (284,537) (4,070,740)
--------- ------------ ------- ------------
Net increase (decrease) 228,754 $ 4,061,371 (177,925) ($ 2,475,098)
========= ============ ======= ============
CLASS B
Shares sold ........... 806,176 $ 13,176,765 497,933 $ 7,105,217
Less shares repurchased (620,717) (9,695,411) (964,221) (13,821,586)
--------- ------------ ------- ------------
Net increase (decrease) 185,459 $ 3,481,354 (466,288) ($ 6,716,369)
========= ============ ======= ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses and any increase or
decrease in money shareholders invested in the Fund. The footnote illustrates
the number of Fund shares sold and redeemed during the last two periods, along
with the corresponding dollar values.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 15, 1994
SIX MONTHS ENDED YEAR ENDED (COMMENCEMENT OF
APRIL 30, 1996 OCTOBER 31, OPERATIONS) TO
(UNAUDITED)(a) 1995(a) OCTOBER 31, 1994
---------------- ---------- ----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............. $ 14.00 $ 15.62 $ 14.89
-------- -------- --------
Net Investment Loss (b) .......................... (0.09) (0.08) (0.08)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions .. 4.93 (1.54) 0.81
-------- -------- --------
Total from Investment Operations ................. 4.84 (1.62) 0.73
-------- -------- --------
Net Asset Value, End of Period ................... $ 18.84 $ 14.00 $ 15.62
======== ======== ========
Total Investment Return at Net Asset Value (c) ... 34.57%(d) (10.37%) 4.90%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ........ $ 7,436 $ 2,324 $ 5,372
Ratio of Expenses to Average Net Assets .......... 1.67%* 1.93% 0.73%(d)
Ratio of Net Investment Loss to Average Net Assets (1.19%)* (0.53%) (0.42%)(d)
Portfolio Turnover Rate .......................... 111% 101% 96%
Average Broker Commission Rate (per share of
security) (e) .................................. $ 0.04 N/A N/A
</TABLE>
The Financial Highlights summarize the impact of the following factors on a
single share for the periods indicated: the net investment income, gains
(losses), dividends, and total investment return of the Fund. It shows how the
Fund's net asset value for a share has changed since the end of the previous
period. Additionally, important relationships between some items presented in
the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
Financial Highlights (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1996 ---------------------------------------------------
(UNAUDITED) 1995(a) 1994 1993 1992 1991
---------------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ......... $ 13.86 $ 15.58 $ 15.69 $ 12.41 $12.20 $ 11.57
------- ------- ------- ------- ------ -------
Net Investment Loss (b) ...................... (0.16) (0.21) (0.23) (0.24) (0.24) (0.17)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 4.88 (1.51) 0.12 3.52 0.58 1.24
------- ------- ------- ------- ------ -------
Total from Investment Operations ........... 4.72 (1.72) (0.11) 3.28 0.34 1.07
------- ------- ------- ------- ------ -------
Less Distributions
Dividends from Net Investment Income ......... -- -- -- -- -- --
Distributions from Realized Gains on
Investments Sold ........................... -- -- -- -- (0.13) (0.44)
------- ------- ------- ------- ------ -------
Total Distributions to Shareholders ........ -- -- -- -- (0.13) (0.44)
------- ------- ------- ------- ------ -------
Net Asset Value, End of Period ............... $ 18.58 $ 13.86 $ 15.58 $ 15.69 $12.41 $ 12.20
======= ======= ======= ======= ====== =======
Total Investment Return at Net Asset Value (c) 34.05%(d) (11.04%) (0.70%) 26.43% 2.93% 9.81%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .... $38,837 $26,402 $36,937 $19,498 $7,428 $10,766
Ratio of Expenses to Average Net Assets ...... 2.47%* 2.68% 2.54% 2.92% 3.75% 3.64%
Ratio of Net Investment Loss to Average
Net Assets ................................. (2.00%)* (1.43%) (1.52%) (1.65%) (2.01%) (1.47%)
Portfolio Turnover Rate ...................... 111% 101% 96% 83% 59% 93%
Average Broker Commission Rate (per share
of security)(e) ............................ $ 0.04 N/A N/A N/A N/A N/A
</TABLE>
* On an annualized basis.
(a) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(b) Per share information has been calculated using the average number of
shares outstanding.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
(e) Average broker commission rate (per share of security) as required by
amended disclosure requirements effective September 1, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
Schedule of Investments
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Agricultural Engineering (1.79%)
Dekalb Genetics Corp. - Class B ................ 10,000 $ 827,500
-----------
Chemicals (0.98%)
Monsanto Co. ................................... 3,000 454,500
-----------
Electrical (0.52%)
Tech-Sym Corp.* ................................ 7,000 242,375
-----------
Energy - Equipment (18.44%)
Global Marine, Inc.* ........................... 133,000 1,512,875
Input/Output, Inc.* ............................ 10,500 364,875
Marine Drilling Company, Inc.* ................. 100,000 987,500
Nabors Industries, Inc.* ....................... 70,000 1,076,250
Pride Petroleum Services, Inc.* ................ 70,000 1,146,250
Smith International, Inc.* ..................... 30,000 892,500
Tidewater, Inc. ................................ 18,000 765,000
Varco International, Inc.* ..................... 54,500 906,063
Weatherford Enterra, Inc.* ..................... 25,000 881,250
-----------
8,532,563
-----------
Energy - Exploration and Production (18.76%)
Abacan Resource Corp.(Canada) * ................ 195,000 1,084,688
Baker Hughes, Inc. ............................. 29,000 920,750
Benton Oil & Gas Co. * ......................... 20,000 350,000
Chesapeake Energy Corp.* ....................... 30,000 2,122,500
Flores & Rucks, Inc.* .......................... 11,000 229,625
Global Natural Resources, Inc.* ................ 64,000 928,000
Lomak Petroleum, Inc. .......................... 60,000 802,500
Sonat Offshore Drilling Company, Inc. 21,000 1,152,375
Swift Energy Co.* .............................. 58,000 899,000
Triton Energy Ltd.* ............................ 3,500 192,500
-----------
8,681,938
-----------
Energy - Services (18.62%)
Carbo Ceramics, Inc.* .......................... 1,300 27,950
Diamond Offshore Drilling, Inc.* ............... 25,000 1,243,750
Energy Ventures Inc. * ......................... 30,000 900,000
Falcon Drilling Company, Inc.* ................. 50,000 1,343,750
Nuevo Energy Co. * ............................. 31,000 875,750
Reading and Bates Corp. * ...................... 75,000 1,837,500
Sun Company, Inc. .............................. 12,000 372,000
Tesco Corp.(Canada)* ........................... 120,000 1,000,392
Tosco Corp. .................................... 19,000 1,016,500
-----------
8,617,592
-----------
The Schedule of Investments is a complete list of all securities owned by Global
Resources Fund on April 30, 1996. It's divided into three main categories:
common stocks, options and short-term investments. The common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Industrial - Intermediate Materials (7.14%)
Asarco Inc. .................................... 12,000 $ 397,500
Cameco Corp.(Canada)* .......................... 15,000 420,000
Oregon Metallurgical Corp.* .................... 50,000 1,593,750
RMI Titanium Co.* .............................. 45,000 888,750
-----------
3,300,000
-----------
Metal Ores - Miscellaneous (2.56%)
Prime Resource Group, Inc. (Canada) ............ 125,000 1,184,388
-----------
Mining (23.13%)
Agnico-Eagle Mines Ltd.(Canada) ................ 80,000 1,460,000
Aurora Gold Ltd.(Australia)* ................... 120,000 228,320
Barrick Gold Corp.(Canada) ..................... 35,000 1,071,875
Coeur D'Alene Mines Corp. ...................... 22,000 437,250
Euro-Nevada Mining Corp.(Canada) ............... 5,000 187,300
Greenstone Resources Ltd.(Canada)* ............. 100,000 943,750
High River Gold Mines Ltd.(Canada)* ............ 30,000 134,412
Kinross Gold Corp.(Canada)* .................... 108,500 935,813
Newmont Gold Co. ............................... 23,000 1,334,000
Normandy Mining Ltd
American Depositary Receipt (Australia)* ...... 350,000 616,420
Pan American Silver Corp.(Canada)* ............. 115,000 1,063,750
Santa Fe Pacific Corp. ......................... 70,000 1,041,250
Stillwater Mining Co.* ......................... 25,000 600,000
TVX Gold, Inc.(Canada)* ....................... 82,300 648,113
-----------
10,702,253
-----------
Tobacco (1.90%)
Culbro Corp.* .................................. 16,500 880,688
-----------
TOTAL COMMON STOCKS
(Cost $32,649,932) .......... (93.84%) 43,423,797
----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
OPTIONS
Industrial - Miscellaneous (0.18%)
Normandy Mining Ltd.(Australia) ** ............. 140,000 $ 84,132
-----------
TOTAL OPTIONS
(Cost $0) .......... (0.18%) 84,132
----------- -----------
INTEREST MATURITY PAR VALUE
RATE DATE (000'S OMITTED)
-------- -------- ---------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.08%)
Investment in a joint
repurchase agreement
transaction with SBC
Capital Market, Inc. - Dated
04-30-96, due 05-01-96
(secured by U.S. Treasury
Bond, 10.375%, due
11-15-12, and 7.25%, due
05-15-16) Note A........ 5.330% 05-01-96 $2,815 2,815,000
-----------
Corporate Savings Account (0.02%)
Investors Bank & Trust
Company Daily Interest
Savings Account
Current Rate 4.750%..... 9,048
-----------
TOTAL SHORT-TERM INVESTMENTS (6.10%) 2,824,048
------- -----------
TOTAL INVESTMENTS (100.12%) $46,331,977
======= ===========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Global Resources Fund invests primarily in equity securities of issuers in
the natural resource industry in the United States and abroad. The concentration
of investments by industry category for individual securities held by the Fund
is shown in the schedule of investments. In addition, concentration of
investments can be aggregated by various countries. The table below shows the
percentage of the Fund's investments at April 30, 1996 assigned to the various
country categories.
MARKET VALUE AS A
COUNTRY DIVERSIFICATION % OF NET ASSETS
----------------------- -----------------
Australia.............................................. 2.02%
Canada................................................. 21.90
United States.......................................... 76.20
------
TOTAL INVESTMENTS 100.12%
======
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940. The Corporation consists of six series portfolios: John Hancock Global
Resources Fund (the "Fund"), John Hancock Emerging Growth Fund, John Hancock
Money Market Fund, John Hancock High Yield Tax Free Fund, John Hancock High
Yield Bond Fund and John Hancock Government Income Fund (collectively, the
"Funds"). The investment objectives of the Fund is to protect the purchasing
power of shareholders' capital and to achieve growth of capital.
The Board of Directors 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 Board of Directors, 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 Board of Directors. 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. Ca pital 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 $421,721 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 gains distributions will be made. The carryforwards expire as follows:
$16,520, October 31, 2000, $90,341, October 31, 2002 and $314,860, 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
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
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 for the effect of
expenses that may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Corporation 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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
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 security 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.
At April 30, 1996, there were no open forward foreign currency exchange
contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
over-the-counter options will be valued at the average of the "asked" prices
obtained from two independent brokers. Upon the writing of a call or put option,
an amount equal to the premium received by the Fund will be included in the
Statement of Assets and Liabilities as an asset and corresponding liability. The
amount of the liability will be subsequently marked-to-market to reflect the
current market value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended April 30,
1996.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of 0.75% of Fund's average daily net asset value.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
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 $26,749. Out of this amount, $3,425 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $15,740
was paid as sales commissions to unrelated broker-dealers and $7,584 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
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
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 $50,260.
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 0.25% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In order to comply with this
Rule, the 12b-1 fee on Class B shares was reduced to 0.90% effective November 1,
1995, increased to 0.95% effective December 1, 1995 and was increased to 1.00%
effective February 1, 1996.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
On March 26, 1996, the Board of Directors approved retroactively to January
1, 1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Funds. The compensation for 1996 is estimated to be
at an annual rate of 0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are directors and/or officers of the Adviser and/or its affiliates, as
well as a Directors of the Fund. The compensation of unaffiliated Directors is
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Directors 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 $181.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Board of Directors in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
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 $41,912,469 and $37,088,829, 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 $35,464,932. Gross unrealized appreciation and depreciation of
investments aggregated $10,997,517 and $139,520, respectively, resulting in net
unrealized appreciation of $10,857,997.
18
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
NOTE D --
PLAN OF REORGANIZATION
On March 26, 1996, the Board of Directors of the Fund approved a plan of
reorganization between the Fund and the John Hancock Special Opportunities Fund
("Special Opportunities Fund") providing for the transfer of substantially all
of the assets and liabilities of the Fund to the Special Opportunities Fund in
exchange solely for Class A and Class B shares of the Special Opportunities Fund
to be distributed to Fund's Class A and Class B shareholders, respectively.
19
<PAGE>
================================================================================
[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
101 Huntington Avenue, Boston MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
This report is for the information of shareholders of the John Hancock
Global Resources 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 the caption "Printed on Recycled
paper."]
630SA 4/96
6/96
<PAGE>
================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
Government
Income
Fund
SEMI-ANNUAL REPORT
April 30, 1996
<PAGE>
================================================================================
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*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 and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BARRY H. EVANS, PORTFOLIO MANAGER
John Hancock
Government Income Fund
Shifting economic outlook and rising interest rates
end bond market's climb early in 1996
Low inflation, falling interest rates, a slowing economy and hopes for a Federal
budget agreement drove bond prices up throughout 1995. Late in the year, the
government shutdown and blizzards in the Northeast further slowed economic
growth. Bond prices climbed even higher in expectation that the Federal Reserve
would have to further lower short-term interest rates to stimulate the economy.
[A 2 1/4" x 3 3/4" photo of the portfolio management team. Caption reads: "Barry
H. Evans (seated) and Fund management team members Roger Hamilton (center) and
Seth Robbins (right)."]
In mid-January, the good times ended. The balanced budget deal unraveled,
the government went back to work and the economy started moving again. Bond
prices took the first of many tumbles, recovering somewhat when the Fed lowered
interest rates in late January. But with the release of stronger-than-expected
economic news in February and March, bond prices fell again. They continued
falling in April, as commodity prices crept up and investors even debated the
possibility of a Fed rate hike.
"...mortgage-backed securities outpaced interest-rate sensitive U.S.
Treasuries."
A look at performance
In this environment, mortgage-backed securities outpaced interest-rate sensitive
U.S. Treasuries. Although Treasuries took the lead in November and December when
interest rates were falling, prices collapsed in January when rates started
rising. By contrast, mortgage bonds started doing well once interest rates
stopped falling and refinancing activity slowed. Mortgages offer a slightly
higher yield than Treasuries to compensate investors for prepayment risk -- the
risk that homeowners will prepay their mortgages and refinance at a lower rate.
For the six months ended April 30, 1996, the Merrill Lynch General Mortgage
Index returned 1.64%, compared to 0.05% for the Merrill Lynch Government Index.
3
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
"In place of Treasuries, we focused on higher-yielding investments."
[Pie chart with heading "Portfolio Diversification" at top of left hand column.
The pie is divided into four sections. From left to right: U.S. Government
Agencies 50%; Short-Term Investments & Other 8%; U.S. Treasury Bonds 30%; and
Foreign Bank & Government Bonds 12%. A footnote below reads: "As a percentage of
net assets on April 30, 1996."]
The market's reversal hurt most bond funds, including John Hancock
Government Income Fund. For the six months ended April 30, 1996, the Fund's
Class A and Class B shares had total returns of -0.23% and -0.58% respectively,
at net asset value. These compared to the average general U.S. government fund's
return of -0.60%, according to Lipper Analytical Services.(1)
Good news = bad news?
Bond shareholders often ask us why it is that good economic news spells bad bond
news. It seems like a paradox, but it's true that economic data that is too good
and too strong works against bondholders. That's because a faster-growing
economy provokes fears of renewed inflation and rising interest rates. Since
bond prices move in the opposite direction from interest rates, a jump in
interest rates, as we have seen recently, tends to cause a drop in bond prices,
and, consequently, in the share price of a bond mutual fund. This doesn't change
the fact that bond fund shareholders still receive a stream of income from the
bonds held by the fund. In fact, that income stream could rise if the fund buys
newer bonds with higher yields. It's just that the offsetting drop in bond
prices creates a drag on the fund's net asset value, or share price.
Shorter duration with focus on income
The Fund began the period with a neutral duration of five years. Duration
measures how sensitive a bond's price is to changes in interest rates. The
longer a bond's duration, the more its price will rise as interest rates fall
(or fall as rates rise). To take advantage of declining rates in November and
December, we lengthened duration to 5.3 years mainly by buying 30-year
Treasuries. Our longer-than-average duration initially helped us outperform the
competition, but hurt us in January. Later in the month, we shortened duration
to five years, ending the period at 4.9 years.
To shorten duration, we sold long-term Treasuries. By the end of April, our
Treasury stake was 30%, down from 50% six months earlier. We also began hedging
to further protect the Fund. A hedge is simply a contract to buy or sell a
Treasury note or bond at a future date and future price. A futures contract
allows us to lock in a selling price, reduce interest-rate risk (the risk that
bond prices will fall as interest rates rise), and keep income in the Fund.
Futures are also cheap to trade and easy to buy and sell. At the end of April,
about 8-1/2% of the Fund's assets were hedged. This meant that the Fund's 32%
stake in Treasuries actually behaved more like a 22% stake.
In place of Treasuries, we focused on higher-yielding investments. In
the mortgage sector, we bought mainly GNMA fixed-rate mortgages with 7-1/2%
coupons (or stated interest rates). We also halved our investment in
collateralized mortgage obligations (CMOs) to 5% of the
4
<PAGE>
================================================================================
John Hancock Funds - Government Income 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 1% from top to bottom, with 0% on the top and -1% at the
bottom. Within the chart, there are three solid bars. The first represents the
- -0.23% total return for John Hancock Government Income Fund: Class A. The second
represents the -0.58% total return for John Hancock Government Income Fund:
Class B. The third represents the -0.60% total return for the average general
U.S. government fund. Footnote below reads: "Total returns for John Hancock
Government Income Fund are at net asset value with all distributions reinvested.
The average general U.S. government fund is tracked by Lipper Analytical
Services.(1) See following page for historical performance information."]
Fund's net assets. CMOs separate the cash flows of mortgage pools into different
classes with various maturities. Typically, CMOs have lower yields than other
mortgage bonds. Ours also had longer maturities and more interest-rate risk than
we wanted. We ended April with 51% of the Fund's net assets in mortgage bonds,
up from 30% six months ago.
In addition, we added dollar-denominated, government bonds issued by some
Canadian provinces and emerging markets. The Canadian bonds did well as it
looked less likely that Quebec would secede anytime soon and as new issuance
slowed. In the emerging market area, we focused on government bonds from
Argentina and Brazil. Both benefited from an improved inflation outlook and
increased investor demand. In total, we almost doubled our stake in foreign
bonds to 12% of net assets.
Finally, we bought asset-backed securities -- in this case, bonds issued by
Citicorp to finance the balances on the credit cards it issues. Their yield is
about a half percentage point higher than Treasuries. Plus, their credit quality
- -- a measure of the issuer's ability to meet payments -- is solid. Our
investment in asset-backed securities grew to 3% of the Fund's net assets.
"We'll maintain a cautious approach..."
Rough waters near term, smoother
sailing long term
We expect the bond market to be choppy this summer, as investors struggle with
the economy's direction, the Fed's outlook and the impact of an election year.
Many investors are concerned that inflation -- which tends to raise interest
rates and hurt bond prices -- may be a problem. We're not. The reality is that
the economy is still growing slower than it has in past expansions. Plus, we
don't have the extreme shortages of labor and production capacity that have
traditionally fueled inflation.
We'll maintain a cautious approach until one of two events occur. The first
would be if investors factored a Fed rate hike into Treasury prices. We'd see
this as a buying opportunity since we believe that if the Fed does raise rates,
it would only be over a brief period. The second event would be an economic
slowdown, which would show up in employment trends, consumer sales and commodity
prices. Once the economy slows, interest rates should come down and reward
patient bond investors.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. actual load-adjusted performance is
lower.
This commentary reflects the views of the portfolio manager through the end of
the fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Government Income Fund. Total return is a
performance measure that equals the sum of all income and capital gain
distributions, assuming reinvestment of these distributions and the change in
the price of the Fund's shares, expressed as a percentage of the Fund's net
asset value per share. Performance figures include the maximum applicable sales
charge of 4.50% for Class A shares. (Prior to May 15, 1995, the maximum
applicable sales charge for Class A shares was 4.75%.) 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.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
----- ------ ------
John Hancock Government Income
Fund: Class A(1) .......................... 5.26% 9.97% N/A
John Hancock Government Income
Fund: Class B(2) .......................... 4.56% 35.50% 71.75%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
----- ------ ------
John Hancock Government Income
Fund: Class A(1) .......................... 5.26% 6.54% N/A
John Hancock Government Income
Fund: Class B(2) .......................... 4.56% 6.26% 6.91%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of April 30, 1996
SEC 30-DAY
YIELD
-----
John Hancock Government Income Fund: Class A 5.90%
John Hancock Government Income Fund: Class B 5.45%
Notes to Performance
(1) Class A shares commenced on September 30, 1994.
(2) Class B shares commenced on February 23, 1988.
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
Government Income 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
Lehman Brothers Treasury Composite Index -- an unmanaged index of fixed-income
securities that are similar, but not identical, to the bonds in the Fund's
portfolio.
[Line chart with the heading Government Income Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Lehman Brothers Treasury Composite
Index and is equal to $11,531 as of April 30, 1996. The second line represents
the value of the hypothetical $10,000 investment made in the Government Income
Fund on September 30, 1994, before sales charge, and is equal to $11,451 as of
April 30, 1996. The third line represents the Government Income Fund after sales
charge and is equal to $10,933 as of April 30, 1996.]
[Line chart with the heading Government Income Fund: Class B*, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Lehman Brothers Treasury Composite
Index and is equal to $19,523 as of April 30, 1996. The second line represents
the value of the hypothetical $10,000 investment made in the Government Income
Fund on February 23, 1988, before contingent deferred sales charge, and is equal
to $17,044 as of April 30, 1996.
*No contingent deferred sales charge applicable.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $507,535,317) ................................... $ 506,016,729
Foreign government bonds (cost - $79,702,799) ............. 75,032,136
Credit card backed bonds (cost - $22,425,213) ............. 21,312,400
Multi-family mortgage backed bonds
(cost - $9,679,000) ..................................... 9,362,385
-------------
611,723,650
Receivable for investments sold ............................. 1,422,741
Receivable for shares sold .................................. 2,850,278
Interest receivable ......................................... 11,386,504
Receivable for variation margin - Note A .................... 358,125
Other assets ................................................ 164,532
-------------
Total Assets .............. 627,905,830
-------------------------------------------
Liabilities:
Temporary overdraft of cash due to custodian bank ........... 672,321
Payable for investments purchased ........................... 4,991,667
Payable for shares repurchased .............................. 3,034,717
Dividend payable ............................................ 117,219
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ....................................... 490,093
Accounts payable and accrued expenses ....................... 91,954
-------------
Total Liabilities ......... 9,397,971
-------------------------------------------
Net Assets:
Capital paid-in ............................................. 642,372,251
Accumulated net realized loss on investments,
options and financial futures contracts ................... (16,618,150)
Net unrealized depreciation of investments and
financial futures contracts ............................... (7,198,592)
Distributions in excess of net investment income ............ (47,650)
-------------
Net Assets ................ $ 618,507,859
===========================================
Net Asset Value Per Share:
(Based on net assets and shares of beneficial interest
outstanding - $1,000,000,000 shares authorized
with $0.01 par value, respectively)
Class A - $419,146,570 / 46,689,641 ......................... $ 8.98
=============================================================================
Class B = $199,361,289 / 22,196,898 ......................... $ 8.98
=============================================================================
Maximum Offering Price Per Share*
Class A - ($8.98 x 104.71%) ................................. $ 9.40
=============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1996. You'll
also find the net asset value and the maximum offering price per share as of
that date.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ..................................................... $ 27,161,424
------------
Expenses:
Investment management fee - Note B ......................... 2,088,736
Distribution/service fee - Note B
Class A .................................................. 560,513
Class B .................................................. 1,038,172
Transfer agent fee ......................................... 623,057
Custodian fee .............................................. 83,121
Printing ................................................... 55,136
Trustees' fees ............................................. 45,631
Auditing fee ............................................... 29,046
Registration and filing fees ............................... 27,905
Advisory board fee ......................................... 25,511
Financial services fee - Note B ............................ 18,877
Miscellaneous .............................................. 12,672
Legal fees ................................................. 10,013
------------
Total Expenses ............. 4,618,390
-------------------------------------------
Net Investment Income ...... 22,543,034
-------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ........................ 1,910,529
Net realized loss on options ................................. (77,254)
Net realized gain on financial futures contracts ............. 1,039,947
Change in net unrealized appreciation/depreciation
of investments .............................................. (26,886,555)
Change in net unrealized appreciation/depreciation of
financial futures contracts ................................ 364,811
------------
Net Realized and Unrealized
Loss on Investments ........ (23,648,522)
--------------------------------------------
Net Decrease in Net Assets
Resulting from Operations .. ($ 1,105,488)
============================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
---------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................... $ 22,543,034 $ 21,225,641
Net realized gain (loss) on investments sold, options and
financial futures contracts ............................ 2,873,222 (6,768,941)
Change in net unrealized appreciation/depreciation of
investments and financial futures contracts ............ (26,521,744) 49,303,120
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from
Operations ........................................... (1,105,488) 63,759,820
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.3234 and $0.7182 per share, respectively) (15,666,504) (4,353,217)
Class B - ($0.2911 and $0.6528 per share, respectively) (6,876,530) (16,866,998)
Distributions in excess of net investment income
Class A - ($0.0007 and none per share, respectively) .. (36,757) --
Class B - ($0.0007 and none per share, respectively) .. (16,319) --
------------- -------------
Total Distributions to Shareholders ................... (22,596,110) (21,220,215)
------------- -------------
From Fund Share Transactions -- Net* ...................... (55,313,901) 413,699,323
------------- -------------
Net Assets:
Beginning of period ..................................... 697,523,358 241,284,430
------------- -------------
End of period (including distributions in excess of and
undistributed net investment income of
($47,650) and $5,426, respectively) .................... $ 618,507,859 $ 697,523,358
============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996 YEAR ENDED OCTOBER 31,
(UNAUDITED) 1995
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ................................. 1,065,611 $ 9,861,898 316,821 $ 2,814,999
Shares issued in reorganization ............. -- -- 51,435,148 464,795,225
Shares issued to shareholders in reinvestment
of distributions ........................... 814,732 7,550,393 217,963 2,023,104
---------- ------------- ---------- -------------
1,880,343 17,412,291 51,969,932 469,633,328
Less shares repurchased ..................... (5,687,229) (52,853,506) (1,498,883) (13,909,339)
---------- ------------- ---------- -------------
Net increase (decrease) ..................... (3,806,886) ($ 35,441,215) 50,471,049 $ 455,723,989
========== ============= ========== =============
CLASS B
Shares sold ................................. 1,261,126 $ 11,769,939 2,414,651 $ 21,569,979
Shares issued in reorganization ............. -- -- 243,005 2,166,726
Shares issued to shareholders in reinvestment
of distributions ........................... 384,485 3,567,396 973,020 8,764,619
---------- ------------- ---------- -------------
1,645,611 15,337,335 3,630,676 32,501,324
Less shares repurchased ..................... (3,790,061) (35,210,021) (6,837,005) (74,525,990)
---------- ------------- ---------- -------------
Net decrease ................................ (2,144,450) ($ 19,872,686) (3,206,329) ($ 42,024,666)
========== ============= ========== =============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in the amount of money shareholders
invested in the Fund. The footnote illustrates the number of Fund shares sold,
reinvested and redeemed during the last two periods, along with the
corresponding dollar values.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1994
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1996 YEAR ENDED OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1995(a) OCTOBER 31, 1994
---------------- ------------------- ------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $ 9.32 $ 8.75 $ 8.85
---------- ---------- ----------
Net Investment Income .................................. 0.32 0.72 0.06
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts . (0.34) 0.57 (0.10)
---------- ---------- ----------
Total from Investment Operations ..................... (0.02) 1.29 (0.04)
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ................... (0.32) (0.72) (0.06)
---------- ---------- ----------
Net Asset Value, End of Period ......................... $ 8.98 $ 9.32 $ 8.75
========== ========== ==========
Total Investment Return at Net Asset Value (b)(c) ...... (0.23%)** 15.32% (0.45%)**
Total Adjusted Investment Return at Net Asset Value (c) -- 15.28% (0.46%)**
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .............. $ 419,147 $ 470,569 $ 223
Ratio of Expenses to Average Net Assets (b) ............ 1.16%* 1.19% 0.12%*
Ratio of Net Investment Income to Average Net Assets (b) 6.99%* 7.38% 0.71%*
Portfolio Turnover Rate ................................ 49% 102% 92%
</TABLE>
The Financial Highlights summarize the impact of the following factors on a
single share for the periods indicated: the net investment income, gains
(losses), distributions, and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed s ince the end of the
previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
Financial Highlights (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1996 ---------------------------------------------------------
(UNAUDITED) 1995(a) 1994 1993 1992 1991
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ...... $ 9.32 $ 8.75 $ 10.05 $ 9.83 $ 9.79 $ 9.37
-------- -------- -------- -------- -------- --------
Net Investment Income ..................... 0.29 0.65 0.65 0.70 0.80 0.89
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures
Contracts ................................ (0.34) 0.57 (1.28) 0.24 0.03 0.40
-------- -------- -------- -------- -------- --------
Total from Investment Operations ........ (0.05) 1.22 (0.63) 0.94 0.83 1.29
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...... (0.29) (0.65) (0.65) (0.72) (0.79) (0.87)
Distributions from Net Realized Gains on
Investments
Sold and Financial Futures Contracts .... -- -- (0.02) -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions ..................... (0.29) (0.65) (0.67) (0.72) (0.79) (0.87)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............ $ 8.98 $ 9.32 $ 8.75 $ 10.05 $ 9.83 $ 9.79
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset
Value (b)(c) ............................. (0.58%)** 14.49% (6.42%) 9.86% 8.81% 14.38%
Total Adjusted Investment Return at Net
Asset Value (c) .......................... -- 14.47% (6.43%) 9.85% 8.66% --
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) . $199,361 $226,954 $241,061 $293,413 $225,540 $129,014
Ratio of Expenses to Average Net Assets (b) 1.85%* 1.89% 1.93% 2.00% 2.00% 2.00%
Ratio of Net Investment Income to Average
Net Assets (b) ........................... 6.28%* 7.26% 6.98% 7.06% 8.03% 9.09%
Portfolio Turnover Rate ................... 49% 102% 92% 138% 112% 162%
</TABLE>
* Annualized
** Not annualized
(a) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(b) Excluding interest expense, which equalled 0.04% for Class A for the year
ended October 31, 1995 and 0.02%, 0.01%, 0.01% and 0.15% for Class B for
the years ended October 31, 1995, 1994, 1993 and 1992, respectively.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
Schedule of Investments
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Government Income Fund on April 30, 1996. It's divided into four main
categories: U.S. Government and Agencies Securities, Foreign Government Bonds,
Credit Card Backed Bonds and Multi-family Mortgage Backed Bonds. 12
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (32.26%)
Financing Corp.,
Bond ...................................................... 9.400% 02-08-18 $ 4,000 $ 4,868,760
Bond ...................................................... 9.650 11-02-18 1,600 1,996,000
Tennessee Valley Authority,
Pwr Bond 1994 Ser A ....................................... 7.850 06-15-44 5,000 4,847,100
United States Treasury,
Bond ...................................................... 15.750 11-15-01 34,340 49,245,620
Bond ...................................................... 11.625 11-15-02 22,500 28,504,575
Bond ...................................................... 11.875 11-15-03 6,000 7,838,460
Bond ...................................................... 11.625 11-15-04 16,150 21,290,222
Bond ...................................................... 12.000 08-15-13 48,700 68,849,625
Bond ...................................................... 9.250 02-15-16 6,000 7,391,220
Bond* ..................................................... 8.125 08-15-19 4,200 4,688,250
------------
199,519,832
------------
Governmental - U.S. Agencies (49.55%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1094-K .......................................... 7.000 06-15-21 2,300 2,225,963
CMO REMIC 1634-PN ......................................... 4.500 12-15-23 10,575 7,461,932
CMO REMIC 1667-PE ......................................... 6.000 03-15-08 11,750 11,254,268
Federal Judiciary Office Building,
Zero Coupon Bond .......................................... 0.000 02-15-01 250 180,980
Federal National Mortgage Association,
Med Term Notes ............................................ 11.875 05-19-00 6,800 8,060,516
30 Yr SF Pass Thru Ctf .................................... 8.500 09-01-24 to 15,683 16,128,381
10-01-24
GTD REMIC Pass Thru Ctf 1990-51-H ......................... 7.500 05-25-20 200 198,686
GTD REMIC Pass Thru Ctf 1990-58-J ......................... 7.000 05-25-20 3,700 3,523,066
GTD REMIC Pass Thru Ctf 1990-94-D ......................... 6.500 08-25-20 1,660 1,585,300
GTD REMIC Pass Thru Ctf 1991-56-M ......................... 6.750 06-25-21 4,000 3,813,720
GTD REMIC Pass Thru Ctf 1994-36-N ......................... 6.500 03-25-24 18,645 16,203,624
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Governmental - U.S. Agencies (continued)
Government National Mortgage Association,
30 Yr SF Pass Thru Ctf .................................... 7.000% 08-15-23 to $ 29,941 $ 28,911,398
03-15-26
30 Yr SF Pass Thru Ctf .................................... 7.500 05-15-23 to 131,817 130,479,823
04-15-26
30 Yr SF Pass Thru Ctf .................................... 8.000 09-15-23 to 28,577 29,012,018
08-15-24
30 Yr SF Pass Thru Ctf .................................... 8.500 06-15-24 34,589 35,797,524
30 Yr SF Pass Thru Ctf .................................... 11.000 01-15-14 to 10,424 11,659,698
12-15-15 ------------
306,496,897
------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $507,535,317) (81.81%) 506,016,729
------ ------------
FOREIGN GOVERNMENT BONDS
U.S. Dollar Denominated Foreign Government Bonds (12.13%)
Argentina, Republic of,
Bond ...................................................... 5.250# 03-31-23 5,000 2,731,250
Argentina, Republic of,
Bond ...................................................... 9.250 02-23-01 5,000 4,787,500
Brazil, Republic of,
Notes IDU ................................................. 6.375# 01-01-01 9,440 8,648,942
Brazil, Republic of,
Bond DISC ZL .............................................. 6.500# 04-15-24 3,000 2,028,750
British Columbia Hydro and Power Auth.,
Bond Ser FJ ............................................... 15.500 11-15-11 1,700 1,896,843
Hydro-Quebec Corp.,
Deb Ser HK ................................................ 9.375 04-15-30 2,000 2,310,780
Deb Ser HS ................................................ 9.400 02-01-21 5,000 5,770,200
International Bank for Reconstruction and Development,
Thirty Year Bond Ser 1987 ................................. 7.625 01-19-23 10,000 10,290,200
Landeskreditbank Baden-Wuerttemberg
Sub Notes ................................................. 7.625 02-01-23 13,650 13,810,251
Ontario, Province of,
30 Year Deb ............................................... 11.500 03-10-13 8,000 9,005,120
30 Year Deb ............................................... 17.000 11-05-11 5,000 5,592,450
Saskatchewan, Province of,
30 Year Deb ............................................... 9.125 02-15-21 4,000 4,595,040
Saskatchewan, Province of,
30 Year Deb ............................................... 9.375 12-15-20 3,000 3,564,810
------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $79,702,799) (12.13%) 75,032,136
------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
CREDIT CARD BACKED BONDS (3.45%)
Standard Credit Card Master Trust
Series 1995-1, Class A ..................................... 8.250% 01-07-07 $ 20,000 $ 21,312,400
------------
TOTAL CREDIT CARD BACKED BONDS
(Cost $22,425,213) (3.45%) 21,312,400
----- ------------
MULTI-FAMILY MORTGAGE BACKED BONDS (1.51%)
DLJ Mortgage Acceptance Corp.,
CMO REMIC 1993-M10-A2 ...................................... 7.200 07-15-03 4,665 4,583,240
CMO REMIC 1993-MF7-A1 ...................................... 7.400 06-18-03 4,791 4,779,145
------------
TOTAL MULTI-FAMILY MORTGAGE BACKED BONDS
(Cost $9,679,000) (1.51%) 9,362,385
----- ------------
TOTAL LONG TERM BONDS
(Cost $619,342,329) (98.90%) 611,723,650
------ ------------
TOTAL INVESTMENTS (98.90%) $611,723,650
------ ------------
</TABLE>
* U.S. Treasury Bonds with a value of $1,917,718 owned by the Fund were
designated as margin deposits for futures contracts at April 30, 1996.
# Represents rate in effect on April 30, 1996.
The percentage shown for each investment category is the total value of that
catgegory as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940, as amended. The Corporation consists of six series portfolios: John
Hancock Government Income Fund (the "Fund"), John Hancock Emerging Growth Fund,
John Hancock High Yield Tax Free Fund, John Hancock High Yield Bond Fund, John
Hancock Money Market Fund and John Hancock Global Resources Fund (collectively,
the "Funds"). The investment objective of the Fund is to earn a high level of
current income consistent with preservation of capital by investing primarily in
securities that are issued or guaranteed as to principal and interest by the
U.S. Government, its agencies or instrumentalities ("U.S. Government
securities").
The Board of Directors has authorized the issuance of multiple classes 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 Board of Directors, 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. Sharehold ers 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 Board of Directors. Short-term debt investments maturing within
60 days are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc., a wholly-owned subsidiary of The Berkeley Financial Group, may participate
in a joint repurchase agreement transaction. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $15,347,195 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 December 31,
2002. The Fund's tax year end is December 31.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment securities
is recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for effect of expenses that
may be applied differently to each class as explained previously.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
estimates made by management in determining the reported amounts of assets,
liabilities, revenues, and expenses of the 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 Fund.
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 appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract will be valued at the official settlement price of the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker will be made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund will recognize a gain or loss.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At April 30, 1996, open positions in financial futures contracts were as
follows:
UNREALIZED
APPRECIATION/
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
- ---------- ----------------- -------- --------------
JUNE 96 830 Treasury Bond SHORT $416,594
========
At April 30, 1996, the Fund has deposited in a segregated account
$1,718,000 par value of U.S. Treasury Bond, 8.125% due 08-15-99 to cover margin
requirements on open financial futures contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended April 30,
1996.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES 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, to
0.650% of the first $200,000,000 of the Fund's average daily net asset value,
0.625% of the next $300,000,000 and 0.600% of the Fund's average daily net asset
value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended April
30, 1996, net sales charges received with regard to sales of Class A shares
amounted to $144,115. Out of this amount, $55,142 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $72,331
was paid as sales commissions to unrelated broker-dealers and $16,642 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 $275,734.
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 0.25% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly owned subsidiary of The Berkeley
Financial Group. The Fund pays transfer
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Government Income Fund
agent fees based on the number of shareholder accounts and certain out-of-pocket
expenses.
On March 26, 1996, the Board of Directors approved retroactively to January
1, 1996 an agreement with the adviser to perform necessary tax and financial
management services for the Fund.
Mr. Edward J. Boudreau, Jr. and Ms. Anne C. Hodsdon are directors and
officers of the Adviser and its affiliates as well as Directors of the Fund. The
compensation of unaffiliated Directors is borne by the Fund. Effective with the
fees paid for 1995, the unaffiliated Directors 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 $3,495.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1996 aggregated $349,371,438 and
$396,234,669, respectively.
The cost of investments owned at April 30, 1996 for Federal income tax
purposes was $619,342,329. Gross unrealized appreciation and depreciation of
investments aggregated $7,806,486 and $15,425,165, respectively, resulting in
net unrealized depreciation of $7,618,679.
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Government Income Fund
19
<PAGE>
================================================================================
[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
101 Huntington Avenue, Boston MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
This report is for the information of shareholders of the John Hancock
Government Income 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 the caption "Printed on Recycled
paper."]
560SA 4/96
6/96
<PAGE>
================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
High Yield
Tax-Free
Fund
SEMI-ANNUAL REPORT
April 30, 1996
<PAGE>
================================================================================
DIRECTORS
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*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 and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY FRANK LUCIBELLA, PORTFOLIO MANAGER
John Hancock
High Yield Tax-Free Fund
Bond markets stumble; municipals outperform Treasuries
Bonds posted a weak performance during the six months ended April 30, 1996, in
the wake of signs that the U.S. economy was growing at a faster-than-expected
pace. In the final two months of 1995, investor sentiment was positive, due
primarily to expectations that the Federal Reserve Board would continue to lower
short-term interest rates. That's exactly what occurred when the Fed made two
quarter-point rate cuts, one in December and one in January. As interest rates
fell, municipal bonds and other fixed-income investments performed well. In
February, however, economic statistics indicated that the economy was growing at
a faster clip than most observers had expected. Bond investors worried that
strong economic growth could trigger inflation, which is unwelcome since it
erodes the value of their fixed-income payments. Worries over inflation signaled
a change in investor sentiment since it was unclear in which direction the Fed,
and interest rates, would move next.
[A 2 1/4" x 3 1/2" photo of the portfolio management team. Caption reads: "Frank
Lucibella (seated) and Fund management team members: (l-r) Michael Roye, Tom
Goggins, Dianne Sales-Singer, Holly Morris."]
Now, for the good news: fears of a flat tax started to wane. As that
occurred, municipals turned in a stronger performance than Treasuries. Investors
became less focused on the flat tax, and focused instead on munis'
attractiveness relative to Treasuries, helping municipal bonds outperform
taxable bonds during the period.
"... municipals turned in a stronger performance than Treasuries."
A look at performance
For the six-month period ended April 30, 1996, John Hancock High Yield Tax-Free
3
<PAGE>
================================================================================
John Hancock Funds - High Yield Tax-Free Fund
"...the Fund benefited from our timely shifts in duration."
[Pie chart with the heading "Portfolio Diversification" at top left hand column.
The pie is divided into nine sections. From left to right: "Transportation 15%;
Electric Power 4%; Health 8%; Housing 5%; Industrial Development Bonds 13%;
General Obligation 1%; Other 21%; Pollution Control 29%; Certificates of
Participation 4%. A footnote below states "As a percentage of net assets as of
April 30, 1996."]
Fund's Class A and Class B shares posted total returns of 0.56% and 0.22%,
respectively, at net asset value. Those returns slightly lagged the average
high-yield municipal bond fund's return of 1.06% for the same period, according
to Lipper Analytical Services.(1) The primary reason for that lag was the
disappointing performance of bonds issued by the Illinois Development Finance
Authority for the Ford Heights Incinerator Project. At the beginning of the
year, the incinerator project was virtually complete and ready to go into
operation. In March, however, the Illinois state government signed into law a
bill that revoked the electric-rate subsidy that was critical to the financial
operation of the project. The project went into bankruptcy and the bonds' prices
plunged. We continue to closely monitor developments and are working with the
project operators and bond holders to resolve this issue. Were it not for this
one holding, our analysis suggests that the Fund's performance for the period
would have been in line with that of similar funds.
Despite that disappointment, the Fund's performance benefited from our
timely shifts in duration. Duration measures how sensitive a bond's share price
is to changes in interest rates. Generally speaking, the longer a bond's
duration, the more its price will rise when interest rates fall, and conversely,
fall when interest rates rise. In the last two months of 1995, the Fund's
duration was longer than many of its peers. Since interest rates were still
falling, having this duration exposure was a positive when the bond markets
rallied. As we began to see signs that the economy was gathering steam in late
January and early February, we became more defensive and shortened our duration.
We did that by trading some very long-term bonds with maturities of 30 years for
shorter-term bonds with maturities in the 20-year range. Our more defensive
posture was a plus during the spring when interest rates began their climb.
[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 Illinois
Development Finance Authority followed by a down arrow and the phrase "State
revokes key financing subsidy for Ford Heights incinerator project." The second
listing is Kenton County, Kentucky for Delta Airlines followed by an up arrow
and the phrase "Delta improving revenues, increased air traffic." The third
listing is Arapahoe County Capital Improvement followed by an up arrow and the
phrase "High income helps in rising interest rate environment." Footnote below
reads: "See "Schedule of Investments." Investment holdings are subject to
change."]
Strategy
Our stake in high-yielding, non-rated bonds continued to make up the majority of
the Fund's investments, at 50% to 60% of the Fund's net assets. Non-rated bonds
don't carry a credit rating from one of the major municipal bond rating agencies
for a variety of reasons. But because they have no credit rating, they are
generally perceived to carry more
4
<PAGE>
================================================================================
John Hancock Funds - High Yield Tax-Free 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 0.5% from top to bottom, with 1.0% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 0.56% total return for John Hancock High Yield Tax-Free Fund: Class A. The
second represents the 0.22% total return for John Hancock High Yield Tax-Free
Fund: Class B. The third represents the 1.06% total return for the average
high-yield municipal bond fund. Footnote below reads: "Total returns for John
Hancock High Yield Tax-Free Fund are at net asset value with all distributions
reinvested. The average high-yield municipal bond fund is tracked by Lipper
Analytical Services.(1) See following page for historical performance
information."]
risk than rated bonds. As compensation for that added perceived risk, non-rated
bonds offer attractive levels of income relative to rated bonds. With the help
of our research analysts, we identify non-rated bonds that we believe have
underlying financial strength and whose reward, or income, we believe justifies
the added credit risk.
Over the past six months, some of our best performing holdings were
non-rated bonds, particularly those issued on the behalf of airlines. Bonds
issued by Kenton County, Kentucky, for a Delta Airlines terminal were boosted by
the strength of the air transport industry. Additionally, Denver Airport bonds
performed nicely when the airport finally opened earlier in 1996.
"... we'll continue to keep the Fund somewhat defensive..."
Outlook
The economy's first quarter 1996 growth was a lot stronger than most experts had
anticipated. However, we don't believe that this rate of growth will be
sustained throughout the balance of the year. The economic data suggests that
there is no indication of wage inflation, and employment growth remains fairly
subdued.
Over the short term, the upcoming presidential election process may have an
important effect on the bond markets. If a candidate embraces the flat tax, it
could cause further problems for the municipal market. Some observers suggest
that "blue collar" workers could be a major battleground for votes. If that is
the case, candidates may try to make inroads with this group by offering up
economically stimulative proposals such as an increase in benefits, a tax cut or
other measures. The rhetoric surrounding these stimulative, and possibly
inflationary, proposals could present problems for the market. Until we have
more definitive indications about the direction of the economy and interest
rates, we'll continue to keep the Fund somewhat defensive by maintaining a
duration that is in line with the market as a whole, or perhaps a bit shorter.
- ----------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges.
Actual load-adjusted performance is lower.
See the Fund's prospectus for a detailed discussion of the risks of
investing in high-yield bonds.
This commentary reflects the views of the portfolio manager through the end
of the Fund's period discussed in this report. Of course, the manager's
views are subject to change as market and other conditions warrant.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock High Yield Tax-Free 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 per share. Performance figures include the maximum applicable sales charge
of 4.50% for Class A shares. (Prior to May 15, 1995, the maximum applicable
sales charge for Class A shares was 4.75%.) 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.
A portion of the Fund's income may be taxable. Some investors may be subject to
the Alternative Minimum Tax. Capital gains are taxable.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
------ ------ ------
John Hancock High Yield Tax-Free
Fund: Class A(1) 3.16% 5.76% N/A
John Hancock High Yield Tax-Free
Fund: Class B(2) 2.27% 44.33% 83.42%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
------ ------ ------
John Hancock High Yield Tax-Free
Fund: Class A(1) 3.16% 2.52% N/A
John Hancock High Yield Tax-Free
Fund: Class B(2) 2.27% 7.61% 6.52%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of April 30, 1996
SEC 30-DAY
YIELD
-----
John Hancock High Yield Tax-Free Fund: Class A 6.06%
John Hancock High Yield Tax-Free Fund: Class B 5.58%
Notes to Performance
(1) Class A shares commenced on December 31, 1993.
(2) Class B shares commenced on August 29, 1986.
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
High Yield Tax-Free 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
Lehman Brothers Municipal Bond Index -- an unmanaged index that includes
approximately 15,000 bonds and is commonly used as a measure of municipal bond
performance.
[Line chart with the heading High Yield Tax-Free Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the High Yield Tax-Free Fund on December 31, 1993, before sales charge, and
is equal to $10,990 as of April 30, 1996. The second line represents the value
of the Lehman Municipal Bond Index and is equal to $10,973 as of April 30, 1996.
The third line represents the High Yield Tax-Free Fund after sales charge and is
equal to $10,500 as of April 30, 1996.]
[Line chart with the heading High Yield Tax-Free Fund: Class B*, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are two lines.
The first line represents the value of the Lehman Municipal Bond Index and is
equal to $21,655 as of April 30, 1996. The second line represents the value of
the hypothetical $10,000 investment made in the High Yield Tax-Free Fund on
August 29, 1986, before contingent deferred sales charge, and is equal to
$18,198 as of April 30, 1996.
*No contingent deferred sales charge applicable.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds
(cost - $168,994,659) .................................... $ 170,174,780
Receivable for shares sold ................................. 3,458,301
Receivable for futures variation margin - Note A ........... 68,750
Interest receivable ........................................ 4,141,252
Segregated assets for financial futures contracts .......... 200,000
Other assets ............................................... 27,868
-------------
Total Assets ............. 178,070,951
-------------------------------------------
Liabilities:
Temporary overdraft of cash ................................ 378,398
Payable for investments purchased .......................... 2,027,917
Payable for shares repurchased ............................. 3,272,779
Dividend payable ........................................... 26,026
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ....................................... 111,541
Accounts payable and accrued expenses ...................... 45,887
-------------
Total Liabilities ........ 5,862,548
-------------------------------------------
Net Assets:
Capital paid-in ............................................ 175,059,639
Accumulated net realized loss on investments and
financial futures contracts ............................... (4,171,208)
Net unrealized appreciation of investments and
financial futures contracts ............................... 1,319,972
-------------
Net Assets ............... $ 172,208,403
===========================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - 125,000,000 shares
authorized with $0.01 per share par value, respectively)
Class A - $20,896,016/2,264,785 ............................ $ 9.23
==============================================================================
Class B = $151,312,387/16,395,276 ........................... $ 9.23
==============================================================================
Maximum Offering Price Per Share*
Class A = ($9.23 x 104.71%) ................................. $ 9.66
==============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1996. You'll
also find the net asset value and the maximum offering price per share as of
that date.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ...................................................... $ 6,339,226
-----------
Expenses:
Investment management fee - Note B .......................... 502,199
Distribution/service fee - Note B
Class A ................................................... 19,610
Class B ................................................... 738,112
Transfer agent fee .......................................... 67,411
Registration and filing fees ................................ 44,462
Auditing fee ................................................ 34,614
Custodian fee ............................................... 30,928
Printing .................................................... 20,137
Trustees' fees .............................................. 12,648
Advisory board fee .......................................... 9,946
Financial services fee ...................................... 5,141
Miscellaneous ............................................... 4,480
Legal fees .................................................. 3,560
-----------
Total Expenses .............. 1,493,248
Less Expense Reductions -
Note B ...................... (12,472)
-----------
Net Expenses ................ 1,480,776
-------------------------------------------
Net Investment Income ....... 4,858,450
-------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts
Net realized loss on investments sold ......................... (328,742)
Net realized gain on financial futures contracts .............. 140,781
Change in net unrealized appreciation/depreciation
of investments ............................................... (4,522,524)
Change in net unrealized appreciation/depreciation of
financial futures contracts ................................... 139,063
-----------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts . (4,571,422)
-------------------------------------------
Net Increase in Net Assets
Resulting from Operations ... $ 287,028
===========================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
---------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................... $ 4,858,450 $ 9,667,347
Net realized loss on investments sold and financial
futures contracts ...................................... (187,961) (2,063,553)
Change in net unrealized appreciation/depreciation
of investments and financial futures contracts ......... (4,383,461) 15,034,119
------------- -------------
Net Increase in Net Assets Resulting from
Operations ........................................... 287,028 22,637,913
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.2979 and $0.5780 per share, respectively) (492,159) (952,176)
Class B - ($0.2652 and $0.5130 per share, respectively) (4,366,291) (8,715,173)
Distributions in excess of net investment income
Class A - (none and $0.0384 per share, respectively) .. -- (63,196)
Class B - (none and $0.0340 per share, respectively) .. -- (578,424)
------------- -------------
Total Distributions to Shareholders ................. (4,858,450) (10,308,969)
------------- -------------
From Fund Share Transactions -- Net* ...................... 7,320,093 (9,338,914)
------------- -------------
Net Assets:
Beginning of period ..................................... 169,459,732 166,469,702
------------- -------------
End of period ........................................... $ 172,208,403 $ 169,459,732
============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996 YEAR ENDED OCTOBER 31,
(UNAUDITED) 1995
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................... 902,454 $ 8,518,163 471,510 $ 4,304,187
Shares issued to shareholders
in reinvestment of distributions 20,144 191,840 40,880 373,017
--------- ------------ --------- ------------
922,598 8,710,003 512,390 4,677,204
Less shares repurchased ........ (160,360) (1,524,466) (755,291) (6,954,380)
--------- ------------ --------- ------------
Net increase (decrease) ........ 762,238 $ 7,185,537 (242,901) ($ 2,277,176)
========= ============ ========= ============
CLASS B
Shares sold .................. 1,385,857 $ 13,249,098 2,984,185 $ 26,948,744
Shares issued to shareholders in
reinvestment of distributions 158,408 1,513,252 341,251 3,125,237
--------- ------------ --------- ------------
1,544,265 14,762,350 3,325,436 30,073,981
Less shares repurchased ...... (1,541,613) (14,627,794) (4,059,955) (37,135,719)
--------- ------------ --------- ------------
Net increase (decrease) ...... 2,652 $ 134,556 (734,519) ($ 7,061,738)
========= ============ ========= ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses and any increase or
decrease in money shareholders invested in the Fund. The footnote illustrates
the number of Fund shares sold and redeemed during the last two periods, along
with the corresponding dollar values.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PERIOD FROM
DECEMBER 31, 1993
SIX MONTHS (COMMENCEMENT OF
ENDED YEAR ENDED OPERATIONS) TO
APRIL 30, 1996 OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1995(b) 1994
-------------- ----------- ------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $ 9.47 $ 8.82 $ 9.85
-------- -------- --------
Net Investment Income .............................. 0.30 0.57 0.48(a)
Net Realized and Unrealized Gain (Loss) on
Investments Sold and Financial Futures Contracts .. (0.24) 0.70 (0.94)
-------- -------- --------
Total from Investment Operations ................. 0.06 1.27 (0.46)
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ............... (0.30) (0.58) (0.48)
Distributions in Excess of Net Investment Income ... -- (0.04) (0.09)
-------- -------- --------
Total Distributions .............................. (0.30) (0.62) (0.57)
-------- -------- --------
Net Asset Value, End of Period ..................... $ 9.23 $ 9.47 $ 8.82
======== ======== ========
Total Investment Return at Net Asset Value (c) ..... 0.56%(d) 14.85% 4.96%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .......... $ 20,896 $ 14,225 $ 15,401
Ratio of Expenses to Average Net Assets ............ 1.09%* 1.06% 1.15%*
Ratio of Net Investment Income to Average Net Assets 6.27%* 6.36% 6.08%*
Portfolio Turnover Rate ............................ 25% 64% 62%
</TABLE>
The Financial Highlights summarize the impact of the following factors on a
single share for the periods indicated: the net investment income, gains
(losses), distributions, and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed since the end of the previous
period. Additionally, important relationships between some items presented in
the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
Financial Highlights (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1996 -----------------------------------------------------
(UNAUDITED) 1995(b) 1994 1993 1992 1991
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $ 9.47 $ 8.82 $ 9.98 $ 9.39 $ 9.31 $ 9.07
-------- -------- -------- -------- -------- --------
Net Investment Income ................................. 0.27 0.51 0.48 0.53 0.55 0.54
Net Realized and Unrealized Gain (Loss) on
Investments Sold and Financial Futures Contracts ..... (0.24) 0.69 (0.90) 0.72 0.17 0.34
-------- -------- -------- -------- -------- --------
Total from Investment Operations .................... 0.03 1.20 (0.42) 1.25 0.72 0.88
-------- -------- -------- -------- -------- --------
Less Distributions
Dividends from Net Investment Income .................. (0.27) (0.51) (0.48) (0.56) (0.55) (0.54)
Distributions in Excess of Net Investment Income ...... -- (0.04) (0.07) -- -- --
Distributions from Net Realized Gain on Investments
Sold ................................................. -- -- (0.19) (0.10) (0.09) --
Distributions from Capital Paid-in .................... -- -- -- -- -- (0.10)
-------- -------- -------- -------- -------- --------
Total Distributions ................................. (0.27) (0.55) (0.74) (0.66) (0.64) (0.64)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ........................ $ 9.23 $ 9.47 $ 8.82 $ 9.98 $ 9.39 $ 9.31
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (c) ........ 0.22%(d) 13.99% (4.44%) 13.69% 7.89% 10.07%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ............. $151,312 $155,234 $151,069 $113,442 $ 65,933 $ 51,467
Ratio of Expenses to Average Net Assets ............... 1.78%* 1.79% 1.85% 2.06% 2.17% 2.36%
Ratio of Net Investment Income to Average Net Assets .. 5.57%* 5.61% 5.36% 5.23% 5.78% 5.61%
Portfolio Turnover Rate ............................... 25% 64% 62% 100% 40% 83%
</TABLE>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
Schedule of Investments
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by High
Yield Tax-Free Fund on April 30, 1996. It has one main category: Tax-Exempt
Long-Term Bonds. The tax-exempt long-term bonds are broken down by state. Under
each state is a list of the securities owned by the Fund.
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
California (13.38%)
Fontana, County of,
Special Tax Rev Community Facility District
No. 90-3 Empire Center ............................. 8.500% 04-01-21 B+** $6,775 $ 6,021,281 9.56%
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Sr. Lien Cap Allocation Ser A ........... Zero 01-01-18 BBB- 7,950 1,843,367 6.86
Sacramento Power Auth,
Cogeneration Proj Rev Light & Pwr Improv ............ 6.000 07-01-22 BBB- 3,000 2,812,170 6.40
San Bernardino, County of,
Cert of Part Ser 1994 Medical Center Fin Proj ....... 5.500 08-01-17 A- 4,500 4,032,585 6.14
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Sr Lien Cap Apprec ...................... Zero 01-01-22 BBB** 6,500 1,165,125 6.81
South Orange County Public Financing Auth,
Spec Tax Rev Levrrs Inflos .......................... 7.970# 08-15-17 AAA** 7,500 7,162,500 5.97
----------
23,037,028
----------
Colorado (6.25%)
Arapahoe County Capital Improvement Trust Fund,
Highway Rev Ser E-470 Remarketed 8-31-1995 .......... 6.950 08-31-20 Baa** 5,000 5,218,500 6.66
Denver, City and County of,
Airport Sys Rev Ser 1992A ........................... 7.250 11-15-25 BBB** 1,410 1,609,783 6.35
Airport Sys Rev Unref Ser 1992A ..................... 7.250 11-15-25 BBB 3,590 3,939,917 6.61
----------
10,768,200
----------
District of Columbia (0.59%)
District of Columbia,
Cert of Part ........................................ 7.300 01-01-13 B- 1,000 1,008,140 7.24
----------
Florida (8.08%)
Florida Housing Finance Agency,
Southlake Apartments Proj Ser D Remarketed 6-1-1993 . 8.400 10-01-12 BBB-** 3,300 3,385,470 8.19
Hillsborough County Aviation Auth,
Rev Special Purpose Facility Improv US Air Proj ..... 8.600 01-15-22 B- 3,900 4,118,751 8.14
Homestead, City of,
Ind'l Development Rev Community Rehab Proj Ser A .... 7.950 11-01-18 BB** 4,200 4,319,616 7.73
South Indian River Water Control District,
Rev Egret Landing Proj Section 15 Phase 1 ........... 7.500 11-01-18 BB+** 2,000 2,099,680 7.14
----------
13,923,517
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Illinois (6.15%)
Bedford Park, City of,
Tax Increment Rev Sr Lien Mark IV Proj............... 9.750% 03-01-12 BB** $1,000 $1,150,970 8.47%
Chicago, City of,
Chicago-O'Hare Int'l Airport Spec Facil
Rev Ref American Airlines Inc....................... 8.200 12-01-24 BB+ 1,500 1,720,800 7.15
Illinois Development Finance Auth,
Solid Waste Disposal Rev Facility Ford
Heights Waste Tire Proj ............................ 7.875 04-01-11 C** 3,035 698,050 34.24
Illinois Health Facilities Auth,
Rev Fairview Obligated Group Proj Ser A.............. 9.500 10-01-22 BB** 2,500 3,125,525 7.60
Rev Fairview Obligated Group Proj Ser B.............. 9.000 10-01-22 BB** 1,500 1,839,390 7.34
Round Lake Beach, City of,
Tax Increment Rev Ref................................ 7.500 12-01-13 BB+** 2,000 2,052,240 7.31
-----------
10,586,975
-----------
Iowa (0.12%)
Iowa Finance Auth,
Hlth Care Facil Rev Mercy Health - Health
Initiatives Proj ................................... 9.950 07-01-19 BB** 200 212,416 9.37
-----------
Kansas (1.23%)
Prairie Village, City of,
Rev Ser A Claridge Court Proj........................ 8.750 08-15-23 BBB-** 2,000 2,111,380 8.29
-----------
Kentucky (3.07%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Inc Ser 1985........... 7.800 12-01-15 BB 2,500 2,654,225 7.35
Rev Spec Facil Delta Airlines Proj Ser B............. 7.250 02-01-22 BB 2,500 2,639,800 6.87
-----------
5,294,025
-----------
Maryland (1.19%)
Baltimore, County of,
Poll Control Rev Ref Bethlehem Steel Corp Proj....... 7.500 06-01-15 BB-** 2,000 2,045,180 7.33
-----------
Massachusetts (3.19%)
Massachusetts Industrial Finance Agency,
Rev Ser A Southeastern Mass Proj..................... 9.000 07-01-15 BB** 2,800 3,032,904 8.31
Massachusetts Port Auth,
Spec Proj Rev Harborside Hyatt Hotel
Remarketed 6-20-1991 ............................... 10.000 03-01-26 BB** 2,200 2,468,136 8.91
-----------
5,501,040
-----------
Michigan (6.10%)
Michigan State Strategic Fund Ltd,
Resource Recovery Rev Great Lakes Pulp & Fibre Proj . 10.250 12-01-16 BB** 3,000 2,793,390 11.01
Waterford Township Economic Development Corp,
Rev Ltd Oblig Canterbury Hlth Care................... 8.375 07-01-23 BB+** 3,500 3,594,920 8.15
Wayne Charter County of,
Spec Airport Facil Rev Ref Ser 1995 Northwest
Airlines Inc........................................ 6.750 12-01-15 BB+** 4,125 4,108,253 6.78
-----------
10,496,563
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Missouri (0.61%)
Lees Summit Industrial Development Auth,
Hlth Facil Ref Rev & Imp John Knox Vlg Proj.......... 7.125% 08-15-12 A-** $1,000 $1,049,300 6.79%
-----------
New Hampshire (1.84%)
New Hampshire Industrial Development Auth,
Rev Ref Poll Control Central Maine Pwr............... 7.375 05-01-14 BB 3,000 3,162,750 7.00
-----------
New Jersey (4.32%)
Camden County Improvement Auth,
Lease Rev Ser A Holt Hauling & Warehousing Proj...... 9.875 01-01-21 BB-** 1,500 1,475,925 10.04
New Jersey Economic Development Auth,
First Mtg Rev Ser A Winchester Gardens............... 8.500 11-01-16 BBB-** 1,000 972,660 8.74
Rev Ref Ind'l Development Newark Airport
Marriott Hotel Proj ................................ 7.000 10-01-14 BBB-** 2,500 2,486,000 7.04
Rev Ref Ser J Holt Hauling Proj...................... 8.500 11-01-23 BBB-** 2,500 2,497,350 8.51
-----------
7,431,935
-----------
New Mexico (2.79%)
Farmington, County of,
Poll Control Rev Ref Ser A Pub Serv Co
of New Mexico San Juan Proj ........................ 6.400 08-15-23 BB 5,000 4,799,250 6.67
-----------
New York (3.26%)
Islip Community Development Agency,
Community Development Rev Ref NY Institute
of Technology Proj * ............................... 7.500 03-01-26 BBB-** 2,000 2,000,000 7.50
New York State Urban Development Corp,
Rev Correctional Facil Ser 1993...................... 5.500 01-01-15 A 2,840 2,575,028 6.07
New York, City of,
GO Ser B............................................. 7.300 08-15-11 BBB+ 950 1,030,912 6.73
-----------
5,605,940
-----------
Ohio (4.94%)
Bedford, County of,
Rev Ref Community Hosp Bedford Inc................... 8.500 05-15-09 AAA** 1,465 1,666,628 7.47
Cleveland, City of,
Parking Facil Imp Rev................................ 8.000 09-15-12 BBB** 1,000 1,087,180 7.36
Parking Facil Imp Rev................................ 8.100 09-15-22 BBB** 2,000 2,173,740 7.45
Lorain, County of,
Rev First Mtg Kendal At Oberlin Proj Ser A........... 8.625 02-01-22 BBB-** 3,300 3,574,626 7.96
-----------
8,502,174
-----------
Oklahoma (2.95%)
Tulsa Municipal Airport Trust, Trustees of,
Rev American Airlines Inc............................ 7.350 12-01-11 BB+ 2,000 2,149,200 6.84
Rev Ser 1988 American Airlines Inc................... 6.250 06-01-20 BB+ 3,000 2,935,170 6.39
-----------
5,084,370
-----------
Oregon (2.55%)
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj............... 7.125 01-01-21 BB+** 4,300 4,394,514 6.97
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania (12.56%)
Beaver County Industrial Development Auth,
Coll Poll Control Rev Ref Toledo Edison Co.
Beaver Valley Proj Ser 1995A ....................... 7.750% 05-01-20 BB $2,500 $ 2,576,725 7.52%
Poll Control Rev Ref Cleveland Elec Proj............. 7.625 05-01-25 BB 4,600 4,694,300 7.47
Chester County Industrial Development Auth,
Rev First Mtg Rha/Pa Nursing Home.................... 10.125 05-01-19 BB** 200 217,090 9.33
Montgomery County Higher Education and Health Auth,
Hosp Rev Ser A Utd Hosp Original Iss................. 7.500 11-01-14 Ba1** 1,055 1,062,058 7.45
Hosp Rev Ser B Utd Hosp Original Iss................. 7.500 11-01-13 Ba1** 3,030 3,051,210 7.45
Montgomery County Redevelopment Auth,
Multifamily Housing Rev Ser A KBF Assoc L.P. Proj.... 6.375 07-01-12 BBB+** 2,000 1,951,580 6.53
Multifamily Housing Rev Ser A KBF Assoc L.P. Proj.... 6.500 07-01-25 BBB+** 3,500 3,350,060 6.79
Northampton County Industrial Development Auth,
Poll Control Rev Ref Bethlehem Steel Proj............ 7.550 06-01-17 BB-** 2,000 2,056,620 7.34
Philadelphia Auth For Industrial Development,
Rev First Mtg Rha Care Pavilion Proj................. 10.250 02-01-18 BB** 285 294,319 9.93
Philadelphia Hospitals and Higher Education
Facilities Auth, Hosp Rev 1991 Ser A
Philadelphia Protestant Home Proj .................... 8.625 07-01-21 BB** 2,300 2,373,071 8.36
-----------
21,627,033
-----------
Rhode Island (1.37%)
Providence Redevelopment Agency,
Cert of Part Ser A................................... 8.000 09-01-24 BB-** 2,250 2,357,572 7.63
-----------
South Carolina (0.06%)
McCormick, County of,
Hosp Facil Rev McCormick County Nursing Center Proj . 10.500 03-01-18 BB** 100 103,645 10.13
-----------
Texas (0.21%)
Houston Housing Finance Corp,
Single Family Mtg Rev................................ 9.750 09-15-03 B 365 365,150 9.75
-----------
Utah (2.19%)
Carbon, County of,
Solid Waste Disposal Rev Ref East Carbon
Development Corp Ser A ............................ 9.000 07-01-12 BBB-** 2,000 2,090,980 8.61
Solid Waste Disposal Rev Ref Sunnyside
Cogeneration Proj ................................. 9.250 07-01-18 BBB-** 1,900 1,687,713 10.41
-----------
3,778,693
-----------
Virginia (3.42%)
Hopewell Industrial Development Auth,
Poll Control Rev Stone Container Corp Proj........... 8.250 05-01-10 BB** 1,000 1,071,760 7.70
Resource Recovery Rev Ref Stone Container Corp Proj.. 8.250 06-01-16 BB** 4,500 4,824,630 7.69
-----------
5,896,390
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Washington (4.56%)
Port of Walla Walla Public Corp,
Solid Waste Recycling Rev Ser 1995
Ponderosa Fibres Proj .............................. 9.125% 01-01-26 BB-** $8,000 $ 7,857,760 9.29%
-----------
West Virginia (1.84%)
Marion, County of,
Community Solid Waste Disposal Rev
American Power Paper Recycling Proj ................ 7.750 12-01-11 BB** 4,000 3,173,840 9.77
------------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $168,994,659) (98.82%) $170,174,780
====== ============
</TABLE>
* This security, having an aggregate value of $2,000,000 or 1.16% of the
Fund's net asset value, has been purchased as a forward commitment - that
is, the Fund has agreed on trade date, to take delivery of and make payment
for such security on a delayed basis subsequent to this schedule. The
purchase price and interest rate of such security is fixed at trade date,
although the Fund does not earn any interest on such security until
settlement date. The Fund has instructed its Custodian Bank to segregate
assets with a current value at least equal to the amount of the forward
commitment. Accordingly, the market value of $2,191,700 of Arapahoe County
Capital Improvement Trust Fund, Highway Rev Ser E-470 Remarketed 8-31-1995,
6.95%,08-31-20, has been segregated to cover the forward commitment.
** Credit Ratings are rated by Moody's Investors Services, Fitch or John
Hancock Advisers, Inc. where Standard & Poor's ratings are not available.
+ The yield is not calculated with guidelines established by the U.S.
Securities Exchange Commissions.
# Represents the rate in effect on April 30, 1996.
The percentages 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.
16
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The High Yield Tax-Free Fund invests primarily in securities issued by the
various states and their various political subdivisions. The performance of the
Fund is closely tied to economic conditions within the applicable states and the
financial condition of the states and their agencies and municipalities. The
concentration of investments by states and credit ratings for individual
securities held by the Fund are shown in the schedule of investments. In
addition, the concentration of investments can be aggregated by various sector
categories.
The table below shows the percentages of the Fund's investments at April 30,
1996 assigned to the various sector categories.
MARKET VALUE AS A PERCENTAGE OF
SECTOR DISTRIBUTION THE FUND'S NET ASSETS:
- ------------------- ----------------------
General Obligation............................... 0.60%
Revenue Bonds - Certificate of Participation..... 4.30
Revenue Bonds - Education........................ 1.16
Revenue Bonds - Electric Power................... 4.18
Revenue Bonds - Health........................... 8.41
Revenue Bonds - Housing.......................... 5.26
Revenue Bonds - Industrial Development Bond...... 12.66
Revenue Bonds - Other............................ 16.88
Revenue Bonds - Pollution Control Facilities..... 29.35
Revenue Bonds - Transportation................... 14.80
Revenue Bonds - Water & Sewer.................... 1.22
-----
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.82%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940. The Corporation consists of six series portfolios: John Hancock High Yield
Tax-Free Fund (the "Fund"), John Hancock Emerging Growth Fund, John Hancock
Money Market Fund, John Hancock Global Resources Fund, John Hancock High Yield
Bond Fund and John Hancock Government Income Fund (collectively, the "Funds").
The investment objective of the Fund is to obtain a high level of current income
that is largely exempt from federal income taxes and is consistent with the
preservation of capital.
The Board of Directors 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 Board of Directors, 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 Board of Directors. Short-term debt investments maturing within
60 days are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. 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
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $2,785,979 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 distribution will be made. The carryforward expires December 31,
2002. The Fund's tax year end is December 31.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment securities
is recorded on the accrual basis.
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 for the effect of expenses that
may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Corporation 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
18
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
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.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. At the time the Fund enters into a financial futures
contract, it will be required to deposit with its custodian a specified amount
of cash or U.S. government securities, known as "initial margin", equal to a
certain percentage of the value of the financial futures contract being traded.
Each day, the futures contract is valued at the official settlement price on the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At April 30, 1996, open positions in financial futures contracts were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION APPRECIATION
- ---------- -------------- -------- ------------
JUN 1996 100 U.S Treasury Bonds SHORT $139,063
--------
At April 30, 1996, the Fund has deposited in a segregated account $200,000
to cover margin requirements on open financial futures contracts.
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) 0.625% of the first $75,000,000 of the Fund's
average daily net asset value, (b) 0.5625% of the next $75,000,000 and (c) 0.50%
of the Fund's average daily net asset value in excess of $150,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
The Fund has an agreement with its custodian bank under which $12,472 of
custodian fees have been reduced by balance credits applied during the period
ended April 30, 1996. If the Fund had not entered into this agreement, the
assets not invested, on which these balance credits were earned, could have
produced taxable income.
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
19
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
to sales of Class A shares amounted to $115,800. Out of this amount, $10,660 was
retained and used for printing prospectuses, advertising, sales literature and
other purposes, $67,148 was paid as sales commissions to unrelated
broker-dealers and $37,992 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 $154,497.
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 0.25% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In order to comply with this
Rule, the 12b-1 fee on Class B shares was reduced to 0.95% effective November 1,
1995, reduced to 0.90% effective December 1, 1995 and was increased to 1.00%
effective March 1, 1996.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
On March 26, 1996, the Board of Directors approved retroactively to January
1, 1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Funds. The compensation for 1996 is estimated to be
at an annual rate of 0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its affiliates, as
well as Directors of the Fund. The compensation of unaffiliated Directors is
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Directors 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 $788.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Board of Directors in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
20
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
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 $47,781,487 and $43,417,094, 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 $168,994,659. Gross unrealized appreciation and depreciation of
investments aggregated $6,971,186 and $5,791,065, respectively, resulting in net
unrealized appreciation of $1,180,121.
21
<PAGE>
================================================================================
NOTES
John Hancock Funds - High Yield Tax-Free Fund
22
<PAGE>
================================================================================
NOTES
John Hancock Funds - High Yield Tax-Free Fund
23
<PAGE>
================================================================================
[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
101 Huntington Avenue, Boston MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
This report is for the information of shareholders of the John Hancock High
Yield Tax-Free 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 the caption "Printed on Recycled
paper."]
590SA 4/96
6/96
<PAGE>
================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
High Yield
Bond
Fund
SEMI-ANNUAL REPORT
April 30, 1996
<PAGE>
================================================================================
DIRECTORS
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON*
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*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 and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders 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.
[A 1 1/14" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY ARTHUR CALAVRITINOS, PORTFOLIO MANAGER
John Hancock
High Yield Bond Fund
Bond market rally stalls in 1996;
high-yield bonds outperform Treasuries
After one of the best years on record in 1995, bond investors have had a tougher
time so far this year. When the Fund's six-month period began in October, 1995,
bond prices were moving higher in a slow growth, low inflation environment that
was also bolstered by hopes that Washington would soon pass a deficit-cutting
budget. Further interest rate cuts by the Federal Reserve in December and
January confirmed that, if anything, the economy needed some help. But even as
the last rate cut took effect, briefly boosting bond prices, some
stronger-than-expected economic data stopped the rally in its tracks in February
and March and bond prices began falling. At the same time, gold and other
commodities prices rose and talk of inflation began to grow as interest rates
rose. The bond market remained vulnerable through the end of the period in
April.
High-yield bonds were not immune to the downturn, but they fared better
than Treasury securities. Their higher yields, necessary to compensate investors
for the higher risk of owning lower-quality bonds, cushioned their prices in the
downturn. In the last six months, Treasury bonds with maturities ranging from
five to 10 years lost 0.24%, while the broad high-yield market returned 4.2% and
high-yield bonds with a credit rating of B, the Fund's average bond holding,
returned 4.9%, as measured by the Merrill Lynch high-yield bond index.
There were several other factors that helped the high-yield market over the
last six months. Investors seeking higher yields in an overall low interest-rate
environment kept putting money
"...bond
investors
have had
a tougher
time so far
this year."
[A 2" x 3" photo of the portfolio management team at bottom right. Caption
reads: "Arthur Calavritinos (standing, right) and fund management team members:
(l-r) Fred Cavanaugh, Thomas Huggins and Linda Carter."]
3
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
Industry
consolidations
boosted
some Fund
holdings.
[Chart with heading "Top Five Holdings" at top of left hand column. The chart
lists five holdings: 1) Lady Luck Gaming 3.8% 2) Northwest Airlines 2.8% 3)
Gaylord Container 2.7% 4) NWA Trust 2.1% 5) NS Group 2.0%. A footnote below
reads: "As a percentage of net assets on April 30, 1996."]
into the high-yield market, with only a slight increase in supply. In the first
quarter, we also saw credit quality improve, with a record number of high-yield
bonds receiving credit upgrades, lifting their prices despite the broader bond
market's decrease. With this backdrop, for the six months ended April 30, 1996,
the John Hancock High-Yield Bond Fund's Class A and Class B shares posted total
returns of 8.67% and 8.30%, respectively, at net asset value. That compared
favorably to the average high current yield bond fund, which returned 5.89%,
according to Lipper Analytical Services.(1)
Broad strategy, careful analysis
turn up opportunities
We're still putting our rigorous analytical process to work across the broad
high-yield bond market to find bonds of companies that we believe represent the
best investment for the risk we're taking. The key to selecting successful
companies lies in detailed analysis and individual company research. During the
last six months, we were successful with companies whose fortunes were either
misunderstood in the short term, providing a good buying opportunity, or ones
which benefited from industry consolidation. Again, the key ingredient was
careful analysis of each individual situation. One example was Trump Taj Mahal,
where our predictions of an improved gaming climate in Atlantic City and
stronger performance at Trump Taj Mahal in particular proved accurate. And while
performance was our primary focus, we also believed that the Trump Taj Mahal
would be consolidated into a larger Trump holding company, which it was. By the
time we sold the bonds in January, their price had gone up by more than 20% from
when we bought them three months earlier. It was one of the major contributors
to the Fund's six-month performance. Another consolidation that served us well
occurred with oil service company Dual Drilling, whose bonds rose more than 10%
since a takeover attempt was made by another oil service company.
We found a good buying opportunity this period with Big V Supermarkets, a
chain of food stores in New York's Hudson Valley region which is part of a
larger cooperative called Shop Rite. Its bond prices dropped after analysts
forecast strong competitive pressures. That's when we bought the 11% bonds
because our analysis showed a company with good debt service coverage and
improving numbers. The competitive pressures wound up being overblown and the
bonds have gone up almost 10% since we bought
[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 Trump Taj
Majal followed by an up arrow and the phrase "Boosted by strong performance and
consolidation." the second listing is Big V Supermarkets followed by an up arrow
and the phrase "Overcomes competitive pressures." The third listing is
TransAmerica Refining followed by a flat arrow and the phrase "Refinery delays
hold back profits." Footnote below reads: "See "Schedule of Investments."
Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1996." The chart is
scaled in increments of 10% from top to bottom, with 10% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 8.67% total return for John Hancock High Yield Bond Fund: Class A. The
second represents the 8.30% total return for John Hancock High Yield Bond Fund:
Class B. The third represents the 5.89% total return for the average high
current yield fund. Footnote below reads: "Total returns for John Hancock High
Yield Bond Fund are at net asset value with all distributions reinvested. The
average high current yield fund is tracked by Lipper Analytical Services.(1) See
following page for historical performance information."]
them. We also took advantage of a short-term problem to buy bonds of NS Group, a
steel compa ny which makes pipes used in transporting and drilling gas. A fire
in one of their facilities in late 1995 caused a drop in the bonds' price, but
the market misjudged the problem and the bonds have risen by almost 13% since
then.
Another food-related company whose improving fortunes helped the Fund
during the period was DiGiorgio Corp, a food wholesaler which has serviced the
A&P and other smaller New York City-area food stores for more than 100 years.
While they dominate the highly competitive New York City market, they came under
pressure from a weak New York economy and rising costs. But a move from Long
Island to New Jersey began a turnaround that helped DiGiorgio's cash flow
coverage increase and saw their bonds appreciate by 16%. One disappointment was
TransAmerica Refining, whose oil refinery project suffered delays that prevented
it from realizing its profit projections on time.
Outlook
Even though recent economic data has suggested a faster-growing economy, in our
view economic growth will probably remain around 2% and inflation should stay
low. Within that broad context, investors are likely to continue to seek higher
yield, because absolute interest-rate levels remain historically low. That
situation, coupled with the strong supply and demand story for high-yield bonds,
causes us to remain optimistic overall. But for now, we're tailoring our
short-term expectations for high-yield bonds because currently the spread, or
difference in yields, between high-yield bonds and Treasury bonds is
historically narrow. That means investors aren't getting as much reward for the
increased risk of investing in high-yield bonds as they would if the yield
spreads were wider. In this environment, investors might move toward
higher-quality bonds in an effort to upgrade the credit quality of their
portfolios. We're not too concerned, however, and in any case we believe
high-yield bonds still have potential to provide a good absolute performance.
But we could see the sector underperform higher-quality sectors of the bond
market in the second half of the year.
- --------------------------------------------------------------------------------
(1) Figures From Lipper Analytical Services include reinvested dividends and do
not take into account sales charges.
Actual load-adjusted performance is lower.
This commentary reflects the views of the portfolio manager
through the end of the Fund's period discussed in this report.
Of course, the manager's views are subject to change as mar-
ket and other conditions warrant.
See the Fund's prospectus for a detailed discussion of the risks
of investing in high-yield bonds.
"...for now,
we're
tailoring our
short-term
expectations
for high-
yield bonds..."
5
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock High Yield Bond Fund. Total return is a
performance measure that equals the sum of all income and capital gain
distributions, assuming reinvestment of these distributions and the change in
the price of the Fund's shares, expressed as a percentage of the Fund's net
asset value per share. Performance figures include the maximum applicable sales
charge of 4.50% for Class A shares. (Prior to May 15, 1995, the maximum
applicable sa les charge for Class A shares was 4.75%.) 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 performance in the future. Also, keep in mind that the total return and
share price of the Fund's investments will fluctuate. As a result, your Fund's
shares may be worth more or less than their original cost, depending on when you
sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
John Hancock High Yield Bond
Fund: Class A(1) 12.47% 16.65% N/A
John Hancock High Yield Bond
Fund: Class B(2) 11.86% 80.27% 100.55%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
John Hancock High Yield Bond
Fund: Class A(1) 12.47% 5.76% N/A
John Hancock High Yield Bond
Fund: Class B(2) 11.86% 12.51% 8.61%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of April 30, 1996
SEC30-DAY
YIELD
-----
John Hancock High Yield Bond Fund: Class A 9.10%
John Hancock High Yield Bond Fund: Class B 8.82%
Notes to Performance
(1) Class A shares commenced on June 30, 1993.
(2) Class B shares commenced on October 26, 1987.
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
High Yield Bond 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 Lehman Brothers High
Yield Bond Index N an unmanaged index of fixed-income securities that are
similar, but not identical, to the bonds in the Fund's portfolio.
[Line chart with the heading High Yield Bond Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Lehman High Yield Bond Index and is
equal to $12,497 as of April 30, 1996. The second line represents the value of
the hypothetical $10,000 investment made in the High Yield Bond Fund on June 30,
1993, before sales charge, and is equal to $12,335 as of April 30, 1996. The
third line represents the High Yield Bond Fund after sales charge and is equal
to $11,782 as of April 30, 1996.]
[Line chart with the heading High Yield Bond Fund: Class B*, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Lehman High Yield Bond Index and is
equal to $22,417 as of April 30, 1996. The second line represents the value of
the hypothetical $10,000 investment made in the High Yield Bond Fund on October
26, 1987, before contingent deferred sales charge, and is equal to $20,243 as of
April 30, 1996.
*No contingent deferred sales charge applicable.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $183,026,735) .............................. $186,482,475
Common stocks, preferred stocks
and warrants (cost - $19,135,641) ...................... 25,662,623
Joint repurchase agreement (cost - $7,345,000) ........... 7,345,000
Corporate savings account ................................ 242,130
------------
219,732,228
Receivable for investments sold ........................... 4,603,294
Interest receivable ....................................... 6,025,622
Receivable for shares sold ................................ 3,548,763
Miscellaneous assets ...................................... 82,349
-----------
Total Assets ................ 233,992,256
------------------------------------------------
Liabilities:
Payable for investments purchased ......................... 476,417
Payable for shares repurchased ............................ 4,793,579
Dividend payable .......................................... 56,894
Payable for forward foreign currency exchange
contracts bought - Note A ............................... 24,799
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ..................................... 152,141
Accounts payable and accrued expenses ..................... 72,424
------------
Total Liabilities ........... 5,576,254
------------------------------------------------
Net Assets:
Capital paid-in ........................................... 237,712,640
Accumulated net realized loss on investments and
foreign currency transactions ........................... (19,216,029)
Net unrealized appreciation of investments and
foreign currency transactions ........................... 9,897,158
Undistributed net investment income ....................... 22,233
------------
Net Assets .................. $228,416,002
===============================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding -125,000,000 shares
authorized with $0.01 per share par value, respectively)
Class A - $36,451,833/4,889,814 .......................... $ 7.45
=============================================================================
Class B - $191,964,169/25,752,731 ......................... $ 7.45
=============================================================================
Maximum Offering Price Per Share*
Class A - ($7.45 x 104.71%) ............................... $ 7.80
=============================================================================
*On single retail sales of less than $100,000. On sales of $100,000 or
more and on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1996. You'll also
find the net asset value and the maximum offering price per share as of that
date. The STATEMENT OF OPERATIONS summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains for the
period stated.
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest .................................................. $11,767,863
Dividends ................................................. 136,434
-----------
11,904,297
-----------
Expenses:
Investment management fee - Note B....................... 610,975
Distribution/service fee - Note B
Class A ............................................. 37,186
Class B ............................................. 886,682
Transfer agent fee ...................................... 162,766
Custodian fee ........................................... 56,874
Registration and filing fees ............................ 38,385
Auditing fee ............................................ 25,337
Printing ................................................ 24,923
Trustees' fees .......................................... 13,927
Advisory board fee ...................................... 8,554
Financial services fee .................................. 5,107
Legal fees .............................................. 4,364
Miscellaneous ........................................... 2,269
-----------
Total Expenses............... 1,877,349
------------------------------------------------
Net Investment Income........ 10,026,948
------------------------------------------------
Realized and Unrealized Gain on Investments
and Foreign Currency Transactions
Net realized gain on investments sold ...................... 2,021,023
Net realized gain on foreign currency transactions 16,627
Change in net unrealized appreciation/depreciation
of investments ............................................. 5,372,653
Change in net unrealized appreciation/depreciation
of foreign currency transactions ........................... 27,185
----------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions.. 7,437,488
-------------------------------------------------
Net Increase in Net Assets
Resulting from Operations...... $17,464,436
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................................... $10,026,948 $17,462,118
Net realized gain (loss) on investments sold and foreign currency transactions ...................... 2,037,650 (12,008,875)
Change in net unrealized appreciation/depreciation of investments and foreign currency transactions . 5,399,838 9,302,593
------------ ------------
Net Increase in Net Assets Resulting from Operations .......................................... 17,464,436 14,755,836
------------ ------------
Distributions to Shareholders:
Dividends from net investment income:
Class A - ($0.3610 and $0.7310 per share, respectively) ....................................... (1,477,417) (1,845,748)
Class B - ($0.3353 and $0.6738 per share, respectively) ....................................... (8,548,504) (15,681,410)
------------ ------------
Total Distributions to Shareholders ....................................................... (10,025,921) (17,527,158)
------------ ------------
From Fund Share Transactions -- Net* .................................................................. 13,939,434 37,374,759
------------ ------------
Net Assets:
Beginning of period ................................................................................. 207,038,053 172,434,616
------------ ------------
End of period (including undistributed net investment income of $22,233 and $21,206, respectively) $228,416,002 $207,038,053
============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........................................................ 3,675,757 $27,093,345 6,078,825 $43,382,586
Shares issued to shareholders in reinvestment of distributions ..... 107,886 796,175 135,872 966,256
--------- ----------- ----------- -----------
3,783,643 27,889,520 6,214,697 44,348,842
Less shares repurchased ............................................ (2,567,868) (18,843,568 (4,135,476) (29,488,564)
--------- ----------- ----------- -----------
Net increase ....................................................... 1,215,775 $9,045,,952 2,079,221 $14,860,278
========= =========== =========== ===========
CLASS B
Shares sold ......................................................... 5,298,521 $39,123,497 10,103,871 $71,810,000
Shares issued to shareholders in reinvestment of distributions ...... 514,447 3,790,272 1,007,375 7,154,628
--------- ----------- ----------- -----------
5,812,968 42,913,769 11,111,246 78,964,628
Less shares repurchased.............................................. (5,147,620) (38,020,287) (7,937,826) (56,450,147)
--------- ----------- ----------- -----------
Net increase......................................................... 665,348 $ 4,893,482 3,173,420 $22,514,481
========= =========== =========== ===========
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
redeemed during the last two periods, along with the corresponding dollar
values.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 30,
1993
(COMMENCEMENT
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, OF OPERATIONS)
APRIL 30, 1996 ------------------------ TO OCTOBER 31,
(UNAUDITED) 1995(b) 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $ 7.20 $ 7.33 $ 8.23 $ 8.10
-------- -------- -------- --------
Net Investment Income ......................................... 0.36(a) 0.72 0.80(a) 0.33
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions................................ 0.25 (0.12) (0.83) 0.09
-------- -------- -------- --------
Total from Investment Operations ...................... 0.61 0.60 (0.03) 0.42
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .......................... (0.36) (0.73) (0.82) (0.29)
Distributions from Net Realized Gain on Investments Sold....... -- -- (0.05) --
-------- -------- -------- --------
Total Distributions ................................... (0.36) (0.73) (0.87) (0.29)
-------- -------- -------- --------
Net Asset Value, End of Period ................................ $ 7.45 $ 7.20 $ 7.33 $ 8.23
======== ======== ======== ========
Total Investment Return at Net Asset Value (c) ................ 8.67%(d) 8.83% (0.59%) 4.96%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ..................... $36,452 $ 26,452 $ 11,696 $ 2,344
Ratio of Expenses to Average Net Assets ....................... 1.13%* 1.16% 1.16% 0.91%*
Ratio of Net Investment Income to Average Net Assets .......... 9.94%* 10.23% 10.14% 12.89%*
Portfolio Turnover Rate ....................................... 56% 98% 153% 204%
</TABLE>
The Financial Highlights summarize the impact of the following factors on a
single share for the periods indicated: the net investment income, gains
(losses), dividends, and total investment return of the Fund. It shows how the
Fund's net asset value for a share has changed since the end of the previous
period. Additionally, important relationships between some items presented in
the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year ended October 31,
APRIL 30, 1996 --------------------------------------------------------
(UNAUDITED) 1995(b) 1994 1993 1992 1991
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period.................. $ 7.20 $ 7.33 $ 8.23 $ 7.43 $ 7.44 $ 6.45
-------- -------- -------- -------- ------- -------
Net Investment Income ................................ 0.33(a) 0.67 0.74(a 0.80 0.87 0.98
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions.................. 0.26 (0.13) (0.83) 0.75 (0.04) 1.06
-------- -------- -------- -------- ------- -------
Total from Investment Operations ................... 0.59 0.54 (0.09) 1.55 0.83 2.04
-------- -------- -------- -------- ------- -------
Less Distributions
Dividends from Net Investment Income.................. (0.34) (0.67) (0.76) (0.75) (0.84) (0.98)
Distributions from Net Realized Gain on
Investments Sold................................... --- --- (0.05) --- --- ---
-------- -------- -------- -------- ------- -------
Distributions from Capital Paid-in.................... --- --- --- --- --- (0.07)
-------- -------- -------- -------- ------- -------
Total Distributions ................................ (0.34) (0.67) (0.81) (0.75) (0.84) (1.05)
-------- -------- -------- -------- ------- -------
Net Asset Value, End of Period........................ $ 7.45 $ 7.20 $ 7.33 $ 8.23 $ 7.43 $ 7.44
======== ======== ========= ======== ======= =======
Total Investment Return at Net Asset Value (c)........ 8.30%(d) 7.97% (1.33%) 21.76% 11.56% 34.21%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)............. $191,964 $180,586 $160,739 $154,214 $98,560 $72,023
Ratio of Expenses to Average Net Assets .............. 1.83%* 1.89% 1.91% 2.08% 2.25% 2.24%
Ratio of Net Investment Income to Average Net Average. 9.16%* 9.42% 9.39% 10.07% 11.09% 13.73%
Portfolio Turnover Rate .............................. 56% 98% 153% 204% 206% 93%
</TABLE>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Bond Fund
Schedule of Investments
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
High Yield Bond Fund on April 30, 1996. It's divided into three main categories:
publicly traded bonds, common and preferred stocks and warrants, and short-term
investments. Short-term investments, which represent the Fund's "cash" position,
are listed last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000's MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
Aerospace (1.44%)
Rohr, Inc.,
Sr Note 05-15-03 ........................................... 11.625% BB- $ 3,000 $ 3,300,000
------------
Automobile/Truck (3.31%)
Fruehauf Trailer Corp.,
Sr Note 04-30-02 ........................................... 14.750 B- 2,757 2,426,160
Great Dane Holdings,
Sr Sub Deb 08-01-01 ........................................ 12.750 B- 2,435 2,276,725
Sub Deb 01-01-06 ........................................... 14.500 CCC 3,132 2,850,120
------------
7,553,005
------------
Banks (1.34%)
First Nationwide Holdings Inc.,
Sr N12B500-15-03(R) ........................................ 12,500 B 3,000 3,060,000
------------
Broadcasting (.84%)
CBS Inc.,
Deb 06-01-22 ............................................... 8.875 BB 2,000 1,920,480
------------
Building Products (0.58%)
Waxman Industries, Inc.,
Sr Note Ser B 06-01-04, Stepped Coupon (12.75%, 6-01-99) (A). Zero CCC+ 2,000 1,320,000
------------
Cable TV (3.76%)
Australis Media Ltd.,
Units (Sr Sub Disc Note 05-15-03 & Warr.) (Australia) (F) .. Zero CCC 3,000 2,040,000
CF Cable TV Inc.,
Sr Sec 2nd Priority Note 02-15-05 (Canada) (F) ............. 11.625 BB+ 1,000 1,085,000
Comcast UK Cable Partners Ltd.,
Deb 11-15-07, Stepped Coupon (13.25%, 9-30-99) (United
Kingdom)(F)(A) ........................................... Zero B 2,500 1,475,000
Diamond Cable Communications PLC,
Sr Disc Note 09-30-04, Stepped Coupon (13.25%, 9-30-99)
(United Kingdom) (F) (A) ................................... Zero B- 2,000 1,430,000
Le Groupe Videotron Ltee,
Sr Note 02-15-05 (Canada) (F) ............................... 10.625 BB+ 1,000 1,062,500
Marcus Cable Co., L.P.,
Sr Disc Note 12-15-05, Stepped Coupon (14.25%, 6-15-00) (A)... Zero B 1,500 930,000
Scandinavian Broadcasting System SA,
Conv Sub Deb 08-01-05 (Netherlands) (F) .................... 7.250 B 555 577,200
------------
8,599,700
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000's MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Computers (0.91%)
Computervision Corp.,
Sr Sub Note 08-15-99 ....................................... 11.375% CCC+ $ 2,000 $ 2,090,000
------------
Construction (0.45%)
Primeco, Inc.,
Sr Sub Note 03-01-05 ....................................... 12.750 B 1,000 1,035,000
------------
Containers (2.73%)
Gaylord Container Corp.,
Sr Sub Disc Deb 05-15-05, Stepped Coupon (12.75%, 5-15-96) (A).. Zero B- 6,000 6,240,000
------------
Cosmetics & Toiletries (0.88%)
Renaissance Cosmetics,
Sr Note 08-15-01 ........................................... 13.750 B 2,000 2,000,000
------------
Drugs (0.17%)
J.B. Williams Holdings Inc.,
Sr Note 03-01-04 ........................................... 12.000 B 376 375,060
------------
Electronics (0.87%)
Dictaphone Corp.,
Sr Sub Note 08-01-05 ....................................... 11.75 B- 2,000 1,990,000
------------
Foods (2.60%)
Americold Corp.,
Sr Sub Note 05-01-08 ....................................... 12.875 B- 2,000 2,020,000
Di Giorgio Corp.,
Sr Note 02-15-03 ........................................... 12.000 B 4,250 3,910,000
------------
5,930,000
------------
Glass Products (0.76%)
Owens-Illinois, Inc.,
Sr Sub Note 04-01-99 ....................................... 10.250 B+ 1,700 1,734,000
------------
Governmental - Foreign (2.92%)
Escom,
Bond 10-01-98 (South Africa) # ............................. 15.000 BBB 4,000 917,260
Land & Agricultural Bank of South Africa,
Bond 11-15-96 (South Africa) # ............................. 16.000 BBB 18,000 4,163,931
Transnet Ltd.,
Deb 04-01-97 (South Africa) # .............................. 12.500 BBB+ 7,000 1,575,952
------------
6,657,143
------------
Healthcare (0.16%)
Dynacare Inc.,
Sr Note 01-15-06 ........................................... 10.750 B+ 375 373,594
------------
Leisure & Recreation (15.39%)
Aztar Corp.,
Sr Sub Note 10-01-04 ....................................... 13.750 B 2,000 2,240,000
Coast Hotels & Casinos Inc.,
1st Mtg 12-15-02 (R) ....................................... 13.000 B 2,000 2,110,000
GB Property Funding Corp.,
1st Mtg 01-15-04 ........................................... 10.875 B 4,000 3,480,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000's MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C>
Leisure & Recreation (continued)
GNF Corp.,
1ST Mtg 04-01-03 ........................................... 10.625% BB $ 4,000 $ 4,120,000
Grand Casinos, Inc.,
1st Mtg 12-01-03 ........................................... 10.125 BB 1,308 1,366,860
Lady Luck Gaming Corp.,
1st Mtg Ser Qtr 03-01-01 ................................... 11.875 B- 8,750 8,640,625
Mohegan Tribal Gaming Authority,
Sr Sec Note 11-15-02 (R) ................................... 13.500 B 3,400 4,216,000
Showboat Inc.,
Sr Sub Note 08-01-09 ....................................... 13.000 B 2,000 2,290,000
Showboat Marina Casino/Finance,
1st Mtg 03-15-03 (R) ....................................... 13.500 B 2,000 2,140,000
Stratosphere Corp.,
1st Mtg Note 05-15-02 ...................................... 14.250 B 600 750,000
Trump Atlantic City Associates,
1st Mtg 05-01-06 ........................................... 11.250 BB- 2,778 2,823,143
Trump's Castle Funding, Inc.,
Mtg 11-15-03 ............................................... 11.750 CAA 1,000 972,500
------------
35,149,128
------------
Metals (3.98%)
Alpine Group Inc., (The),
Sr Note Ser B 07-15-03 ..................................... 12.250 B 4,000 3,940,000
Interlake Corp., (The)
Sr Sub Deb 03-01-02 ........................................ 12.125 CCC+ 2,000 1,930,000
Kaiser Aluminum & Chemical Corp.,
Sr Sub Note 02-01-03 ....................................... 12.750 B- 3,000 3,217,500
------------
9,087,500
------------
Oil & Gas (7.73%)
Dual Drilling Co.,
Sr Sub Note 01-15-04 ....................................... 9.875 B- 3,750 3,956,250
Kelly Oil & Gas Partners Ltd.,
Deb 04-01-00 ............................................... 8.500 B- 750 626,250
Maxus Energy Corp.,
Deb 11-15-15 ............................................... 11.500 BB- 2,000 2,070,000
Mesa Capital Corp.,
Discount Note 06-30-96 ..................................... 12.750 CCC 1,766 1,770,415
Nuevo Energy Co.,
Sr Sub Note 06-15-02 ....................................... 12.500 B+ 4,000 4,320,000
TransAmerican Refining Corp.,
Unit (1st Mtg Note 02-15-02 & Warr.) ....................... 16.500 B- 1,500 1,406,250
TransTexas Gas Corp.,
Sr Sec Note 06-15-02 ....................................... 11.500 BB- 3,500 3,500,000
------------
17,649,165
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000's MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Paper (3.55%)
APP International Finance Co. B.V.
Gtd Sec Note 10-01-05 (Indonesia) (F) ...................... 11.750% BB $ 750 $ 718,125
Container Corp. of America,
Sr Note Ser A 05-01-04 ..................................... 11.250 B+ 2,000 2,070,000
Crown Packaging Holdings Ltd.,
Sr Note 11-01-00 (Canada) (F) .............................. 10.750 B3 1,500 1,391,250
Indah Kiat International Finance Co. .......................
Sr Sec Note 06-15-06 (Indonesia) (F) ....................... 12.500 BB 2,500 2,556,250
Williamhouse-Regency of Delaware Inc.,
Sr Sub Note 11-15-05 (R) ................................... 13.000 B- 1,200 1,362,000
------------
8,097,625
------------
Pollution Control (0.41%)
ICF Kaiser International, Inc.,
Unit (Sr Sub Note & Warr.) 12-31-03 ........................ 12.000 B- 1,000 945,000
------------
Real Estate (0.41%)
JM Peters Company, Inc.,
Sr Note 05-01-02 ........................................... 12.750 B3 1,000 947,500
------------
Retail (6.88%)
Big 5 Holdings,
Sr Sub Note Ser B 09-15-02 ................................. 13.625 B- 4,250 3,740,000
Big V Supermarkets, Inc.,
Sr Sub Note Ser B 12-15-04 ................................. 11.000 B- 4,750 4,251,250
Coinmach Corp.,
Sr Note 11-15-05 (R) ....................................... 11.750 B+ 500 510,000
Decorative Home Accents, Inc.,
Unit (Sr Note 06-30-02 & Common Stock, Class F) (R) ........ 13.000 B+ 1,000 960,000
Flagstar Corp.,
Sr Sub Deb 09-15-03 ........................................ 11.375 CCC+ 2,750 1,952,500
Hills Stores Co.,
Sr Note 07-01-03 (R) ....................................... 12.500 B1 2,000 2,055,000
Jitney Jungle Stores of America Inc.,
Sr Note 03-01-06 ........................................... 12.000 B 1,000 1,025,000
Lechters Inc.,
Sub 09-27-01 ............................................... 5.000 NR 500 342,500
Petro PSC / Properties, L.P.,
Sr Note 06-01-02 ........................................... 12.500 B 950 883,500
------------
15,719,750
------------
Steel (7.36%)
Algoma Steel, Inc.,
1st Mtg 07-15-05 ........................................... 12.375 B 4,500 4,421,250
GS Technologies Operating Co., Inc.,
Sr Note 10-01-05 ........................................... 12.250 B 2,000 2,065,000
NS Group, Inc.,
Unit (Sr Sec Note 07-15-03 & Warr.) ........................ 13.500 B- 5,000 4,550,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000's MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Steel (continued)
Sheffield Steel Corp.,
Sr Note 11-01-01 ........................................... 12.000% B- $ 2,000 $ 1,740,000
Weirton Steel Corp.,
Sr Note 03-01-98 ........................................... 11.500 B 1,500 1,560,000
Sr Note 06-01-05 ........................................... 10.750 B 2,650 2,471,125
------------
16,807,375
------------
Telecommunications (4.05%)
A+ Network Inc.,
Sr Note 11-01-05 ........................................... 11.875 CCC+ 1,500 1,515,000
Comunicacion Celular SA,
Unit (Sr Def Bond 11-15-03 & Warr.) (R) .................... Zero B+ 3,250 1,974,375
EchoStar Satellite Broadcasting Corp.,
Sr Disc Note 03-15-04 (R), Stepped Coupon (13.125%, 3-15-00) (A) Zero B- 1,300 809,250
Fonorola, Inc.,
Sr Note 08-15-02 ........................................... 12.500 B+ 1,500 1,605,000
ProNet Inc.,
Sr Sub Deb 06-15-05 ........................................ 11.875 B- 2,000 2,160,000
Shared Technologies Fairchild Inc.,
Sr Disc Note 03-01-06 (R), Stepped Coupon (12.25%, 3-01-99) (A). Zero B- 1,600 1,184,000
------------
9,247,625
------------
Textiles (0.45%)
Apparel Ventures Inc.,
Sr Note 12-31-00 ........................................... 12.250 B- 1,350 1,026,000
------------
Tobacco (0.37%)
Liggett Group, Inc.,
Sr Note Ser B 02-01-99 ..................................... 11.500 B 1,000 850,000
------------
Transportation (6.48%)
AM General Corp.,
Sr Note Ser B 05-01-02 ..................................... 12.875 B 2,000 2,040,000
Burlington Motor Holdings Inc.,
Sr Sub Note 11-01-03 ....................................... 11.500 CCC+ 2,000 355,000
CHC Helicopter Corp.,
Sr Sub Note 07-15-02 (Canada) (F) .......................... 11.500 B- 1,250 1,184,375
Jet Equipment Trust Ser 1995-B,
Cert 08-15-14 (R) .......................................... 10.910 BB+ 1,500 1,564,200
NWA Trust,
Sub Note 06-21-08 .......................................... 13.875 BB+ 4,075 4,849,250
OMI Corp.,
Sr Note 11-01-03 ........................................... 10.250 B- 3,000 2,820,000
Trans World Airlines, Inc.,
Sr Note (PIK) 11-03-98 ..................................... 12.000 B 2,000 1,990,000
------------
14,802,825
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000's MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Utilities (0.86%)
CE Casecnan Water & Energy Co., Inc.,
Sr Note Ser A 11-15-05 (R) ................................. 11.450% BB $ 2,000 $ 1,975,000
TOTAL PUBLICLY TRADED BONDS ------------
(Cost $183,026,735) (81.64%) 186,482,475
------ ------------
<CAPTION>
NUMBER OF SHARES
UNITS OR WARRANTS
-----------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
American Telecasting, Warrants** ............................................................... 2,000 11,526
AVI Holdings Inc., Warrants (R) ** ............................................................. 1,500 7,500
Bowater Inc., Ser B Conv Pref Stock ............................................................ 100,000 3,300,000
Browne Bottling Co., Warrants ** ............................................................... 237 2
Canadian National Railway Co. Common Stock (Canada) (F) ........................................ 20,000 380,000
Casino Magic Finance Corp., Warrants** ......................................................... 9,000 90
Chancellor Broadcasting, Pref Stock (R) ........................................................ 20,000 1,960,000
CHC Helicopter Corp., Warrants (Canada) (F)** .................................................. 16,000 8,000
Crown Packaging Holdings Ltd., Common Stock (Canada) (F)** ..................................... 2,750 22,000
Decorative Home Accents, Common Stock** ........................................................ 1,000 10,000
Delta Airlines, Inc., Common Stock ............................................................. 20,000 1,607,500
Farm Fresh Holdings Corp., Common Stock (Class B)** ............................................ 1,000 12,000
Northwest Airlines Corp., Common Stock (Class A)** ............................................. 140,000 6,370,000
Qantas Airways Ltd., Common Stock American Deopsitary Shares (ADS) (Australia) (F) (R) ......... 32,200 572,180
Renaissance Cosmetics, Warrants** .............................................................. 4,000 90,000
Sheffield Steel Corp., Warrants** .............................................................. 22,500 112,500
Swissair Schweizerische Luftverkehr AG Reg Shares, (Switzerland) (F)** ......................... 3,400 3,351,825
Trans World Airlines Inc., Pref Stock (R) ...................................................... 10,000 535,000
USX-Delhi Group, Common Stock .................................................................. 200,000 2,775,000
Wang Laboratories Inc., Ser B Conv Pref Stock (R) .............................................. 80,000 4,380,000
Western Pacific Airlines, Inc., Common Stock** ................................................. 10,000 157,500
----------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $ 19,135,641) (11.24%) 25,662,623
------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000's MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS Joint Repurchase Agreement (3.21%)
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 7.25% and 10.375%,
Due 11-15-12 and 5-15-16) - Note A ...................................................... 5.33% $7,345 $ 7,345,000
------------
Corporate Savings Account (0.11%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%....................................................................... 242,130
------------
TOTAL SHORT TERM INVESTMENTS (3.32%) 7,587,130
------ ------------
TOTAL INVESTMENTS (96.20%) $219,732,228
====== ============
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(F) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer, however, security is U.S. dollar
denominated.
# Par value of foreign bonds is expressed in local currency, as shown
parenthetically in security description.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $31,374,505 as of April 30, 1996. See note
A of the Notes to Financial Statements for valuation policy.
* Credit Ratings are unaudited and rated by Moody's Investor Services or John
Hancock Advisers, Inc. where Standard and Poors ratings are not available.
** Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - High Yield Bond Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The High Yield Bond Fund invests primarily in securities issued in the United
States of America. The performance of this Fund is closely tied to the economic
and financial conditions of the countries within which it invests. The
concentration of investments by industry category for individual securities held
by the Fund is shown in the schedule of investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentage of the Fund's investments at
April 30, 1996 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ----------
Australia.................................................... 1.14%
Canada....................................................... 2.25
Indonesia.................................................... 1.43
Netherlands.................................................. 0.25
South Africa................................................. 2.91
Switzerland.................................................. 1.47
United Kingdom............................................... 0.63
United States................................................ 86.12
-----
TOTAL INVESTMENTS 96.20%
=====
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION NET ASSETS
- -------------------- ----------
BBB.......................................................... 2.91%
BB........................................................... 14.41
B............................................................ 56.82
CCC.......................................................... 7.35
NR........................................................... 0.15
-----
TOTAL BONDS 81.64%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
================================================================================
Notes to Financial Statements
John Hancock Funds - High Yield Bond Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940. The Corporation consists of six series portfolios: John Hancock High Yield
Bond Fund (the "Fund"), John Hancock Emerging Growth Fund, John Hancock Money
Market Fund, John Hancock Global Resources Fund, John Hancock High Yield
Tax-Free Fund and John Hancock Government Income Fund (collectively, the
"Funds"). The investment objective of the Fund is to maximize current income
without assuming undue risk by investing in a diversified portfolio consisting
primarily of lower-rated, high yielding, fixed income securities.
The Board of Directors 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 Board of Directors, 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 Board of Directors. 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.
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 $9,184,252 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 distribution will be made. The carryforward expires December 31,
2002. The Fund's tax year end is December 31.
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 for the effect of expenses that
may be applied differently to each class as explained previously.
20
<PAGE>
================================================================================
Notes to Financial Statements
John Hancock Funds - High Yield Bond Fund
EXPENSES The majority of the expenses of the Corporation 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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
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 forward foreign currency buy contracts at April 30, 1996, were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED/APPRECIATION
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ----- --------------
GERMAN MARK 5,185,000 JULY 96 $ 9,283
SOUTH AFRICAN RAND 13,780,000 MAY 96 (34,082)
--------
$(24,799)
========
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
21
<PAGE>
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Notes to Financial Statements
John Hancock Funds - High Yield Bond Fund
program equivalent, on an annual basis, to he sum of (a) 0.625% of the first
$75,000,000 of the Fund's average daily net asset value, (b) 0.5625% of the next
$75,000,000 and (c) 0.50% of the Fund's average daily net asset value in excess
of $150,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
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 $259,470. Out of this amount, $24,841 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$163,346 was paid as sales commissions to unrelated broker-dealers and $71,283
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 $238,852.
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 0.25% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In order to comply with this
Rule, the 12b-1 fee on Class B shares was reduced to 0.95% effective November 1,
1995.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
On March 26, 1996, the Board of Directors approved retroactively to January
1, 1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Funds. The compensation for 1996 is estimated to be
at an annual rate of 0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its affiliates, as
well as a Directors of the Fund. The compensation of unaffiliated Directors is
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Directors 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
22
<PAGE>
================================================================================
Notes to Financial Statements
John Hancock Funds - High Yield Bond Fund
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 $793.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Board of Directors in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
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 $127,671,966 and $111,550,974, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated none and $2,000,000, respectively, during the period ended
April 30, 1996.
The cost of investments owned at April 30, 1996 for federal income tax
purposes was $209,507,376. Gross unrealized appreciation and depreciation of
investments aggregated $15,580,634 and $5,597,912, respectively, resulting in
net unrealized appreciation of $9,982,722.
23
<PAGE>
================================================================================
[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
101 Huntington Avenue Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
This report is for the information of shareholders of the John Hancock High
Yield Bond Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
[A recycled logo in lower left hand corner with the caption "Printed on Recycled
Paper."]
570SA 4/96
6/96
<PAGE>
================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
EMERGING
GROWTH
FUND
SEMI-ANNUAL REPORT
April 30, 1996
<PAGE>
================================================================================
DIRECTORS
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*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 and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.}
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
================================================================================
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
Emerging Growth Fund
Small-company stocks lead in market's recent surge
On April 1, 1996, Bernice S. Behar and her team assumed the day-to-day
management of John Hancock Emerging Growth Fund. Ms. Behar is a senior vice
president at John Hancock Funds and heads the company's Domestic Equity Growth
Division. She also leads the portfolio management teams of John Hancock
Discovery Fund, John Hancock Global Marketplace Fund and John Hancock Growth
Fund.
"...the tide turned in favor of small-company stocks during the past six
months."
After spending much of 1995 lagging their larger-company counterparts, the tide
turned in favor of small-company stocks during the past six months. For the
six-month period ended April 30, 1996, the Russell 2000 -- a broad measure of
small-company stock performance -- rose 18.47%. Those returns handily outpaced
larger-cap stocks, with the Standard & Poor's 500-Stock Index gaining 13.76% for
the same period. A couple of factors conspired to lift the fortunes of
small-company stocks. First, the U.S. dollar rose. Since most larger,
multi-national companies generate a fair amount of their earnings overseas,
investors worried that currency changes would negatively affect large companies'
earnings. Second, economic growth was showing signs of slowing, a condition
which weighs more heavily on larger companies. Small companies, which are less
sensitive to an economic slowdown, tend to grow earnings at a more healthy pace
than larger companies during these weaker periods.
Performance in review
In this favorable environment, John Hancock Emerging Growth Fund turned in
strong absolute returns though it trailed its peers during the reporting period.
For the six months ended April 30, 1996, the Fund's Class A and Class B shares
had total returns of 16.26% and 15.90%, respectively, at net asset value. The
average small- company growth fund returned 20.15% during this time, according
to Lipper Analytical Services.(1)
[A 1 3/4" x 3 1/4" photo of the portfolio management team. Caption reads: "(L-R)
Bernice S. Behar and Fund Management Team members Ben Hock and Andrew Slabin."]
3
<PAGE>
================================================================================
John Hancock Funds - Emerging Growth Fund
"...many investors took a second look at health-care stocks."
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Ascend Communications 2.5% 2) U.S. Robotics
2.3% 3) 3COM Corp. 1.6% 4) Tellabs 1.5% 5) Madge N.V. 1.3%. A footnote below
reads: "As a percentage of net assets on April 30, 1996."]
The main reason for the Fund's relative under performance was its
higher-than-average weighting in technology stocks. As a group, technology
stocks were the market's -- and the Fund's -- biggest laggards for much of the
period. In our report to you six months ago, we warned that after celebrating
such an incredible run-up in the first nine months of 1995, tech stocks could
experience a corrective phase. That's exactly what happened at the end of 1995
and in early 1996, when lower-than-anticipated earnings snatched the punch bowl
away from the tech-stock party. Semiconductor stocks, including Teradyne, were
hit hardest and were some of the Fund's worst performers over the past six
months.
[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 HNC
Software followed by an up arrow and the phrase "Growing revenues at this credit
card fraud software company." The second listing is U.S. Robotics followed by an
up arrow and the phrase "Leading modem manufacturer lifted by growing demand."
The third listing is Teradyne, Inc. followed by a down arrow and the phrase
"Slowdown in capital spending at semi-conductor manufacturers." Footnote below
reads: "See "Schedule of Investments." Investment holdings are subject to
change."]
So has the recent tech correction changed our view about the long-term
prospects of our technology holdings? Not much, except that many of these
fast-growing companies are now a lot cheaper than they were before the
correction. We still believe that our technology holdings offer some of the most
exciting growth prospects available in the market today. We continued to hold
onto many of our long-term technology positions such as modem maker U.S.
Robotics and software maker Ascend Communications, both of wh ich did well
during the past six months. And now that we can buy growth at cheaper prices,
the tech-stock correction actually provided an opportunity to add to our
holdings at bargain levels in some of our favorites, like HNC Software, which
makes credit card fraud detection software. Additionally, we initiated positions
in attractively priced companies such as DSP Communications, which makes chip
sets for cellular phones. One of the company's leading products serves the
mushrooming Japanese cellular industry.
Rising demand/tight supplies fuel
energy companies
The combination of a cold winter and tight supplies put upward pressure on
energy prices during the past six months. Rising energy prices helped boost
profits across the energy company spectrum -- from drillers, to refiners,
marketers, exploration and production, service and natural gas pipeline
companies. What's more, since the energy industry's operating costs have become
quite lean over the past decade, rising energy prices caused even more profit
improvement. One of the Fund's best performing energy stocks was Chesapeake
Energy, a natural gas company with strong production capabilities and reserves.
HMOs, drug companies return to health
As fears surrounding the threat of dramatic health-care reform receded, many
investors took
4
<PAGE>
================================================================================
John Hancock Funds - Emerging Growth Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1996." The chart is
scaled in increments of 10% from top to bottom, with 30% at the top and 10% at
the bottom. Within the chart, there are three solid bars. The first represents
the 16.26% total return for John Hancock Emerging Growth Fund: Class A. The
second represents the 15.90% total return for John Hancock Emerging Growth Fund:
Class B. The third represents the 20.15% total return for the average
small-company growth fund. Footnote below reads: "Total returns for John Hancock
Emerging Growth Fund are at net asset value with all distributions reinvested.
The average small-company growth fund is tracked by Lipper Analytical
Services.(1) See following page for historical performance information."]
a second look at health-care stocks. What they found were plenty of companies
that had continued to exhibit positive fundamentals and were generating
substantial earnings growth. That in and of itself was enough to spark a rally
in the health-care sector. During the period we increased our health-care
holdings, and as a result, the Fund was able to participate in the group's stock
rally through a broad range of holdings including medical device makers and
HMOs. But the icing on the cake was a wave of merger and acquisition activity
that further boosted health-care stock prices. Drug companies including ALZA
Corp. further benefited from new product introductions, as did several of our
holdings that provide renal care, such as Renal Treatment Centers and Renal Care
Group.
Retail sector regains footing
Retailers remained in the doldrums for most of 1995. Consumer debt seemed to be
creeping higher, holiday sales figures were expected to be lackluster, and the
threat of recession loomed large. During that time, retail stocks were poor
performers. However, recessionary fears started to fade in the new year and
investors became more enthusiastic about retail stocks, in part as they sought
relief from the malaise of the technology sector. We continued to shy away from
traditional apparel companies and department stores and focused instead on
companies with niche products and services, such as Bed, Bath and Beyond, one of
the nation's leading household goods retailers, and Nautica, a leading
sportswear maker.
"...small-cap stocks continue to offer relatively good values."
Favorable climate
Historically, earnings for small-cap companies grow faster than larger-cap
companies. Of course, small-company stocks are also more volatile, which
shareholders should understand and be comfortable with. With these aggressive
stocks, having a long-term investment perspective becomes especially important.
That said, since stock prices tend to move up with earnings, we believe that the
long-term prospects for small-cap stocks are quite good. Additionally, these
stocks are likely to be more resilient to a slow-growing economy and a rising
U.S. dollar than larger-cap companies. And despite their recent price
improvement, small-cap stocks continue to offer relatively good values.
- ----------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
This commentary reflects the views of the portfolio manager through the end
of the Fund's period discussed in this report. Of course, the manager's
views are subject to change as market and other conditions warrant.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Emerging Growth Fund. Total return is a
performance measure that equals the sum of all income and capital gain
distributions, assuming reinvestment of these distributions and the change in
the price of the Fund's shares, expressed as a percentage of the Fund's net
asset value per share. Performance figures include the maximum applicable sales
charge of 5% for Class A shares. (Prior to May 15, 1995, the maximum applicable
sales charge for Class A shares was 5.75%.) 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.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
------ ------- -------
John Hancock Emerging Growth Fund: Class A(1) 29.92% N/A 103.42%
John Hancock Emerging Growth Fund: Class B(2) 30.80% 119.48% 406.07%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
------ ------- -------
John Hancock Emerging Growth Fund: Class A(1) 29.92% N/A 16.66%
John Hancock Emerging Growth Fund: Class B(2) 30.80% 17.03% 21.21%
Notes to Performance
(1) Class A shares commenced on August 22, 1991.
(2) Class B shares commenced on October 26,1987.
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
Emerging Growth Fund would be worth on April 30, 1996, assuming you had invested
on the day each class of shares started and reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Standard & Poor's 500
Stock Index -- an unmanaged index that includes 500 widely traded common stocks
and is a commonly used measure of stock market performance.
[Line chart with the heading Emerging Growth Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Emerging Growth Fund on August 22, 1991, before sales charge, and is
equal to $23,236 as of April 30, 1996. The second line represents the Emerging
Growth Fund after sales charge and is equal to $22,078 as of April 30, 1996. The
third line represents the value of the Standard & Poor's 500 Stock Index and is
equal to $19,245 as of April 30, 1996.]
[Line chart with the heading Emerging Growth Fund: Class B*, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Emerging Growth Fund on October 26, 1987, before contingent deferred
sales charge, and is equal to $54,896 as of April 30, 1996. The second line
represents the value of the Standard & Poor's 500 Stock Index and is equal to
$26,499 as of April 30, 1996.
* No contingent deferred sale charge applicable.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and warrants
(cost - $338,628,665) ................................... $ 685,133,519
Joint repurchase agreement
(cost - $7,701,000) ..................................... 7,701,000
Corporate savings account ................................ 3,310,366
-------------
696,144,885
Receivable for shares sold ................................. 5,642,393
Receivable for investments sold ............................ 8,287,090
Dividends receivable ....................................... 167,104
Interest receivable ........................................ 5,413
Other assets ............................................... 75,878
-------------
Total Assets ........................ 710,322,763
------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................. 4,201,501
Payable for investments purchased .......................... 16,042,801
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ....................................... 573,139
Accounts payable and accrued expenses ...................... 19,644
-------------
Total Liabilities ................... 20,837,085
------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 354,995,630
Accumulated net realized loss on investments
and foreign currency transactions ........................ (8,182,508)
Net unrealized appreciation of investments ................. 346,506,900
Net investment loss ........................................ (3,834,344)
-------------
Net Assets .......................... $ 689,485,678
======================================================
Net Asset Value Per Share:
(Based on net assets and shares of beneficial
interest outstanding - 125,000,000 shares
authorized with $.01 per share par value, respectively)
Class A - $221,058,876/5,268,135 ........................... $ 41.96
=============================================================================
Class B - $468,426,802/11,618,706 .......................... $ 40.32
=============================================================================
Maximum Offering Price Per Share*
Class A - ($41.96 x 105.26%) ............................... $ 44.17
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1996. You'll also
find the net asset value and the maximum offering price per share as of that
date.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $453) ...... $ 1,162,154
Interest .................................................. 347,090
-------------
1,509,244
-------------
Expenses:
Investment management fee - Note B2,251,762
Distribution/service fee - Note B
Class A ............................................... 232,762
Class B ............................................... 1,968,582
Transfer agent fee ...................................... 563,254
Printing ................................................ 69,906
Custodian fee ........................................... 65,348
Registration and filing fees ............................ 57,836
Financial services fee .................................. 38,200
Trustees' fees .......................................... 34,404
Auditing fee ............................................ 23,666
Advisory board fee ...................................... 20,987
Miscellaneous ........................................... 9,478
Legal fees .............................................. 7,403
-------------
Total Expenses ..................... 5,343,588
------------------------------------------------------
Net Investment Loss ................ (3,834,344)
-------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss on investments sold ..................... (1,712,846)
Net realized gain on foreign currency transactions238
Change in net unrealized appreciation/depreciation
of investments ........................................... 100,941,489
-------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions ...... 99,228,881
------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .......... $ 95,394,537
======================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .................................. ($ 3,834,344) ($ 6,156,730)
Net realized gain (loss) on investments sold and
foreign currency transactions ....................... (1,712,608) 10,693,222
Change in net unrealized appreciation/depreciation
of investments ...................................... 100,941,489 134,216,496
------------- -------------
Net Increase in Net Assets Resulting from Operations 95,394,537 138,752,988
------------- -------------
From Fund Share Transactions -- Net* ................... 21,132,384 19,718,122
------------- -------------
Net Assets:
Beginning of period .................................. 572,958,757 414,487,647
------------- -------------
End of period (including net investment loss of
$3,834,344 and none, respectively) .................. $ 689,485,678 $ 572,958,757
============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........... 4,676,275 $ 175,096,788 5,389,301 $ 177,314,439
Less shares repurchased (4,381,820) (163,668,984) (5,302,592) (171,990,271)
---------- ------------- ---------- -------------
Net increase .......... 294,455 $ 11,427,804 86,709 $ 5,324,168
========== ============= ========== =============
CLASS B
Shares sold ........... 3,738,285 $ 134,427,959 7,378,294 $ 212,291,363
Less shares repurchased (3,428,992) (124,723,379) (6,952,481) (197,897,409)
---------- ------------- ---------- -------------
Net increase .......... 309,293 $ 9,704,580 425,813 $ 14,393,954
========== ============= ========== =============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous year. The difference reflects
earnings less expenses, any investment gains and losses, and any increase or
decrease in money shareholders invested in the Fund. The footnote illustrates
the number of Fund shares sold and redeemed during the last two periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging 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>
FOR THE PERIOD
AUGUST 22, 1991
(COMMENCEMENT
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, OF OPERATIONS)
APRIL 30, 1996 ----------------------------------------- TO OCTOBER 31,
(UNAUDITED) 1995(b) 1994 1993 1992 1991
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $ 36.09 $ 26.82 $ 25.89 $ 20.60 $ 19.26 $ 18.12
-------- -------- -------- ------- ------- -------
Net Investment Loss (a) ................................. (0.15) (0.25) (0.18) (0.16) (0.20) (0.03)
Net Realized and Unrealized Gain on Investments ......... 6.02 9.52 1.11 5.45 1.60 1.17
-------- -------- -------- ------- ------- -------
Total from Investment Operations ...................... 5.87 9.27 0.93 5.29 1.40 1.14
-------- -------- -------- ------- ------- -------
Less Distributions
Distributions from Net Realized Gain on Investments Sold -- -- -- -- (0.06) --
-------- -------- -------- ------- ------- -------
Net Asset Value, End of Period .......................... $ 41.96 $ 36.09 $ 26.82 $ 25.89 $ 20.60 $ 19.26
======== ======== ======== ======= ======= =======
Total Investment Return at Net Asset Value (c) .......... 16.26%(d) 34.56% 3.59% 25.68% 7.32% 6.29%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's Omitted) ............... $221,059 $179,481 $131,053 $81,263 $46,137 $38,859
Ratio of Expenses to Average Net Assets ................. 1.30%* 1.38% 1.44% 1.40% 1.67% 0.33%*
Ratio of Net Investment Loss to Average Net Assets ...... (0.79%)* (0.83%) (0.71%) (0.70%) (1.03%) (0.15%)*
Portfolio Turnover Rate ................................. 14% 23% 25% 29% 48% 66%
Average Broker Commission Rate (per share of security)(e) $ 0.06 N/A N/A N/A N/A N/A
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indicated: income, expenses, distributions and gains
(losses) of the Fund. It shows how the Fund's net asset value for a share has
changed since the end of the previous period. Additionally, important
relationships between some items presented in the financial statements are
expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1996 ---------------------------------------------------
(UNAUDITED) 1995(b) 1994 1993 1992 1991
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $ 34.79 $ 26.04 $ 25.33 $ 20.34 $ 19.22 $ 11.06
-------- -------- -------- -------- ------- -------
Net Investment Loss (a) ................................. (0.27) (0.45) (0.36) (0.36) (0.38) (0.30)
Net Realized and Unrealized Gain on Investments ......... 5.80 9.20 1.07 5.35 1.56 8.46
-------- -------- -------- -------- ------- -------
Total from Investment Operations ...................... 5.53 8.75 0.71 4.99 1.18 8.16
-------- -------- -------- -------- ------- -------
Less Distributions
Distributions from Net Realized Gain on Investments Sold -- -- -- -- (0.06) --
-------- -------- -------- -------- ------- -------
Net Asset Value, End of Period .......................... $ 40.32 $ 34.79 $ 26.04 $ 25.33 $ 20.34 $ 19.22
======== ======== ======== ======== ======= =======
Total Investment Return at Net Asset Value (c) .......... 15.90%(d) 33.60% 2.80% 24.53% 6.19% 73.78%
Ratios and Supplemental Data
Net Assets, End of Period (000's Omitted) ............... $468,427 $393,478 $283,435 $219,484 $86,923 $52,743
Ratio of Expenses to Average Net Assets ................. 2.00%* 2.11% 2.19% 2.28% 2.64% 2.85%
Ratio of Net Investment Loss to Average Net Assets ...... (1.49%)* (1.55%) (1.46%) (1.58%) (1.99%) (1.83%)
Portfolio Turnover Rate ................................. 14% 23% 25% 29% 48% 66%
Average Broker Commission Rate (per share of security)(e) $ 0.06 N/A N/A N/A N/A N/A
</TABLE>
* On an annualized basis.
(a) On average month end shares outstanding.
(b) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(c) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charge.
(d) Not annualized.
(e) Average broker commission rate (per share of security) as required by
amended disclosure requirements effective September 1, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
Schedule of Investments
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (0.44%)
Catalina Marketing Corp.* .................... 27,000 $ 2,102,625
Eagle River Interactive, Inc.* ............... 27,000 580,500
Katz Media Group* ............................ 25,000 368,750
------------
3,051,875
------------
Automobile/Truck (0.59%)
APS Holding Corp. (Class A)* ................. 10,000 182,500
Copart, Inc.* ................................ 50,000 1,362,500
Discount Auto Parts, Inc.* ................... 30,000 881,250
Pep Boys - Manny, Moe & Jack ................. 20,000 667,500
Rollins Truck Leasing Corp. .................. 22,500 244,688
Stewart & Stevenson Services, Inc. ........... 15,000 440,625
Thompson PBE, Inc.* .......................... 30,000 303,750
------------
4,082,813
------------
Banks (0.02%)
Hibernia Corp. (Class A) ..................... 15,000 153,750
------------
Broadcasting (1.46%)
Cellularvision USA, Inc.* .................... 10,000 130,000
Chancellor Corp. (Class A)* .................. 22,500 573,750
Clear Channel Communications, Inc.* .......... 60,150 4,075,162
E-Z Communications, Inc. (Class A)* .......... 10,000 191,250
Heftel Broadcasting Corp. (Class A)* ......... 145,000 2,972,500
Lodgenet Entertainment Corp.* ................ 5,000 66,875
SFX Broadcasting, Inc. (Class A)* ............ 40,000 1,380,000
United International Holdings, Inc.
(Class A)* ................................. 6,400 92,000
Wescott Communications, Inc.* ................ 20,000 425,000
Young Broadcasting Corp. (Class A)* .......... 5,100 151,725
------------
10,058,262
------------
Building Products (0.08%)
NCI Building Systems, Inc.* .................. 15,000 543,750
------------
Chemicals (0.18%)
Arcadian Corp. ............................... 50,000 1,000,000
Mallinckrodt Group, Inc. ..................... 6,000 236,250
------------
1,236,250
------------
Computers (23.47%)
Adaptec, Inc.* ............................... 110,000 6,325,000
Adobe Systems, Inc. .......................... 50,000 2,150,000
Alternative Resources Corp.* ................. 50,000 1,812,500
American Business Information, Inc.* ......... 7,500 146,250
The Schedule of Investments is a complete list of all securities owned by the
Emerging Growth Fund on April 30, 1996. It's divided into four main categories:
common stocks, rights, warrants and short-term investments. Common stocks,
rights and warrants are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
America Online, Inc.* ....................... 24,000 $ 1,536,000
Applix, Inc.* ................................ 16,000 624,000
Aspen Technologies, Inc.* .................... 5,000 277,500
Astea International, Inc.* ................... 10,000 295,000
Auspex Systems, Inc.* ....................... 5,000 96,875
Autodesk, Inc. ............................... 29,000 1,181,750
Avant! Corp.* ................................ 2,500 53,750
Baan Co., N.V.* .............................. 25,000 1,500,000
BDM International, Inc.* ..................... 10,000 465,000
Bell & Howell Co.* ........................... 25,000 787,500
BISYS Group, Inc. (The)* ..................... 61,835 2,365,189
Black Box Corp.* ............................. 35,000 700,000
BMC Software, Inc.* .......................... 35,000 2,130,625
Broderbund Software, Inc.* ................... 24,000 1,056,000
Cabletron Systems, Inc.* ..................... 22,500 1,695,937
Cadence Design Systems, Inc.* ................ 112,544 5,880,398
Centennial Technologies, Inc.* ............... 25,000 525,000
Cerner Corp.* ................................ 50,000 1,031,250
CFI Proservices, Inc.* ....................... 66,100 1,751,650
Cirrus Logic, Inc.* .......................... 80,000 1,670,000
Citrix Systems, Inc.* ....................... 10,000 786,250
Computer Management Sciences, Inc.* .......... 10,000 272,500
Continuum, Inc.* ............................. 153,625 8,756,625
Datastream Systems, Inc.* .................... 30,000 975,000
Dell Computer Corp.* ......................... 140,000 6,422,500
Dendrite International, Inc.* ................ 10,000 237,500
DST Systems, Inc.* ........................... 170,000 6,247,500
Electroglas, Inc.* ........................... 212,000 4,134,000
Enterprise Systems, Inc.* .................... 4,000 134,000
FileNet Corp.* ............................... 7,000 392,000
Forte Software, Inc.* ....................... 3,000 185,250
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
Gandalf Technologies, Inc.* .................. 75,000 $ 1,331,250
Gateway 2000, Inc.* .......................... 50,000 1,743,750
Geoworks* .................................... 60,000 2,250,000
HNC Software, Inc.* .......................... 51,500 1,918,375
HPR, Inc.* ................................... 22,500 967,500
Hyperion Software Corp.* ..................... 80,000 1,000,000
Information Resources, Inc.* ................. 35,000 503,125
Informix Corp.* .............................. 250,000 6,593,750
Inso Corp.* (Formerly Infosoft
International, Inc.) ....................... 10,000 542,500
Integrated Measurement Systems, Inc.* ........ 10,000 190,000
Intuit, Inc.* ................................ 18,000 936,000
Kronos, Inc.* ................................ 32,250 959,437
Legato Systems, Inc.* ....................... 15,000 615,000
Logic Works, Inc.* ........................... 5,000 85,000
Macromedia, Inc.* ............................ 10,000 376,875
Madge, N.V.* ................................. 305,370 9,008,415
Maxis, Inc.* ................................. 4,000 98,000
Measurex Corp. ............................... 20,500 594,500
Mercury Interactive Corp.* ................... 95,000 1,306,250
Mustang Software, Inc.* ...................... 8,000 56,000
National Instruments Corp.* .................. 6,000 147,000
NetManage, Inc.* ............................. 12,000 177,000
Network General Corp.* ....................... 95,000 4,191,875
Norand Corp.* ................................ 2,500 51,875
Novadigm, Inc.* .............................. 12,000 234,000
Oak Technology, Inc.* ....................... 48,000 858,000
Objective Systems Integrators, Inc.* ......... 7,500 333,750
Parametric Technology Corp.* ................. 140,000 5,635,000
PeopleSoft, Inc.* ............................ 100,800 6,350,400
Physician Computer Network, Inc.* ............ 25,000 281,250
Pinnacle Systems, Inc.* ...................... 35,000 901,250
PixTech, Inc.* ............................... 16,500 144,375
Policy Management Systems Corp.* ............. 2,300 108,100
PowerCerv Corp.* ............................. 6,000 81,000
Premenos Technology Corp.* ................... 12,000 270,000
Printronix, Inc.* ............................ 25,000 512,500
Progress Software Corp.* ..................... 35,000 551,250
Project Software & Development, Inc.* ........ 37,500 1,312,500
Pure Software, Inc.* ......................... 10,000 397,500
Quick Response Services, Inc.* ............... 6,000 175,500
Raptor Systems, Inc.* ....................... 4,000 132,000
Renaissance Solutions, Inc.* ................. 9,000 297,000
S3, Inc.* .................................... 40,000 565,000
SCB Computer Technology, Inc.* ............... 5,000 132,500
Scopus Technology, Inc.* ..................... 13,500 263,250
Seagate Technology, Inc.* .................... 61,050 3,540,900
Security Dynamics Technologies, Inc.* ........ 10,000 845,000
Segue Software, Inc.* ........................ 83,200 2,454,400
Software Spectrum, Inc.* ..................... 5,000 117,500
SPSS, Inc.* .................................. 70,000 1,382,500
Sterling Commerce, Inc.* ..................... 10,000 350,000
Sterling Software, Inc.* ..................... 105,000 8,163,750
StorMedia, Inc.* ............................. 10,000 425,000
Sybase, Inc.* ................................ 56,000 1,533,000
Sylvan Learning Systems, Inc.* ............... 5,600 217,000
Transaction Systems Architects, Inc. .........
(Class A)* ................................. 10,000 535,000
Unison Software, Inc.* ....................... 17,500 435,313
Vanstar Corp.* ............................... 100,000 1,362,500
Vantive Corp.* ............................... 15,000 543,750
Verity, Inc.* ................................ 27,500 945,312
Videoserver, Inc.* ........................... 4,000 134,000
Viewlogic Systems, Inc.* ..................... 75,000 1,031,250
Wall Data, Inc.* ............................. 20,000 405,000
Wang Laboratories, Inc.* ..................... 100,000 2,368,750
Western Digital Corp.* ....................... 35,000 822,500
Wind River Systems* .......................... 10,000 390,000
Wonderware Corp.* ............................ 20,000 450,000
Zebra Technologies Corp. (Class A)* .......... 4,400 110,000
Zilog, Inc.* ................................. 60,000 2,257,500
3COM Corp.* .................................. 234,770 10,828,766
3D Systems Corp.* ............................ 2,000 40,250
7th Level, Inc.* ............................. 40,000 345,000
------------
161,813,842
------------
Cosmetics & Toiletries (0.23%)
Playtex Products, Inc.* ...................... 50,000 437,500
Revlon, Inc. (Class A)* ...................... 42,700 1,152,900
------------
1,590,400
------------
Diversified Operations (0.44%)
AccuStaff, Inc.* ............................. 63,000 1,874,250
Mercer International, Inc.* .................. 50,000 1,131,250
------------
3,005,500
------------
Drugs (2.20%)
ALZA Corp. ................................... 24,600 701,100
Centocor, Inc.* .............................. 35,500 1,420,000
Chronimed, Inc.* ............................. 20,000 497,500
Elan Corp., PLC, American Depositary
Receipts, (ADR)* ............................. 5,250 347,156
Forest Laboratories, Inc.* ................... 10,000 461,250
Incyte Pharmaceuticals, Inc* ................. 10,000 321,250
IVAX Corp. ................................. 50,000 1,456,250
Liposome Co., Inc.* .......................... 45,000 1,102,500
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Drugs (continued)
Martek Biosciences Corp.* .................... 25,000 $ 865,625
Mylan Laboratories, Inc. ..................... 127,500 2,486,250
North American Vaccine, Inc.* ................ 40,000 825,000
OraVax, Inc.* ................................ 25,000 318,750
Scherer (R.P.) Corp.* ....................... 22,000 869,000
Teva Pharmaceutical Industries
Ltd. (ADR) ................................. 20,000 897,500
Watson Pharmaceutical, Inc.* ................. 48,600 2,308,500
Whitewing Labs, Inc.* ....................... 50,000 268,750
------------
15,146,381
------------
Electronics (6.47%)
Affinity Technology Group* ................... 175,000 4,112,500
ANADIGICS, Inc.* ............................. 6,350 187,722
Analog Devices, Inc.* ....................... 30,000 772,500
Atmel Corp.* ................................. 100,000 4,000,000
Berg Electronics Corp.* ...................... 25,000 665,625
C-Cube Microsystems, Inc.* ................... 30,000 1,485,000
Charter Power Systems, Inc. .................. 20,000 550,000
CIDCO, Inc.* ................................. 15,200 543,400
Clare (C.P.) Corp.* .......................... 13,500 285,188
Exar Corp.* .................................. 96,000 1,584,000
GaSonics International Corp.* ................ 10,000 151,250
General Instrument Corp.* .................... 30,000 982,500
Integrated Circuit Systems, Inc.* ............ 42,500 489,413
Itron, Inc.* ................................. 15,000 881,250
LAM Research Corp.* .......................... 100,000 4,050,000
Learning Tree International, Inc.* ........... 9,000 225,000
Lernout & Hauspie Speech
Products N.V.* ............................. 10,000 417,500
Level One Communications, Inc.* .............. 4,500 119,250
Maxim Intergrated Products, Inc.* ............ 108,000 3,699,000
Micrel, Inc.* ................................ 17,500 297,500
Oak Industries, Inc.* ....................... 25,000 675,000
Quickturn Design Systems, Inc.* .............. 25,000 368,750
SDL, Inc.* ................................... 25,000 1,018,750
Silicon Storage Technology, Inc.* ............ 10,000 177,500
Tektronix, Inc. .............................. 7,000 277,375
Tencor Instruments* .......................... 195,000 4,826,250
Teradyne, Inc.* .............................. 375,456 7,696,848
Ultratech Stepper, Inc.* ..................... 30,000 783,750
VeriFone, Inc.* .............................. 25,000 1,050,000
Xilinx, Inc.* ................................ 60,000 2,212,500
------------
44,585,321
------------
Engineering (0.21%)
J. Ray Mcdermott, S.A.* ...................... 60,000 1,462,500
------------
Finance (3.98%)
ADVANTA Corp. (Class A) ...................... 7,500 419,063
ADVANTA Corp. (Class B) ...................... 6,750 338,344
Alex Brown, Inc. ............................. 3,000 162,375
Alliance Capital Management, L.P. ............ 110,000 2,667,500
Bear Stearns Cos., Inc. ...................... 4,896 123,016
Capital One Financial Corp. .................. 60,000 1,770,000
Capital RE Corp. ............................. 30,000 1,125,000
Concord EFS, Inc.* ........................... 10,125 339,188
Donaldson Lufkin & Jenrette, Inc. ............ 20,000 675,000
Eaton Vance Corp. ............................ 25,000 762,500
Equifax, Inc. ................................ 143,000 3,503,500
First USA Paymentech, Inc.* .................. 53,700 2,335,950
Franklin Resources, Inc. ..................... 32,000 1,832,000
Investors Financial Services Corp. ...........
(Class A) .................................. 1,345 28,749
Investors Financial Services Corp. ........... 6,997 149,561
KBK Capital Corp.* ........................... 50,000 328,125
Lehman Brothers Holdings, Inc. ............... 25,000 634,375
Onyx Acceptance Corp.* ....................... 70,000 1,330,000
Oppenheimer Capital, L.P. .................... 60,000 1,762,500
Price (T. Rowe) & Associates, Inc. ........... 61,000 3,400,750
Raymond James Financial, Inc. ................ 84,750 1,917,469
SEI Corp. .................................... 18,000 425,250
SunAmerica, Inc. ............................. 10,500 572,250
US Order, Inc.* .............................. 2,500 50,313
WFS Financial, Inc.* ......................... 40,000 800,000
------------
27,452,778
------------
Funeral Services (0.60%)
Service Corporation International ............ 50,000 2,656,250
Stewart Enterprises, Inc. (Class A) .......... 32,250 1,475,437
------------
4,131,687
------------
Healthcare (7.42%)
Access Health, Inc.* ......................... 30,000 1,661,250
American Oncology Resources, Inc.* ........... 5,500 262,625
Applied Bioscience International, Inc.* ...... 90,000 804,375
Apria Healthcare Group, Inc.* ................ 88,200 2,998,800
Arbor Health Care Co.* ....................... 3,000 85,500
Caremark International, Inc. ................. 185,000 5,110,625
Community Health Systems, Inc.* .............. 35,000 1,518,125
CorVel Corp.* ................................ 20,000 597,500
Equimed, Inc.* ............................... 90,000 731,250
Express Scripts, Inc. (Class A)* ............. 45,000 2,227,500
Health Care & Retirement Corp.* .............. 57,100 2,105,562
Health Management Associates, Inc.
(Class A)* ................................. 25,312 809,984
Health Management Systems, Inc.* ............. 45,000 1,158,750
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Healthcare (continued)
HEALTHSOUTH Corp.* ........................... 41,042 $ 1,523,669
Horizon/CMS Healthcare Corp.* ................ 85,000 1,126,250
Horizon Mental Health Management,
Inc.* ...................................... 5,000 105,000
IMPATH, Inc.* ................................ 20,000 350,000
Integrated Health Services, Inc. ............. 2,000 55,000
Interim Services, Inc.* ...................... 15,000 650,625
Living Centers Of America, Inc.* ............. 50,000 1,850,000
Manor Care, Inc. ............................. 37,500 1,504,687
Maxicare Health Plans, Inc.* ................. 125,000 2,562,500
MedCath, Inc.* ............................... 20,000 780,000
MedPartners, Inc.* ........................... 15,000 433,125
Mid Atlantic Medical Services* ............... 20,000 390,000
Multicare Cos., Inc.* ....................... 50,000 1,418,750
NCS Healthcare, Inc. (Class A)* .............. 15,000 502,500
OccuSystems, Inc.* ........................... 15,000 435,000
OrNda Healthcorp * ........................... 20,000 550,000
Oxford Health Plans, Inc.* ................... 20,000 1,010,000
PacifiCare Health Systems, Inc. ..............
(Class A)* ................................. 5,000 405,000
Parexel International Corp.* ................. 40,000 1,970,000
Phycor, Inc.* ................................ 7,875 387,844
Phymatrix Corp.* ............................. 50,000 950,000
Physician Reliance Network, Inc.* ............ 10,000 432,500
Physicians Health Services, Inc. .............
(Class A)* ................................. 7,500 245,625
Renal Care Group, Inc.* ...................... 5,000 172,500
Renal Treatment Centers, Inc.* ............... 50,000 1,450,000
Sierra Health Services, Inc.* ................ 35,000 1,155,000
Summit Care Corp.* ........................... 40,000 860,000
Sun Healthcare Group, Inc.* .................. 20,000 302,500
TheraTx, Inc.* ............................... 50,000 750,000
Total Renal Care Holdings, Inc.* ............. 40,000 1,530,000
United Dental Care, Inc.* .................... 10,000 392,500
U.S. Physical Therapy, Inc.* ................. 2,500 27,500
Value Health, Inc.* .......................... 49,750 1,448,969
Vencor, Inc.* ................................ 8,437 284,749
Vivra, Inc.* ................................. 97,500 3,083,437
------------
51,167,076
------------
Hotels & Motels (0.35%)
Equity Inns, Inc. ............................ 30,000 356,250
Marcus Corp. ................................. 37,500 1,045,312
Marriott International, Inc. ................. 10,000 487,500
Red Roof Inns, Inc.* ......................... 25,000 375,000
RFS Hotel Investors, Inc. .................... 10,000 172,500
------------
2,436,562
------------
Insurance (4.36%)
ACE, Ltd. .................................... 50,000 2,200,000
Acordia, Inc. ................................ 7,500 238,125
American RE Corp. ............................ 57,000 2,365,500
Berkley (W.R.) Corp. ......................... 20,000 860,000
CMAC Investment Corp. ........................ 10,000 560,000
Enhance Financial Services Group, Inc. ....... 5,000 135,625
Exel Ltd. .................................... 10,500 756,000
First Commonwealth, Inc.* .................... 47,000 1,280,750
GCR Holdings, Ltd. ........................... 45,000 1,147,500
HCC Insurance Holdings, Inc.* ................ 25,000 1,462,500
Highlands Insurance Co.* ..................... 500 9,500
Horace Mann Educators Corp. .................. 75,000 2,465,625
Life RE Co. .................................. 5,000 149,375
MBIA, Inc. ................................... 28,000 1,998,500
Mid Ocean Ltd. ............................... 4,000 143,000
NAC Re Corp. ................................. 30,050 984,137
National RE Corp. ............................ 78,000 2,769,000
PartnerRe Holdings, Ltd. ..................... 10,000 282,500
Philadelphia Consolidated Holding Corp.* ..... 75,000 1,631,250
Prudential Reinsurance Holdings, Inc. ........ 12,500 284,375
RenaissanceRe Holdings, Ltd. ................. 6,500 177,125
TIG Holdings, Inc. ........................... 40,000 1,215,000
Transatlantic Holdings, Inc. ................. 17,000 1,113,500
UnionAmerica Holdings, PLC (ADR) ............. 125,000 2,062,500
UNUM Corp. ................................... 27,500 1,636,250
Vesta Insurance Group, Inc. .................. 25,000 803,125
Western National Corp. ....................... 75,000 1,359,375
------------
30,090,137
------------
Leisure & Recreation (2.29%)
Aztar Corp.* ................................. 100,000 975,000
Callaway Golf Co. ............................ 52,000 1,391,000
Cannondale Corp.* ............................ 20,200 449,450
Circus Circus Enterprises, Inc.* ............. 5,050 185,588
Coleman Co. Inc.* ............................ 10,000 458,750
Gaylord Entertainment Co. (Class A) .......... 27,300 723,450
GTECH Holdings Corp.* ....................... 30,000 851,250
KingWorld Productions, Inc.* ................. 25,000 1,087,500
Oshman's Sporting Goods, Inc.* ............... 10,000 96,875
Primadonna Resorts, Inc.* .................... 30,000 577,500
Rawlings Sporting Goods Co.* ................. 10,000 92,500
Royal Caribbean Cruises Ltd. ................. 40,000 1,125,000
Sodak Gaming, Inc.* .......................... 10,000 257,500
Station Casinos, Inc.* ....................... 35,000 463,750
Sun International Hotels Ltd.* ............... 100,500 4,296,375
Trump Hotels & Casino Resorts, Inc.* ......... 85,000 2,751,875
------------
15,783,363
------------
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Machinery (1.29%)
Asyst Technologies, Inc.* .................... 20,000 $ 700,000
Credence Systems Corp.* ...................... 175,000 3,784,375
KLA Instruments Corp.* ....................... 30,000 866,250
Novellus Systems, Inc.* ...................... 65,000 3,526,250
------------
8,876,875
------------
Medical/Dental (4.48%)
AmeriSource Health Corp. (Class A)* .......... 75,000 2,700,000
ArthoCare Corp.* ............................. 7,000 176,750
BioWhittaker, Inc.* .......................... 120,000 960,000
Cardiometrics, Inc.* ......................... 25,000 156,250
CNS, Inc.* ................................... 16,000 316,000
Cognex Corp.* ................................ 84,000 2,247,000
Cytyc Corp.* ................................. 85,000 1,880,625
ESC Medical Systems Ltd.* .................... 40,000 1,760,000
Gulf South Medical Supply, Inc.* ............. 50,000 2,025,000
Heartport, Inc.* ............................. 50,000 1,787,500
i-STAT Corp.* ................................ 5,000 145,625
ICU Medical, Inc.* ........................... 60,000 1,154,058
IDEXX Laboratories, Inc.* .................... 5,000 222,500
InStent, Inc.* ............................... 29,500 590,000
Isolyser Co., Inc.* .......................... 10,000 177,500
MAXXIM Medical, Inc.* ....................... 40,000 710,000
Metra Biosystems, Inc.* ...................... 10,000 135,000
MiniMed, Inc.* ............................... 60,000 1,230,000
Neuromedical Systems, Inc.* .................. 25,000 546,875
Pall Corp. ................................... 6,666 186,648
Patterson Dental, Inc.* ...................... 28,500 862,125
Perrigo Co.* ................................. 120,000 1,500,000
Rotech Medical Corp.* ....................... 36,000 1,494,000
Steris Corp.* ................................ 28,000 910,000
Stryker Corp. ................................ 6,100 295,088
Target Therapeutics, Inc.* ................... 17,000 922,250
Tecnol Medical Products, Inc.* ............... 242,500 4,728,750
Uromed Corp.* ................................ 50,000 525,000
Vital Signs, Inc. ............................ 25,000 526,563
------------
30,871,107
------------
Office Equipment & Supplies (0.22%)
Staples, Inc.* ............................... 81,000 1,539,000
------------
Oil & Gas (5.34%)
Anadarko Petroleum Corp. ..................... 12,500 728,125
Apache Corp. ................................. 50,000 1,450,000
Baker Hughes, Inc. ........................... 10,000 317,500
Barrett Resources Corp.* ..................... 12,500 346,875
B.J. Services Co.* ........................... 6,000 230,250
Brown (Tom), Inc.* ........................... 115,000 1,782,500
Cairn Energy USA, Inc.* ...................... 52,000 643,500
Camco International, Inc. .................... 20,000 712,500
Chesapeake Energy Corp.* ..................... 30,300 2,143,725
Cross Timbers Oil Co. ........................ 40,000 800,000
Energy Ventures, Inc.* ....................... 80,000 2,400,000
Enron Oil & Gas Co. .......................... 65,000 1,722,500
ENSCO International, Inc.* (Formerly
Energy Service Co.,Inc) .................... 20,000 600,000
Falcon Drilling Co., Inc.* ................... 100,000 2,687,500
Landmark Graphics Corp.* ..................... 10,000 197,500
Newfield Exploration Co.* .................... 73,000 2,500,250
NGC Corp. .................................... 85,000 1,275,000
Noble Affiliates, Inc. ....................... 70,000 2,458,750
Noble Drilling Corp.* ....................... 15,000 225,000
Nuevo Energy Co.* ............................ 80,000 2,260,000
Oceaneering International, Inc.* ............. 23,000 362,250
Parker & Parsley Petroleum Co. ............... 30,000 738,750
Pogo Producing Co. ........................... 60,000 2,167,500
Pride Petroleum Services, Inc.* .............. 20,000 327,500
Seagull Energy Corp.* ....................... 20,000 487,500
Smith International, Inc.* ................... 50,000 1,487,500
Snyder Oil Corp. ............................. 19,000 171,000
Stone Energy Corp.* .......................... 40,000 720,000
Swift Energy Co.* ............................ 25,000 387,500
Tidewater, Inc. .............................. 16,280 691,900
Tuboscope Vetco International Corp.* ......... 100,000 1,300,000
Weatherford International, Inc.* ............. 70,000 2,467,500
------------
36,790,375
------------
Pollution Control (0.31%)
IMCO Recycling, Inc. ......................... 40,000 870,000
Safety-Kleen Corp. ........................... 10,000 150,000
Tetra Tech, Inc.* ............................ 15,625 339,844
U.S. Filter Corp.* ........................... 17,500 538,125
USA Waste Services, Inc.* .................... 10,000 260,000
------------
2,157,969
------------
Printing (0.60%)
Harte-Hanks Communications, Inc. ............. 75,000 1,771,875
International Imaging Materials, Inc.* ....... 35,000 665,000
Mecklermedia Corp.* .......................... 70,000 1,120,000
World Color Press, Inc.* ..................... 25,000 600,000
------------
4,156,875
------------
Protection (0.35%)
Checkpoint Systems, Inc.* .................... 10,000 298,750
Koala Corp.* ................................. 30,000 536,250
Protection One, Inc.* ....................... 100,000 1,575,000
------------
2,410,000
------------
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Publishing (0.72%)
Desktop Data, Inc.* .......................... 38,000 $ 1,515,250
Franklin Electronic Publishers, Inc.* ........ 19,500 489,938
Readers Digest Association, Inc. .............
(Class A) .................................. 20,000 820,000
Scholastic Corp.* ............................ 32,500 2,128,750
------------
4,953,938
------------
Real Estate (3.24%)
Beacon Properties Corp. ...................... 10,000 256,250
Camden Property Trust ........................ 30,000 712,500
Cavalier Homes, Inc. ......................... 37,500 726,562
Champion Enterprises, Inc.* .................. 25,300 961,400
Clayton Homes, Inc. .......................... 140,683 2,602,626
Crescent Real Estate Equities, Inc. .......... 20,300 687,662
Equity Residential Properties Trust .......... 20,000 645,000
Highwoods Properties, Inc. ................... 5,000 151,250
Insignia Financial Group, Inc.
(Class A)* ................................. 50,000 1,100,000
Liberty Property Trust ....................... 10,000 206,250
Manufactured Home Communities, Inc. .......... 40,000 755,000
Mid-America Apartment Communities,
Inc ........................................ 25,400 669,925
NHP, Inc.* ................................... 25,000 484,375
Oakwood Homes Corp. .......................... 65,000 2,900,625
Oasis Residential, Inc. ...................... 20,000 450,000
Post Properties, Inc. ........................ 11,100 373,238
Redman Industries, Inc.* ..................... 300,000 6,037,500
ROC Communities, Inc. ........................ 25,000 590,625
Security Capital Industrial Trust ............ 15,000 258,750
Security Capital Pacific Trust ............... 20,000 417,500
Storage USA, Inc. ............................ 10,400 344,500
Tanger Factory Outlet Centers, Inc. .......... 18,000 441,000
Vornado Realty Trust ......................... 15,000 566,250
------------
22,338,788
------------
Retail (13.06%)
Applebee's International, Inc. ............... 25,000 662,500
Apple South, Inc. ............................ 120,062 3,121,612
Arbor Drugs, Inc. ............................ 9,000 182,250
Barnes & Noble, Inc.* ....................... 11,000 380,875
Bed Bath & Beyond, Inc.* ..................... 60,000 3,543,750
Best Buy Co., Inc.* .......................... 50,000 962,500
Blyth Industries, Inc.* ...................... 20,000 795,000
Borders Group, Inc.* ......................... 65,000 2,080,000
Claire's Stores, Inc. ........................ 13,500 293,625
Consolidated Stores Corp.* ................... 24,000 864,000
Corporate Express, Inc.* ..................... 71,800 2,683,525
Cost Plus, Inc.* ............................. 17,000 403,750
CUC International, Inc.* ..................... 45,000 1,479,375
Daisytek International Corp.* ................ 60,000 2,445,000
De Rigo S.p.A. (ADR)* ....................... 13,000 399,750
Department 56, Inc.* ......................... 20,000 497,500
Dreyer's Grand Ice Cream, Inc. ............... 10,000 347,500
Eckerd (Jack) Corp.* ......................... 95,000 4,536,250
Ethan Allen Interiors, Inc.* ................. 41,000 1,066,000
Federated Department Stores, Inc.* ........... 90,000 3,003,750
Franklin Quest Co.* .......................... 5,000 135,000
Friedman's, Inc. (Class A)* .................. 10,000 257,500
Gadzooks, Inc.* .............................. 25,000 1,262,500
Garden Ridge Corp.* .......................... 10,000 555,000
Global DirectMail Corp.* ..................... 65,000 2,551,250
Gucci Group, N.V. * .......................... 15,000 815,625
Gymboree Corp.* .............................. 22,000 569,250
Hollywood Entertainment Corp.* ............... 10,000 165,000
HomeTown Buffet, Inc.* ....................... 40,000 570,000
IHOP Corp.* .................................. 130,000 3,705,000
Intimate Brands, Inc. ........................ 70,000 1,478,750
Just For Feet, Inc.* ......................... 5,625 269,297
Landry's Seafood Restaurants, Inc.* .......... 110,000 2,585,000
Lone Star Steakhouse & Saloon, Inc.* ......... 13,500 558,563
Men's Wearhouse, Inc. (The)* ................. 19,125 707,625
Movie Gallery, Inc.* ......................... 15,000 457,500
MSC Industrial Direct Co., Inc. ..............
(Class A)* ................................. 20,000 727,500
Neiman Marcus Group, Inc.* ................... 50,000 1,200,000
Nine West Group, Inc.* ....................... 75,000 3,215,625
Oakley, Inc.* ................................ 7,500 345,000
Office Depot, Inc.* .......................... 35,009 783,326
OfficeMax, Inc.* ............................. 39,300 1,031,625
Outback Steakhouse, Inc.* .................... 105,000 4,213,125
Papa John's International, Inc.* ............. 3,750 184,922
PetSmart, Inc.* .............................. 12,000 532,500
Pier 1 Imports, Inc. ......................... 170,750 2,283,781
Proffitt's, Inc.* ............................ 45,000 1,473,750
Quality Dining, Inc.* ....................... 31,000 1,007,500
Revco D.S., Inc.* ............................ 205,454 4,853,851
Rite-Aid Corp. ............................... 40,000 1,185,000
Sonic Corp.* ................................. 64,500 1,225,500
Sports Authority, Inc. (The)* ................ 21,900 651,525
Starbucks Corp.* ............................. 55,000 1,491,875
Sunglass Hut International, Inc.* ............ 190,000 5,557,500
Taco Cabana (Class A)* ....................... 50,000 412,500
Talbots, Inc. ................................ 50,000 1,437,500
Tiffany & Co. ................................ 31,000 2,022,750
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Retail (continued)
Urban Outfitters, Inc.* ...................... 18,000 $ 600,750
Wendy's International, Inc. .................. 145,000 2,773,125
West Marine, Inc.* ........................... 45,000 2,486,250
Whole Foods Market, Inc.* .................... 30,000 611,250
Williams-Sonoma, Inc.* ....................... 25,000 625,000
Zale Corp.* .................................. 40,000 745,000
------------
90,069,402
------------
Soap & Cleaning Preparations (0.36%)
USA Detergents, Inc.* ....................... 60,000 2,460,000
------------
Telecommunications (11.41%)
ACC Corp. .................................... 12,000 402,000
ACT Networks, Inc.* .......................... 12,500 368,750
Ascend Communications, Inc.* ................. 280,000 17,220,000
BroadBand Technologies, Inc.* ................ 25,000 637,500
Checkfree Corp.* ............................. 15,000 288,750
DSP Communications, Inc.* .................... 100,000 3,975,000
Glenayre Technologies, Inc.* ................. 10,000 465,000
Harmonic Lightwaves, Inc.* ................... 99,000 1,398,375
International Cabletel, Inc.* ................ 26,666 779,980
Metrocall, Inc.* ............................. 41,000 871,250
MFS Communications Co., Inc.* ................ 22,400 777,000
MobileMedia Corp.* ........................... 47,500 950,000
NFO Research, Inc.* .......................... 37,500 876,562
Octel Communication Corp.* ................... 30,000 1,342,500
Omnipoint Corp.* ............................. 10,000 301,875
P-COM, Inc.* ................................. 50,000 1,237,500
Paging Network, Inc.* ....................... 7,500 176,250
Pairgain Technologies, Inc.* ................. 45,000 4,297,500
PriCellular Corp. (Class A)* ................. 39,063 512,695
ProNet, Inc.* ................................ 50,000 1,581,250
QUALCOMM, Inc.* .............................. 5,000 193,750
Sitel Corp.* ................................. 10,500 580,125
Stanford Telecommunications, Inc.* ........... 11,000 462,000
Tellabs, Inc.* ............................... 185,000 10,221,250
Tel-Save Holdings, Inc.* ..................... 100,000 1,675,000
Transaction Network Services, Inc.* .......... 25,000 962,500
TresCom International, Inc.* ................. 15,000 288,750
U.S. Robotics, Inc.* ......................... 100,000 15,650,000
United States Satellite Broadcasting Co.,
Inc.* ...................................... 35,000 1,198,750
US Long Distance Corp.* ...................... 60,000 1,545,000
Westell Technologies, Inc. (Class A)* ........ 10,000 718,750
WorldCom, Inc.* (Formerly Ldds
Communications, Inc.) ..................... 127,996 6,015,812
Zoom Telephonics, Inc.* ...................... 30,000 690,468
------------
78,661,892
------------
Textiles (0.64%)
Ashworth, Inc.* .............................. 25,000 162,500
Cutter & Buck, Inc.* ......................... 80,000 960,000
Mossimo, Inc.* ............................... 6,000 228,000
Nautica Enterprises, Inc.* ................... 60,000 2,790,000
St. John Knits, Inc. ......................... 5,000 296,875
------------
4,437,375
------------
Transportation (2.52%)
Alaska Air Group, Inc.* ...................... 25,000 634,375
American Medical Response, Inc.* ............. 10,000 370,000
Atlantic Southeast Airlines, Inc. ............ 65,000 1,625,000
Comair Holdings, Inc. ........................ 85,950 3,180,150
Continental Airlines, Inc. (Class B)* ........ 10,000 567,500
Eagle USA Airfreight, Inc.* .................. 15,000 454,688
Fritz Cos., Inc.* ............................ 11,300 415,275
Frontier Airlines, Inc.*+ .................... 300,000 2,475,000
Greenbrier Cos., Inc. ........................ 10,000 143,750
Kansas City Southern Industries, Inc. ........ 10,000 485,000
Mesa Airlines, Inc.* ......................... 100,000 1,225,000
Northwest Airlines Corp. (Class A)* .......... 70,000 3,185,000
Offshore Logistics, Inc.* .................... 11,500 168,188
Rural/Metro Corp.* ........................... 15,000 444,375
Skywest, Inc. ................................ 10,000 148,750
Southwest Airlines Co. ....................... 45,000 1,338,750
ValuJet, Inc.* ............................... 25,000 515,625
------------
17,376,426
------------
Utilities (0.03%)
York Research Corp.* ......................... 22,000 178,750
------------
TOTAL COMMON STOCKS
(Cost $338,618,665) (99.36%) 685,071,019
------- ------------
RIGHTS
Real Estate (0.00%)
Champion Enterprises, Inc.* .................. 29,300 0
------------
TOTAL RIGHTS
(Cost $0) (00.00%) 0
----------- ------------
WARRANTS
Drugs (0.01%)
Whitewing Labs, Inc.* ....................... 50,000 62,500
------------
TOTAL WARRANTS
(Cost $10,000) (0.01%) 62,500
----------- ------------
TOTAL COMMON STOCKS,
RIGHTS AND WARRANTS
(Cost $338,628,665) (99.37%) 685,133,519
----------- ------------
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.12%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Market, 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% $7,701 $ 7,701,000
------------
Corporate Savings Account (0.48%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 3,310,366
------------
TOTAL SHORT-TERM INVESTMENTS (1.60%) 11,011,366
----------- ------------
TOTAL INVESTMENTS (100.97%) $696,144,885
=========== ============
* Non-income producing security.
+ Denotes an affiliated company in which the Fund has ownership of at least
5% of the voting securities. Investments in affiliates at April 30, 1996
were as follows:
AFFILIATE COST DIVIDEND INCOME
- ---------------------------- ---- ---------------
Frontier Airlines, Inc. $1,430,000 --
The percentage shown for each investment category is the total value of the
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
================================================================================
Notes to Financial Statements
John Hancock Funds - Emerging Growth Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940. The Corporation consists of six series portfolios: John Hancock Emerging
Growth Fund (the "Fund"), John Hancock Global Resources Fund, John Hancock Money
Market Fund, John Hancock High Yield Tax Free Fund, John Hancock High Yield Bond
Fund and John Hancock Government Income Fund (collectively, the "Funds"). The
investment objective of the Fund is to seek long-term growth of capital through
investing primarily (at least 80% of its assets in normal circumstances) in the
common stocks of rapidly growing small-sized companies (those with a market
capitalization of $500 million or less) to medium-sized companies (those with a
market capitalization of up to $1 billion).
The Board of Directors 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 Board of Directors, 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 Board of Directors. 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.
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 $6,354,280 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 distribution will be made. The carryforward expires October 31,
2003.
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
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Notes to Financial Statements
John Hancock Funds - Emerging Growth Fund
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 Corporation 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.
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 0.75% of Fund's average daily net asset value.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
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 $503,655. Out of this amount, $71,561 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$371,232 was paid as sales commissions to unrelated broker-dealers and $60,862
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
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Notes to Financial Statements
John Hancock Funds - Emerging Growth Fund
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 $508,952.
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 0.25% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In order to comply with this
Rule, the 12b-1 fee on Class B shares was reduced to 0.90% effective December 1,
1995, increased to 0.95% effective February 1, 1995 and was increased to 1.00%
effective April 1, 1996.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
On March 26, 1996, the Board of Directors approved retroactively to January
1, 1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Funds. The compensation for 1996 is estimated to be
at an annual rate of 0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its affiliates, as
well as Directors of the Fund. The compensation of unaffiliated Directors is
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Directors 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 deferred compensation had an unrealized appreciation of $2,046.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Board of Directors in order to
facilitate a smooth management transition. The Fund pays the advisory board and
its counsel a fee.
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 $109,069,820 and $86,486,659, 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 $346,329,665. Gross unrealized appreciation and depreciation of
investments aggregated $349,256,598 and $2,751,744, respectively, resulting in
net unrealized appreciation of $346,504,854.
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Notes
John Hancock Funds - Emerging Growth Fund
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[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
101 Huntington Avenue Boston, MA 02199-7603
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Permit No. 582
This report is for the information of shareholders of the John Hancock
Emerging Growth 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 the caption "Printed on Recycled
Paper."]
600SA 4/96
6/96
