<PAGE> 1
JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SPECIAL
VALUE
FUND
ANNUAL REPORT
December 31, 1995
<PAGE> 2
CHAIRMAN'S MESSAGE
TRUSTEES
EDWARD J. BOUDREAU, JR.
Chairman
DENNIS S. ARONOWITZ*
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE*
GAIL D. FOSLER*
BAYARD HENRY*
RICHARD S. SCIPIONE
EDWARD J. 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
THOMAS H. DROHAN
Senior Vice President and Secretary
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President, Assistant Secretary
and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
CUSTODIAN
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
INVESTMENT SUB-ADVISER
NM CAPITAL MANAGEMENT, INC.
6501 AMERICAS PARKWAY SUITE 950
ALBUQUERQUE, NM 87110-5372
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
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and the level of assistance we provide you. Our commitment to this
task is no less than John Hancock's loyalty was to his fledgling country when he
is said to have uttered, "if it does the public good, burn Boston." We won't go
that far, of course, but we share our namesake's dedication to putting the
public before all else.
In our case, that public is you, our shareholders. We take very seriously the
role you have entrusted to us, that of helping you achieve your financial goals.
Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY ANGELA BRISTOW, CFA,
FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
SPECIAL VALUE FUND
FUND MAINTAINS ITS VALUE DISCIPLINE IN
FACE OF BOOMING STOCK MARKET
The stock market put in one of its strongest performances in years during 1995,
propelled to new highs by a nearly ideal climate of slow, steady growth, muted
inflation, declining interest rates and strong corporate earnings.
As January 1996 begins, John Hancock Special Value Fund approaches its
second anniversary. Over the past two years, the Fund's shareholder reports have
concentrated on communicating the key aspects of the Fund's unique, long-term
value strategy. One of the most important contributors to an investment
strategy's success is the degree to which the investment actions taken are
consistent with the strategy. We thought this would be a good time to review the
investment profile of John Hancock Special Value Fund to see if it reflects the
key strategic factors that we identified in our previous communications. In
other words, having heard us "talk the talk," let's check to see if we are
actually "walking the walk" required to meet our strategic goals.
[A 2 1/2" x 3 1/2" photo of the portfolio management team at bottom right.
Caption reads: "The Special Value Portfolio Management Team: Charles Womack
(left), Thomas Christopher (middle) and Angela Bristow (right)."]
LOW PRICE TO BOOK VALUE
As the Fund's name implies, we look for undervalued companies, those that are
fundamentally sound with earnings growth potential, but
[CAPTION]
"...WE HAVE BEEN ABLE TO FIND STOCKS... ALMOST TWICE AS INEXPENSIVE AS THE
AVERAGE..."
3
<PAGE> 4
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
[Chart with the heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) Cooper Cameron 5.9% 2) Coors 4.7% 3)
Horsham 4.5%; 4) Garan 4.4% and 5) Overseas Shipholding Group 4.4%. A footnote
below states: "As a percentage of net assets on December 31, 1995."]
whose stocks are mispriced. Historically, one of the best indicators of whether
a stock is a good bargain is if it has a low ratio of stock price to book value.
To put it in perspective, the Standard & Poor's 500-Stock Index had an average
price-to-book ratio of 3.5 times in 1995. Ours averaged 1.6 times in 1995, which
means we have been able to find stocks that are almost twice as inexpensive as
the average, with good potential for appreciation.
An excellent example of low price-to-book value at work is Dole Foods, one
of the Fund's strongest performers in 1995. Initially added to the Fund at a low
1.3 times book value, Dole's stock price appreciated more than 60% during 1995,
driven by a cyclical recovery in banana prices and internal restructuring
efforts by Dole management. We believe further gains remain to be realized as
the harvest of Dole's restructuring continues.
LOW AVERAGE TURNOVER
Once we have identified a fundamentally undervalued stock, we are willing to
hold it for a long time to realize the value we see in the shares. This results
in a low rate of average turnover in the Fund, allowing us to maximize the
long-term realization of value while minimizing the intermediate costs of
managing the Fund. During 1995, the Fund's turnover was 9%. One stock we did
take profit on during the year was James River, a key holding since inception of
the Fund and the largest holding at the end of 1994. Long the "ugly duckling" of
the paper industry, James River turned into a swan in 1995, soaring to a price
gain of 85% at its August high.
OUT OF FAVOR
Certainly, the winner in the out-of-favor category for 1995 has to have been our
investment in Gibson Greetings. During the year, Gibson's stock priced declined
briefly following scathing media reports that dramatically overemphasized the
potential for a material deterioration in the company's fundamentals. During
that time, we held onto the stock and were rewarded when Gibson's shares later
reversed course and rallied after more sober consideration of the company's
prospects prevailed. While stock prices are often extremely volatile and
difficult to predict over short periods of time, the underlying fundamentals
which ultimately determine both asset value and earnings power are far less
subject to change. As long as we remain satisfied that the company passes our
"margin of safety" comprehensive analysis and that the potential for earnings
recovery remains intact, we are quite comfortable holding on and even adding to
investment positions in the face of adverse conditions. In the Gibson case, we
were satisfied that the company passed our margin of safety test that
[CAPTION]
"...A LOW RATE OF AVERAGE TURNOVER IN THE FUND..."
4
<PAGE> 5
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended December 31, 1995." The chart is
scaled in increments of 10% from bottom to top, with 40% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 20.26% total return for John Hancock Special Value Fund: Class A. The second
represents the 19.11% return for John Hancock Special Value Fund: Class B. The
third represents the 30.82% return for the average growth and income fund. The
footnote below states: "Total returns for John Hancock Special Value Fund are at
net asset value with all distributions reinvested. The average growth and income
fund is tracked by Lipper Analytical Services. See following page for historical
performance information."]
indicates a company's enduring economic realities. We continue to find Gibson an
attractive holding with considerable upside potential based on its strong number
three position in the profitable greeting card industry.
TIME IS OUR ALLY
It is said that nature abhors a vacuum. At Special Value Fund, we see the
"vacuum" in the special niche created when other investors concentrate their
investments in stocks they believe will appreciate in price over very short
periods of time. This forces them to ignore stocks which, while they may hold
tremendous value and the upside price potential everyone wants, require the one
extra ingredient most investors don't have: time.
The good news is, our strategy gives us the time. The bad news is that we
will very often be "out of step" with the crowd, sometimes outperforming, as we
did in 1994 when the overall market performance was dismal, sometimes
underperforming, as we did in 1995 during the sensational market rally. For the
year ended December 31, 1995, the Fund's Class A and Class B shares had total
returns at net asset value of 20.26% and 19.11%. By comparison, the average
growth and income fund had a total return of 30.82%, according to Lipper
Analytical Services.(1) We believe those who understand our strategy and have
the ability to invest for the long term will share with us the full potential of
this so often unexploited investment "vacuum."
AN OVERLOOKED OIL-SERVICE VALUE
One of our latest additions to the Fund, Cooper Cameron, reflects the
traditional value markers of low price to book value, low price to estimates of
private market value and a low current price to normalized earnings power.
Cooper Cameron is a leader in deep-water, subsea oil and gas well-completion
technology, the fastest-growing sector of the offshore oil-service industry.
Leadership in this dynamic area, combined with an outstanding management program
of internal restructuring, shows the potential to provide surprisingly strong
earnings recovery and stock price appreciation as the world's major oil
companies seek to add to productive reserves in heretofore undeveloped offshore
areas.
- -------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance would
be lower.
This commentary reflects the views of the portfolio management team through
the end of the Fund's period discussed in this report. Of course, the
team's views are subject to change as market and other conditions warrant.
[CAPTION]
"...WE PLAN TO PROCEED AS WE ALWAYS DO, SEEKING THE HIDDEN OPPORTUNITIES..."
5
<PAGE> 6
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
OUTLOOK FOR 1996
In general, we plan to proceed as we always do, seeking the hidden opportunities
to maximize our long-term returns while preserving the integrity of the
investment principal entrusted to our care. We hope that the market will
experience less concentration of returns in the large-capitalization stocks in
1996 and return to a more normal distribution which would include the small- to
mid-capitalization stocks that the Fund emphasizes. In any case, we will remain
committed to our philosophy of value and long-term strategy to realize returns,
no matter which way the prevailing market winds blow. We remain confident that
the hidden asset values and earnings power inherent in our strategic collection
of unique value stocks will eventually prevail, rewarding our shareholders over
time.
6
<PAGE> 7
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Special Value Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's average net assets. Performance figures include the maximum applicable
sales charge of 5% for Class A shares. The effect of the maximum contingent
deferred sales charge for Class B shares (maximum 5% and declining to 0% over
six years) is included in Class B performance. Performance is affected by a
12b-1 plan, which commenced on January 3, 1994 for both Class A shares and Class
B shares. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
------ -------
<S> <C> <C>
Special Value Fund: Class A 14.28% 23.13%
Special Value Fund: Class B 14.11% 22.63%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
------ -------
<S> <C> <C>
Special Value Fund: Class A(2) 14.28% 11.01%
Special Value Fund: Class B(2) 14.11% 10.78%
</TABLE>
NOTES TO PERFORMANCE
(1) Class A shares and Class B shares started on January 3, 1994.
(2) The Adviser has undertaken voluntarily to limit the Fund's expenses,
including the management fee (but not including the transfer agent fee and
the 12b-1 fee), to the extent required to prevent expenses from exceeding
0.40% of the Fund's daily net asset value. Without the limitation of
expenses, the average annualized total returns for the one-year period and
since inception for Class A shares would have been 13.41% and 10.14%,
respectively. The average annualized total returns for the one-year period
and since inception for Class B shares would have been 13.24% and 9.91%,
respectively.
7
<PAGE> 8
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Special Value Fund would be worth on December 31, 1995, assuming you have been
invested since 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.
[Special Value Fund
Class A shares
Line chart with the heading Special Value 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 Special Value Fund on January 3, 1994, before sales charge, and is equal
to $13,934 as of December 31, 1995. The second line represents the value of the
Standard & Poor's 500 Stock Index and is equal to $12,965 as of December 31,
1995. The third line represents the Special Value Fund after sales charge and is
equal to $12,313 as of December 31, 1995.
Special Value Fund
Class B shares
Line chart with the heading Special Value 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 Standard & Poor's 500 Stock Index and
is equal to $13,934 as of December 31, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the Special Value Fund on
January 3, 1994, before contingent deferred sales charge, and is equal to
$12,763 as of December 31, 1995. The third line represents the Special Value
Fund after contingent deferred sales charge and is equal to $12,263 as of
December 31, 1995.]
8
<PAGE> 9
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE 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 DECEMBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $25,534,477) ...................... $27,844,901
Joint repurchase agreement (cost - $1,879,000) .......... 1,879,000
Corporate savings account ............................... 2,262
-----------
29,726,163
Receivable for shares sold ............................... 47,567
Interest receivable ...................................... 941
Dividends receivable ..................................... 43,110
Receivable from John Hancock Advisers, Inc. - Note B ..... 80,937
Deferred organization expenses - Note A .................. 67,935
Other assets ............................................. 171
-----------
Total Assets ........................... 29,966,824
------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased ........................... 46,547
Payable to John Hancock Advisers, Inc. ...................
and affiliates - Note B ................................. 29,321
Accounts payable and accrued expenses .................... 52,220
-----------
Total Liabilities ...................... 128,088
------------------------------------------------------------
NET ASSETS:
Capital paid-in .......................................... 27,528,025
Accumulated net realized gain on investments ............. 191
Net unrealized appreciation of investments ............... 2,310,424
Undistributed net investment income ...................... 96
-----------
Net Assets ............................. $29,838,736
============================================================
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 - $12,844,767/1,236,642 .......................... $ 10.39
================================================================================
Class B - $16,993,969/1,636,520 .......................... $ 10.38
================================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($10.39 x 105.26%) ............................. $ 10.94
================================================================================
</TABLE>
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
THE STATEMENT OF OPERATIONS SUMMARIZED THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS FOR THE PERIOD
STATED.
STATEMENT OF OPERATIONS
Year ended December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $5,468) $ 475,099
Interest ............................................. 121,481
----------
596,580
----------
Expenses:
Investment management fee - Note B .................. 140,122
Distribution/service fee - Note B
Class A ........................................... 27,771
Class B ........................................... 107,603
Transfer agent fee - Note B ......................... 61,844
Registration and filing fees ........................ 30,613
Custodian fee ....................................... 29,858
Printing ............................................ 23,024
Organization expense - Note A ....................... 22,560
Auditing fee ........................................ 7,214
Miscellaneous ....................................... 987
Trustees' fees ...................................... 621
----------
Total Expenses ..................... 452,217
Less Expenses Reimbursable
by John Hancock Advisers, Inc. -
Note B ............................. (174,925)
----------
Net Expenses ....................... 277,292
----------------------------------------------------
Net Investment Income .............. 319,288
----------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold ................ 591,659
Change in net unrealized appreciation/depreciation
of investments ...................................... 2,253,318
----------
Net Realized and Unrealized
Gain on Investments ................ 2,844,977
----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .......... $3,164,265
====================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1994
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
1995 DECEMBER 31, 1994
------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ....................................................................... $ 319,288 $ 51,170
Net realized gain on investments sold ....................................................... 591,659 --
Change in net unrealized appreciation/depreciation of investments ........................... 2,253,318 57,106
----------- ----------
Net Increase in Net Assets Resulting from Operations ....................................... 3,164,265 108,276
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.1978 and $0.1687 per share, respectively) .................................... (194,536) (49,463)
Class B - ($0.1215 and $0.1050 per share, respectively) .................................... (141,070) (18,717)
Distributions from net realized gain on investments sold
Class A - ($0.2115 and none per share, respectively) ....................................... (255,578) --
Class B - ($0.2115 and none per share, respectively) ....................................... (335,890) --
----------- ----------
Total Distributions to Shareholders ...................................................... (927,074) (68,180)
----------- ----------
FROM FUND SHARE TRANSACTIONS -- NET* .......................................................... 19,885,478 7,175,971
----------- ----------
NET ASSETS:
Beginning of period ......................................................................... 7,716,067 --
Initial Investment by John Hancock Advisers, Inc. ........................................... -- 400,000
Initial Investment by NM Capital Management, Inc. ........................................... -- 100,000
----------- ----------
End of period (including undistributed net investment income of $96 and none, respectively).. $29,838,736 $7,716,067
=========== ==========
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE DUE TO REINVESTMENT OF DISTRIBUTIONS IN THE FUND.
THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES OUTSTANDING AT THE BEGINNING
OF THE PERIOD, REINVESTED AND OUTSTANDING AT THE END OF THE PERIOD, FOR THE LAST
TWO PERIODS.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1994
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
1995 DECEMBER 31, 1994
------------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................................. 1,025,002 $10,116,634 478,011 $4,269,587
Shares issued to shareholders in reinvestment of distributions 39,907 410,057 4,403 39,080
--------- ----------- ------- ----------
1,064,909 10,526,691 482,414 4,308,667
Less shares repurchased ...................................... (319,719) (3,191,389) (49,786) (445,803)
--------- ----------- ------- ----------
745,190 7,335,302 432,628 3,862,864
Initial Investment by John Hancock Advisers, Inc. ............ -- -- 47,059 400,000
Initial Investment by NM Capital Management, Inc. ............ -- -- 11,765 100,000
--------- ----------- ------- ----------
Net increase ................................................. 745,190 $ 7,335,302 491,452 $4,362,864
========= =========== ======= ==========
CLASS B
Shares sold .................................................. 1,444,369 $14,296,298 390,508 $3,529,419
Shares issued to shareholders in reinvestment of distributions 39,383 406,436 1,918 17,065
--------- ----------- ------- ----------
1,483,752 14,702,734 392,426 3,546,484
Less shares repurchased ...................................... (213,668) (2,152,558) (25,990) (233,377)
--------- ----------- ------- ----------
Net increase ................................................. 1,270,084 $12,550,176 366,436 $3,313,107
========= =========== ======= ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
DECEMBER 31, (COMMENCEMENT OF OPERATIONS)
1995 TO DECEMBER 31, 1994
------------ ------------------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ................................... $ 8.99 $ 8.50(e)
------- ------
Net Investment Income .................................................. 0.21(b) 0.18(b)
Net Realized and Unrealized Gain on Investments ........................ 1.60 0.48
------- ------
Total from Investment Operations ...................................... 1.81 0.66
------- ------
Less Distributions:
Dividends from Net Investment Income ................................... (0.20) (0.17)
Distributions from Net Realized Gain on Investments Sold ............... (0.21) --
------- ------
Total Distributions ................................................... (0.41) (0.17)
------- ------
Net Asset Value, End of Period ......................................... $ 10.39 $ 8.99
======= ======
Total Investment Return at Net Asset Value (d) ........................ 20.26% 7.81%(c)
Total Adjusted Investment Return at Net Asset Value (a) ............... 19.39% 7.30%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) .............................. $12,845 $4,420
Ratio of Expenses to Average Net Assets ** ............................. 0.98% 0.99%*
Ratio of Adjusted Expenses to Average Net Assets (a) ................... 1.85% 4.98%*
Ratio of Net Investment Income to Average Net Assets ................... 2.04% 2.10%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (a) 1.17% (1.89%)*
Portfolio Turnover Rate ................................................ 9% 0.3%
**Expense Reimbursement Per Share ...................................... $ 0.09(b) $ 0.34(b)
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES),
DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET
ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
DECEMBER 31, (COMMENCEMENT OF OPERATIONS)
1995 TO DECEMBER 31, 1994
------------ ------------------------------
<S> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ................................... $ 9.00 $ 8.50(e)
------- ------
Net Investment Income .................................................. 0.12(b) 0.13(b)
Net Realized and Unrealized Gain on Investments ........................ 1.59 0.48
------- ------
Total from Investment Operations ...................................... 1.71 0.61
------- ------
Less Distributions:
Dividends from Net Investment Income ................................... (0.12) (0.11)
Distributions from Net Realized Gain on Investments Sold ............... (0.21) --
------- ------
Total Distributions ................................................... (0.33) (0.11)
------- ------
Net Asset Value, End of Period ......................................... $ 10.38 $ 9.00
======= ======
Total Investment Return at Net Asset Value (d) ........................ 19.11% 7.15%(c)
Total Adjusted Investment Return at Net Asset Value (a) ............... 18.24% 6.64%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) .............................. $16,994 $3,296
Ratio of Expenses to Average Net Assets ** ............................. 1.73% 1.72%*
Ratio of Adjusted Expenses to Average Net Assets (a) ................... 2.60% 5.71%*
Ratio of Net Investment Income to Average Net Assets ................... 1.21% 1.53%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (a) 0.34% (2.46%)*
Portfolio Turnover Rate ................................................ 9% 0.3%
**Expense Reimbursement Per Share ...................................... $ 0.09(b) $ 0.34(b)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) On average month end shares outstanding.
(c) Not annualized.
(d) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(e) Initial price to commence operations.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
SPECIAL VALUE FUND ON DECEMBER 31, 1995. IT'S DIVIDED INTO TWO MAIN
CATEGORIES:COMMON STOCKS AND SHORT-TERM INVESTMENTS. THE COMMON STOCKS ARE
FURTHER BROKEN DOWN BY INDUSTRY GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT
THE FUND'S "CASH" POSITION, ARE LISTED LAST.
SCHEDULE OF INVESTMENTS
December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
COMMON STOCKS
AIRCRAFT (7.21%)
AAR Corp. .................................. 30,000 $ 660,000
Boeing Co. (The) ........................... 10,800 846,450
Thiokol Corp. .............................. 19,000 643,625
-----------
2,150,075
-----------
BEVERAGES (4.75%)
Coors (Adolph) Co. Class B ................. 64,000 1,416,000
-----------
CHEMICALS (1.73%)
LeaRonal, Inc. ............................. 22,500 517,500
-----------
DIVERSIFIED OPERATIONS (6.98%)
Hanson PLC, American Depositary Receipts ... 48,000 732,000
Horsham Corp. .............................. 100,000* 1,350,000
-----------
2,082,000
-----------
FOODS (9.80%)
Archer-Daniels-Midland Co. ................. 59,445 1,070,010
Dole Food Co. .............................. 20,500 717,500
Savannah Foods & Industries, Inc............ 100,000* 1,137,500
-----------
2,925,010
-----------
LEISURE & RECREATION (7.26%)
Outboard Marine Corp. ...................... 56,700 1,155,262
Russ Berrie & Co., Inc. .................... 80,000 1,010,000
-----------
2,165,262
-----------
MACHINERY (3.00%)
Harnischfeger Industries, Inc. ............. 11,700 389,025
Twin Disc, Inc. ............................ 22,200 505,050
-----------
894,075
-----------
OFFICE EQUIPMENT & SUPPLIES (2.14%)
Cross (A.T.) Co. ........................... 42,300 639,788
-----------
OIL & GAS (11.21%)
Cooper Cameron Corp.** ..................... 50,000* 1,775,000
Daniel Industries .......................... 78,300 1,115,775
Parker Drilling Co.** ...................... 74,200 454,475
-----------
3,345,250
-----------
PAPER (5.47%)
Crown Vantage, Inc.** ...................... 1,140* 16,245
Gibson Greetings, Inc.** ................... 50,900 814,400
Glatfelter (P.H.) Co. ...................... 30,700 525,738
James River Corp. of Virginia .............. 11,400 275,025
-----------
1,631,408
-----------
POLLUTION CONTROL (3.13%)
Calgon Carbon Corp. ........................ 77,800 $ 933,600
-----------
PUBLISHING (2.04%)
Times Mirror Co. (The) Class A ............. 18,000* 609,750
-----------
REAL ESTATE (3.20%)
Castle & Cooke, Inc.** ..................... 6,833* 114,458
Tejon Ranch Co. ............................ 58,000* 841,000
-----------
955,458
-----------
RETAIL (8.36%)
Great Atlantic & Pacific Tea Co., Inc. (The) 29,000* 667,000
Mercantile Stores Co., Inc. ................ 18,000 832,500
Ross Stores, Inc. .......................... 52,000* 994,500
-----------
2,494,000
-----------
SHOES (3.25%)
Brown Group, Inc. .......................... 68,000 969,000
-----------
TELECOMMUNICATIONS (0.45%)
ANTEC Corp.** .............................. 7,500* 135,000
-----------
TEXTILE (5.61%)
Delta Woodside Industries, Inc. ............ 53,800 356,425
Garan Inc. ................................. 78,000* 1,316,250
-----------
1,672,675
-----------
TRANSPORTATION - SHIP (4.37%)
Overseas Shipholding Group, Inc. ........... 68,700 1,305,300
-----------
UTILITIES (3.36%)
Destec Energy, Inc.** ...................... 73,000* 1,003,750
-----------
TOTAL COMMON STOCKS
(Cost $25,534,477) .......... (93.32%) 27,844,901
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- -------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (6.30%)
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets Inc.- Dated 12-29-95,
Due 01-02-96 (secured by U.S.
Treasury Bonds, 10.375%
Due 11-15-12 and 7.50%
Due 11-15-16) - Note A .............. 5.90% $ 1,879 $ 1,879,000
-----------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.00% .................................... 2,262
-----------
TOTAL SHORT-TERM INVESTMENTS ...................... (6.30%) 1,881,262
------- -----------
TOTAL INVESTMENTS ...................... (99.62%) $29,726,163
======= ===========
</TABLE>
* Securities, other than short-term investments, newly added to the portfolio
during the year ended December 31, 1995.
** 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.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
NOTE A --
ACCOUNTING POLICIES
John Hancock Capital Series (the "Trust"), is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of two series portfolios: John Hancock Special Value Fund (the "Fund") and John
Hancock Growth Fund. The investment objective of the Fund is to seek capital
appreciation with income as a secondary consideration by investing primarily in
equity securities that are undervalued when compared to alternative equity
investments.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B shares. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, 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. 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.
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 transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for effect of expenses that
may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
of the respective classes. Distribution/service fees if any, are calculated
daily at the class level based on the appropriated net assets of each class and
the specific expense rate(s) applicable to each class.
FOREIGN CURRENCY TRANSLATION All assets or 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 and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
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.
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 0.70% of the Fund's average daily net asset
value. Pursuant to a subadvisory agreement between the Adviser and an affiliated
company of the Adviser, NM Capital Management, Inc. (the "Sub-Adviser"), the
Adviser pays the Sub-Adviser 40% of the fee received by the Adviser for managing
the Fund. The Fund is not responsible for the sub-advisory fee.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
The Adviser has agreed to limit Fund expenses, including the management fee
(but not including the transfer agent fee and the 12b-1 fee), to 0.40% of the
Fund's average daily net assets. Accordingly, for the period ended December 31,
1995, the reduction in the Fund's expenses collectively with any additional
amounts not borne by the Fund by virtue of the expense limit amounted to
$174,925. The Adviser reserves the right to terminate this limitation in the
future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended December
31, 1995, net sales charges received with regard to sales of Class A shares
amounted to $234,230. Out of this amount, $20,231 was retained and used for
printing prospectuses, advertising, sales literature, and other purposes,
$23,541 was paid as sales commissions to unrelated broker-dealers, and $190,458
was paid as sales commissions to 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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended December 31,
1995, contingent deferred sales charges amounted to $85,005.
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
Corp. ("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 nine months ended September 30, 1995 the
transfer agent expense, calculated as a class specific expense was $18,656 for
Class A and $26,509 for Class B shares, respectively. Effective October 1, 1995
transfer agent expense is a fund expense.
Messrs. Edward J. Boudreau, Jr and Richard S. Scipione 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. The Adviser and
NM Capital Management, Inc. own 47,062 and 11,765 Class A shares of beneficial
interest of the Fund, respectively. 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 is marked to market on a
periodic basis and income earned by the investment is recorded on the Fund's
books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended December 31, 1995 aggregated $19,670,125
and $1,671,523, respectively.
The cost of investments owned at December 31, 1995 (excluding the corporate
savings account), for Federal income tax purposes was $27,413,477. Gross
unrealized appreciation and depreciation of investments aggregated $3,534,808
and $1,224,384, respectively, resulting in net unrealized appreciation of
$2,310,424.
NOTE D --
RECLASSIFICATION OFCAPITALACCOUNTS
During the year ended December 31, 1995, the Fund has reclassified $16,414 from
capital paid-in to net investment income. This represents the cumulative amount
necessary to report these balances on a tax basis as of December 31, 1995.
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 certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles.
18
<PAGE> 19
JOHN HANCOCK FUNDS - SPECIAL VALUE FUND
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Capital Series --
John Hancock Special Value Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Special Value Fund (the "Fund'), one of the portfolios constituting John
Hancock Capital Series, including the schedule of investments, as of December
31, 1995, and the related statement of operations for the year then ended, the
statement of changes in net assets and financial highlights for the year ended
December 31, 1995 and for the period from January 3, 1994 (commencement of
operations) to December 31, 1994. 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
December 31, 1995, by correspondence with the custodian. 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 Special Value Fund portfolio of John Hancock Capital Series at
December 31, 1995, the results of its operations for the year then ended and,
the changes in its net assets and financial highlights for the year ended
December 31, 1995 and for the period from January 3, 1994 (commencement of
operations) to December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 9, 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 December 31,
1995.
The Fund designated a distribution to shareholders $94,695 as long-term
capital gain dividends. Shareholders were mailed a 1995 U.S. Treasury Department
Form 1000-DIV in January 1996 representing their proportionate share.
United States Government Obligations: None of the 1995 income earned by the
Fund was derived from obligations of the U.S. government or its agencies. The
Fund did not have any assets invested in U.S. Treasury bonds, bills, notes or
other U.S. Government Agencies at year end.
With respect to the Fund's ordinary taxable income for the fiscal year ended
December 31, 1995, 53.54% of the dividends qualify for the corporate dividends
received deduction.
For specific information on exemption provisions in your state, consult your
local tax office or your tax adviser.
19
<PAGE> 20
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Special
Value Fund. It may be used as sales literature when preceded or accompanied by
the current prospectus, which details charges, investment objectives and
operating policies.
[A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper."]
JHD 3700A 12/95
2/96
