John Hancock Funds
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Discovery
Fund
ANNUAL REPORT
July 31, 1996
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TRUSTEES
EDWARD J. BOUDREAU, JR.
Chairman
DENNIS S. ARONOWITZ*
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE*
DOUGLAS M. COSTLE*
LELAND O. ERDAHL*
RICHARD A. FARRELL*
GAIL D. FOSLER*
WILLIAM F. GLAVIN*
ANNE C. HODSDON
DR. JOHN A. MOORE*
PATTI MCGILL PETERSON*
JOHN W. PRATT*
RICHARD S. SCIPIONE
EDWARD SPELLMAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSACHUSETTS 02205-9116
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in the mutual
fund industry. At that time, Securities and Exchange Commission Chairman Arthur
Levitt called on fund companies to make their prospectuses more user-friendly.
He noted that prospectuses are often overloaded with technical detail and are
hard for most investors to understand. Many industry observers agreed, and
rightly so.
So it is my pleasure to let you know that John Hancock Funds has introduced
a series of new prospectuses. The first, covering the John Hancock growth funds,
made its debut on July 1 after being under development for a year. It is
simplified, using shorter, clearer language with a streamlined design, and
consolidated, incorporating several funds with similar investment objectives
into one document. We are excited about our new prospectus because we believe it
is a bold but sensible step forward. And while it is easier to read, it still
complies with all federal and state guidelines.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page spread
highlighting each fund's goals and investment strategy, the types of securities
it buys, its portfolio management and risk factors, all in plainer language.
Fund expenses and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other features include a
better presentation of fund services, a new glossary of investment risks and a
discussion about how funds are organized, including a diagram showing the
connection of the various players that provide services to your Hancock fund(s).
We also have similar prospectuses for our growth and income, income,
tax-free income and international/global funds; a money market funds prospectu s
is due December 1. We believe we have made a significant advancement in the
drive toward better mutual fund prospectuses. We hope you will agree because in
the end, we did it for you, our shareholders.
Sincerely,
/s/ Edward J. Boudreau, Jr.,
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
Discovery Fund
Bumpy road doesn't deter growth stocks
--------------------------------------
Growth stocks blazed a new trail over the past 12 months, although that trail
wasn't without its share of bumps and potholes. In the last five months of 1995,
the road was relatively smooth as U.S. companies reported strong earnings
against the backdrop of low interest rates, low inflation and moderate economic
growth.
But in early 1996, investors came upon a fork in the road. Some observers
argued that stock prices were too high and needed to readjust downward, and
others argued for still higher stock prices. Signs that the economy was starting
to heat up, which investors feared would ignite inflation and ultimately force
interest rates higher, supported the case for lower stock prices. Higher
interest rates often translate into lower earnings for growth companies, many of
whom depend on borrowed capital to sustain that growth. However, investors
shunned most of their interest-rate worries and focused instead on the large
amount of cash that was flowing into the U.S. stock market. As equity mutual
funds N the primary beneficiary of all that cas h N received more money to
invest, their managers were under pressure to maintain their exposure to stocks
in order to participate in the very rally that the new cash was causing. That
trend continued to feed on itself until early summer and it sent stock prices
higher, despite the fact that interest rates were rising.
It took some time for the market to digest all the new money. But when it
did, investors became more focused on the negative impact of higher rates and
experienced a fairly sizable correction in early July. However, the market
retraced some of those losses by the end of the month as inflation fears waned
and second-quarter company earnings came in at surprisingly strong levels.
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"Growth stocks blazed a new trail over the past 12 months..."
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[A 2" x 3 1/4" photo of Fund management team at bottom right. Caption reads:
"Bernice S. Behar and Fund Management Team member Andrew Slabin."]
3
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John Hancock Funds - Discovery Fund
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) PMT Services 2.7% 2) DSP Communications 2.5%
3) Cityscape Financial 2.5% 4) Corrections Corp. of America 2.3% 5) CBT Group
PLC 2.3%. A footnote below reads: "As a percentage of net assets on July 31,
1996."]
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"...retail companies have been some of the market's best performers so far in
1996..."
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John Hancock Discovery Fund did well both on an absolute and relative
basis over the past 12 months. For the year ended July 31, 1996, the Fund's
Class A and Class B shares had total returns of 17.72% and 16.85%, respectively,
at net asset value. That handily outpaced the average growth fund's return of
9.72% for the same period, according to Lipper Analytical Services.1 Please see
pages six and seven for longer-term performance information.
Focus on productivity enhancers
While technology stocks experienced several periods of volatility throughout the
year, many of them were some of the Fund's best performers. Early on, the Fund
benefited from its holdings in semiconductor and Internet-related stocks. But as
their stock prices reached levels that seemed unrealistic given their earnings
prospects, we focused instead on companies that aided in improving workplace
productivity. One of our largest and best performers in this category was CBT
Group PLC, which provides interactive software designed for business
information-technology education and training. The company develops and
publishes a library of more than 160 software titles that focus on client/server
technologies and are delivered on networked and stand-alone personal computers.
CBT Group has entered into alliances with Lotus, Novell, Microsoft and most
recently, cisco Systems to develop and market product-training programs. Another
of our top holdings and strong performers was HNC Software, which develops and
produces client/server software used in decision-making applications, retail
inventory management, merchant risk and bank-lending decisions. Also, the
company makes software products that detect credit- and debit-card fraud. During
the past six months we added Shiva Corp., a dominant supplier of LAN switching
technology, which hooks up remote users to corporate networks. Despite its
recent volatility, we believe that selected technology companies like these
continue to offer some of the most attractive growth opportunities in the market
today.
In the lean and mean 1990s, outsourcing jobs and tasks has been an
increasingly popular way for corporations to improve their profits. To take
advantage of the trend toward outsourcing, we added fast-growing companies
including APAC Teleservices and AccuStaff. APAC provides outsourced
telephone-based sales, marketing, and customer-management services. Its
customers include credit-card issuers and telecommunications companies.
AccuStaff provides temporary staffing personnel to businesses,
[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 PetSmart
followed by an up arrow and the phrase "Expansion boosts earnings." The second
listing is Shiva Corp. followed by an up arrow and the phrase "Leader in local
area network (LAN) technology." The third listing is Myriad Genetics followed by
a down arrow and the phrase "Hurt by weak performance of the biotechnology
sector." Footnote below reads: "See "Schedule of Investments." Investment
holdings are subject to change."]
4
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John Hancock Funds - Discovery Fund
[Bar chart with heading " Fund Performance" at top of left hand column. Under
the heading is the footnote: "For the year ended July 31, 1996." The chart is
scaled in increments of 5% from bottom to top, with 20% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
17.72% total return for John Hancock Discovery Fund: Class A. The second
represents the 16.85% total return for John Hancock Discovery Fund: Class B. The
third represents the 9.27% total return for the average small-company growth
fund. The footnote below states: "Total returns for John Hancock Discovery Fund
are at net asset value with all distributions reinvested. The average growth
fund is tracked by Lipper Analytical Services. See following page for historical
performance information."]
service organizations and governmental agencies for professional duties such as
accounting, computer systems analysis, and services related to telephone
communications. The company has benefited from the fact that more companies are
using these workers on a long-term basis as part of their regular staff, rather
than using these temporary personnel just to fill a position of someone who's
sick or recently quit.
Other opportunities
After spending several years out of favor and underperforming the market as a
whole, retail companies have been some of the market's best performers so far in
1996. Several of our holdings in this area did quite well during the period.
Some of our favorites were casual menswear clothing companies Mossimo Inc. and
Tommy Hilfiger, both of which benefited from the move toward more casual
business clothing. You may recall that in November 1995, shareholders v oted to
expand the Fund's investment universe to include not only small- and
medium-sized companies, but also large capitalization stocks. One recent
addition in the mid-cap retail arena was PetSmart which operates a chain of more
than 250 stores that carry about 12,000 items including pet food, collars ,
leashes, health aids, shampoos, medications, toys and animal carriers.
Competitive and cost-cutting pressures on the health-care industry took
their toll on health-care company earnings this year, so we pared backed our
stake in this area. However, we did find some opportunities among companies that
help health-care providers control costs. Examples include Omnicare and NCS
HealthCare, which provide a number of pharmaceutical-related services for
nursing homes.
- --------------------------------------------------------------------------------
Fund keeps focus on companies growing earnings by 20-25%.
- --------------------------------------------------------------------------------
Strategy
In our view, the correction the market experienced in July was well overdue and
healthy. Prior to July, many stocks had become quite pricey relative to their
earnings prospects. The correction helped return most stock prices to more
realistic levels. But it's important to remember that while stock prices fell,
the business fundamentals of companies didn't change and that bodes well for the
future. We'll continue to look for companies that meet our investment criteria:
a profitable position or niche in the marketplace, a capable management team
with vision and the ability to execute that vision, and a track record of
growing their earnings by at least 20-25% annually.
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.
1 Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales chareges. Actual load-adjusted performance is
lower.
5
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Discovery Fund. Total return is a performance
measure that equals the sum of all income and capital gains dividends, assuming
reinvestment of these distributions, and the change in the price of the Fund's
shares, expressed as a percentage of the Fund's shares. Performance figures
include the maximum applicable sales charge of 5% for Class A shares. The effect
of the maximum contingent deferred sales charge for Class B shares (5% and
declining to 0% over six years) is included in Class B performance. Performance
is affected by a 12b-1 plan. 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.
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CUMULATIVE TOTAL RETURNS
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For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Discovery Fund: Class A 46.38% 116.50%(1)
John Hancock Discovery Fund: Class B 47.93% 156.56%(2)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Discovery Fund: Class A 46.38% 18.76%(1)
John Hancock Discovery Fund: Class B 47.93% 21.54%(2)
Notes to Performance
(1) Class A shares started on January 3, 1992.
(2) Class B shares started on August 30, 1991.
6
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
Discovery Fund would be worth on July 31, 1996, assuming you 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 used
often as a measure of stock market performance.
[Line chart with the heading Discovery 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 Discovery Fund on January 3, 1992, before sales charge, and is equal to
$19,984 as of July 31, 1996. The second line represents the Discovery Fund after
sales charge and is equal to $18,994 as of July 31, 1996. The third line
represents the value of the Standard & Poor's 500 Stock Index and is equal to
$17,365 as of July 31, 1996.]
[Line chart with the heading Discovery Fund: Class B, representing the growth of
a hypothetical $10,000 investment over the life of the fund. Within the chart
are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Discovery Fund on August 30, 1991, before contingent deferred sales
charge, and is equal to $22,667 as of July 31, 1996. The second line represents
the Discovery Fund after contingent deferred sales charge and is equal to
$22,467 as of July 31, 1996. The third line represents the value of the Standard
& Poor's 500 Stock Index and is equal to $18,504 as of July 31, 1996.]
7
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FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
Statement of Assets and Liabilities
July 31, 1996
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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 July 31, 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.
Assets:
Investments at value - Note C:
Common stocks (cost - $75,827,080).......................... $ 89,925,904
Short-term investments (cost - $10,247,000) ................ 10,247,000
Corporate savings account.... .............................. 8,252
------------
............................................................... 100,181,156
Receivable for investments sold .............................. 1,907,625
Receivable for shares sold..... .............................. 670,097
Dividends and interest receivable ............................ 7,243
Deferred organization expenses - Note A ...................... 1,151
Other assets................... .............................. 1,087
------------
Total Assets ................ 102,768,359
--------------------------------------------
Liabilities:
Payable for investments purchased ............................ 1,984,631
Payable for shares repurchased. .............................. 28,985
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ........................................ 89,809
Accounts payable and accrued expenses ........................ 65,051
------------
Total Liabilities ........... 2,168,476
--------------------------------------------
Net Assets:
Capital paid-in .............................................. 85,347,570
Accumulated net realized gain on investments and
foreign currency transactions................................. 1,153,402
Net unrealized appreciation of investments ................... 14,098,911
------------
Net Assets .................. $100,599,883
============================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value, respectively)
Class A - $32,009,184/2,121,028 .............................. $ 15.09
=============================================================================
Class B - $68,590,699/4,730,847 .............................. $ 14.50
=============================================================================
Maximum Offering Price Per Share*
Class A - ($15.09 x 105.26%).................................. $ 15.88
=============================================================================
* 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.
Statement of Operations
Year ended July 31, 1996
- --------------------------------------------------------------------------------
Investment Income:
Interest...................................................... $ 218,223
Dividends (net of foreign withholding taxes of $3,257)........ 39,676
---------
257,899
---------
Expenses:
Investment management fee - Note B.......................... 455,664
Distribution/service fee - Note B
Class A................................................... 41,850
Class B................................................... 426,103
Transfer agent fee - Note B................................. 122,389
Registration and filing fees................................ 69,843
Custodian fee............................................... 42,793
Printing.................................................... 39,116
Auditing fee................................................ 32,850
Organization expense - Note A............................... 14,659
Legal fees.................................................. 13,640
Trustees' fees.............................................. 8,159
Miscellaneous............................................... 2,710
---------
Total Expenses............... 1,269,776
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Net Investment Loss ( 1,011,877)
--------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions
Net realized gain on investments sold......................... 1,749,903
Net realized gain on foreign currency transactions............ 1,902
Change in net unrealized appreciation/depreciation
of investments.............................................. ( 1,130,239)
----------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions 621,566
--------------------------------------------
Net Decrease in Net Assets
Resulting from Operations.... ($ 390,311)
============================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1995 1996
----------- ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss.................................................................... ($ 666,945) ($ 1,011,877)
Net realized gain (loss) on investments sold and foreign currency transactions......... ( 185,856) 1,751,805
Change in net unrealized appreciation/depreciation of investments...................... 14,483,069 ( 1,130,239)
----------- ------------
Net Increase (Decrease) in Net Assets Resulting from Operations........................ 13,630,268 ( 390,311)
----------- ------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.2685 and $0.1312 per share, respectively).............................. ( 101,860) ( 61,866)
Class B - ($0.2685 and $0.1312 per share, respectively).............................. ( 755,311) ( 350,267)
----------- ------------
Total Distributions to Shareholders................................................ ( 857,171) ( 412,133)
----------- ------------
From Fund Share Transactions - Net*...................................................... ( 5,816,073) 64,682,010
----------- ------------
Net Assets:
Beginning of period.................................................................... 29,763,293 36,720,317
----------- ------------
End of period.......................................................................... $36,720,317 $100,599,883
=========== ============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1996
---------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................ 334,726 $3,367,716 6,629,390 $105,087,816
Shares issued to shareholders in reinvestment of distributions..... 10,315 92,837 4,495 57,719
------- ---------- ----------- ------------
345,041 3,460,553 6,633,885 105,145,535
Less shares repurchased............................................ (330,231) ( 3,351,654) ( 4,904,679) ( 76,082,263)
------- ---------- ----------- ------------
Net increase....................................................... 14,810 $ 108,899 1,729,206 $ 29,063,272
======= ========== =========== ============
CLASS B
Shares sold........................................................ 214,582 $2,091,432 3,295,866 $ 51,516,179
Shares issued to shareholders in reinvestment of distributions..... 79,634 696,802 25,501 315,955
------- ---------- ----------- ------------
294,216 2,788,234 3,321,367 51,832,134
Less shares repurchased............................................ (951,880) ( 8,713,206) ( 1,113,915) ( 16,213,396)
------- ---------- ----------- ------------
Net increase (decrease)............................................ (657,664) ($5,924,972) 2,207,452 $ 35,618,738
======= ========== =========== ============
</TABLE>
The STATEMENT OF CHANGES IN NET ASSETS shows how the value of the Fund's net
assets have 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
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FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
Financial Highlights Selected data for a share of beneficial interest
outstanding throughout the periods indicated, investment returns, key ratios and
supplemental data are listed as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------
1992(1)(6) 1993 1994 1995 1996
---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period.......................... $ 9.40 $ 8.95 $ 10.81 $ 8.56 $ 12.95
------- -------- ------- ------- -------
Net Investment Loss........................................... ( 0.05) ( 0.16) ( 0.16)(2) ( 0.17)(2) ( 0.19)(2)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ( 0.40) 2.15 ( 0.43) 4.83 2.46
------- -------- ------- ------- -------
Total from Investment Operations............................ ( 0.45) 1.99 ( 0.59) 4.66 2.27
------- -------- ------- ------- -------
Less Distributions:...........................................
Distributions from Net Realized Gain on Investments Sold...... -- ( 0.13) ( 1.66) ( 0.27) ( 0.13)
------- -------- ------- ------- -------
Net Asset Value, End of Period................................ $ 8.95 $ 10.81 $ 8.56 $ 12.95 $ 15.09
======= ========
Total Investment Return at Net Asset Value (3)................ ( 4.79%)(4) 22.33% ( 6.45%) 55.80% 17.72%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)..................... $ 3,866 4,692 $ 3,226 $ 5,075 $32,009
Ratio of Expenses to Average Net Assets....................... 1.78%(5) 2.17% 2.01% 2.10% 1.72%
Ratio of Net Investment Loss to Average Net Assets............ ( 1.20%)(5) ( 1.61%) ( 1.64%) ( 1.73%) ( 1.26%)
Portfolio Turnover Rate....................................... 138% 148% 108% 18% 116%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period.......................... $ 8.00 $ 8.87 $ 10.65 $ 8.34 $ 12.54
------- ------- ------- ------- -------
Net Investment Loss........................................... ( 0.11) ( 0.23) ( 0.22)(2) ( 0.22)(2) ( 0.27)(2)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions 0.98 2.14 ( 0.43) 4.69 2.36
------- ------- ------- ------- -------
Total from Investment Operations............................ 0.87 1.91 ( 0.65) 4.47 2.09
------- ------- ------- ------- -------
Less Distributions:...........................................
Distributions from Net Realized Gain on Investments Sold...... -- ( 0.13) ( 1.66) ( 0.27) ( 0.13)
------- ------- ------- ------- -------
Net Asset Value, End of Period................................ $ 8.87 $ 10.65 $ 8.34 $ 12.54 $ 14.50
======= ======= -------
Total Investment Return at Net Asset Value (3)................ 10.88%(4) 21.63% ( 7.18%) 54.97% 16.85%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)..................... $34,636 $38,672 $26,537 $31,645 $68,591
Ratio of Expenses to Average Net Assets....................... 2.56%(5) 2.86% 2.62% 2.70% 2.42%
Ratio of Net Investment Loss to Average Net Assets............ ( 1.56%)(5) ( 2.26%) ( 2.24%) ( 2.34%) ( 1.96%)
Portfolio Turnover Rate....................................... 138% 148% 108% 118% 116%
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1992 and
August 30, 1991, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Covered by report of other independent auditors (not included herein).
The FINANCIAL HIGHLIGHTS summarize the impact of the following factors on a
single share for the period indicated: the net investment income, gains (losses)
and distributions of the Fund. It shows how the Fund's net asset value for a
share has changed since the end of the previous period. It also shows the total
investment return for each period based on the net asset value of Fund shares.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
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FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
<TABLE>
<CAPTION>
Schedule of Investments
July 31, 1996
- --------------------------------------------------------------------------------
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by the
Discovery Fund on July 31, 1996. It's divided into two main categories: common
stocks and short-term investments. 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
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS Advertising (1.64%)
CKS Group, Inc.*............................... 17,000 $ 454,750
Universal Outdoor Holdings, Inc.*.............. 57,000 1,197,000
-----------
1,651,750
-----------
Agricultural Operations (1.67%)
Northland Cranberries, Inc. (Class A).......... 60,000 1,680,000
-----------
Business Services - Misc (6.33%)
AccuStaff, Inc.*............................... 27,000 799,875
Alternative Resources Corp.*................... 50,000 1,437,500
APAC Teleservices, Inc.*....................... 49,900 1,833,825
Corrections Corp of America*................... 74,000 2,294,000
Information Resources, Inc.*................... 423 5,129
-----------
6,370,329
-----------
Computers (19.73%)
Access Health, Inc.*........................... 29,900 1,263,275
Aspect Development, Inc.*...................... 71,900 1,509,900
Baan Co., N.V. (Netherlands)*.................. 60,800 1,808,800
Caere Corp.*................................... 105,000 1,017,187
CBT Group PLC, American Depositary
Receipts (Ireland)*.......................... 51,900 2,270,625
CFI Proservices, Inc.*......................... 80,000 1,620,000
Edify Corp.*................................... 39,600 851,400
HNC Software, Inc.*............................ 65,400 1,684,050
JDA Software Group, Inc.*...................... 67,900 1,239,175
MDL Information Systems, Inc.*................. 55,000 1,608,750
National TechTeam, Inc.*....................... 70,000 621,250
Project Software & Development, Inc.*.......... 40,000 1,180,000
Shiva Corp.*................................... 27,600 1,428,300
Sterling Software, Inc.*....................... 20,000 1,375,000
Transaction Systems Architects, Inc.
(Class A)*................................... 11,700 368,550
-----------
19,846,262
-----------
Electronics (3.82%)
DSP Communications, Inc.*...................... 54,000 2,517,750
Ultrak, Inc.*.................................. 78,000 1,326,000
-----------
3,843,750
-----------
Finance (6.21%)
First USA Paymentech, Inc.*.................... 43,000 1,757,625
Medallion Financial Corp.*..................... 114,000 1,218,375
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Finance (continued)
PMT Services, Inc.*............................ 97,500 $ 2,705,625
Security First Network Bank*................... 21,000 561,750
-----------
6,243,375
-----------
Household (0.84%)
Harman International Industries, Inc........... 18,900 848,138
-----------
Leisure (4.23%)
Cinar Films, Inc. (Class B) (Canada)*.......... 28,400 674,500
Family Golf Centers, Inc.*..................... 40,000 910,000
Premier Parks, Inc.*........................... 34,300 716,013
Regal Cinemas, Inc.*........................... 33,000 1,402,500
Silicon Gaming, Inc.*.......................... 53,000 556,500
-----------
4,259,513
-----------
Media (4.61%)
Chancellor Corp. (Class A)*.................... 52,000 1,794,000
EZ Communications, Inc. (Class A)*............. 50,000 1,625,000
Jacor Communications, Inc.*.................... 40,000 1,220,000
-----------
4,639,000
-----------
Medical (10.32%)
Assisted Living Concepts, Inc.*................ 14,000 262,500
CNS, Inc.*..................................... 65,000 1,283,750
Dura Pharmaceuticals, Inc.*.................... 68,800 1,599,600
Henry Schein, Inc.*............................ 55,000 2,014,375
Myriad Genetics, Inc.*......................... 40,000 740,000
NCS HealthCare, Inc.*.......................... 41,500 1,110,125
Omnicare, Inc.................................. 44,000 1,028,500
Parexel International Corp.*................... 26,500 1,073,250
PhyCor, Inc.*.................................. 41,250 1,268,438
-----------
10,380,538
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Mortgage Banking (4.25%)
Aames Financial Corp........................... 45,000 $ 1,766,250
Cityscape Financial Corp.*..................... 76,000 2,508,000
-----------
4,274,250
-----------
Oil & Gas (2.47%)
Benton Oil & Gas Co.*.......................... 60,000 1,185,000
Chesapeake Energy Corp.*....................... 26,250 1,302,656
-----------
2,487,656
-----------
Real Estate Operations (1.66%)
Central Parking Corp........................... 60,000 1,665,000
-----------
Retail (7.19%)
Garden Ridge Corp.*............................ 64,800 801,900
Global DirectMail Corp.*....................... 39,200 1,597,400
Next PLC (United Kingdom)...................... 97,000 779,356
North Face, Inc. (The)*........................ 13,800 213,900
PetSmart, Inc.*................................ 64,000 1,472,000
Rainforest Cafe, Inc.*......................... 49,500 1,287,000
Seattle Filmworks, Inc.*....................... 60,000 1,080,000
-----------
7,231,556
-----------
Schools/Education (2.05%)
Apollo Group, Inc. (Class A)*.................. 74,900 2,059,750
-----------
Telecommunications (8.63%)
Boston Communications Group, Inc.*............. 69,000 966,000
Cascade Communications Corp.*.................. 13,000 799,500
Intermedia Communications, Inc.*............... 50,000 1,262,500
McLeod, Inc. (Class A)*........................ 45,000 1,136,250
P-Com, Inc.*................................... 55,000 1,320,000
REMEC, Inc.*................................... 89,800 1,279,650
Tel-Save Holdings, Inc.*....................... 80,000 1,920,000
-----------
8,683,900
-----------
Textile (3.74%)
Designer Holdings Ltd.*........................ 40,000 735,000
Mossimo, Inc.*................................. 39,700 1,503,637
Tommy Hilfiger Corp.*.......................... 30,000 1,522,500
-----------
3,761,137
-----------
TOTAL COMMON STOCK
(Cost $75,827,080) (89.39%) 89,925,904
------ -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (10.19%)
Investment in a joint repurchase
agreement transaction with
Lehman Brothers, Inc.
Dated 07-31-96, Due 08-01-96
(secured by U.S. Treasury Bill,
5.52% Due 07-24-97, and by
U.S Treasury Bonds, 7.25%
thru 8.875% Due 11-15-16
thru 02/15/25) - Note A 5.62% $ 10,247 $ 10,247,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%........................... 8,252
------------
TOTAL SHORT-TERM INVESTMENTS (10.19%) 10,255,252
------ ------------
TOTAL INVESTMENTS (99.58%) $100,181,156
====== ============
* 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.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
Portfolio Concentration
- --------------------------------------------------------------------------------
The Discovery Fund invests primarily in securities issued in the United States
of America The performance of the Fund is closely tied to the economic and
financial conditions within the countries in which it invests. The concentration
of investments by 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 percentages of the
Fund's investments at July 31, 1996 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ----------
Canada..................................................... 0.67%
Ireland.................................................... 2.26
Netherlands................................................ 1.80
United Kingdom............................................. 0.77
United States.............................................. 94.08
-----
TOTAL INVESTMENTS 99.58%
=====
13
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
NOTE A -
ACCOUNTING POLICIES
Freedom Investment Trust III (the "Trust") is a diversified open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of one portfolio: John Hancock Discovery Fund (the "Fund"). The
investment objective of the Fund is to achieve long-term capital appreciation.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends, and liquidation, except that
certain expenses subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution/service expenses under terms of
a distribution plan, have exclusive voting rights regarding such distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class as explained previously.
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.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from these estimates.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than 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, effective December 1, 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) 0.75% of
the first $750,000,000 of the Fund's average daily net asset value and (b) 0.70%
of the Fund's average daily net asset value in excess of $750,000,000.
Prior to December 1, 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) 1.00% of the first $250,000,000 of the Fund's average daily net
asset value, (b) 0.80% of the next $250,000,000 and (c) 0.75% of the Fund's
average daily net asset value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended July 31,
1996, net sales charges received with regard to sales of Class A shares amounted
to $456,157. Out of this amount, $65,828 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $284,780 was
paid as sales commissions to unrelated broker-dealers and $105,549 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
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Discovery Fund
of Class B shares. For the period ended July 31, 1996, contingent deferred sales
charges paid to JH Funds amounted to $58,091.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution/service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to October 1, 1995, the Fund paid transfer agent fees as
a class specific expense based on the number of shareholder accounts and certain
out-of-pocket expenses. For the two months ended September 30 1995, the transfer
agent expense, calculated as a class specific expense, was $2,738 for Class A
and $12,224 for Class B, respectively. Effective October 1, 1995, transfer agent
expense is a fund expense.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. Effective with the fees paid for 1995, the unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation under the
John Hancock Group of Funds Deferred Compensation Plan. The Fund makes
investments into other John Hancock funds, as applicable, to cover its liability
for the deferred compensation. Investments to cover the Fund's deferred
compensation liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. At July 31, 1996, the
Fund's investments to cover the deferred compensation liability had unrealized
appreciation of $87.
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 July 31, 1996, aggregated $115,189,995 and $62,721,957, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended July 31, 1996.
The cost of investments owned at July 31, 1996 for federal income tax
purposes was $86,074,080. Gross unrealized appreciation and depreciation of
investments aggregated $19,254,084 and $5,155,260, respectively, resulting in
net unrealized appreciation of $14,098,824.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended July 31, 1996, the Fund has reclassified $1,902 from
accumulated net realized gain on investments to accumulated net investment loss
and reclassified the accumulated net investment loss of $1,009,975 to capital
paid-in. This represents the cumulative amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of July 31,
1996. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to certain differences in the computation
of distributable income and capital gains under federal tax rules versus
generally accepted accounting principles.
16
<PAGE>
================================================================================
John Hancock Funds - Discovery Fund
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Discovery Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Discovery Fund (the "Fund"), including the schedule of investments, as
of July 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the four years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of John Hancock Discovery Fund for the period
ended July 31, 1992, were audited by other independent auditors whose report
dated September 18, 1992 expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1996, by correspondence with the custodian and brokers, or other appropriate
auditing procedures where replies from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
John Hancock Discovery Fund at July 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and its financial highlights for each of the four years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
September 6, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended July 31,
1996.
The Fund designated distributions to shareholders of $412,133 as long-term
capital gain dividends. Shareholders were mailed a 1995 U.S. Treasury Department
Form 1099-DIV in January 1996 representing their proportionate share. The Fund
has not paid any distributions of ordinary income dividends during the fiscal
year ended July 31, 1996.
None of the distributions noted above qualify for the corporate dividends
received deduction.
17
<PAGE>
================================================================================
ADDITIONAL INFORMATION
John Hancock Funds - Discovery Fund
SHAREHOLDER MEETINGS
On November 15, 1995, a Special Meeting of the Fund was held to approve the
terms of a new Investment Management Contract, including a reduction in the fee
payable by the Fund for investment management services. The votes were:
1,475,134 FOR, 3,308 AGAINST, and 56,205 ABSTAINING.
The shareholders voted to amend the Fund's fundamental investment objective
and redesignate it as non-fundamental, with the votes as follows: 1,237,850 FOR,
41,462 AGAINST, and 78,597 ABSTAINING.
The shareholders voted to amend the Fund's fundamental investment
restriction with regard to short sales, with the votes as follows: 1,171,240
FOR, 103,955 AGAINST, and 82,713 ABSTAINING.
The shareholders voted to amend the Fund's fundamental investment
restriction with regard to lending portfolio securities, with the votes as
follows: 1,156,752 FOR, 111,796 AGAINST, and 89,361 ABSTAINING.
The shareholders voted to elect eighteen Trustees, effective July 1, 1996,
with the votes as follows:
WITHHELD
FOR AUTHORITY
Dennis S. Aronowitz.......... 1,472,921 61,727
William A. Barron, III....... 1,471,511 63,137
Edward J. Boudreau, Jr....... 1,474,651 59,997
Richard P. Chapman, Jr....... 1,473,880 60,768
William J. Cosgrove.......... 1,473,773 60,875
Douglas M. Costle............ 1,474,484 60,164
Leland O. Erdahl............. 1,474,376 60,271
Richard A. Farrell........... 1,474,651 59,997
Gail D. Fosler............... 1,473,853 60,795
William F. Glavin............ 1,470,740 63,908
Patrick Grant................ 1,471,511 63,137
Bayard Henry................. 1,474,651 59,997
Ralph Lowell, Jr............. 1,471,511 63,137
Patti McGill Peterson........ 1,473,804 60,844
Dr. John A. Moore............ 1,471,150 63,498
John W. Pratt................ 1,474,376 60,271
Richard S. Scipione.......... 1,473,015 61,633
Edward J. Spellman........... 1,473,282 61,366
On July 23, 1996, a Special Meeting of the Fund was held.
Shareholders approved an Amended and Restated Declaration of Trust for the
Fund. The shareholder votes were 3,148,535 FOR, 51,951 AGAINST and 124,867
ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
WITHHELD
FOR AUTHORITY
Dennis S. Aronowitz.......... 3,523,238 64,825
Edward J. Boudreau, Jr....... 3,521,170 66,893
Richard P. Chapman, Jr....... 3,523,238 64,825
William J. Cosgrove.......... 3,523,533 64,530
Douglas M. Costle............ 3,523,258 64,805
Leland O. Erdahl............. 3,523,533 64,530
Richard A. Farrell........... 3,523,043 65,020
Gail D. Fosler............... 3,524,863 63,200
William F. Glavin............ 3,523,258 64,805
Anne C. Hodsdon.............. 3,523,533 64,530
Dr. John A. Moore............ 3,522,985 65,078
Patti McGill Peterson........ 3,522,030 65,033
John W. Pratt................ 3,523,533 64,530
Richard S. Scipione.......... 3,523,258 64,805
Edward J. Spellman........... 3,523,318 64,745
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Discovery Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Randolph, MA
Permit No. 75
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Discovery Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 3400A 7/96
9/96
