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John Hancock Funds
- --------------------------------------------------------------------------------
Emerging
Growth
Fund
ANNUAL REPORT
October 31, 1996
<PAGE>
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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
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 02116-5072
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.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
So it is my pleasure to let you know that after being under development for
a year, John Hancock Funds has introduced new simplified and consolidated
prospectuses. The prospectuses feature shorter, clearer language with a
streamlined design, and they incorporate several funds with similar investment
objectives into one document. They cover our income, growth, growth and income,
tax-free income, international/global and money market funds. We are gratified
at the favorable reviews that our new prospectuses have received from
shareholders, financial advisers, industry analysts and the press. We believe
they are a bold but sensible step forward. And while they are easier to read,
they still comply with all federal and state guidelines.
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 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
Emerging Growth Fund
Split decision for small-company stocks;
outlook calls for optimism
While small-company growth stocks made a strong showing for the year ended
October 31, 1996, their fortunes compared to larger- company stocks shifted
during the year. In the first half of the Fund's fiscal year, the Russell 2000
Index -- a broad measure of small-company stocks -- outpaced the larger company
S&P 500-Stock Index. But from May through October, the market's surge was led by
a handful of large, premier companies. The vast majority of smaller stocks,
meanwhile, showed less impressive gains.
For the year ended October 31, 1996, John Hancock Emerging Growth Fund's
Class A and Class B shares had total returns of 13.27% and 12.48%, respectively,
at net asset value. Those returns lagged that of the average small-company
growth fund, which returned 20.44% for the same year-period, according to Lipper
Analytical Services.1 The Russell 2000 Index returned 16.61% for the same
period. Please see pages six and seven for longer-term performance information.
Performance overview
The primary reason for the Fund's lag was its higher-than-average stake in
technology stocks in the first half of the period. In the spring and summer,
small company stocks, particularly in the technology sector, experienced a
dramatic sell-off, as interest rates were rising and some high profile
technology companies posted weaker than expected earnings. In particular, our
semiconductor holdings were hardest hit, in large part due to an unfavorable
supply/demand environment.
By the fall, however, many technology stocks -- which represented about 40%
of the Fund's investments at the end of the period -- resumed
Small-company stocks'
fortunes shifted during
the year.
[A 2" x 3 1/4" photo of the portfolio management team at bottom right. Caption
reads "Bernice S. Behar (center) and Fund Management Team Members Ben Hock (l)
and Andrew Slabin (r)".]
3
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John Hancock Funds - Emerging Growth Fund
"During the past six months,
we built our stake in
retail stocks..."
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[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1)Tellabs 2.1% 2) 3Com Corp. 2.0% 3) Dell
Computer 1.7% 4) Ascend Communications 1.5% 5) Peoplesoft 1.4%. A footnote below
reads "As a percentage of net assets on October 31, 1996"]
- --------------------------------------------------------------------------------
their climb and their place as the Fund's top performers. 3 Com, which
manufactures computer and office equipment, and Dell Computer, another computer
manufacturer, were two of our largest technology-related holdings that managed
to buck the negative trends affecting other technology stocks. Additionally,
Tellabs and PairGain Technologies, which manufacture telecommunications
products, both benefited from the rising demand for corporate networks.
Retail rings up profits
During the past six months, we built our stake in retail stocks to almost 15% of
investments. While the retailing environment is fiercely competitive, we've
focused on retailers who dominate their category, offer unique goods or services
or occupy a unique niche that helps to distinguish themselves. We believe that
these companies will not only survive but thrive. Companies catering to affluent
consumers proved to be among the Fund's best performers over the past year.
Consumer confidence was its strongest among affluent Americans, thanks in part
to a raging bull market and rising wages for this group. Those trends benefited
"high-end" retailers and helped them avoid the negative trends that faced
middle-market and discount stores. Tiffany's -- one of the world's most
recognizable jewelers -- and high-end department store chain Neiman Marcus both
benefited from higher sales of designer and high-end apparel. Shoe company Nine
West performed well as it introduced new store concepts and captured a larger
market share. Nautica, a leading maker of men's sportswear, successfully
launched its women's line. Unfortunately, Urban Outfitters, which sells trendy
apparel and home accessories targeted at the youth market, didn't fare as well.
The stock stumbled when the company disappointed investors by failing to meet
expansion plans. In the leisure area, one of the Fund's strongest performers was
Family Golf Centers, which runs entertainment-oriented driving ranges in
metropolitan areas and caters to the rising popularity of golf in the United
States. A growing market share and some acquisitions have helped its profits.
- --------------------------------------------------------------------------------
[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 Dell
Computer followed by an up arrow and the phrase "Strong demand for PCs." The
second listing is Chesapeake Energy followed by an up arrow and the phrase
"Rising oil, gas prices." The third listing is Madge followed by a down arrow
and the phrase "Falls behind competitors." Footnote below reads: "See "Schedule
of Investments." Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
Winners: advertising, radio and energy
Legislative changes were the primary fuel driving up prices of many of our
advertising and radio holdings. New laws curtailing the tobacco companies' use
of billboards had a positive effect on companies that own outdoor advertising
space. That's because for many years tobacco companies had negotiated long-term
contracts with the billboard companies at locked-in low rates. When billboard
companies were able to sell space to other industries, they were able to
4
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John Hancock Funds - Emerging Growth Fund
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[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended October 31, 1996." The chart is
scaled in increments of 5% from bottom to top, with 25% at the top and 0% at the
bottom. Within the chart there are three solid bars. The first represents the
13.27% total return for the John Hancock Emerging Growth Fund: Class A. The
second represents the 12.48% total return for the John Hancock Emerging Growth
Fund: Class B. The third represents the 20.44% total return for the average
small company growth fund. A footnote below reads: "The 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 two pages for historical performance
information."]
- --------------------------------------------------------------------------------
raise their prices. That translated into higher revenues, profits and stock
prices for Universal Outdoor Holdings, and to a lesser extent, Lamar Advertising
Company. Changes in radio legislation along with consolidation within the
industry led to big gains for two of our radio holdings. Recently, the FCC
allowed radio companies to own more than two stations in a given market. As a
result of that change, EZ Communications rose on the news that it was going to
be acquired by a larger company. Meanwhile, Intermedia Communications of Florida
was one of the acquirers of radio stations, and its stock also performed well.
Finally, a strong global economy caused healthy demand for energy. The
ensuing higher oil and natural gas prices favored many of our energy holdings,
including our largest energy holding Chesapeake Energy Corp.
Outlook and strategy
The market's fall rally was led by larger, more liquid stocks. Even though many
smaller companies -- which are the primary focus of this Fund -- made progress,
they lagged their larger counterparts. But our sense is that coming months could
see a reversal in that trend. For one thing, many big company stocks are in
danger of being viewed as fully or over-priced. If investors start to look for
value, they're likely to find it more readily in the small-company arena. What's
more, the rise in the dollar continues to favor many small companies, which
derive little of their revenues offshore. That means they won't be as
susceptible to unfavorable currency translations as larger companies. Finally,
we believe that smaller-company earnings are on track to outpace those of larger
companies in the coming year. Since stock prices tend to move up with earnings,
we believe that the long term favors small-cap stocks. At the same time,
small-cap investors should understand that small-company stocks are more
volatile than the broader market. So it's important to maintain a long-term
investment perspective and a healthy tolerance for this more aggressive
investment style.
"...smaller-company earnings
are on track to outpace those
of larger companies..."
- --------------------------------------------------------------------------------
(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>
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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 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
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For the period ended September 30, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
---- ----- ----
John Hancock Emerging Growth Fund: Class A(1) 10.16% 120.18% 125.25%
John Hancock Emerging Growth Fund: Class B(2) 10.10% 120.14% 458.22%
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended September 30, 1996
LIFE
ONE FIVE OF
YEAR YEARS FUND
---- ----- ----
John Hancock Emerging Growth Fund: Class A(1) 10.16% 17.10% 17.23%
John Hancock Emerging Growth Fund: Class B(2) 10.10% 17.10% 21.24%
Notes to Performance
(1) Class A shares commenced on August 22, 1991.
(2) Class B shares commenced on October 26,1987.
6
<PAGE>
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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
Emerging Growth Fund would be worth on October 31, 1996, assuming you had
invested on the day each class of shares started or have been invested for the
most recent ten years 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 Emerging
Growth Fund, before sales charge, and is equal to $22,638 as of October 31,
1996.
The second 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 $21,510 as of October 31, 1996. The third line represents the Standard
& Poor's 500 Stock Index and is equal to $20,992 as of October 31, 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 Emerging Growth Fund, before sales
charge, and is equal to $53,276 as of October 31, 1996. The second line
represents the value of the hypothetical $10,000 investment made in the Standard
& Poor's 500 Stock Index on October 26, 1987, and is equal to $28,904 as of
October 31, 1996.]
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* No contingent deferred sales charge applicable.
7
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 1996. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
October 31, 1996
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and warrants
(cost - $351,139,009) .................................. $ 663,158,200
Cash ....................................................... 539,043
Receivable for shares sold ................................. 210,859
Receivable for investments sold ............................ 9,120,527
Dividends and interest receivable .......................... 131,243
Other assets ............................................... 77,007
-------------
Total Assets .......................... 673,236,879
--------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................. 263,397
Payable for investments purchased .......................... 2,444,400
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ...................................... 645,251
Accounts payable and accrued expenses ...................... 118,934
-------------
Total Liabilities ..................... 3,471,982
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Net Assets:
Capital paid-in ............................................ 343,946,537
Accumulated net realized gain on investments and
foreign currency transactions ............................ 13,833,527
Net unrealized appreciation of investments ................. 312,021,237
Accumulated net investment loss ............................ (36,404)
-------------
Net Assets ............................ $ 669,764,897
========================================================
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 - $218,497,428/5,345,387 ........................... $ 40.88
=============================================================================
Class B - $451,267,469/11,533,948 .......................... $ 39.13
=============================================================================
Maximum Offering Price Per Share*
Class A - ($40.88 x 105.26%) ............................... $ 43.03
=============================================================================
* 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 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
Year ended October 31, 1996
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $1,382) ...... $ 2,134,777
Interest .................................................... 795,578
-------------
2,930,355
-------------
Expenses:
Investment management fee - Note B ........................ 4,796,777
Distribution/service fee - Note B
Class A ................................................. 507,164
Class B ................................................. 4,264,324
Transfer agent fee - Note B ............................... 1,294,787
Registration and filing fees .............................. 181,719
Custodian fee ............................................. 145,411
Printing .................................................. 109,033
Financial services fee - Note B ........................... 101,864
Trustees' fees ............................................ 72,807
Auditing fee .............................................. 51,801
Advisory board fee ........................................ 44,842
Legal fees ................................................ 35,432
Miscellaneous ............................................. 18,145
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Total Expenses ......................... 11,624,106
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Net Investment Loss .................... (8,693,751)
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Realized and Unrealized Gain on Investments and
Foreign Currency Transactions:
Net realized gain on investments sold ....................... 20,303,427
Net realized gain on foreign currency transactions .......... 238
Change in net unrealized appreciation/depreciation
of investments ............................................ 66,455,826
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Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions .......... 86,759,491
--------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .............. $ 78,065,740
========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ....................................................................... ($ 6,156,730) ($ 8,693,751)
Net realized gain on investments sold and foreign currency transactions ................... 10,693,222 20,303,665
Change in net unrealized appreciation/depreciation of investments ......................... 134,216,496 66,455,826
------------- -------------
Net Increase in Net Assets Resulting from Operations .................................... 138,752,988 78,065,740
------------- -------------
From Fund Share Transactions-- Net: * ....................................................... 19,718,122 18,740,400
------------- -------------
Net Assets:
Beginning of period ....................................................................... 414,487,647 572,958,757
------------- -------------
End of period (including accumulated net investment loss of none and $36,404, respectively) $ 572,958,757 $ 669,764,897
============= =============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1995 1996
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........... 5,389,301 $ 177,314,439 10,344,259 $ 405,197,459
Less shares repurchased (5,302,592) (171,990,271) (9,972,552) (391,886,133)
------------- ------------- ------------- -------------
Net increase .......... 86,709 $ 5,324,168 371,707 $ 13,311,326
============= ============= ============= =============
CLASS B
Shares sold ........... 7,378,294 $ 212,291,363 8,954,690 $ 337,367,675
Less shares repurchased (6,952,481) (197,897,409) (8,730,155) (331,938,601)
------------- ------------- ------------- -------------
Net increase .......... 425,813 $ 14,393,954 224,535 $ 5,429,074
============= ============= ============= =============
</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>
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FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
1992 1993 1994 1995(1) 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $ 19.26 $ 20.60 $ 25.89 $ 26.82 $ 36.09
--------- --------- --------- --------- ---------
Net Investment Loss(2) ................................... (0.20) (0.16) (0.18) (0.25) (0.34)
Net Realized and Unrealized Gain on Investments .......... 1.60 5.45 1.11 9.52 5.13
--------- --------- --------- --------- ---------
Total from Investment Operations ....................... 1.40 5.29 0.93 9.27 4.79
--------- --------- --------- --------- ---------
Less Distributions
Distributions from Net Realized Gain on Investments Sold . (0.06) -- -- -- --
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ........................... $ 20.60 $ 25.89 $ 26.82 $ 36.09 $ 40.88
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value(3) ............ 7.32% 25.68% 3.59% 34.56% 13.27%
Ratios and Supplemental Data
Net Assets, End of Period (000's Omitted) ................ $ 46,137 $ 81,263 $ 131,053 $ 179,481 $ 218,497
Ratio of Expenses to Average Net Assets .................. 1.67% 1.40% 1.44% 1.38% 1.32%
Ratio of Net Investment Loss to Average Net Assets ....... (1.03%) (0.70%) (0.71%) (0.83%) (0.86%)
Portfolio Turnover Rate .................................. 48% 29% 25% 23% 44%
Average Broker Commission Rate(4) ........................ N/A N/A N/A N/A $ 0.0669
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each 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>
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FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
1992 1993 1994 1995(1) 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $ 19.22 $ 20.34 $ 25.33 $ 26.04 $ 34.79
--------- --------- --------- --------- ---------
Net Investment Loss(2) ................................... (0.38) (0.36) (0.36) (0.45) (0.60)
Net Realized and Unrealized Gain on Investments .......... 1.56 5.35 1.07 9.20 4.94
--------- --------- --------- --------- ---------
Total from Investment Operations ....................... 1.18 4.99 0.71 8.75 4.34
--------- --------- --------- --------- ---------
Less Distributions
Distributions from Net Realized Gain on Investments Sold . (0.06) -- -- -- --
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ........................... $ 20.34 $ 25.33 $ 26.04 $ 34.79 $ 39.13
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value(3) ............ 6.19% 24.53% 2.80% 33.60% 12.48%
Ratios and Supplemental Data
Net Assets, End of Period (000's Omitted) ................ $ 86,923 $ 219,484 $ 283,435 $ 393,478 $ 451,268
Ratio of Expenses to Average Net Assets .................. 2.64% 2.28% 2.19% 2.11% 2.05%
Ratio of Net Investment Loss to Average Net Assets ....... (1.99%) (1.58%) (1.46%) (1.55%) (1.59%)
Portfolio Turnover Rate .................................. 48% 29% 25% 23% 44%
Average Broker Commission Rate(4) ........................ N/A N/A N/A N/A $ 0.0669
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) On average month end shares outstanding.
(3) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charge.
(4) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
Schedule of Investments
October 31, 1996
- --------------------------------------------------------------------------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (1.64%)
Catalina Marketing Corp.* ...................... 84,000 $ 4,273,500
Lamar Advertising Co.* ......................... 122,700 3,374,250
Snyder Communications, Inc.* ................... 24,700 481,650
Universal Outdoor Holdings, Inc.* .............. 97,500 2,864,062
------------
10,993,462
------------
Automobile / Trucks (0.61%)
Cross-Continent Auto Retailers, Inc.* .......... 84,000 2,152,500
Gentex Corp.* .................................. 80,000 1,900,000
------------
4,052,500
------------
Banks - United States (0.02%)
Hibernia Corp. (Class A) ...................... 15,000 166,875
------------
Broker Services (0.94%)
Alex Brown, Inc. ............................... 3,000 170,250
Donaldson Lufkin & Jenrette, Inc. .............. 20,000 642,500
E* TRADE Group, Inc.* .......................... 200,500 2,230,562
Hambrecht & Quist Group* ....................... 60,000 1,192,500
Raymond James Financial, Inc. .................. 84,750 2,065,781
------------
6,301,593
------------
Building (2.13%)
Cavalier Homes, Inc. ........................... 37,500 698,438
Champion Enterprises, Inc.* .................... 393,300 7,767,675
Clayton Homes, Inc. ............................ 140,682 2,374,009
Oakwood Homes Corp. ............................ 130,000 3,445,000
------------
14,285,122
------------
Business Services - Misc (2.29%)
ABR Information Services, Inc.* ................ 40,000 2,770,000
Billing Information Concepts Corp.* ............ 60,000 1,567,500
CorVel Corp.* .................................. 20,000 557,500
CRA Managed Care, Inc.* ........................ 30,000 1,522,500
Equifax, Inc. .................................. 143,000 4,254,250
Health Management Systems, Inc.* ............... 45,000 1,057,500
NFO Research, Inc.* ............................ 37,500 871,875
Registry, Inc. (The)* .......................... 33,000 1,414,875
Sitel Corp.* ................................... 52,000 1,027,000
Superior Consultant Holdings Corp.* ............ 10,900 267,050
------------
15,310,050
------------
The Schedule of Investments is a complete list of all securities owned by the
Emerging Growth Fund on October 31, 1996. It's divided into three main
categories: common stocks, preferred stocks, and rights. Common stocks,
preferred stocks and rights are further broken down by industry group.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (24.15%)
ACT Networks, Inc.* ............................ 12,500 $ 428,125
Adaptec, Inc.* ................................. 110,000 6,696,250
Adobe Systems, Inc. ............................ 50,000 1,731,250
Applix, Inc.* .................................. 16,000 388,000
Aspect Development, Inc.* ...................... 83,000 2,064,625
Aspen Technologies, Inc.* ...................... 15,000 1,008,750
Aurum Software, Inc.* .......................... 4,900 155,575
Baan Co., N.V. (Netherlands)* .................. 80,000 2,960,000
BDM International, Inc.* ....................... 10,000 502,500
Bell & Howell Co.* ............................. 25,000 668,750
BISYS Group, Inc. (The)* ....................... 61,835 2,303,354
BMC Software, Inc.* ............................ 35,000 2,905,000
C-Cube Microsystems, Inc.* ..................... 30,000 1,162,500
Cabletron Systems, Inc.* ....................... 22,500 1,403,437
Cadence Design Systems, Inc.* .................. 138,815 5,066,729
Centennial Technologies, Inc.* ................. 25,000 1,390,625
Computer Management Sciences, Inc.* ............ 15,000 438,750
Computer Sciences Corp.* ....................... 121,363 9,011,203
CyberMedia, Inc.* .............................. 12,100 269,225
Datastream Systems, Inc.* ...................... 30,000 547,500
Dell Computer Corp.* ........................... 140,000 11,392,500
Dendrite International, Inc.* .................. 10,000 266,250
DST Systems, Inc.* ............................. 170,000 5,227,500
Gateway 2000, Inc.* ............................ 50,000 2,353,125
Geoworks* ...................................... 60,000 1,222,500
HNC Software, Inc.* ............................ 134,800 4,246,200
Hyperion Software Corp.* ....................... 80,000 1,630,000
Informix Corp.* ................................ 250,000 5,546,875
Inso Corp.* .................................... 10,000 492,500
Kronos, Inc.* .................................. 32,250 939,281
Legato Systems, Inc.* .......................... 30,000 1,065,000
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
MDL Information Systems, Inc.* ................. 20,400 $ 313,650
Measurex Corp. ................................. 20,500 527,875
Midway Games, Inc.* ............................ 65,500 1,310,000
National Instruments Corp.* .................... 6,000 171,000
National TechTeam, Inc.* ....................... 215,000 5,805,000
NetManage, Inc.* ............................... 12,000 81,750
Network General Corp.* ......................... 190,000 4,583,750
Parametric Technology Corp.* ................... 140,000 6,842,500
Peoplesoft, Inc.* .............................. 100,800 9,046,800
Physician Computer Network, Inc.* .............. 25,000 223,438
Printronix, Inc.* .............................. 37,500 464,063
Project Software & Development, Inc.* .......... 57,500 1,955,000
Quick Response Services, Inc.* ................. 6,000 222,750
Renaissance Solutions, Inc.* ................... 9,000 362,250
S3, Inc.* ...................................... 40,000 755,000
Saville Systems Ireland PLC,
American Depositary Receipts
(Ireland)* ................................... 25,000 1,078,125
Scopus Technology, Inc.* ....................... 13,500 519,750
Seagate Technology, Inc.* ...................... 61,050 4,075,087
Security Dynamics Technologies, Inc.* .......... 10,000 812,500
SEI Corp. ...................................... 18,000 364,500
SPSS, Inc.* .................................... 70,000 2,178,750
Sterling Commerce, Inc.* ....................... 177,223 4,984,397
Sterling Software, Inc.* ....................... 105,000 3,412,500
Sybase, Inc.* .................................. 56,000 987,000
Transaction Systems Architects, Inc. ...........
(Class A)* ................................... 104,900 4,353,350
Trusted Information Systems, Inc.* ............ 13,300 179,550
U.S. Robotics Corp.* ........................... 96,000 6,036,000
Unison Software, Inc.* ......................... 17,500 450,625
Vanstar Corp.* ................................. 100,000 2,375,000
Vantive Corp.* ................................. 30,000 990,000
VeriFone, Inc.* ................................ 25,000 840,625
Versant Object Technology Corp.* ............... 36,000 702,000
VideoServer, Inc.* ............................. 4,000 189,500
Western Digital Corp.* ......................... 35,000 1,697,500
Whittman-Hart, Inc.* ........................... 68,500 3,253,750
Wind River Systems* ............................ 15,000 637,500
XLConnect Solutions, Inc.* ..................... 5,900 172,575
Zebra Technologies Corp. (Class A)* ............ 4,400 127,050
3Com Corp.* .................................... 194,770 13,171,321
------------
161,737,660
------------
Consumer Products Misc. (0.12%)
Blyth Industries, Inc.* ........................ 20,000 777,500
------------
Cosmetics & Personal Care (0.23%)
Revlon, Inc. (Class A)* ........................ 42,700 1,558,550
------------
Electronics (5.24%)
Atmel Corp.* ................................... 100,000 2,537,500
Berg Electronics Corp.* ........................ 25,000 706,250
Credence Systems Corp.* ........................ 50,000 681,250
DSP Communications, Inc.* ...................... 100,000 3,800,000
Electroglas, Inc.* ............................. 212,000 2,782,500
Harmonic Lightwaves, Inc.* ..................... 99,000 1,670,625
Integrated Circuit Systems, Inc.* .............. 42,500 504,688
Integrated Measurement Systems, Inc.* .......... 10,000 156,250
KLA Instruments Corp.* ......................... 30,000 727,500
Lam Research Corp.* ............................ 100,000 2,437,500
Maxim Intergrated Products, Inc.* .............. 108,000 3,780,000
Micrel, Inc.* .................................. 17,500 358,750
Novellus Systems, Inc.* ........................ 65,000 2,681,250
Oak Industries, Inc.* .......................... 25,000 634,375
SRS Labs, Inc.* ................................ 100,000 1,575,000
Stanford Telecommunications, Inc.* ............ 11,000 313,500
Tencor Instruments* ............................ 195,000 3,680,625
Teradyne, Inc.* ................................ 225,456 3,579,114
Ultratech Stepper, Inc.* ....................... 30,000 510,000
Xilinx, Inc.* .................................. 60,000 1,965,000
------------
35,081,677
------------
Finance (4.58%)
Advanta Corp. (Class A) ........................ 7,500 362,344
Advanta Corp. (Class B) ........................ 6,750 315,563
Alliance Capital Management, L.P. .............. 110,000 3,066,250
Capital One Financial Corp. .................... 60,000 1,867,500
Checkfree Corp.* ............................... 93,900 1,713,675
Concord EFS, Inc.* ............................. 72,188 2,093,437
First USA Paymentech, Inc.* .................... 57,700 2,134,900
Franklin Resources, Inc. ....................... 32,000 2,256,000
IMC Mortgage Co.* .............................. 80,000 3,000,000
Investors Financial Services Corp. .............
(Class A) .................................... 1,345 34,802
Medallion Financial Corp.* ..................... 280,000 4,025,000
Oppenheimer Capital, L.P. ...................... 60,000 1,942,500
PMT Services, Inc.* ............................ 100,000 2,000,000
Price (T. Rowe) Associates, Inc. ............... 122,000 4,163,250
SunAmerica, Inc. ............................... 21,000 787,500
WFS Financial, Inc.* ........................... 44,000 924,000
------------
30,686,721
------------
Funeral Services & Related (0.67%)
Service Corp. International .................... 100,000 2,850,000
Stewart Enterprises, Inc. (Class A) ............ 48,375 1,656,844
------------
4,506,844
------------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Insurance (6.12%)
Ace, Ltd. ...................................... 50,000 $ 2,737,500
Acordia, Inc. .................................. 7,500 213,750
American Re Corp. .............................. 57,000 3,669,375
Capital Re Corp. ............................... 30,000 1,162,500
CMAC Investment Corp. .......................... 10,000 691,250
Everest Re Holdings, Inc. ...................... 12,500 318,750
Exel Ltd. ...................................... 21,000 798,000
GCR Holdings, Ltd. ............................. 45,000 1,046,250
General Re Corp. ............................... 29,064 4,279,674
HCC Insurance Holdings, Inc. ................... 92,500 2,358,750
Horace Mann Educators Corp. .................... 75,000 2,568,750
Life Re Corp. .................................. 5,000 183,125
Maxicare Health Plans, Inc.* ................... 125,000 2,359,375
MBIA, Inc. ..................................... 28,000 2,481,500
MedPartners, Inc.* ............................. 238,850 5,045,706
Mid Ocean Ltd. ................................. 4,000 188,000
Oxford Health Plans, Inc.* ..................... 20,000 910,000
PacifiCare Health Systems, Inc. ................
(Class A)* ................................... 5,000 336,250
PartnerRe, Ltd. ................................ 10,000 287,500
Philadelphia Consolidated Holding Corp.* ....... 75,000 1,743,750
RenaissanceRe Holdings Ltd. .................... 6,500 189,313
Sierra Health Services, Inc.* .................. 35,000 1,001,875
TIG Holdings, Inc. ............................. 40,000 1,155,000
Transatlantic Holdings, Inc. ................... 17,000 1,224,000
United Dental Care, Inc.* ...................... 10,000 300,000
UNUM Corp. ..................................... 27,500 1,729,062
Vesta Insurance Group, Inc. .................... 25,000 640,625
Western National Corp. ......................... 75,000 1,350,000
------------
40,969,630
------------
Leisure (4.46%)
Callaway Golf Co. .............................. 52,000 1,592,500
Cannondale Corp.* .............................. 20,200 388,850
Cinar Films, Inc. (Class B) (Canada)* .......... 100,000 2,450,000
Dover Downs Entertainment* ..................... 46,000 925,750
Family Golf Centers, Inc.* ..................... 158,000 4,641,250
Gaylord Entertainment Co. (Class A) ............ 28,665 566,134
Marcus Corp. ................................... 37,500 834,375
Marriott International, Inc. ................... 10,000 568,750
Oakley, Inc.* .................................. 15,000 223,125
Premier Parks, Inc.* ........................... 141,000 4,476,750
Regal Cinemas, Inc.* ........................... 135,000 3,510,000
Rio Hotel And Casino, Inc.* .................... 77,900 1,129,550
Royal Caribbean Cruises Ltd. ................... 40,000 1,075,000
Silicon Gaming, Inc.* .......................... 167,200 2,382,600
Sodak Gaming, Inc.* ............................ 20,000 362,500
Sun International Hotels Ltd.* ................. 100,500 4,748,625
------------
29,875,759
------------
Manufacturing (0.05%)
Koala Corp.* ................................... 25,000 340,625
------------
Media (4.85%)
Chancellor Corp. (Class A)* .................... 62,500 2,015,625
Clear Channel Communications, Inc.* ............ 60,150 4,390,950
EZ Communications, Inc. (Class A)* ............ 57,800 2,225,300
Gray Communications Systems, Inc. ..............
(Class B)* ................................... 106,200 1,858,500
Harte-Hanks Communications, Inc. ............... 75,000 1,940,625
Heftel Broadcasting Corp. (Class A)* ........... 120,000 4,350,000
Jacor Communications, Inc.* .................... 100,000 2,800,000
Lin Television Corp.* .......................... 60,000 2,272,500
Mecklermedia Corp.* ............................ 70,000 1,216,250
Scholastic Corp.* .............................. 32,500 2,380,625
SFX Broadcasting, Inc. (Class A)* .............. 100,000 4,300,000
Telemundo Group, Inc. (Class A)* ............... 70,000 1,942,500
United International Holdings, Inc. ............
(Class A)* ................................... 6,400 78,400
Univision Communications, Inc.* ................ 17,600 594,000
Young Broadcasting Corp. (Class A)* ............ 5,100 145,350
------------
32,510,625
------------
Medical (6.02%)
Alza Corp.* .................................... 24,600 636,525
Assisted Living Concepts, Inc.* ................ 18,300 297,375
Centocor, Inc.* ................................ 35,500 1,042,812
Chronimed, Inc.* ............................... 20,000 290,000
CNS, Inc.* ..................................... 66,000 1,122,000
ESC Medical Systems, Ltd. (Israel)* ............ 70,000 1,933,750
First Commonwealth, Inc.* ...................... 25,000 525,000
Health Care & Retirement Corp.* ................ 85,650 2,109,131
Health Management Associates, Inc. .............
(Class A)* ................................... 37,968 835,296
HEALTHSOUTH Corp.* ............................. 41,042 1,539,075
Horizon/CMS Healthcare Corp.* .................. 85,000 881,875
Incyte Pharmaceuticals, Inc.* .................. 10,000 405,000
Liposome Co., Inc.* ............................ 45,000 770,625
Mallinckrodt, Inc. .............................
(formerly Mallinckrodt Group, Inc.) .......... 6,000 261,000
Martek Biosciences Corp.* ...................... 25,000 537,500
MiniMed, Inc.* ................................. 60,000 1,575,000
Multicare Cos., Inc.* .......................... 75,000 1,350,000
NCS HealthCare, Inc. (Class A)* ................ 100,000 3,037,500
North American Vaccine, Inc.* .................. 40,000 890,000
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Medical (continued)
OccuSystems, Inc.* ............................. 15,000 $ 410,625
OrNda Healthcorp* .............................. 20,000 545,000
Pall Corp. ..................................... 6,666 170,816
Parexel International Corp.* ................... 60,000 2,940,000
Patterson Dental, Co.* ......................... 28,500 798,000
Pharmaceutical Product
Development, Inc.* ........................... 36,486 697,795
PhyCor, Inc.* .................................. 61,813 1,916,187
Renal Treatment Centers, Inc.* ................. 75,000 2,006,250
RoTech Medical Corp.* .......................... 72,000 1,152,000
Scherer (R.P.) Corp.* .......................... 22,000 1,020,250
Steris Corp.* .................................. 28,000 1,057,000
Stryker Corp. .................................. 12,200 362,950
Summit Care Corp.* ............................. 40,000 635,000
Target Therapeutics, Inc.* ..................... 17,000 629,000
Total Renal Care Holdings, Inc.* ............... 40,000 1,560,000
Uromed Corp.* .................................. 50,000 506,250
Vencor, Inc.* .................................. 8,437 249,946
Vital Signs, Inc. .............................. 25,000 531,250
Vivra, Inc.* ................................... 97,500 3,107,812
------------
40,335,595
------------
Metal (0.17%)
IMCO Recycling, Inc. ........................... 40,000 640,000
NCI Building Systems, Inc.* .................... 15,000 491,250
------------
1,131,250
------------
Office (0.97%)
Daisytek International Corp.* .................. 70,000 2,677,500
International Imaging Materials, Inc.* ......... 35,000 831,250
Office Depot, Inc.* ............................ 35,009 687,052
OfficeMax, Inc.* ............................... 58,950 795,825
Staples, Inc.* ................................. 81,000 1,508,625
------------
6,500,252
------------
Oil & Gas (6.93%)
Apache Corp. ................................... 50,000 1,775,000
Baker Hughes, Inc. ............................. 10,000 356,250
Barrett Resources Corp.* ....................... 12,500 479,688
Benton Oil & Gas Co.* .......................... 100,000 2,450,000
BJ Services Co.* ............................... 6,000 269,250
Brown (Tom) Inc.* .............................. 115,000 2,170,625
Cairn Energy USA, Inc.* ........................ 52,000 552,500
Camco International, Inc. ...................... 20,000 775,000
Chesapeake Energy Corp.* ....................... 45,450 2,647,462
Energy Ventures, Inc.* ......................... 80,000 3,520,000
Enron Oil & Gas Co. ............................ 65,000 1,673,750
ENSCO International, Inc.* ..................... 20,000 865,000
Falcon Drilling Co., Inc.* ..................... 100,000 3,537,500
J. Ray McDermott, S.A.* ........................ 60,000 1,627,500
Newfield Exploration Co.* ...................... 73,000 3,449,250
NGC Corp. ...................................... 85,000 1,530,000
Noble Affiliates, Inc. ......................... 70,000 3,045,000
Noble Drilling Corp.* .......................... 15,000 279,375
Nuevo Energy Co.* .............................. 80,000 3,990,000
Oceaneering International, Inc.* ............... 23,000 414,000
Offshore Logistics, Inc.* ...................... 11,500 191,188
Pogo Producing Co. ............................. 60,000 2,662,500
Smith International, Inc.* ..................... 50,000 1,900,000
Snyder Oil Corp. ............................... 19,000 289,750
Stone Energy Corp.* ............................ 40,000 840,000
Swift Energy Co.* .............................. 25,000 612,500
Tidewater, Inc. ................................ 16,280 712,250
Tuboscope Vetco International Corp.* ........... 100,000 1,525,000
Weatherford Enterra, Inc.* ..................... 70,000 2,030,000
York Research Corp.* ........................... 22,000 214,500
------------
46,384,838
------------
Pollution Control (0.25%)
Tetra Tech, Inc.* .............................. 19,531 434,565
US Filter Corp.* ............................... 26,250 905,625
USA Waste Services, Inc.* ...................... 10,000 320,000
------------
1,660,190
------------
Protection - Safety Equip & Svc (0.25%)
Protection One, Inc.* .......................... 100,000 1,125,000
Rural/Metro Corp.* ............................. 15,000 547,500
------------
1,672,500
------------
Real Estate Operations (2.19%)
Arden Realty Group, Inc.* ...................... 107,400 2,429,925
Beacon Properties Corp. ........................ 60,000 1,762,500
Crescent Real Estate Equities, Inc. ............ 60,300 2,517,525
Equity Residential Properties Trust ............ 20,000 735,000
Insignia Financial Group, Inc. (Class A)* ...... 50,000 1,081,250
Manufactured Home Communities, Inc. ............ 40,000 780,000
Mid-America Apartment Communities, Inc. ........ 25,400 644,525
Post Properties, Inc. .......................... 41,100 1,623,450
Prentiss Properties Trust* ..................... 25,000 515,625
Starwood Lodging Trust ......................... 50,000 2,250,000
Storage USA, Inc. .............................. 10,400 361,400
------------
14,701,200
------------
Retail (12.12%)
Apple South, Inc. .............................. 120,062 1,410,728
Applebee's International, Inc. ................. 25,000 609,375
APS Holding Corp. (Class A)* ................... 10,000 207,500
Arbor Drugs, Inc. .............................. 9,000 203,625
Barnes & Noble, Inc.* .......................... 11,000 364,375
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Retail (continued)
Bed Bath & Beyond, Inc.* ....................... 120,000 $ 3,030,000
Black Box Corp.* ............................... 35,000 1,181,250
Borders Group, Inc.* ........................... 65,000 2,047,500
Claire's Stores, Inc. .......................... 20,250 344,250
CompUSA, Inc.* ................................. 60,000 2,775,000
Consolidated Stores Corp.* ..................... 24,000 927,000
Corporate Express, Inc.* ....................... 71,800 2,342,475
Cost Plus, Inc.* ............................... 97,000 1,721,750
CUC International, Inc.* ....................... 67,500 1,653,750
Eckerd (Jack) Corp.* ........................... 190,000 5,272,500
Ethan Allen Interiors, Inc. .................... 41,000 1,465,750
Friedman's, Inc. (Class A)* .................... 10,000 163,750
Gadzooks, Inc.* ................................ 37,500 1,087,500
Global DirectMail Corp.* ....................... 55,000 2,708,750
Gucci Group, NV (Netherlands) .................. 15,000 1,035,000
Gymboree Corp.* ................................ 22,000 687,500
Hibbett Sporting Goods, Inc.* .................. 36,000 738,000
Hollywood Entertainment Corp.* ................. 10,000 207,500
IHOP Corp.* .................................... 65,000 1,430,000
Landry's Seafood Restaurants, Inc.* ............ 110,000 2,255,000
Marks Bros. Jewelers, Inc.* .................... 122,000 2,836,500
Men's Wearhouse, Inc. (The)* ................... 44,125 910,078
MSC Industrial Direct Co., Inc. (Class A)* ..... 20,000 740,000
Neiman Marcus Group, Inc. (The)* ............... 73,700 2,404,462
Nine West Group, Inc.* ......................... 75,000 3,740,625
Papa John's International, Inc.* ............... 63,750 3,171,562
Pep Boys - Manny, Moe & Jack ................... 20,000 700,000
PETsMART, Inc.* ................................ 24,000 648,000
Proffitt's, Inc.* .............................. 45,000 1,816,875
Quality Dining, Inc.* .......................... 31,000 666,500
Rainforest Cafe, Inc.* ......................... 66,400 2,158,000
Revco D.S., Inc.* .............................. 205,454 6,189,302
Rite Aid Corp. ................................. 40,000 1,360,000
Sonic Corp.* ................................... 64,500 1,467,375
Sports Authority, Inc. (The)* .................. 32,850 796,612
Stage Stores, Inc.* ............................ 170,000 3,102,500
Starbucks Corp.* ............................... 55,000 1,787,500
Talbots, Inc. .................................. 50,000 1,425,000
Tiffany & Co. .................................. 72,000 2,664,000
Urban Outfitters, Inc.* ........................ 56,000 882,000
West Marine, Inc.* ............................. 90,000 3,172,500
Wild Oats Markets, Inc.* ....................... 13,500 286,875
Williams-Sonoma, Inc.* ......................... 25,000 687,500
Zale Corp.* .................................... 87,500 1,695,312
------------
81,178,906
------------
Schools / Education (0.64%)
Apollo Group, Inc. (Class A)* .................. 133,700 3,676,750
Learning Tree International, Inc.* ............ 9,000 380,250
Sylvan Learning Systems, Inc.* ................. 5,600 236,600
------------
4,293,600
------------
Soap & Cleaning Preparations (0.20%)
USA Detergents, Inc.* .......................... 40,000 1,320,000
------------
Telecommunications (8.21%)
ACC Corp.* ..................................... 48,000 2,040,000
Ascend Communications, Inc.* ................... 150,000 9,806,250
Comverse Technology, Inc.* ..................... 79,800 2,793,000
Intermedia Communications, Inc.* ............... 66,900 2,140,800
International CableTel, Inc.* .................. 26,666 633,318
McLeod, Inc. (Class A)* ........................ 124,100 4,033,250
MFS Communications Co., Inc.* .................. 22,400 1,122,800
MIDCOM Communications, Inc.* ................... 100,000 1,100,000
Octel Communications Corp.* .................... 60,000 952,500
Orckit Communications Ltd. (Israel)* ........... 50,000 600,000
PairGain Technologies, Inc.* ................... 65,000 4,476,875
PriCellular Corp. (Class A)* ................... 48,827 561,511
QUALCOMM, Inc.* ................................ 5,000 198,750
RMH Teleservices, Inc.* ........................ 88,700 654,163
Tel-Save Holdings, Inc.* ....................... 100,000 2,500,000
Tellabs, Inc.* ................................. 165,000 14,045,625
U.S. Long Distance Corp.* ...................... 60,000 502,500
Westell Technologies, Inc. (Class A)* .......... 20,000 565,000
WorldCom, Inc.* ................................ 255,992 6,239,805
------------
54,966,147
------------
Textile (0.95%)
Cutter & Buck, Inc.* ........................... 206,000 2,188,750
Nautica Enterprises, Inc.* ..................... 120,000 3,690,000
St. John Knits, Inc. ........................... 10,000 457,500
------------
6,336,250
------------
Tobacco (0.20%)
Consolidated Cigar Holdings, Inc.* ............ 50,000 1,362,500
------------
Transport (1.67%)
Alaska Air Group, Inc.* ........................ 25,000 550,000
Atlantic Southeast Airlines, Inc. .............. 65,000 1,365,000
Comair Holdings, Inc. .......................... 128,925 2,594,616
Continental Airlines, Inc. (Class B)* .......... 20,000 502,500
Eagle USA Airfreight, Inc.* .................... 30,000 817,500
Frontier Airlines, Inc.* ....................... 135,000 523,125
Mesa Air Group, Inc. ...........................
(formerly Mesa Airlines, Inc.)* .............. 100,000 925,000
Northwest Airlines Corp. (Class A)* ............ 70,000 2,318,750
Rollins Truck Leasing Corp. .................... 22,500 255,938
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Transport (continued)
Southwest Airlines Co. ......................... 45,000 $ 1,012,500
Stewart & Stevenson Services, Inc. ............. 15,000 318,750
------------
11,183,679
------------
TOTAL COMMON STOCKS
(Cost $350,533,269) (98.87%) 662,182,100
------------ ------------
PREFERRED STOCKS
Oil & Gas (0.14%)
Cross Timbers Oil Co. .......................... 34,400 976,100
------------
TOTAL PREFERRED STOCKS
(Cost $605,740) (0.14%) 976,100
------------ ------------
RIGHTS
Building (0.00%)
Champion Enterprises, Inc.* .................... 29,300 0
------------
TOTAL RIGHTS
(Cost $0) (0.00%) 0
------------ ------------
TOTAL COMMON STOCKS,
PREFERRED STOCKS
AND RIGHTS
(Cost $351,139,009) (99.01%) 663,158,200
------------ ------------
TOTAL INVESTMENTS (99.01%) $663,158,200
============ ============
* 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.
17
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
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 two series: John Hancock Emerging Growth Fund
(the "Fund"), and John Hancock Money Market Fund (collectively, the "Funds").
The other series of the Corporation is reported in separate financial
statements. The investment objective of the Fund is to seek long-term growth of
capital through investing in emerging companies (market capitalization of less
than $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 and service expenses
under terms of a distribution plan have exclusive voting rights to that
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the 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.
Capital gains realized on some foreign securities are subject to foreign
taxes and are accrued, as applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For Federal income tax purposes, net currency exchange gains and
losses from sales of foreign debt securities may be treated as ordinary income
even though such items are gains and losses for accounting purposes.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Corporation are directly
identifiable to an individual fund. Expenses which are not readily
18
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
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 and service fees if any, are calculated daily at the class level
based on the relative 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. 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 investments 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, were in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser would be reduced to the extent of such excess, and the Adviser would
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 October
31, 1996, net sales charges received with regard to sales of Class A shares
amounted to $795,886. Out of this amount, $109,314 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$569,793 was paid as sales commissions to unrelated broker-dealers and $116,779
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 for providing
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Emerging Growth Fund
distribution related services to the Fund in connection with the sale of Class B
shares. For the period ended October 31, 1996, contingent deferred sales charges
paid to JH Funds amounted to $1,034,553.
In addition, to compensate 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 compensate JH Funds for its distribution and service costs. Up to a maximum
of 0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In order to comply with this
rule, the 12b-1 fee on Class B was decreased to 0.90% and 0.95% at various times
during the fiscal year.
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 October 31, 1996, the
Fund's deferred compensation had an unrealized appreciation of $2,046.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended October 31, 1996, aggregated $290,812,182 and $278,372,185, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended October 31, 1996.
The cost of investments owned at October 31, 1996 for federal income tax
purposes was $351,254,629. Gross unrealized appreciation and depreciation of
investments aggregated $321,347,855 and $9,444,284, respectively, resulting in
net unrealized appreciation of $311,903,571.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1996, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of $238, a
decrease in accumulated net investment loss of $8,657,347 and a decrease in
capital paid-in of $8,657,109. This represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1996. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to the treatment of
net operating losses in the computation of distributable income and capital
gains under federal tax rules versus generally accepted accounting principle.
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John Hancock Funds - Emerging Growth Fund
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
John Hancock Series, Inc.
John Hancock Emerging Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Emerging Growth Fund (the
"Fund"), one of the portfolios constituting John Hancock Series, Inc. as of
October 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 five 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.
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
October 31, 1996, by correspondence with the custodian and brokers, and other
auditing procedures when 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 the
John Hancock Emerging Growth Fund portfolio of John Hancock Series, Inc. at
October 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 the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts
December 10, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended October
31, 1996.
The Fund has not paid any distributions of ordinary income dividends or net
long-term capital gains during the fiscal year ended October 31, 1996. It is
anticipated that there will be a distribution from sales of securities to
shareholders of record on December 23, 1996 and payable December 30, 1996.
Shareholders will receive a 1996 U.S. Treasury Department Form 1099-DIV in
January 1997 representing their proportionate share.
None of the distributions qualify for the dividends received deduction
available to corporations.
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John Hancock Funds - Emerging Growth Fund
SHAREHOLDER MEETING (UNAUDITED)
On July 23, 1996, a special meeting of John Hancock Emerging Growth Fund was
held.
The Shareholders approved an Agreement and Plan of Reorganization for the
Fund. The shareholder votes were 8,809,731 FOR, 213,493 AGAINST and 666,449
ABSTAINING.
The Shareholders redesignated as nonfundamental the Fund's fundamental
investment restriction on investing in other investment companies. The
shareholder votes were 8,577,279 FOR, 426,080 AGAINST and 686,314 ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- --------------- --- --------
Edward J. Boudreau, Jr ....................... 11,217,247 285,287
James F. Carlin .............................. 11,224,039 278,496
William H. Cunningham ........................ 11,213,712 288,822
Charles F. Fretz ............................. 11,220,518 282,016
Harold R. Hiser, Jr .......................... 11,223,345 279,189
Anne C. Hodsdon .............................. 11,220,571 281,963
Charles L. Ladner ............................ 11,225,376 277,158
Leo E. Linbeck, Jr ........................... 11,223,078 279,456
Patricia P. McCarter ......................... 11,224,113 278,422
Steven R. Pruchansky ......................... 11,217,146 285,388
Richard S. Scipione .......................... 11,224,887 277,647
Norman H. Smith .............................. 11,225,163 277,371
John P. Toolan ............................... 11,222,552 279,982
22
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NOTES
John Hancock Funds - Emerging Growth Fund
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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.
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6000A 10/96
12/96
