John Hancock Funds
Independence
Equity Fund
ANNUAL REPORT
December 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
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
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 Signature Services, Inc.
1 John Hancock Way Ste 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at least one
group has already studied the problem, and experts and politicians alike
have weighed in with a slew of prescriptions. Legislative action could
be in the offing in 1997.
The problem stems from demographic and societal changes. The number
of retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect to use
their own savings or employer-sponsored pensions for their retirement.
Yet, remarkably, another EBRI survey revealed that only slightly more
than half of America's current workers are saving money for retirement.
Fewer than half own IRAs or participate in employer-sponsored pension or
savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Equity Fund
Despite volatility, stocks continue to climb in 1996
Recently, the Fund's fiscal year end changed from May to December. What
follows is a discussion of the Fund's performance for the 12 months
ended December 31, 1996.
To the amazement of many, the stock market posted another record-setting
year, advancing to new all-time highs. While the market's 1996 returns
didn't quite match those of 1995, it came closer than many expected and
rewarded investors with well above-average returns for the second
straight year. In fact, this two-year period was the market's best in
more than 40 years, with a two-year rise in the Dow Jones Industrial
Average of more than 60% and more than 50% for the Standard Poor's 500-
Stock Index.
The year 1996 started with a bang, continuing the straight-up progress
that marked all of 1995. At the same time, however, interest rates were
rising as mixed economic signals prompted fears that a faster-growing
economy would spark inflation. So it was only a matter of time before
these fears were discounted in the market, which happened in July when
it gave back a fair amount of its first-half advance. But it was soon
clear that July's correction was not the beginning of a substantial
reversal. Interest rates began falling after signs emerged that the
economy was slowing and inflation was benign. And when the Republicans
retained control of Congress in the November elections, the market
reacted positively to the potential of further federal budget cuts and
fiscal restraint.
"...the stock
market
posted
another
record-setting
year."
A 2 1/4" x 3 3/4" photo of Independence Equity Fund management team at
bottom right. Caption reads: "Independence Equity Fund management team
members: (l-r) Paul McManus, Jane Shigley, Jeff Saef, David Canavan,
Coreen Kraysler."
All in all, the economic and political environment couldn't have been
much better for the financial markets. For the year ended December 31,
1996, the Dow Jones Industrial Average was up 28.91% and the Standard &
Poor's 500-Stock Index -- a broader measure of the market -- was close
behind, returning 22.95%. Both were well above their historical annual
norms of about 8-10%. John Hancock Independence Equity Fund fared
equally well in 1996, especially relative to its peers, with the Fund's
Class A and Class B shares posting total returns of 21.24% and 20.35%
respectively at net asset value. That compared to the average growth and
income fund's 20.78% return, according to Lipper Analytical Services,
Inc.1 Please see pages six and seven for longer-term performance
information.
Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) DuPont 2.8 % 2) Atlantic
Richfield 2.6% 3) Intel 2.4% 4) AT&T 2.4% 5) United Technologies 2.4%. A
footnote below reads "As a percentage of net assets on December 31,
1996."
The Fund's performance is driven, as always, by its disciplined
investment strategy. Through computer modeling and fundamental research
analysis, we strive to create a portfolio with a risk level comparable
to that of the S&P, while selecting stocks that are inexpensive and have
improving earnings prospects. In 1996, that meant the Fund de-emphasized
such industrial groups as paper and forest products as well as metal
producers. Because their cyclical nature closely ties their performance
to moves in the economy, these companies' earnings estimates kept
dropping during the year as the economy stayed in its modest growth
mode.
"...the Fund
benefited
from its
holdings
in...
big
technology
names..."
Table entitled "Scorecard" at bottom left hand column. The header for
the left column is "Investment"' the header for the right column is
"Recent performance...and what's behind the numbers." The first listing
is "IBM" followed by an up arrow and the phrase "Strong P.C. sales;
better 1997 outlook". The second listing is "United Technologies"
followed by an up arrow and the phrase "Restructuring produces more
aircraft orders; better earnings". The third listing is "AT&T" followed
by a down arrow and the phrase "Delays in restructuring benefits
disappoint investors". Footnote below reads: "See '"Schedule of
Investments." Investment holdings are subject to change."
Top performers: Big names in technology, energy, healthcare
The market's advance was led by large-company growth stocks, those that
tend to perform well regardless of what the economy does. In this
environment, the Fund benefited from its holdings in such big technology
names as Microsoft and IBM, which have posted strong gains as PC sales
have increased, and Intel, which rose along with the popularity of its
newest generation chip, the Pentium Pro. Aerospace giants Boeing and
United Technologies also performed well, as did some of our major oil
stocks, including Texaco and Phillips Petroleum, due to increasing
worldwide demand, cold weather and rising oil prices. Our large health-
care companies also contributed significantly to performance. Bristol-
Meyers Squibb advanced on news of a promising new cancer drug and on the
strength of its hair-coloring business. Johnson & Johnson, the largest
U.S. diversified health-care company, continues to reap the rewards of
an ongoing stream of new drugs and medical supplies. It also has strong
management.
Falling interest rates in the second half of the year were a boon to
financial stocks, including banks such as NationsBank, which recently
announced a merger with Boatmen's Bancshares. Lower rates and fewer
natural disasters -- which meant fewer property and casualty claims --
also helped our insurance companies, including Cigna and General Re.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote "For the year ended December 31, 1996.
" The chart is scaled in increments of 5% from top to bottom with 25% at
the top and 0% at the bottom. Within the chart, there are three solid
bars. The first represents the 21.24% total return for John Hancock
Independence Equity Fund: Class A. The second represents the 20.35%
total return for John Hancock Independence Equity Fund: Class B. The
third represents the 20.78% total return for the average growth and
income fund. Footnote below reads: "The total returns for John Hancock
Independence Equity Fund are at net asset value with all distributions
reinvested. The average growth and income fund is tracked by Lipper
Analytical Services. (1) See following two pages for historical
performance information.
Disappointments and changes
Along with our many large-company successes, we had some disappointments
among the Fund's larger holdings. AT&T was hurt by increased long-
distance competition and delays in realizing the results of its major
restructuring. But we're holding onto the stock because we believe in
the company's long-term potential. Another disappointment came from
Xerox, where profits sagged because of higher costs in the company's
South American operations. Here, too, we still believe in the company
long term, and in its ability to grow profits through cost cutting and
new products. On the other hand, we did not have the same confidence in
PepsiCo, which we sold because of continued weakness in its restaurant
and international soft drink businesses.
With such a run-up in large stocks during 1996, lately we've been
finding better value in some of the more medium-sized companies. Recent
additions include HFS, a diversified services company that owns the
Century 21 real estate company, Avis car rental and several hotels;
Becton, Dickinson, a medical products manufacturer; Imation, a spin-off
of 3M Company that produces medical imaging and memory storage products;
and the shoe company Nine West.
Time for cautious optimism
We're taking a cautious, yet optimistic, approach to 1997. After the
stock market's 24-month climb, it's time to remind ourselves that the
stock market can go down as easily as up. We're not predicting anything
dire, but after such an advance, it's only natural to question how long
it can last. Nervous investors wanting to lock in profits could easily
spark a downturn. In our view, the key to the market's next move is the
direction of interest rates. If rates stay fairly stable, which is quite
possible given the economy's moderate pace and steady inflation levels,
the market still has room to advance. That will also be the case if
long-term retirement plan money keeps flowing into the stock market. But
a further rise in interest rates could also trigger a market reversal.
No matter what, investors would do well to trim their expectations for
stock returns in 1997 after the last two lofty years.
In any case, we won't change our investment discipline. We'll continue
to stay fully invested in stocks we believe represent the best
combinations of return potential and value. We believe that shareholders
can benefit over the long term from this disciplined approach.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
1 Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
"We're taking
a cautious,
yet optimistic
approach to
1997."
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Independence Equity
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. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six
years) is included in Class B performance. Remember that all figures
represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and
share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
CUMULATIVE TOTAL RETURNS
For the period ended December 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
-------- --------- --------
John Hancock Independence
Equity Fund: Class A 15.21% 95.73% 112.61%(1)
John Hancock Independence
Equity Fund: Class B 15.35% N/A 26.11%(2)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended December 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
-------- --------- --------
John Hancock Independence
Equity Fund: Class A 15.21% 14.37% 14.54%(1)
John Hancock Independence
Equity Fund: Class B 15.35% N/A 19.27%(2)
Notes to Performance
(1) Class A shares started on June 10, 1991.
(2) Class B shares started on September 7, 1995.
(3) Effective September 1, 1995, the Adviser has undertaken to limit the
Fund's expenses to 1.30% and 2.00% attributable to Class A and Class B
shares, respectively, of the Fund's daily net asset value. Prior to
September 1, 1995, and the creation of Class B shares, the limitation of
expenses was 0.70% of the Fund's daily net asset value. Without the
limitation of expenses, the average annualized total returns for the
one-year period, five-year period and since inception for Class A shares
would have been 14.81%, 13.60% and 13.59%, respectively. Without the
limitation of expenses, the average annualized total returns for the
one-year period and since inception for Class B shares would have been
14.95% and 18.44%, respectively.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Independence Equity Fund would be worth on December 31, 1996.
They assume that you either had invested on the day each class of shares
started, or that you have been invested for the most recent 10 years. In
either case, they also assume that you have 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.
Independence Equity Fund
Class A shares
Line chart with the heading Independence Equity 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
Independence Equity Fund, before sales charge, on June 10, 1991, and is
equal to $22,388 as of December 31, 1996. The second line represents
the value of the Standard & Poor's 500 Stock Index, and is equal to
$22,101 as of December 31, 1996. The third line represents the value of
the hypothetical $10,000 investment made in the Independence Equity
Fund, after sales charge, on June 10, 1991, and is equal to $21,261 as
of December 31, 1996.
Independence Equity Fund
Class B shares
Line chart with the heading Independence Equity 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 $13,584 as of December 31, 1996. The second line represents
the value of the hypothetical $10,000 investment made in the
Independence Equity Fund, after sales charge, on September 7, 1995, and
is equal to $13,011 as of December 31, 1996. The third line represents
the value of the Independence Equity Fund, after sales charge, and is
equal to $12,611 as of December 31, 1996.
<TABLE>
<CAPTION>
John Hancock Funds - Independence Equity Fund
Statement of Assets and Liabilities
December 31, 1996
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Common stocks (cost -- $64,729,023) $70,686,699
Joint repurchase agreement (cost -- $2,403,000) 2,403,000
Corporate savings account 2,375
------------
73,092,074
Receivable for shares sold 315,009
Dividends and interest receivable 141,349
Other assets 2,468
------------
Total Assets 73,550,900
- -----------------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 6,007
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B 31,860
Accounts payable and accrued expenses 38,458
------------
Total Liabilities 76,325
- -----------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 66,920,337
Accumulated net realized gain on investments
and foreign currency transactions 587,683
Net unrealized appreciation of investments 5,958,025
Undistributed net investment income 8,530
------------
Net Assets $73,474,575
===============================================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding -- unlimited
number of shares authorized with no par value)
Class A -- $31,013,258 / 1,597,229 $19.42
===============================================================================================
Class B -- $42,461,317 / 2,187,138 $19.41
===============================================================================================
Maximum Offering Price Per Share *
Class A -- ($19.42 x 105.26%) $20.44
===============================================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on December 31, 1996.
You'll also find the net asset value and the maximum offering price per share as
of that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- --------------------------------------------------------------------------------------------------------------
PERIOD FROM
JUNE 1, 1996
YEAR ENDED TO DECEMBER 31,
MAY 31, 1996 1996(1)
------------ ------------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $2,200 and $514, respectively) $368,769 $638,155
Interest 50,869 71,850
------------
419,638 710,005
------------
Expenses:
Investment management fee - Note B 104,018 216,753
Distribution/service fee - Note B
Class A 14,596 39,915
Class B 39,156 155,953
Custodian fee 42,821 24,458
Registration and filing fees 36,075 40,971
Transfer agent fee - Note B 29,987 80,899
Auditing fee 21,924 20,072
Printing 17,803 21,375
Legal fees 11,195 1,679
Organization expense - Note A 3,316 --
Financial services fee - Note B 1,429 5,419
Trustees' fee 683 607
Miscellaneous 492 1,129
------------
Total Expenses 323,495 609,230
Less Expense Reductions - Note B (128,138) (124,357)
- --------------------------------------------------------------------------------------------------------------
Net Expenses 195,357 484,873
- --------------------------------------------------------------------------------------------------------------
Net Investment Income 224,281 225,132
- --------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments sold 13,818,303 1,034,147
Change in net unrealized appreciation/depreciation of investments (9,915,169) 4,069,742
------------
Net Realized and Unrealized Gain
on Investments 3,903,134 5,103,889
- --------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $4,127,415 $5,329,021
==============================================================================================================
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
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 periods stated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
JUNE 1, 1996
YEAR ENDED YEAR ENDED TO
MAY 31, 1995 MAY 31, 1996 DEC.31,1996(1)
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $2,222,325 $224,281 $225,132
Net realized gain on investments sold and
foreign currency transactions 2,252,968 13,818,303 1,034,147
Change in net unrealized appreciation/
depreciation of investments 12,046,702 (9,915,169) 4,069,742
------------ ------------ ------------
Net Increase in Net Assets Resulting
from Operations 16,521,995 4,127,415 5,329,021
------------ ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- ($0.2834, $0.2181 and $0.1414
per share, respectively) (2,008,180) (468,668) (167,880)
Class B -- (none, $0.0934 and $0.0456 per
share, respectively) -- (13,068) (55,164)
Distributions from net realized gain on
investments sold
Class A -- ($0.0849, $0.2907 and $0.2683
per share, respectively) (608,472) (2,049,001) (414,417)
Class B -- (none, none and $0.2683 per
share, respectively) -- -- (564,553)
------------ ------------ ------------
Total Distributions to Shareholders (2,616,652) (2,530,737) (1,202,014)
------------ ------------ ------------
From Fund Share Transactions - Net* 20,901,056 (73,011,934) 39,344,533
------------ ------------ ------------
Net Assets:
Beginning of period 66,611,892 101,418,291 30,003,035
------------ ------------ ------------
End of period (including undistributed
net investment income of $422,416, $6,442
and $8,530, respectively) $101,418,291 $30,003,035 $73,474,575
============ ============ ============
* Analysis of Fund Share Transactions:
YEAR ENDED MAY 31, PERIOD FROM
------------------------------------------------------- JUNE 1, 1996 TO
1995 1996 DECEMBER 31, 1996(1)
--------------------------- -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------ ------------ ------------
CLASS A
Shares sold 3,969,193 $50,176,705 950,002 $15,689,378 1,124,587 $20,898,365
Shares issued to shareholders in
reinvestment of distributions 205,957 2,611,824 176,962 2,504,943 27,332 526,305
------------ ------------ ------------ ------------ ------------ ------------
4,175,150 52,788,529 1,126,964 18,194,321 1,151,919 21,424,670
Less shares repurchased (2,389,312) (31,887,473) (7,336,631) (105,475,141) (382,213) (7,170,830)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) 1,785,838 $20,901,056 (6,209,667) ($87,280,820) 769,706 $14,253,840
============ ============ ============ ============ ============ ============
CLASS B **
Shares sold -- -- 904,689 $15,323,273 1,443,084 $26,902,723
Shares issued to shareholders in
reinvestment of distributions -- -- 1,324 21,802 28,065 544,384
------------ ------------ ------------ ------------ ------------ ------------
-- -- 906,013 15,345,075 1,471,149 27,447,107
Less shares repurchased -- -- (63,879) (1,076,189) (126,145) (2,356,414)
------------ ------------ ------------ ------------ ------------ ------------
Net increase -- -- 842,134 $14,268,886 1,345,004 $25,090,693
============ ============ ============ ============ ============ ============
** Class B shares commenced operations on September 7, 1995.
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
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 and foreign currency gains and losses, distributions
paid to shareholders, if any, and any increase or decrease in money shareholders invested in the Fund. The footnote illustrates
the number of Fund shares sold, reinvested and repurchased, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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:
PERIOD FROM
JUNE 1, 1996
YEAR ENDED MAY 31, TO
------------------------------------------------------------- DECEMBER 31,
1992(1) 1993 1994 1995 1996 1996(9)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $10.98 $12.16 $12.68 $14.41 $17.98
-------- -------- -------- -------- -------- --------
Net Investment Income 0.15 0.22 0.28(2) 0.32(2) 0.20(2) 0.13(2)
Net Realized and Unrealized Gain on
Investments 0.94 1.25 0.52 1.77 3.88 1.72
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.09 1.47 0.80 2.09 4.08 1.85
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.11) (0.23) (0.23) (0.28) (0.22) (0.14)
Distributions from Net Realized
Gain on Investments Sold -- (0.06) (0.05) (0.08) (0.29) (0.27)
-------- -------- -------- -------- -------- --------
Total Distributions (0.11) (0.29) (0.28) (0.36) (0.51) (0.41)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.98 $12.16 $12.68 $14.41 $17.98 $19.42
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset
Value (3) 10.95%(4) 13.58% 6.60% 16.98% 29.12% 10.33%(4)
Total Adjusted Investment Return at
Net Asset Value (3, 5) 9.23%(4) 11.40% 6.15% 16.94% 28.47% 10.08%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $2,622 $12,488 $66,612 $101,418 $14,878 $31,013
Ratio of Expenses to Average Net
Assets 1.66%(6) 0.76% 0.70% 0.70% 0.94% 1.30%(6)
Ratio of Adjusted Expenses
to Average Net Assets (7) 3.38%(6) 2.94% 1.15% 0.74% 1.59% 1.73%(6)
Ratio of Net Investment Income to
Average Net Assets 1.77%(6) 2.36% 2.20% 2.43% 1.55% 1.16%(6)
Ratio of Adjusted Net Investment Income
to Average Net Assets (7) 0.05%(6) 0.18% 1.75% 2.39% 0.90% 0.73%(6)
Portfolio Turnover Rate 53% 53% 43% 71% 157% 35%
Fee Reduction Per Share $0.15 $0.20 $0.06(2) $0.005(2) $0.08(2) $0.05(2)
Average Brokerage Commission Rate (8) N/A N/A N/A N/A N/A $0.0326
The Financial Highlights summarizes the impact of the following factors on
a single share for each 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.
Period From
Period Ended June 1, 1996 To
May 31, 1996(1) December 31, 1996(9)
--------------- ------------------
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $15.25 $17.96
-------- --------
Net Investment Income (2) 0.09 0.05
Net Realized and Unrealized Gain on
Investments 2.71 1.72
-------- --------
Total from Investment Operations 2.80 1.77
-------- --------
Less Distributions:
Dividends from Net Investment
Income (0.09) (0.05)
Distributions from Net Realized
Gain on Investments Sold -- (0.27)
-------- --------
Total Distributions (0.09) (0.32)
-------- --------
Net Asset Value, End of Period $17.96 $19.41
======== ========
Total Investment Return at Net Asset
Value (3) 18.46%(4) 9.83%(4)
Total Adjusted Investment Return at
Net Asset Value (3, 5) 17.59%(4) 9.58%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $15,125 $42,461
Ratio of Expenses to Average Net
Assets 2.00%(6) 2.00%(6)
Ratio of Adjusted Expenses to Average
Net Assets (7) 3.21%(6) 2.43%(6)
Ratio of Net Investment Income to
Average Net Assets 0.78%(6) 0.45%(6)
Ratio of Adjusted Net Investment
Income (Loss) to Average Net Assets (7) (0.43%)(6) 0.02%(6)
Portfolio Turnover Rate 157% 35%
Fee Reduction Per Share(2) $0.13 $0.05
Average Brokerage Commission Rate (8) N/A $0.0326
(1) Class A and Class B shares commenced operations on June 10, 1991 and
September 7, 1995, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995
or later.
(9) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Equity Fund on December 31, 1996. It's divided into two main categories:
common stocks and short-term investments. Common stocks are further broken down by
industry group. Short-term investments, which represent the Fund's "cash" position,
are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- --------------------------------------- ----------- -----------
<S> <C> <C>
COMMON STOCKS
Aerospace (3.75%)
Boeing Co. (The) 7,600 $808,450
Goodrich (B. F.) Co. 3,000 121,500
McDonnell Douglas Corp. 1,500 96,000
United Technologies Corp. 26,200 1,729,200
------------
2,755,150
------------
Automobile / Trucks (3.40%)
Chrysler Corp. 25,500 841,500
Ford Motor Co. 24,900 793,688
General Motors Corp. 15,500 864,125
------------
2,499,313
------------
Banks -- United States (4.88%)
Banc One Corp. 15,400 662,200
BankAmerica Corp. 3,100 309,225
Chase Manhattan Corp. 6,000 535,500
First Bank Systems, Inc. 2,800 191,100
First Chicago NBD Corp. 5,400 290,250
Fleet Financial Group, Inc. 13,400 668,325
NationsBank Corp. 9,500 928,625
------------
3,585,225
------------
Chemicals (2.28%)
Monsanto Co. 13,000 505,375
Morton International, Inc. 9,200 374,900
PPG Industries, Inc. 14,200 796,975
------------
1,677,250
------------
Computers (4.79%)
Adobe Systems, Inc. 5,000 186,875
Compaq Computer Corp.* 5,200 386,100
Computer Associates International, Inc. 3,000 149,250
Dell Computer Corp.* 2,500 132,813
Electronic Data Systems Corp. 3,900 168,675
Hewlett-Packard Co. 13,700 688,425
International Business Machines Corp. 8,500 1,283,500
Mentor Graphics Corp.* 7,500 73,125
Microsoft Corp.* 5,400 446,175
------------
3,514,938
------------
Cosmetics & Personal Care (0.95%)
Gillette Co. 9,000 699,750
------------
Diversified Operations (4.58%)
Du Pont (E.I.) De Nemours and Co. 21,800 2,057,375
Lockheed Martin Corp. 8,672 793,488
Ogden Corp. 6,000 112,500
Tenneco, Inc. * 2,700 121,838
Textron, Inc. 3,000 282,750
------------
3,367,951
------------
Electronics (5.70%)
General Electric Co. 14,700 1,453,463
General Signal Corp. 1,500 64,125
Honeywell, Inc. 5,000 328,750
Intel Corp. 13,400 1,754,563
Raychem Corp. 7,300 584,913
------------
4,185,814
------------
Finance (2.70%)
American Express Co. 15,400 870,100
Dean Witter Discover & Co. 16,800 1,113,000
------------
1,983,100
------------
Food (1.54%)
ConAgra, Inc. 7,300 363,175
Unilever N.V., American Depositary
Receipts (ADR) (Netherlands) 4,400 771,100
------------
1,134,275
------------
Instruments - Scientific (0.86%)
Perkin-Elmer Corp. 10,700 629,963
------------
Insurance (7.31%)
American International Group, Inc. 4,600 497,950
CIGNA Corp. 9,700 1,325,262
General Re Corp. 9,100 1,435,525
ITT Hartford Group, Inc. 14,000 945,000
Marsh & McLennan Cos., Inc. 11,200 1,164,800
------------
5,368,537
------------
Leisure (3.43%)
Disney (Walt) Co., (The) 5,700 396,862
Eastman Kodak Co. 9,100 730,275
HFS, Inc.* 9,500 567,625
Hilton Hotels Corp. 18,100 472,862
ITT Corp.* 8,100 351,337
------------
2,518,961
------------
Machinery (1.05%)
Cooper Industries, Inc. 12,000 505,500
Dover Corp. 5,300 266,325
------------
771,825
------------
Media (0.70%)
McGraw-Hill Cos., Inc. 11,200 516,600
------------
Medical (11.58%)
Abbott Laboratories 24,500 1,243,375
Allegiance Corp. 25,000 690,625
Alza Corp. * 4,700 121,613
Amgen, Inc.* 4,100 222,938
Becton, Dickinson & Co. 6,100 264,587
Bristol-Myers Squibb Co. 8,900 967,875
Columbia/HCA Healthcare Corp. 7,650 311,737
Glaxo Wellcome PLC (ADR)
(United Kingdom) 19,700 625,475
HEALTHSOUTH Corp. * 5,500 212,438
Imation Corp. * 3,000 84,375
Johnson & Johnson 30,400 1,512,400
Mallinckrodt, Inc. 5,700 251,513
Merck & Co., Inc. 9,100 721,175
Pfizer, Inc. 3,800 314,925
Schering-Plough Corp. 3,900 252,525
SmithKline Beecham PLC (ADR)
(United Kingdom) 9,200 625,600
Vencor, Inc.* 2,700 85,387
------------
8,508,563
------------
Mortgage Banking (0.48%)
Federal National Mortgage Assn. 9,500 353,875
------------
Office (2.67%)
Avery Dennison Corp. 15,600 551,850
Pitney Bowes, Inc. 8,700 474,150
Staples, Inc.* 33,750 609,609
Xerox Corp. 6,200 326,275
------------
1,961,884
------------
Oil & Gas (10.13%)
Anadarko Petroleum Corp. 7,500 485,625
Atlantic Richfield Co. 14,500 1,921,250
Baker Hughes, Inc. 8,000 276,000
Chevron Corp. 6,100 396,500
Dresser Industries, Inc. 5,200 161,200
El Paso Natural Gas Co. 251 12,675
Kerr - McGee Corp. 10,100 727,200
Mobil Corp. 1,200 146,700
PanEnergy Corp. 3,500 157,500
Phillips Petroleum Co. 26,400 1,168,200
Texaco Inc. 11,500 1,128,437
Unocal Corp. 21,200 861,250
------------
7,442,537
------------
Paper & Paper Products (1.35%)
James River Corp. of Virginia 4,000 132,500
Kimberly-Clark Corp. 9,000 857,250
------------
989,750
------------
Retail (5.03%)
Dayton Hudson Corp. 3,900 153,075
Federated Department Stores, Inc. * 13,200 450,450
Home Depot, Inc. 23,000 1,152,875
Lowe's Cos., Inc. 14,700 521,850
Price/Costco, Inc.* 16,400 412,050
Toys R Us, Inc. 14,500 435,000
Wal-Mart Stores, Inc. 25,000 571,875
------------
3,697,175
------------
Shoes & Related Apparel (1.10%)
Nike, Inc. (Class B) 5,200 310,700
Nine West Group, Inc.* 10,700 496,212
------------
806,912
------------
Telecommunications (4.07%)
A T & T Corp. 40,000 1,740,000
General Instrument Corp.* 4,100 88,663
Lucent Technologies, Inc. 8,663 400,664
MCI Communications Corp. 18,200 594,912
Sprint Corp. 4,200 167,475
------------
2,991,714
------------
Textile (0.37%)
Fruit of the Loom, Inc. (Class A)* 7,200 272,700
------------
Tobacco (2.91%)
Philip Morris Cos., Inc. 14,600 1,644,325
UST, Inc. 15,300 495,337
------------
2,139,662
------------
Transport (1.74%)
CSX Corp. 12,400 523,900
Newport News Shipbuilding Inc.* 540 8,100
Norfolk Southern Corp. 4,200 367,500
Trinity Industries, Inc. 10,000 375,000
------------
1,274,500
------------
Utilities (6.86%)
BellSouth Corp. 14,000 565,250
Consolidated Natural Gas Co. 13,200 729,300
Entergy Corp. 42,500 1,179,375
GTE Corp. 12,400 564,200
SBC Communications, Inc. 21,100 1,091,925
Texas Utilities Co. 22,300 908,725
------------
5,038,775
------------
TOTAL COMMON STOCKS
(Cost $64,729,023) (96.21%) $70,686,699
------- ------------
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ---------------------------------------- ----------- -------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.27%)
Investment in a joint repurchase
agreement transaction with
Lehman Brothers, Inc.
Dated 12-31-96, Due
01-02-97 (Secured by U.S.
Treasury Bonds, 7.25% thru
12.50%, due 08-15-14
thru 08-15-22) -- Note A 6.70% $2,403 2,403,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 2,375
------------
TOTAL SHORT-TERM INVESTMENTS (3.27%) 2,405,375
------- ------------
TOTAL INVESTMENTS (99.48%) $73,092,074
======= ============
* 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.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Independence Equity 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 three series portfolios: John Hancock Independence
Equity Fund (the "Fund"), John Hancock Utilities Fund and John Hancock
Special Value Fund. Until August 30, 1996, the Fund was a series of John
Hancock Strategic Series. Prior to June 3, 1996, the Fund was known as
John Hancock Independence Diversified Core Equity Fund. The other two
series of the Trust are reported in separate financial statements. The
investment objective of the Fund is to seek above-average total return,
consisting of capital appreciation plus current income.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant 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
instruments 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.
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 its taxable income,
including any net realized gain on investments, to its shareholders.
Therefore, no federal income tax provision is required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment
securities is recorded on the ex-dividend date, or, in the case of some
foreign securities, on the date thereafter when the Fund is made aware
of the dividend. Interest income on investment securities is recorded on
the accrual basis. Foreign income may be subject to foreign withholding
taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
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.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
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 relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
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 at fiscal year end, resulting from
changes in the exchange rate.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
The Fund pays a monthly management fee to the Adviser, for a continuous
investment program equivalent, on an annual basis, to the sum of (a)
0.75% of the first $750,000,000 of the Fund's average daily net asset
value and (b) 0.70% of the Fund's average daily net asset value in
excess of $750,000,000. Prior to September 1, 1995, the investment
management fee was 0.50% of the Fund's average daily net asset value.
The Fund and the Adviser have a sub-investment management contract with
Independence Investment Associates, Inc. (the "Sub-Adviser"), a wholly-
owned subsidiary of John Hancock Asset Management, under which the Sub-
Adviser provides the Fund with investment research and portfolio
management services. The Adviser pays the Sub-Adviser a quarterly fee at
an annual rate of 55% of the investment management fee paid by the Fund
to the Adviser for the preceding three months. The Fund is not
responsible for payment of the Sub-Adviser's fee. Prior to September 1,
1995, the Sub-Adviser provided services pursuant to a contract that
provided for different compensation. Effective July 1, 1995, the sub-
adviser has waived its fee until further notice.
The Adviser has agreed to limit Fund expenses to 1.30% and 2.00%
attributable to Class A and Class B shares, respectively, of the Class'
average daily net assets. Accordingly, the reduction in the Adviser's
fee collectively with any additional amounts not borne by the Fund by
virtue of the expense limit amounted to $124,357.
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 31,1996, JH Funds received net sales charges of $416,070 with
regard to sales of Class A shares. Out of this amount, $60,923 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $183,833 was paid as sales commissions to
unrelated broker-dealers, and $171,314 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 was the indirect shareholder until
November 29, 1996 of 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 are
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended December 31,1996, the contingent deferred
sales charges received by JH Funds amounted to $13,823.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not 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 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.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company. The Fund pays
transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996
was at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr.Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and officers of the Adviser, and its affiliates,
as well as Trustees of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995,
the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
December 31, 1996, the Fund's investments to cover the defined
compensation liability had unrealized appreciation of $349.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other then obligations
of the U.S. government and its agencies and short-term securities,
during the period ended December 31,1996, aggregated $53,337,635 and
$16,483,796, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended December 31,1996.
The cost of investments owned at December 31, 1996 (including the joint
repurchase agreement) for Federal income tax purposes was $67,135,870.
Gross unrealized appreciation and depreciation of investments aggregated
$6,896,560 and $942,731, respectively, resulting in net unrealized
appreciation of $5,953,829.
John Hancock Funds - Independence Equity Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Independence Equity Fund
and the Trustees of John Hancock Capital Series
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of John
Hancock Independence Equity Fund (the "Fund") (a series of John Hancock
Capital Series) at December 31, 1996, and the results of its operations,
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility
of the Fund's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
February 7, 1997
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, 1996.
The Fund distributed to shareholders of record December 23, 1996 and
payable December 30, 1996 a long-term capital gain dividend of $260,941.
With respect to the Fund's ordinary taxable income for the fiscal year
ended December 31, 1996, 38.24% qualified for the corporate dividends
received deduction available to corporations.
Shareholders were mailed a 1996 U.S. Treasury Department Form 1099-DIV
in January of 1997 representing their proportionate share.
SHAREHOLDER MEETING (UNAUDITED)
On June 26, 1996, a special meeting of John Hancock Independence Equity
Fund was held.
The shareholders approved an Agreement and Plan of Reorganization for
the Fund. The shareholder votes were 672,329 FOR, 11,368 AGAINST and
52,288 ABSTAINING.
The shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------------------- ------------------ ----------------
Dennis S. Aronowitz 856,828 29,955
Edward J. Boudreau, Jr. 855,588 31,195
Richard P. Chapman, Jr. 856,537 30,246
William J. Cosgrove 856,828 29,955
Douglas M. Costle 856,828 29,955
Leland O. Erdahl 856,828 29,955
Richard A. Farrell 856,828 29,955
Gail D. Fosler 856,828 29,955
William F. Glavin 855,588 31,195
Anne C. Hodsdon 856,828 29,955
Dr. John A. Moore 856,828 29,955
Patti McGill Peterson 856,828 29,955
John W. Pratt 856,828 29,955
Richard S. Scipione 855,588 31,195
Edward J. Spellman 856,828 29,955
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Independence Equity 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 caption "Printed on
Recycled Paper." 2500A 12/96
2/97
John Hancock Funds
Special
Value
Fund
Annual Report
December 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
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
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 Signature Services, Inc.
1 John Hancock Way Ste 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at least one
group has already studied the problem, and experts and politicians alike
have weighed in with a slew of prescriptions. Legislative action could
be in the offing in 1997.
The problem stems from demographic and societal changes. The number
of retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect to use
their own savings or employer-sponsored pensions for their retirement.
Yet, remarkably, another EBRI survey revealed that only slightly more
than half of America's current workers are saving money for retirement.
Fewer than half own IRAs or participate in employer-sponsored pension or
savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By Timothy Keefe, CFA, Portfolio Manager
John Hancock
Special Value Fund
Stock market surprises many with second spectacular year;
small-cap stocks lag larger ones
In August 1996, Timothy Keefe began leading the management team of John
Hancock Special Value Fund. Prior to joining John Hancock Funds as a
senior vice president and portfolio manager, Mr. Keefe was vice
president and portfolio manager for Federated Investors specializing in
value investing.
The stock market turned in a surprising and stellar performance in 1996,
advancing to new highs and rewarding investors with well-above-average
returns. Although the market's 1996 returns didn't match 1995's
remarkable results, it came closer than many expected. By the end of
this one-two punch, the Dow Jones Industrial Average had risen by almost
70% - its best two-year period in more than 40 years. The market was
driven in 1996 by the same favorable stock-picking conditions that
existed in 1995 - strong earnings growth and low interest rates,
although there was more volatility, as rates rose in the first half when
investors worried that a faster-growing economy would spark inflation.
But for all the emotion, inflation remained tame and stock prices mostly
advanced all year, with a few exceptions.
"The biggest
beneficiaries
...were the
larger growth
companies..."
A 2 1/4" x 3 1/2" photo of the portfolio management team at bottom
right. Caption reads: "Tim Keefe (standing) and Special Value Fund
management team members Anurag Pandit (l) and Ben Hock (r)."
The biggest beneficiaries of the market's bounty were the larger growth
companies that have the ability to grow earnings no matter what the
economic environment. Investors favored these more liquid and tested
companies as the mixed economic signals throughout the year led to
uncertainty about where the economy was heading. This same environment
worked against small-company stocks, which lagged the larger-cap stocks.
For the year ended December 31, 1996, the Dow advanced 28.91%, including
reinvested dividends, and the Standard & Poor's 500-Stock Index returned
22.95%. The Russell 2000 Index, a broad measure of small-stock
performance, returned 16.50%.
Chart with the heading "Top Five Common Stock Holdings" at top of left
hand column. The chart lists five holdings: 1) Trizec Hahn 5.0% 2)
Moneygram Payment Systems 4.5% 3) Calgon Carbon 3.8%; 4) Russ Berrie
3.8%; 5) Sybron Chemicals 3.7%. A footnote below states: "As a
percentage of net assets on December 31, 1996."
"During the
year, we
shifted our
weightings in
some industry
sectors..."
Performance and strategy recap
The Fund's emphasis on smaller-capitalization stocks caused it to lag
its peers in the growth and income fund category, which includes many
funds that focus on the large companies that led the 1996 rally. For the
year, the Fund's Class A and Class B shares posted total returns of
12.91% and 12.14%, respectively, at net asset value. That compared to
the 20.78% return of the average growth and income fund, according to
Lipper Analytical Services, Inc.1 Please see pages six and seven for
longer-term performance information.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left hand column is "Investment"; the header for the right column is
"Recent performance .. and what's behind the numbers." The first listing
is FSA (Salamon, Inc.) followed by an up arrow and the phrase " Leader
in growing field of asset-backed security insurance." The second listing
is "Samsonite" followed by an up arrow and the phrase "Focused
management; good point in luggage replacement cycle." The third listing
is "Morrison Fresh Cooking" followed by a down arrow and the phrase
"Management concerns prompt fears of slow turnaround." Footnote below
states "See "Schedule of Investments." Investment holdings are subject
to change."
The Fund's goal is to provide shareholders with capital appreciation,
and income as a secondary consideration, by investing in undervalued
companies, those whose fundamental strength and earnings potential are
not reflected in their stock prices. We firmly believe that the market
is efficient over the long term, but not over the short term. We seek to
identify those short-term discrepancies between price and value. We
often find these opportunities in stocks that are misunderstood, or not
actively followed by market analysts.
Our investment method involves a disciplined three-step process.
Starting with a universe of 1,500 companies, we first use a computer
analytic model to identify which stocks are inexpensive today relative
to their historical averages of the past eight years. We're careful to
select not only those that are cheap, but also those whose fundamentals
are improving. Our second step is to apply a computer momentum model,
which identifies companies whose revenues and earnings are growing. The
third and last step is rigorous fundamental analysis. Here, we take an
entrepreneurial approach to determine whether a company offers a
business that we would indeed want to own. We evaluate management's
record and strategy and also talk to customers, vendors and even
competitors. This process helps us identify what we consider "mispriced
opportunities" -- outstanding businesses that are selling at a discount
to their intrinsic value and have a catalyst to unlock that value.
Sector shifts
During the year, we shifted our weightings in some industry sectors,
especially in the summer when a market correction and rising interest
rates gave us some opportunities to buy stocks at attractive prices. We
reduced our exposure to basic industries, particularly textiles, where
we had an overweighted position. We also pared our holdings in producer
manufacturers such as Arvin Industries, an auto parts supplier that by
nature is held captive to turns in the automobile cycle. What's more,
its stock was pricey given its fundamentals.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended December 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 12.91% total return for John
Hancock Special Value Fund: Class A. The second represents the 12.14%
return for John Hancock Special Value Fund: Class B. The third
represents the 20.78% 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 two pages for historical performance information."
In their place, we bought several good financial stocks at a time when
rate fears made their stocks very attractively priced. One great
opportunity was CMAC Investment Corp., a private mortgage insurance
company whose business has grown significantly as more and more first-
time home buyers are putting less than 20% down, requiring them to buy
private mortgage insurance. Another growth catalyst has been the fact
that the Fannie Mae and Freddie Mac government mortgage agencies have
increased their downpayment requirements. Another good buy was Financial
Security Assurance Holding (Salomon, Inc.), which sells municipal bond
insurance and also insures asset-backed securities. It's a very steady
business with a strong management team that we were able to buy at a 30%
discount to its adjusted book value when comparable companies were selling
at a 20% premium.
We also added several technology stocks after the sector took a drubbing
in a summer selloff. One addition was ELEXSYS International, a company
that exemplifies one of our favorite themes, which is company
outsourcing. In this case, ELEXSYS manufactures technology-related
products for some of the largest companies. It's also a classic value
story and exactly the kind of company we're looking for - under-followed
and misunderstood by the market. So we were able to buy it for a low
eight times earnings multiple and subsequently watched its stock more
than double. Another small technology company with a similar undervalued
story is Western Micro Tech, distributors of mid-range computers for the
likes of IBM and Data General.
"Volatile
markets
present
better
opportunities
for value
investors..."
A look ahead
After back-to-back years of spectacular moves, it's hard to image 1997's
market measuring up to those standards; investors would be wise to
temper their expectations. As 1997 gets underway, many stocks appear
fully valued, especially the larger-cap names. We expect volatility
ahead, as worries about the economy, interest rates and inflation
persist. That said, we remain optimistic, particularly about the
prospects for small-company value-oriented stocks. Volatile markets
present better opportunities for value investors to find discrepancies
between a stock's price and its true value. And small-cap stocks, after
lagging the market for several years now, are at very attractive levels.
- ------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
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 income
and capital gain distributions, assuming reinvestment of these
distributions and the change in the price of the Fund's net asset value
per share. 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. 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, 1996
ONE LIFE OF
YEAR FUND
--------- ---------
John Hancock Special
Value Fund: Class A 7.23% 39.03%(1)
John Hancock Special
Value Fund: Class B 7.14% 40.12%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
--------- ---------
John Hancock Special
Value Fund: Class A 7.23% 11.64%(1,2)
John Hancock Special
Value Fund: Class B 7.14% 11.94%(1,2)
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
6.55% and 9.79%, respectively. The average annualized total returns for
the one-year period and since inception for Class B shares would have
been 6.46% and 10.09%, respectively.
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, 1996. They
assume that you either had invested on the day each class of shares
started, or that you have been invested for the most recent 10 years. In
either case, they also assume that you have 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 Standard & Poor's 500 Stock Index and is equal to $17,131
as of December 31, 1996. The second 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 $14,638 as of
December 31, 1996. The third line represents the value of the
hypothetical $10,00 investment made in the Special Value Fund on January
3, 1994, after sales charge, and is equal to $13,903 as of December 31,
1996.
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 $17,131
as of December 31, 1996. The second line represents the value of the
hypothetical $10,000 investment made in the Special Value Fund, before
sales charge, on January 3, 1994, and is equal to $14,312 as of
December 31, 1996. The third line represents the value of the
hypothetical $10,000 investment made in the Special Value Fund on
January 3, 1994, after sales charge, and is equal to $14,012 as of
December 31, 1996.
<TABLE>
<CAPTION>
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, 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
December 31, 1996
- -----------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Common stocks (cost -- $33,073,528) $ 34,543,839
Preferred stocks (cost -- $1,356,432) 1,543,750
Joint repurchase agreement (cost -- $52,000) 52,000
Corporate savings account 772
-------------
36,140,361
Receivable for investments sold 1,707,747
Receivable for shares sold 17,082
Dividends and interest receivable 40,691
Receivable from John Hancock
Advisers, Inc. -- Note B 33,659
Deferred organization
expenses -- Note A 45,313
Other assets 551
-------------
Total Assets 37,985,404
- -----------------------------------------------------------
Liabilities:
Payable for shares repurchased 4,484
Accounts payable and accrued expenses 31,154
-------------
Total Liabilities 35,638
- -----------------------------------------------------------
Net Assets:
Capital paid-in 36,023,228
Accumulated net realized gain on investments 269,400
Net unrealized appreciation of investments 1,657,659
Distributions in excess of net
investment income ( 521)
-------------
Net Assets $ 37,949,766
===========================================================
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 -- $15,853,168 / 1,536,490 $ 10.32
===========================================================
Class B -- $22,096,598 / 2,142,286 $ 10.31
===========================================================
Maximum Offering Price Per Share *
Class A -- ($10.32 x 105.26%) $ 10.86
===========================================================
* 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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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 December 31, 1996
- -------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding
taxes of $8,991) $ 642,947
Interest 152,449
-----------
795,396
-----------
Expenses:
Investment management fee -- Note B 241,086
Distribution/service fee -- Note B
Class A 43,175
Class B 200,491
Transfer agent fee -- Note B 101,128
Registration and filing fees 42,068
Custodian fee 40,750
Organization Expense -- Note A 22,622
Printing 16,074
Auditing fee 8,167
Financial services fee -- Note B 6,458
Trustees' fees 2,518
Miscellaneous 1,504
Legal fees 1,324
-----------
Total Expenses 727,365
- -------------------------------------------------------------
Less expense reductions --
Note B ( 244,807)
- -------------------------------------------------------------
Net Expenses 482,558
- -------------------------------------------------------------
Net Investment Income 312,838
- -------------------------------------------------------------
Realized and Unrealized Gain
(Loss) on Investments:
Net realized gain
on investments sold 4,332,628
Change in net unrealized
appreciation/depreciation
of investments ( 652,765)
-----------
Net Realized and Unrealized Gain
on Investments 3,679,863
- -------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 3,992,701
=============================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996
------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 319,288 $ 312,838
Net realized gain on investments sold 591,659 4,332,628
Change in net unrealized appreciation/depreciation of investments 2,253,318 ( 652,765)
------------- -------------
Net Increase in Net Assets Resulting from Operations 3,164,265 3,992,701
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- ($0.1978 and $0.1419 per share, respectively) ( 194,536) ( 190,450)
Class B -- ($0.1215 and $0.0658 per share, respectively) ( 141,070) ( 122,533)
Distributions from net realized gain on investments sold
Class A -- ($0.2115 and $1.2413 per share, respectively) ( 255,578) ( 1,697,467)
Class B -- ($0.2115 and $1.2413 per share, respectively) ( 335,890) ( 2,382,887)
------------- -------------
Total Distributions to Shareholders ( 927,074) ( 4,393,337)
------------- -------------
From Fund Share Transactions -- Net* 19,885,478 8,511,666
------------- -------------
Net Assets:
Beginning of period 7,716,067 29,838,736
------------- -------------
End of period (including undistributed
net investment income of $96 and distributions
in excess of net investment income of
$521, respectively) $ 29,838,736 $ 37,949,766
============= =============
* Analysis of Fund Share Transactions:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1995 1996
----------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
CLASS A
Shares sold 1,025,002 $ 10,116,634 949,766 $ 10,398,879
Shares issued to shareholders
in reinvestment of distributions 39,907 410,057 175,933 1,796,295
--------- ------------ --------- ------------
1,064,909 10,526,691 1,125,699 12,195,174
Less shares repurchased ( 319,719) ( 3,191,389) ( 825,851) ( 8,997,914)
--------- ------------ --------- ------------
Net increase 745,190 $ 7,335,302 299,848 $ 3,197,260
========= ============ ========= ============
CLASS B
Shares sold 1,444,369 $ 14,296,298 716,837 $ 7,786,094
Shares issued to shareholders
in reinvestment of distributions 39,383 406,436 206,399 2,101,655
--------- ------------ --------- ------------
1,483,752 14,702,734 923,236 9,887,749
Less shares repurchased ( 213,668) ( 2,152,558) ( 417,470) ( 4,573,343)
--------- ------------ --------- ------------
Net increase 1,270,084 $ 12,550,176 505,766 $ 5,314,406
========= ============ ========= ============
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the
previous period. The difference reflects earnings less expenses, any investment gains and losses, distributions paid
to shareholders, and any increase or decrease in money shareholders invested in the Fund. The footnote illustrates the
number of Fund shares sold, reinvested and redeemed during the last two periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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:
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 (1) 1995 1996
------- ------- -------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50 $ 8.99 $ 10.39
------- ------- -------
Net Investment Income (2) 0.18 0.21 0.14
Net Realized and Unrealized Gain on Investments 0.48 1.60 1.17
------- ------- -------
Total from Investment Operations 0.66 1.81 1.31
------- ------- -------
Less distributions:
Dividends from Net Investment Income ( 0.17) ( 0.20) ( 0.14)
Distributions from Net Realized Gain
on Investments Sold -- ( 0.21) ( 1.24)
------- ------- -------
Total Distributions ( 0.17) ( 0.41) ( 1.38)
------- ------- -------
Net Asset Value, End of Period $ 8.99 $ 10.39 $ 10.32
======= ======= =======
Total Investment Return
at Net Asset Value (3) 7.81%(4) 20.26% 12.91%
Total Adjusted Investment Return
at Net Asset Value (3,5) 7.30%(4) 19.39% 12.20%
Ratios and supplemental data
Net Assets, End of Period (000's omitted) $ 4,420 $12,845 $15,853
Ratio of Expenses to Average Net Assets 0.99%(7) 0.98% 0.99%
Ratio of Adjusted Expenses
to Average Net Assets (6) 4.98%(7) 1.85% 1.70%
Ratio of Net Investment Income
to Average Net Assets 2.10%(7) 2.04% 1.31%
Ratio of Adjusted Net Investment Income
(Loss) to Average Net Assets (6) ( 1.89%)(7) 1.17% 0.60%
Portfolio Turnover Rate 0.3% 9% 72%
Fee Reduction Per Share (2) $ 0.34 $ 0.09 $ 0.08
Average Broker Commission Rate (8) N/A N/A $0.0658
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.
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50 $ 9.00 $ 10.38
------- ------- -------
Net Investment Income (2) 0.13 0.12 0.07
Net Realized and Unrealized
Gain on Investments 0.48 1.59 1.17
------- ------- -------
Total from Investment Operations 0.61 1.71 1.24
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.11) ( 0.12) ( 0.07)
Distributions from Net Realized Gain
on Investments Sold -- ( 0.21) ( 1.24)
------- ------- -------
Total Distributions ( 0.11) ( 0.33) ( 1.31)
------- ------- -------
Net Asset Value, End of Period $ 9.00 $ 10.38 $ 10.31
======= ======= =======
Total Investment Return
at Net Asset Value (3) 7.15%(4) 19.11% 12.14%
Total Adjusted Investment Return
at Net Asset Value (3,5) 6.64%(4) 18.24% 11.43%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 3,296 $16,994 $22,097
Ratio of Expenses to Average Net Assets 1.72%(7) 1.73% 1.69%
Ratio of Adjusted Expenses
to Average Net Assets (6) 5.71%(7) 2.60% 2.40%
Ratio of Net Investment Income
to Average Net Assets 1.53%(7) 1.21% 0.62%
Ratio of Adjusted Net Investment Income
(Loss) to Average Net Assets (6) ( 2.46%)(7) 0.34% ( 0.09%)
Portfolio Turnover Rate 0.3% 9% 72%
Fee Reduction Per Share (2) $ 0.34 $ 0.09 $ 0.08
Average Broker Commission Rate (8) N/A N/A $0.0658
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration fee
reductions by the adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
(7) Annualized.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Special Value Fund on December 31, 1996. It's divided into three main
categories: common stocks, preferred stocks and short-term investments.
Common stocks and preferred stocks are further broken down by industry
groups. Short-term investments, which represent the Fund's cash position,
are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C> <C>
COMMON STOCKS
Aerospace (1.28%)
AAR Corp. 16,000 $ 484,000
------------
Beverages (0.20%)
Coors (Adolph) Co. (Class B) 4,000 76,000
------------
Building (1.51%)
Fibreboard Corp.* 17,000 573,750
------------
Chemicals (4.03%)
Millennium Chemicals, Inc.* 6,285 111,559
Sybron Chemicals, Inc.* 88,700 1,419,200
------------
1,530,759
------------
Computers (1.89%)
Western Micro Technology, Inc.* 58,500 716,625
------------
Consumer Products Misc. (2.63%)
Samsonite Corp.* 26,000 997,750
------------
Diversified Operations (3.97%)
ACX Technologies, Inc.* 46,000 914,250
Hanson PLC (American Depositary
Receipts) (ADR) (United Kingdom) 88,000 594,000
------------
1,508,250
------------
Electronics (4.50%)
ELEXSYS International, Inc.* 61,600 1,224,300
Oak Industries, Inc.* 21,000 483,000
------------
1,707,300
------------
Finance (7.35%)
Aames Financial Corp. 13,000 466,375
Delta Financial Corp.* 1,300 23,400
IMC Mortgage Co.* 17,200 576,200
MoneyGram Payment Systems, Inc.* 130,000 1,722,500
------------
2,788,475
------------
Food (3.38%)
Morrison Health Care, Inc. 28,333 417,912
Savannah Foods & Industries, Inc. 64,000 864,000
------------
1,281,912
------------
Insurance (4.73%)
Allmerica Financial Corp. 18,500 619,750
CMAC Investment Corp. 24,000 882,000
Executive Risk, Inc. 7,900 292,300
------------
1,794,050
------------
Leisure (2.88%)
Equity Marketing Inc.* 8,500 157,250
Outboard Marine Corp. 56,700 935,550
------------
1,092,800
------------
Machinery (2.10%)
Greenfield Industries, Inc. 26,000 796,250
------------
Office (2.37%)
Cross (A.T.) Co. (Class A) 42,300 491,738
Mail-Well, Inc.* 25,000 409,375
------------
901,113
------------
Oil & Gas (4.92%)
Daniel Industries, Inc. 78,300 1,154,925
Parker Drilling Co.* 74,200 714,175
------------
1,869,100
------------
Paper & Paper Products (5.51%)
Gibson Greetings, Inc.* 50,900 998,912
Glatfelter (P.H.) Co. 60,700 1,092,600
------------
2,091,512
------------
Pollution Control (3.80%)
Calgon Carbon Corp. 117,800 1,443,050
------------
Real Estate Operations (7.14%)
Tejon Ranch Co. 56,000 805,000
Trizec Hahn Corp. (Canada) 86,600 1,905,200
------------
2,710,200
------------
Retail (17.84%)
Brown Group, Inc. 61,700 1,133,737
Darden Restaurants, Inc. 95,000 831,250
Intelligent Electronics, Inc.* 65,300 522,400
Morrison Fresh Cooking, Inc. 142,250 657,906
Ruby Tuesday, Inc. 42,500 786,250
Ruddick Corp. 100,000 1,400,000
Russ Berrie & Co., Inc. 80,000 1,440,000
------------
6,771,543
------------
Telecommunications (1.61%)
ANTEC Corp.* 67,700 609,300
------------
Textile (2.70%)
Burlington Industries, Inc.* 93,300 1,026,300
------------
Tobacco (0.74%)
Imperial Tobacco Group PLC (ADR)
(United Kingdom)* 22,000 280,500
------------
Transport (2.86%)
Overseas Shipholding Group, Inc. 39,700 674,900
Swift Transportation Co., Inc.* 17,400 408,900
------------
1,083,800
------------
Utilities (1.08%)
El Paso Electric Co.* 63,000 409,500
------------
TOTAL COMMON STOCKS
(Cost $33,073,528) ( 91.02%) 34,543,839
------ ------------
PREFERRED STOCKS
Broker Services (4.07%)
Salomon, Inc.,
7.625% Ser FSA, Conv Preferred 50,000 1,543,750
------------
TOTAL PREFERRED STOCKS
(Cost $1,356,432) ( 4.07%) 1,543,750
------ ------------
TOTAL COMMON STOCKS
AND PREFERRED STOCKS
(Cost $34,429,960) ( 95.09%) 36,087,589
------ ------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ------ --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.14%)
Investment in a joint repurchase
agreement transaction with
Lehman Brothers, Inc.
Dated 12-31-96,
Due 01-02-97 (Secured by
U.S. Treasury Bonds, 7.25%
thru 12.50%, due 08-15-14
thru 08-15-22) -- Note A 6.70% $ 52 $ 52,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 772
------------
TOTAL SHORT-TERM INVESTMENTS ( 0.14%) 52,772
------ ------------
TOTAL INVESTMENTS ( 95.23%) $ 36,140,361
====== ============
*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.
</TABLE>
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 three series: John Hancock Special Value Fund (the
"Fund"), John Hancock Independence Equity Fund and John Hancock
Utilities 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 comparatively undervalued and
are out of favor.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investment, to its
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Fund identifies the
dividend. Interest income on investment securities is recorded on the
accrual basis. Foreign income may be subject to foreign withholding
taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principals. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class as
explained previously.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual Fund. Expenses which are not readily
identifiable to a specific Fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the Funds.
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 appropriate net assets
of each class and the specific expense rate(s) applicable to each class.
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.
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.
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.
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. Until September 10, 1996, there
was a sub-advisory agreement between the Adviser and an affiliated
company of the Adviser, NM Capital Management, Inc. (the "Sub-Adviser"),
under which the Sub-Adviser provided the Fund with investment research
and portfolio management services, the Adviser paid the Sub-Adviser
annually 40% of the fee received by the Adviser for managing the Fund.
The Fund was not responsible for the payment of the Sub-Adviser's fee.
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, the reduction
in the Adviser's fee amounted to $244,807 for the period ended December
31, 1996. 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, 1996, net sales charges received with regard to sales of
Class A shares amounted to $115,896. Out of this amount, $18,412 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $29,588 was paid as sales commissions to
unrelated broker-dealers and $67,896 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 ("JHMLICo"), is the
indirect sole shareholder of Distributors and was the indirect sole
shareholder until November 29, 1996 of John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the period ended December 31, 1996, contingent
deferred sales charges paid to JH Funds amounted to $59,601.
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 Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays Signature Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996 was
paid at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid
for 1995, the unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
December 31, 1996, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $30.
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 December 31, 1996, aggregated $27,232,845 and
$22,669,989, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended December 31, 1996.
The cost of investments owned at December 31, 1996 (excluding the
corporate savings account), for federal income tax purposes was
$34,481,960. Gross unrealized appreciation and depreciation of
investments aggregated $4,499,202 and $2,841,573, respectively,
resulting in net unrealized appreciation of $1,657,629.
NOTE D--
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended December 31, 1996, the Fund has reclassified
amounts to reflect an increase in distributions in excess of net
investment income of $472, an increase in accumulated net realized gain
on investments of $16,935 and a decrease in capital paid-in of $16,463.
This represents the cumulative amount necessary to report these balances
on a tax basis as of December 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 certain differences in the computation of distributable
income and capital gains under federal tax rules versus generally
accepted accounting principles.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Capital Series
John Hancock Special Value Fund
We have audited the accompanying statement of assets and liabilities of
the 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, 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 two years in the period then ended
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 and financial highlights. Our
procedures included confirmation of securities owned as of December 31,
1996, 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 the John Hancock Special Value Fund portfolio of
John Hancock Capital Series at December 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 financial highlights
for each of the two years in the period then ended 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 7, 1997
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, 1996.
The Fund designated a distribution to shareholders of $2,370,595 as
long-term capital gain dividends. Shareholders were mailed a 1996 U.S.
Treasury Department Form 1000-DIV in January 1997 representing their
proportionate share.
United States Government Obligations: None of the 1996 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, 1996, 28.19% of the dividends qualify for the
corporate dividends received deductions.
For specific information on exemption provisions in your state, consult
your local state tax office or your tax adviser.
SHAREHOLDER MEETING (UNAUDITED)
On June 26, 1996, a special meeting of John Hancock Special Value Fund
was held.
The shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ------------------------ --------- ------
Dennis S. Aronowitz 1,730,248 31,043
Edward J. Boudreau, Jr. 1,733,671 27,620
Richard P. Chapman, Jr. 1,730,248 31,043
William J. Cosgrove 1,735,291 26,000
Douglas M. Costle 1,735,291 26,000
Leland O. Erdahl 1,735,291 26,000
Richard A. Farrell 1,734,307 26,984
Gail D. Fosler 1,732,687 28,604
William F. Glavin 1,735,291 26,000
Anne C. Hodsdon 1,735,291 26,000
Dr. John A. Moore 1,733,559 27,732
Patti McGill Peterson 1,734,307 26,984
John W. Pratt 1,735,291 26,000
Richard S. Scipione 1,734,755 26,535
Edward J. Spellman 1,734,307 26,984
NOTES
John Hancock Funds - Special Value Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
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." 3700A 12/96
2/97
John Hancock Funds
Utilities
Fund
ANNUAL REPORT
December 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
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
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 Signature Services, Inc.
1 John Hancock Way Ste 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at least one
group has already studied the problem, and experts and politicians alike
have weighed in with a slew of prescriptions. Legislative action could
be in the offing in 1997.
The problem stems from demographic and societal changes. The number
of retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect to use
their own savings or employer-sponsored pensions for their retirement.
Yet, remarkably, another EBRI survey revealed that only slightly more
than half of America's current workers are saving money for retirement.
Fewer than half own IRAs or participate in employer-sponsored pension or
savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY GREGORY K. PHELPS, PORTFOLIO MANAGER
John Hancock
Utilities Fund
Rising natural gas prices and takeovers boost gas utilities;
electric and telephone utilities suffer from heightened competition
Recently, the Fund's fiscal year end changed from May to December. What
follows is a discussion of the Fund's performance for the 12 months
ended December 31, 1996.
Natural gas stocks were some of the stock market's best performers
during 1996, powered by rising natural gas prices and a wave of takeover
activity. Demand for the fuel grew as the global economy strengthened,
while supply remained tight as inventories dwindled. As a result,
natural gas prices remained at very high levels throughout the year,
neatly sidestepping the commodity's traditionally weak summer period.
More importantly, a wave of mergers and acquisitions boosted the prices
of many natural gas stocks during the year.
On the other hand, a number of factors conspired to cast a pall over
electric utility stocks. Chief among them were a volatile bond market,
worries about the potential of heightened competition among electric
providers and expectations for lower dividends and earnings. There
really wasn't very much for the electric utilities to cheer about until
late spring, when state regulators in California passed a law protecting
the state's utilities and their shareholders from footing the bill for
generating plants that are "stranded" -- rendered obsolete -- by cheaper
power sources. All told, electric utilities ended the year as one of the
stock market's worst performing sectors.
A 2 1/4" by 3 1/2" photo of the Fund's management team at bottom right.
Caption reads: "Gregory Phelps and Fund management team members Laura
Provost (l) and Beverly Cleathero (r) at Boston Edison's natural gas-
fired South Boston power plant.
"Natural gas
stocks were
some of
the stock
market's
best
performers..."
Telephone companies also struggled under the weight of increased
competition, as The Telecom Act of 1996 set the stage for long-
distance and local phone companies to enter each other's markets.
Telephone stocks suffered almost as badly as electric utility stocks
during the year.
Pie chart entitled "Portfolio Diversification" at top left hand column.
The chart is divided into six sections. Going from top right to left:
Natural Gas Utilities 43%; Diversified Operations 1%;
Telephone/Telecommunications 8%; Electric Utilities 29%; Oil & Gas 17%;
Short-Term Investments & Other 2%. Footnote below states "As a
percentage of net assets on December 31, 1996."
The Fund
emphasizes
gas companies
that are
primary
takeover
candidates.
Against that mixed backdrop, John Hancock Utilities Fund outpaced its
competitors. For the year ending December 31, 1996, the Fund's Class A
and Class B shares had total returns of 13.53% and 12.65%, respectively,
at net asset value. By comparison, the average utilities fund had a
total return of 9.87%, according to Lipper Analytical Services, Inc.1
Please see pages six and seven for longer-term performance information.
Increased focus on gas utilities
Throughout the year we increased the Fund's holdings in gas utility
stocks to 43% of net assets at year-end, from 5% at the beginning of the
year. The gas utilities have already weathered much of the regulatory
battles that are currently troubling the electric utilities, and they
are generally now on firmer footing.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left hand column is "Investment"; the header for the right column is
"Recent performance .. and what's behind the numbers." The first listing
is Boston Edison followed by an up arrow and the phrase "Improving
balance sheet/strategic alliances." The second listing is "PanEnergy
Corp. followed by an up arrow and the phrase "Proposed acquisition by
Duke Power." The third listing is Frontier Corp. followed by a down
arrow and the phrase "Increased long distance competition/unexpected
write-offs." Footnote below states "See "Schedule of Investments."
Investment holdings are subject to change."
But the primary fuel for the strong performance of natural gas utility
stocks was an increase in the level of mergers and acquisitions. Many
cash-rich electric companies are acquiring gas companies for both
offensive and defensive reasons. Offensively, the electrics buy gas
companies to broaden their energy offerings, transforming themselves
from electric providers to full-service energy companies. Defensively,
many electric utilities are taking over local gas utilities to prevent
their competitors from gaining a foothold in their own markets.
During the year, the Fund placed a growing emphasis on gas companies
that are primary takeover candidates. We target gas companies with good
fundamentals, and avoid buying companies based simply on takeover
speculation. That way, the stock is likely to perform well, even if a
takeover never materializes.
Two of our largest holdings benefited from the takeover wave. Duke
Power, a North Carolina-based electric utility, recently announced its
intent to buy PanEnergy Corp. The acquisition will not only enable Duke
to provide full energy to its customers, but it will give it the
marketing savvy it needs to survive in an increasingly competitive
market. Earlier in the year, Atmos Energy announced that it would
acquire another of our holdings, United Cities Gas Co., a gas
distributor that operates in a number of different states. Once the
merger is finalized, we believe that the combined entity will also be an
attractive takeover candidate in its own right. So we continue to hang
on to the stock.
Given the distressed state of the electric utility sector, we pared them
back to 30% of the Fund's assets at the end of the year, from about 52%
at the beginning. However, there were some bright spots among our
electric holdings including Boston Edison, a company we believe is well-
positioned to be one of the winners in a more competitive environment.
Not only does Boston Edison have a solid relationship with state
regulators, but it also has an improving balance sheet and key strategic
alliances with telecommunications and natural gas companies.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended December 31,
1996." The chart is scaled in increments of 5% from bottom to top, with
15% at the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 13.53% total return for John
Hancock Utilities Fund: Class A. The second represents the 12.65% total
return for John Hancock Utilities Fund: Class B. The third represents
the 9.87% total return for the average utilities fund. The footnote
below states: "Total returns for John Hancock Utilities Fund are at net
asset value with all distributions reinvested. The average utilities
fund is tracked by Lipper Analytical Services. See following two pages
for historical performance information."
Telephone utilities
Throughout the year we kept the Fund's exposure to telephone stocks
extremely light. That was a positive given the sector's weak
performance. Yet we were able to identify some companies that bucked the
trend. One of our favorites and best performers is Ameritech, which has
benefited from its growing cellular operations and its forays into
foreign markets. The company's management team -- considered to be one
of the best in the industry -- has done a good job of honing its costs.
The stock got an added boost in December when the company raised its
dividend payout rate to 6.6% based on its confidence in its future
business prospects.
Outlook
Our outlook calls for further strength in the gas utility sector. There
is currently work underway in Congress to repeal the Public Utility
Holding Company Act of 1935, a Depression-era piece of legislation
designed to break up trusts and monopolies and to prevent multi-state
utility holding companies from exercising monopoly control. Many
utilities have sat on the sidelines, wary that any acquisitions could be
in violation of this act. If the legislation is repealed, which we think
is likely, it would be a catalyst for further convergence in the utility
sector. In the electric and telephone sectors, we'll continue to focus
on owning the most competitive companies. That said, the key to utility
stocks' performance will be the direction of interest rates. While we
believe interest rates should remain stable over the next quarter or so,
the Fed's bias appears to be to raise short-term rates if the economy
begins to grow at too fast a pace.
"Our outlook
calls for
further
strength in
the gas
utility
sector."
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.
Sector investing is subject to greater risks than the market as a whole.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Utilities 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.
The effect of the maximum contingent deferred sales charge for Class B
shares (maximum 5% and declining to 0% over six years) is included in
Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the
future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them. Please see the prospectus for risks associated with industry
segment investing.
CUMULATIVE TOTAL RETURNS
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
----------- -----------
John Hancock Utilities Fund: Class A 7.83% 25.62%(1)
John Hancock Utilities Fund: Class B 7.65% 26.62%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
----------- -----------
John Hancock Utilities Fund: Class A (2) 7.83%(2) 8.15%(1)
John Hancock Utilities Fund: Class B (2) 7.65%(2) 8.45%(1)
Notes to Performance
(1) Both Class A and Class B shares started on February 1, 1994.
(2) Without the limitation of expenses, the average annualized total
returns for the one-year period and since inception would have been
7.36% and 6.45% for Class A shares and 7.18% and 6.75% for Class B
shares.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Utilities Fund would be worth on December 31, 1996. They assume
that you either had invested on the day each class of shares started, or
that you have been invested for the most recent 10 years. In either
case, they also assume that you have reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Dow Jones
Utilities Average -- an unmanaged index that measures the performance of
the utility industry in the United States. It consists of 15 actively
traded stocks representing a cross-section of corporations involved in
various phases of the utility industry.
Utilities Fund
Class A shares
Line chart with the heading Utilities 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 Utilities Fund, before sales charge, and is equal to $13,227 as
of December 31, 1996. The second line represents the value of the
hypothetical $10,000 investment made in the Utilities Fund, after sales
charge, on February 1, 1994, and is equal to $12,562 as of December 31,
1996. The third line represents the Dow Jones Utilities Average Index,
and is equal to $10,288 as of December 31, 1996.
Utilities Fund
Class B shares
Line chart with the heading Utilities 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 Utilities Fund, before sales charge, and is equal to $12,962 as
of December 31, 1996. The second line represents the value of the
hypothetical $10,000 investment made in the Utilities Fund, after sales
charge, on February 1, 1994, and is equal to $12,662 as of December 31,
1996. The third line represents the value of the Dow Jones Utilities
Average Index, and is equal to $10,288 as of December 31, 1996.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
Statement of Assets and Liabilities
December 31, 1996
- -------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $58,801,601) $65,923,308
Preferred stocks (cost - $7,231,527) 7,316,831
Joint repurchase agreement (cost - $1,054,000) 1,054,000
Corporate savings account 457
-----------
74,294,596
Receivable for shares sold 234,316
Dividends and interest receivable 366,502
Deferred organization expenses - Note A 19,216
Other assets 1,956
-----------
Total Assets 74,916,586
- -------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 6,035
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 46,508
Accounts payable and accrued expenses 40,037
-----------
Total Liabilities 92,580
- -------------------------------------------------------------------------
Net Assets:
Capital paid-in 67,151,690
Accumulated net realized gain on investments and
foreign currency transactions 466,940
Net unrealized appreciation of investments and
foreign currency transactions 7,207,172
Distributions in excess of net investment income (1,796)
-----------
Net Assets $74,824,006
=========================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding - unlimited
number of shares authorized with no par value)
Class A - $23,780,675 / 2,622,735 $9.07
=========================================================================
Class B - $51,043,331 / 5,645,948 $9.04
=========================================================================
Maximum Offering Price Per Share *
Class A - ($9.07 x 105.26%) $9.55
=========================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows the
value of what the Fund owns, is due and owes on December 31, 1996. You'll also find
the net asset value and the maximum offering price per share as of that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
PERIOD FROM
JUNE 1, 1996
YEAR ENDED TO DECEMBER 31,
MAY 31, 1996 1996 (1)
----------- -----------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding taxes of
$18,696 and $2,990, respectively) $3,367,327 $2,675,737
Interest 523,887 90,075
----------- -----------
3,891,214 2,765,812
----------- -----------
Expenses:
Investment management fee - Note B 492,174 298,083
Distribution/service fee - Note B
Class A 71,612 40,329
Class B 464,398 291,403
Transfer agent fee - Note B 178,131 108,816
Custodian fee 45,488 28,000
Registration and filing fees 38,641 30,081
Printing 32,211 15,903
Auditing fee 20,000 20,072
Organization expense - Note A 6,984 4,986
Trustees' fees 6,460 449
Miscellaneous 6,323 --
Financial services fee - Note B 5,780 7,984
Legal fees 3,737 877
----------- -----------
Total Expenses 1,371,939 846,983
Less Expense Reductions - Note B (302,645) (193,518)
- -------------------------------------------------------------------------------------------
Net Expenses 1,069,294 653,465
- ------------------------------------------------------------------------------------------
Net Investment Income 2,821,920 2,112,347
- ------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 3,972,848 2,892,488
Net realized gain on foreign currency
transactions 3,216 --
Change in net unrealized appreciation/
depreciation of investments 2,353,641 2,410,522
Change in net unrealized appreciation/
depreciation of foreign currency transactions (5,886) 1,870
----------- -----------
Net Realized and Unrealized Gain on
Investments and Foreign Currency Transactions 6,323,819 5,304,880
- ------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations $9,145,739 $7,417,227
==========================================================================================
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
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 periods stated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED YEAR ENDED JUNE 1, 1996 TO
MAY 31, 1995 MAY 31, 1996 DECEMBER 31, 1996(1)
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $1,639,725 $2,821,920 $2,112,347
Net realized gain on investments ------------ ------------ ------------
sold and foreign currency transactions 1,432 3,976,064 2,892,488
Change in net unrealized appreciation/
depreciation of investments and
foreign currency transactions 2,466,201 2,347,755 2,412,392
------------ ------------ ------------
Net Increase in Net Assets Resulting
from Operations 4,107,358 9,145,739 7,417,227
------------ ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- ($0.3401, $0.4066
and $0.3540 per share, respectively) (493,188) (1,082,445) (858,923)
Class B -- ($0.2988, $0.3441
and $0.3052 per share, respectively) (767,459) (1,783,735) (1,614,575)
Distributions from net realized gain
on investments sold
Class A -- (none, $0.0963 and
$0.7294 per share, respectively) -- (311,873) (1,758,261)
Class B -- (none, $0.0963 and
$0.7294 per share, respectively) -- (513,330) (3,816,535)
------------ ------------ ------------
Total Distributions to
Shareholders (1,260,647) (3,691,383) (8,048,294)
------------ ------------ ------------
From Fund Share Transactions --
Net* 53,500,247 7,306,556 5,121,469
------------ ------------ ------------
Net Assets:
Beginning of period 1,225,734 57,572,692 70,333,604
------------ ------------ ------------
End of period (including undistributed
net investment income of $397,138 and
$361,151 and distributions in excess
of net investment income of $1,796,
respectively) $57,572,692 $70,333,604 $74,824,006
============ ============ ============
* Analysis of Fund Share Transactions:
PERIOD FROM
YEAR ENDED YEAR ENDED JUNE 1, 1996 TO
MAY 31, 1995 MAY 31, 1995 DECEMBER 31, 1996 (1)
-------------------------- -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------ ------------ ------------
CLASS A
Shares sold 3,085,752 $24,890,175 4,072,162 $35,815,891 1,071,338 $9,968,327
Shares issued to shareholders in
reinvestment of distributions 49,990 400,435 107,077 941,191 265,854 2,397,803
------------ ------------ ------------ ------------ ------------ ------------
3,135,742 25,290,610 4,179,239 36,757,082 1,337,192 12,366,130
Less shares repurchased (961,612) (7,849,867) (3,987,048) (35,252,919) (1,175,294) (10,956,893)
------------ ------------ ------------ ------------ ------------ ------------
Net increase 2,174,130 $17,440,743 192,191 $1,504,163 161,898 $1,409,237
============ ============ ============ ============ ============ ============
CLASS B
Shares sold 4,745,699 $38,182,620 2,183,807 $18,762,882 835,138 $7,777,441
Shares issued to shareholders in
reinvestment of distributions 79,202 633,888 161,956 1,417,990 489,560 4,404,386
------------ ------------ ------------ ------------ ------------ ------------
4,824,901 38,816,508 2,345,763 20,180,872 1,324,698 12,181,827
Less shares repurchased (341,569) (2,757,004) (1,656,864) (14,378,479) (904,956) (8,469,595)
------------ ------------ ------------ ------------ ------------ ------------
Net increase 4,483,332 $36,059,504 688,899 $5,802,393 419,742 $3,712,232
============ ============ ============ ============ ============ ============
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
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 and foreign currency gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the Fund.
The footnote illustrates the number of Fund shares sold, reinvested and repurchased,
along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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:
- ----------------------------------------------------------------------------------------
YEAR ENDED MAY 31, PERIOD FROM
-------------------------------- JUNE 1, 1996 TO
1994 (1) 1995 1996 DECEMBER 31 1996(9)
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.50 $8.26 $8.48 $9.17
-------- -------- -------- --------
Net Investment Income (2) 0.12 0.44 0.41 0.30
Net Realized and Unrealized
Gain (Loss) on Investments
and Foreign Currency
Transactions (0.36) 0.12 0.79 0.68
-------- -------- -------- --------
Total from Investment
Operations (0.24) 0.56 1.20 0.98
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income -- (0.34) (0.41) (0.35)
Distributions from Net Realized
Gain on Investments Sold -- -- (0.10) (0.73)
-------- -------- -------- --------
Total Distributions -- (0.34) (0.51) (1.08)
-------- -------- -------- --------
Net Asset Value, End of Period $8.26 $8.48 $9.17 $9.07
======== ======== ======== ========
Total Investment Return at
Net Asset Value (3) (2.82%)(4) 7.10% 14.44% 11.05%(4)
Total Adjusted Investment Return
at Net Asset Value (3)(5) (13.89%)(4) 6.44% 14.01% 10.78%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $781 $19,229 $22,574 $23,781
Ratio of Expenses to Average
Net Assets 1.00%(6) 1.04% 1.04% 1.06%(6)
Ratio of Adjusted Expenses to
Average Net Assets (7) 12.07%(6) 1.70% 1.47% 1.51%(6)
Ratio of Net Investment Income to
Average Net Assets 4.53%(6) 5.39% 4.49% 5.44%(6)
Ratio of Adjusted Net Investment
Income (Loss) to Average Net Assets (7) (6.54%)(6) 4.73% 4.06% 4.99%(6)
Portfolio Turnover Rate 6% 98% 124% 48%
Fee Reduction Per Share (2) $0.27 $0.05 $0.04 $0.02
Average Brokerage Commission
Rate (8) N/A N/A N/A $0.0700
The Financial Highlights summarizes the impact of the following factors on a single share
for the periods indicated: the net investment income, gains (losses), distributions and total
investment returns 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.
YEAR ENDED MAY 31, PERIOD FROM
-------------------------------- JUNE 1, 1996 TO
1994 (1) 1995 1996 DECEMBER 31 1996(9)
-------- -------- -------- ---------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.50 $8.25 $8.45 $9.14
-------- -------- -------- --------
Net Investment Income (2) 0.08 0.38 0.34 0.26
Net Realized and Unrealized
Gain (Loss) on Investments
and Foreign Currency
Transactions (0.33) 0.12 0.79 0.68
-------- -------- -------- --------
Total from Investment Operations (0.25) 0.50 1.13 0.94
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income -- (0.30) (0.34) (0.31)
Distributions from Net Realized
Gain on Investments Sold -- -- (0.10) (0.73)
-------- -------- -------- --------
Total Distributions -- (0.30) (0.44) (1.04)
-------- -------- -------- --------
Net Asset Value, End of Period $8.25 $8.45 $9.14 $9.04
======== ======== ======== ========
Total Investment Return at
Net Asset Value (3) (2.94%)(4) 6.31% 13.68% 10.50%(4)
Total Adjusted Investment
Return at Net Asset Value (3)(5) (14.01%)(4) 5.65% 13.25% 10.23%(4)
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $445 $38,344 $47,759 $51,043
Ratio of Expenses to Average
Net Assets 1.72%(6) 1.71% 1.77% 1.75%(6)
Ratio of Adjusted Expenses to
Average Net Assets (7) 12.79%(6) 2.37% 2.20% 2.20%(6)
Ratio of Net Investment Income
to Average Net Assets 4.20%(6) 4.64% 3.77% 4.74%(6)
Ratio of Adjusted Net Investment
Income (Loss) to Average Net Assets (7) (6.87%)(6) 3.98% 3.34% 4.29%(6)
Portfolio Turnover Rate 6% 98% 124% 48%
Fee Reduction Per Share (2) $0.27 $0.05 $0.04 $0.02
Average Brokerage Commission Rate (8) N/A N/A N/A $0.0700
(1) Class A and Class B shares commenced operations on February 1, 1994.
(2) Based on the average of shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration fee reductions
by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(9) Effective December 31, 1996, the fiscal year end changed from May 31 to December 31.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
December 31, 1996
- ----------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of securities owned by the Fund on
December 31, 1996. It's divided into three main categories: common stocks, preferred
stocks, and short-term investments. Short-term investments, which represent the Fund's
cash position are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ------------------- -------
<S> <C> <C>
COMMON STOCKS
Finance (0.04%)
Echelon International Corp. * 1,833 $28,641
------------
Oil & Gas (12.94%)
Coastal Corp. 20,000 977,500
Columbia Gas System, Inc. 12,500 795,313
El Paso Natural Gas Co. 15,000 757,500
Enron Corp. 30,000 1,293,750
Equitable Resources, Inc. 26,000 773,500
Forcenergy, Inc.* 28,100 1,018,625
Global Marine, Inc.* 50,000 1,031,250
NGC Corp. 35,100 816,075
PanEnergy Corp. 12,000 540,000
Tejas Gas Corp.* 19,000 904,875
Williams Cos., Inc. (The) 20,700 776,250
------------
9,684,638
------------
Utilities (75.12%)
AGL Resources, Inc. 47,000 992,875
Ameritech Corp. 9,500 575,938
Bay State Gas Co. 36,800 1,039,600
Bell Atlantic Corp. 14,750 955,062
Boston Edison Co. 40,000 1,075,000
Brooklyn Union Gas Co. 60,000 1,807,500
Cascade Natural Gas Corp. 21,300 362,100
Century Telephone Enterprises 17,000 524,875
CMS Energy Corp. 65,860 2,214,542
Colonial Gas Co. 41,000 871,250
Connecticut Energy Corp. 50,000 1,062,500
Connecticut Natural Gas Corp. 40,000 1,020,000
Consolidated Natural Gas Co. 12,500 690,625
Delmarva Power & Light Co. 57,800 1,177,675
Eastern Enterprises 21,000 742,875
Energen Corp. 55,000 1,663,750
Florida Progress Corp. 27,500 886,875
Frontier Corp. 35,000 791,875
GTE Corp. 14,700 668,850
Houston Industries, Inc. 53,500 1,210,437
IPALCO Enterprises, Inc. 32,250 878,813
KN Energy, Inc. 20,000 785,000
LG&E Energy Corp. 39,000 955,500
Long Island Lighting Co. 68,000 1,504,500
MDU Resources Group, Inc. 41,500 954,500
MidAmerican Energy Holdings Co. 71,800 1,139,825
National Fuel Gas Co. 34,600 1,427,250
National Power PLC, American Depositary
Receipts (United Kingdom) 25,000 846,875
New England Electric System 37,000 1,290,375
New Jersey Resources Corp. 35,000 1,023,750
NICOR, Inc. 24,000 858,000
North Carolina Natural Gas Corp. 17,000 490,875
Northwest Natural Gas Co. 30,500 732,000
NUI Corp. 52,000 1,176,500
NYNEX Corp. 30,000 1,443,750
ONEOK Inc. 36,500 1,095,000
Pacific Enterprises 75,000 2,278,125
PacifiCorp 50,000 1,025,000
People's Energy Corp. 28,000 948,500
Piedmont Natural Gas Co., Inc. 35,000 818,125
Providence Energy Corp. 52,200 913,500
Public Service Enterprise Group, Inc. 49,000 1,335,250
Puget Sound Power & Light Co. 37,000 888,000
Questar Corp. 24,500 900,375
Sierra Pacific Resources 30,000 862,500
South Jersey Industries, Inc. 49,000 1,194,375
Southern Union Co.* 48,300 1,062,600
UGI Corp. 37,500 839,063
United Cities Gas Co. 57,000 1,282,500
UtiliCorp United, Inc. 47,000 1,269,000
Washington Gas Light Co. 43,500 984,187
Washington Water Power Co. 35,000 651,875
Wicor, Inc. 30,100 1,079,837
Yankee Energy System, Inc. 44,000 940,500
------------
56,210,029
------------
TOTAL COMMON STOCKS
(Cost $58,801,601) (88.10%) 65,923,308
------- ------------
PREFERRED STOCKS
Diversified Operations (0.96%)
El Paso Tennessee Pipeline Co.,
8.25%, Ser A 14,000 $715,750
------------
Oil & Gas (3.60%)
Coastal Corp., $2.125, Ser H 67,130 1,720,206
Phillips 66 Capital I, 8.24% 38,500 972,125
------------
2,692,331
------------
Utilities (5.22%)
Capita Preferred Trust, 9.06% 20,000 512,500
Kentucky Power, 8.72%, Ser A 40,000 1,015,000
MCN Michigan L.P., 9.375%, Ser A 30,000 806,250
Minnesota Power & Light Capital I,
8.05% 35,000 857,500
Sprint Corp., 8.25% 20,000 717,500
------------
3,908,750
------------
TOTAL PREFERRED STOCKS
(Cost $7,231,527) (9.78%) 7,316,831
------- ------------
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
RATE OMITTED) VALUE
-------- --------- -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.41%)
Investment in a joint repurchase
agreement transaction with
Lehman Brothers, Inc.
Dated 12-31-96,
Due 01-02-97 (Secured by
U.S. Treasury Bonds, 7.25%
thru 12.50%, due 08-15-14
thru 08-15-22) -- Note A 6.70% $1,054 1,054,000
------------
Corporate Savings Account (0.00%)
Investors Bank and Trust Company
Daily Interest Savings Account
Current Rate 4.75% 457
------------
TOTAL SHORT-TERM INVESTMENTS (1.41%) 1,054,457
------- ------------
TOTAL INVESTMENTS (99.29%) $74,294,596
======= ============
* 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.
</TABLE>
NOTES TO
FINANCIAL STATEMENTS
John Hancock Funds - Utilities 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 three series portfolios: John Hancock Utilities
Fund (the "Fund"), John Hancock Independence Equity Fund and John
Hancock Special Value Fund. Until August 30, 1996, the Fund was a series
of John Hancock Strategic Series. On May 21, 1996, the Trustees voted to
change the fiscal period end from May 31 to December 31. This change is
effective December 31, 1996. The other two series of the Trust are
reported in separate financial statements. The investment objective of
the Fund is to seek current income and, to the extent consistent with
that objective, growth of income and long-term growth of capital.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant 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
instruments 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 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.
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 its taxable income,
including any net realized gain on investments, to its shareholders.
Therefore, no federal income tax provision is required. Additionally,
net capital losses of $759,613, attributable to securities transactions
incurred after October 31, 1996 are treated as arising on the first day
(January 1, 1997) of the Fund's next taxable year.
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.
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.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
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 relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
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.
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 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 (a) 0.70% of the
first $250,000,000 of the Fund's average daily net asset value and (b)
0.65% of the Fund's average daily net asset value in excess of
$250,000,000.
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
0.50% of the Fund's average daily net assets. Accordingly, the reduction
in the Adviser's fee amounted to $193,518 for the period ended December
31, 1996. 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, 1996, JH Funds received net sales charges of $109,301 with
regard to sales of Class A shares. Out of this amount, $15,762 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $46,618 was paid as sales commissions to
unrelated broker-dealers, and $46,921 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 ("JHMLICo"), is the
indirect sole shareholder of Distributors and was the indirect sole
shareholder until November 29, 1996 of John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended December 31, 1996, the contingent deferred
sales charges received by JH Funds amounted to $111,759.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not 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 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.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect wholly-owned
subsidiary of JHMLICo. The Fund pays transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996
was at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr. , Mr.Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and officers of the Adviser, and its affiliates,
as well as Trustees of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995,
the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
December 31, 1996, the Fund's investments to cover the defined
compensation liability had unrealized appreciation of $161.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other then obligations
of the U.S. government and its agencies and short-term securities,
during the period ended December 31, 1996, aggregated $34,620,599 and
$33,419,420 respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended December 31, 1996.
The cost of investments owned at December 31, 1996 for Federal income
tax purposes was $67,111,328. Gross unrealized appreciation and
depreciation of investments aggregated $8,174,845 and $992,034,
respectively, resulting in net unrealized appreciation of $7,182,811.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended December 31, 1996, the Fund has reclassified
amounts to reflect an increase in accumulated net realized gain on
investments of $4,744, an increase in distributions in excess of net
investment income of $1,796 and a decrease in capital paid-in of $2,948.
This represents the amount necessary to report these balances on a tax
basis, excluding certain temporary differences, as of December 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 certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles. The calculation
of net investment income per share in the financial highlights excludes
these adjustments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Utilities Fund
and the Trustees of John Hancock Capital Series
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of John
Hancock Utilities Fund (the "Fund") (a series of John Hancock Capital
Series) at December 31, 1996, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse, LLP
Boston, Massachusetts
February 7, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished
with respect to the taxable distributions of the Fund for its fiscal
year ended December 31, 1996.
The Fund designated a distribution to shareholders of $2,827,636 as
long-term capital gain dividends. Shareholders were mailed a 1996 U.S.
Treasury Department form 1099-DIV in January 1997 representing their
proportionate share.
U.S. Government Obligations: Income from these investments may be exempt
from certain state and local taxes. The Fund did not have any assets
invested in U.S. Treasury bonds, bills and notes at year end. The
percentage of income derived from U.S. Treasury bonds, bills and notes
was 0.52%. The Fund did not have any assets invested in obligations of
other U.S. government agencies (excluding securities issued by Federal
National Mortgage Association and Government National Mortgage
Association) at year end. The percentage of income derived from these
investments was 0.29%. For specific information on exemption provisions
in your state, consult your local state tax office or your tax adviser.
With respect to the Fund's ordinary taxable income for the fiscal year
ended December 31, 1996, 54.65% qualifies for the dividends received
deduction available to corporations.
SHAREHOLDER MEETING (UNAUDITED)
On June 28, 1996, a special meeting of John Hancock Utilities Fund was
held.
The shareholders approved an Agreement and Plan of Reorganization for
the Fund. The shareholder votes were 3,573,403 FOR, 90,454 AGAINST and
364,954 ABSTAINING.
The shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------- -------------------------- --------------------
Dennis S. Aronowitz 4,740,358 84,034
Edward J. Boudreau, Jr. 4,739,708 84,685
Richard P. Chapman, Jr. 4,740,358 84,034
William J. Cosgrove 4,740,358 84,034
Douglas M. Costle 4,739,565 84,828
Leland O. Erdahl 4,740,048 84,344
Richard A. Farrell 4,740,358 84,034
Gail D. Fosler 4,740,358 84,034
William F. Glavin 4,739,953 84,440
Anne C. Hodsdon 4,739,708 84,685
Dr. John A. Moore 4,739,306 85,086
Patti McGill Peterson 4,738,249 86,143
John W. Pratt 4,740,358 84,034
Richard S. Scipione 4,739,786 84,607
Edward J. Spellman 4,740,358 84,034
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
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PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Utilities 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." 4100A 12/96
2/97
