John Hancock Funds
Independence
Equity Fund
SEMI-ANNUAL REPORT
November 30, 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.
P.O. Box 9116
Boston, Massachusetts 02205-9116
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
60 State Street
Boston, Massachusetts 02109
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:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to make
their prospectuses more user-friendly. He noted that prospectuses are
often overloaded with technical detail and are hard for most investors
to understand. Many industry observers agreed, and rightly so.
So it is my pleasure to let you know that after being under development
for a year, John Hancock Funds has introduced new simplified and
consolidated prospectuses. The prospectuses feature shorter, clearer
language with a streamlined design, and they incorporate several funds
with similar investment objectives into one document. They cover our
income, growth, growth and income, tax-free income, international/global
and money market funds. We are gratified at the favorable reviews that
our new prospectuses have received from shareholders, financial
advisers, industry analysts and the press. We believe they are a bold
but sensible step forward. And while they are easier to read, they still
comply with all federal and needed guidelines.
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page
spread highlighting each fund's goals and investment strategy, the types
of securities it buys, its portfolio management and risk factors, all in
plainer language. Fund expenses and financial highlights are now found
here, too, as is a new bar chart that shows year-to-year volatility for
each fund. Other features include a better presentation of fund
services, a new glossary of investment risks and a discussion about how
funds are organized, including a diagram showing the connection of the
various players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive toward
better mutual fund prospectuses. We hope you will agree because in the
end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Equity Fund
Stock market rockets to new record
while Fund sticks to disciplined approach
The stock market has been full of surprises. During the first half of
the year, stock prices climbed while interest rates rose. Then early in
July, the market took a sharp downturn. It recovered quickly, however,
as signs of more moderate economic growth and stable inflation sent
interest rates falling. By summer's end, the market was ready to advance
again. But no one anticipated just how far and how fast it would move
once the election was over and Republicans had retained control of
Congress -- a signal that government spending may remain in check.
In this environment, financial stocks posted particularly strong gains.
These stocks tend to do well when interest rates are falling, which
lowers borrowing costs. Investors also favored large-company growth
stocks -- those with a steady history of growing earnings at above-
average rates. This benefited sectors like energy and health care, where
large companies dominate.
A 2 1/4" x 3 1/2" 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."
"The stock
market has
been full of
surprises."
Led by these groups, the Standard & Poor's 500-Stock Index -- a broad
measure of the stock market -- returned 14.37% for the six months ended
November 30, 1996. This is a very strong six-month performance,
significantly higher than the average annual norm of approximately 8-
10%. Stock-market investors, especially newer ones, should certainly not
set their future expectations on such lofty levels. Over the same
period, the average growth and income fund returned 11.41%, according to
Lipper Analytical Services.1 By comparison, John Hancock Independence
Equity Fund's Class A and B shares delivered total returns of 12.83% and
12.46%, respectively, at net asset value. Please see pages six and seven
for longer-term performance information. Driving performance was the
Fund's disciplined investment strategy. As always, that meant
maintaining a risk level comparable to the S&P 500 and focusing on
stocks that were cheap and had improving fundamentals.
Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) DuPont 3.0% 2) United
Technologies 2.6% 3) Intel 2.4% 4) Bristol-Meyers Squibb 2.4% 5) Johnson
& Johnson 2.2%. A footnote below reads "As a percentage of net assets on
November 30, 1996."
"Insurance
stocks were
among the
Fund's top
performers."
Health care and technology shine
Some of our best performance came from large health-care companies.
Bristol-Meyers Squibb, one of the Fund's top investments, was up 35%
during the six-month period. The stock rose on news of the company's
promising new anti-cancer drug, as well as strength in its hair coloring
business. Johnson & Johnson, another one of our top investments, also
did well. The largest diversified health-care company in the United
States, it has a reputation for effective distribution, cost control and
management. In addition, sales growth has been strong, thanks to its
rich pipeline of new drugs and medical supplies.
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 "United Technologies" followed by an up arrow and the phrase
"Stronger balance sheet attracts investors". The second listing is
"Bristol-Meyers Squibb." followed by an up arrow and the phrase
"Promising anti-cancer drug boosts earnings estimates". The third
listing is "AT&T" followed by a down arrow and the phrase "Restructuring
benefits take longer than expected". Footnote below reads: "See
'"Schedule of Investments." Investment holdings are subject to change."
In the technology group, our biggest name was Intel, which was up 68%
for the period. It did well because of higher-than-expected demand for
its newest generation chip (the Pentium Pro) and a focus on high
profitability products like microprocessors. IBM, up 50%, saw strong
gains on the PC side of its business, along with solid growth on the
mainframe side. At the same time, the stock benefited from the company's
restructuring and share buyback programs.
Insurance stocks were also among the Fund's top performers. Falling
interest rates boosted the value of insurers' sizable bond investments.
And fewer natural disasters in 1996 meant fewer claims for property and
casualty companies. The Fund owns Cigna, a multi-line insurance company
that recently restructured its property and casualty business. It
returned 24% for the period. General Re, another investment in the
property and casualty area, also turned in strong results.
Disappointments and changes
Despite these gains, three of the Fund's largest investments stumbled
during the period and hurt performance. AT&T's stock fell 11%, as it
became clear that it would take longer than expected to see the rewards
of its restructuring. We've held on to the stock, however, because we
believe in its long-term prospects. We also believe the company's break-
up value is worth more than its current value.
Our second disappointment came from Xerox, which fell 5% over the
period. Costs in its South American operations increased more than
expected and hurt profits. The stock has recently bounced back somewhat.
Again, we've held on to it because we expect the company to grow profits
through new products and cost cutting. By contrast, we decided to sell
PepsiCo -- our third disappointment -- as weakness in its restaurant and
international soft drink business continued to undermine the company's
prospects.
We made some other changes, including beefing up our stake in chemicals
by adding DuPont (E.I.) De Nemours. DuPont, the Fund's largest
investment, has interests in both chemicals and oil. The recent hike in
oil prices has already boosted earnings, which are growing at a fast
rate. At the same time, we reduced our stake in banks when we sold
Citicorp for a nice profit. We felt the stock had become too expensive,
and we stood by our strong sell discipline.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote "For the six months ended November 30,
1996." The chart is scaled in increments of 5% from top to bottom with
15% at the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 12.83% total return for John
Hancock Independence Equity Fund: Class A. The second represents the
12.46% total return for John Hancock Independence Equity Fund: Class B.
The third represents the 11.41% 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.
Reasons for optimism and caution
We expect the economy to continue growing at a moderate rate, inflation
to stay steady and employment to remain full. If interest rates also
stay stable -- which is a good possibility -- the market could continue
to prosper. The money flowing into the market through long-term savings
vehicles like retirement plans also shows no hint of slowing. So there
are definitely reasons for optimism.
Of course, there are also reasons for caution. The market has marched
almost straight uphill for the past 18 months, and this can't continue
indefinitely. If investors get nervous and begin taking profits, the
market could easily drop. In addition, many companies will probably see
a slowdown in corporate earnings growth, making them less attractive to
investors. Finally, a rise in interest rates could reverse the market's
direction. Whatever happens, we believe it's unrealistic to expect stock
returns to match what we've seen recently.
In any case, we'll stick to our investment discipline. We won't try to
time the market or chase the idea of the day. Instead, we'll stay fully
invested in the stocks that we believe offer the best return potential
for their value. Over the long term, we believe shareholders will
benefit from this approach.
"...it's
unrealistic to
expect stock
returns to
match what
we've seen
recently."
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. Of
course, the team's views are subject to change as market and other
conditions warrant.
1 Figures 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 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 September 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
----- ------ -----
John Hancock Independence Equity
Fund: Class A(3) 13.43% 95.96% 98.56%(1)
John Hancock Independence Equity
Fund: Class B(3) 13.50% N/A 18.78%(2)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
------ ------ -----
John Hancock Independence Equity
Fund: Class A(3) 13.43% 14.40% 13.80%(1)
John Hancock Independence Equity
Fund: Class B(3) 13.50% N/A 17.51%(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 12.91%, 13.45% and 12.81%, 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
12.98% and 16.81%, 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 November 30, 1996,
assuming you had invested on the day each class of shares started and
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 $22,895 as of November 30, 1996. The second line represents the
value of the Standard & Poor's 500 Stock Index and is equal to $22,547
as of November 30, 1996. The third line represents the Independence
Equity Fund, after sales charge, and is equal to $21,742 as of November
30, 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 $13,858 as of November 30, 1996. The second line represents
the value of the hypothetical $10,000 investment made in the
Independence Equity Fund, before sales charge, on September 7, 1995, and
is equal to $13,322 as of November 30, 1996. The third line represents
the value of the Independence Equity Fund, after sales charge, and is
equal to $12,922 as of November 30, 1996.
<TABLE>
<CAPTION>
John Hancock Funds - Independence Equity 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 November 30, 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
November 30, 1996 (Unaudited)
- ----------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Common stocks (cost -- $59,728,232) $67,563,454
Short-term investments (cost -- $3,828,000) 3,828,000
Corporate savings account 515
------------
71,391,969
Receivable for investments sold 309,609
Receivable for shares sold 484,740
Dividends receivable 169,598
Interest receivable 1,071
Other assets 2,468
------------
Total Assets 72,359,455
- ----------------------------------------------------------------
Liabilities:
Payable for investments purchased 1,289,840
Payable to John Hancock Advisers,
Inc. and affiliates --
Note B 35,639
Accounts payable and accrued expenses 35,838
------------
Total Liabilities 1,361,317
================================================================
Net Assets:
Capital paid-in 61,753,915
Accumulated net realized gain on investments and
foreign currency transactions 1,362,726
Net unrealized appreciation of investments 7,835,571
Undistributed net investment income 45,926
------------
Net Assets $70,998,138
================================================================
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 -- $31,415,836 / 1,557,406 $20.17
================================================================
Class B -- $39,582,302 / 1,964,403 $20.15
================================================================
Maximum Offering Price Per Share*
Class A -- ($20.17 x 105.26%) $21.23
================================================================
* 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.
</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
Six months ended November 30, 1996 (Unaudited)
- ----------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes
of $514) $518,083
Interest 59,684
------------
577,767
------------
Expenses:
Investment management fee -- Note B 169,775
Distribution/service fee -- Note B
Class A 31,789
Class B 120,402
Transfer agent fee -- Note B 58,689
Registration and filing fees 38,618
Custodian fee 20,806
Auditing fee 17,070
Printing 16,347
Financial services fee -- Note B 4,244
Legal fees 1,162
Miscellaneous 809
Trustees' fees 456
------------
Total Expenses 480,167
Less expense reductions --
Note B (102,671)
- ----------------------------------------------------------------
Net Expenses 377,496
- ----------------------------------------------------------------
Net Investment Income 200,271
- ----------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments sold 830,220
Change in net unrealized appreciation/depreciation
of investments 5,947,288
------------
Net Realized and Unrealized Gain
on Investments 6,777,508
- ----------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $6,977,779
================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------
SIX
MONTHS ENDED
YEAR ENDED NOVEMBER 30,1996
MAY 31, 1996 (UNAUDITED)
------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $224,281 $200,271
Net realized gain on investments sold 13,818,303 830,220
Change in net unrealized appreciation/
depreciation of investments (9,915,169) 5,947,288
------------- -------------
Net Increase in Net Assets Resulting from
Operations 4,127,415 6,977,779
Distributions to Shareholders:
Distributions from net investment income
Class A -- ($0.2181 and $0.1048 per
share, respectively) (468,668) (111,368)
Class B** -- ($0.0934 and $0.0429 per
share, respectively) (13,068) (49,419)
Distributions from net realized gain on
investments sold
Class A -- ($0.2907 and none per
share, respectively) (2,049,001) --
------------- -------------
Total Distributions to Shareholders (2,530,737) (160,787)
------------- -------------
From Fund Share Transactions -- Net* (73,011,934) 34,178,111
------------- -------------
Net Assets:
Beginning of period 101,418,291 30,003,035
------------- -------------
End of period (including undistributed
net investment income of
$6,442 and $45,926, respectively) $30,003,035 $70,998,138
============= =============
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1996
MAY 31, 1996 (UNAUDITED)
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
Shares sold 950,002 $15,689,378 994,867 $18,344,165
Shares issued to shareholders in
reinvestment of distributions 176,962 2,504,943 5,064 92,082
------------- ------------- ------------- -------------
1,126,964 18,194,321 999,931 18,436,247
Less shares repurchased (7,336,631) (105,475,141) (270,048) (4,985,569)
------------- ------------- ------------- -------------
Net increase (decrease) (6,209,667) ($87,280,820) 729,883 $13,450,678
============= ============= ============= =============
CLASS B**
Shares sold 904,689 $15,323,273 1,214,730 $22,423,141
Shares issued to shareholders in
reinvestment of distributions 1,324 21,802 2,405 43,759
------------- ------------- ------------- -------------
906,013 15,345,075 1,217,135 22,466,900
Less shares repurchased (63,879) (1,076,189) (94,866) (1,739,467)
------------- ------------- ------------- -------------
Net increase 842,134 $14,268,886 1,122,269 $20,727,433
============= ============= ============= =============
** Class B shares commenced operations on September 7, 1995.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, 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 during the last two periods,
along with the corresponding dollar value.
See notes to financial statments.
</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:
SIX MONTHS
YEAR ENDED MAY 31, ENDED
------------------------------------------------ NOVEMBER 31,1996
1992(1) 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- --------
<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) 0.11(2)
Net Realized and Unrealized Gain on
Investments 0.94 1.25 0.52 1.77 3.88 2.18
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.09 1.47 0.80 2.09 4.08 2.29
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income (0.11) (0.23) (0.23) (0.28) (0.22) (0.10)
Distributions from Net Realized Gain
on Investments Sold -- (0.06) (0.05) (0.08) (0.29) --
-------- -------- -------- -------- -------- --------
Total Distributions (0.11) (0.29) (0.28) (0.36) (0.51) (0.10)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.98 $12.16 $12.68 $14.41 $17.98 $20.17
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset
Value (3) 10.95%(4) 13.58% 6.60% 16.98% 29.12% 12.83%(4)
Total Adjusted Investment Return at Net
Asset Value (3)(5) 9.23%(4) 11.40% 6.15% 16.94% 28.47% 12.60%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $2,622 $12,488 $66,612 $101,418 $14,878 $31,416
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% 1.75%(6)
Ratio of Net Investment Income
to Average Net Assets 1.77%(6) 2.36% 2.20% 2.43% 1.55% 1.25%(6)
Ratio of Adjusted Net Investment Income to
Average Net Assets (7) 0.05%(6) 0.18% 1.75% 2.39% 0.90% 0.80%(6)
Portfolio Turnover Rate 53% 53% 43% 71% 157% 33%
Fee Reduction Per Share $0.15 $0.20 $0.06(2) $0.005(2) $0.08(2) $0.04(2)
Average Brokerage Commission Rate (8) N/A N/A N/A N/A N/A $0.0314
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.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- ------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
PERIOD ENDED NOVEMBER 30, 1996
MAY 31, 1996(1) (UNAUDITED)
------------ -----------
<S> <C> <C>
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 2.18
-------- --------
Total from Investment Operations 2.80 2.23
-------- --------
Less Distributions:
Dividends from Net Investment
Income (0.09) (0.04)
-------- --------
Net Asset Value, End of Period $17.96 $20.15
======= =======
Total Investment Return at Net Asset Value (3) 18.46%(4) 12.46%(4)
Total Adjusted Investment Return at Net
Asset Value (3)(5) 17.59%(4) 12.23%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $15,125 $39,582
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) 2.45%(6)
Ratio of Net Investment Income to Average
Net Assets 0.78%(6) 0.56%(6)
Ratio of Adjusted Net Investment Income Loss
to Average Net Assets (7) (0.43%)(6) 0.11%(6)
Portfolio Turnover Rate 157% 33%
Fee Reduction Per Share(2) $0.13 $0.04
Average Brokerage Commission Rate (8) N/A $0.0314
(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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
November 30, 1996 (Unaudited)
The Schedule of Investments is a complete list of all securities owned by the
Independence Equity Fund on November 30, 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.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
Aerospace (4.98%)
Boeing Co. (The) 11,800 $1,172,625
Goodrich (B F) Co. 3,000 134,625
Raytheon Co. 7,600 388,550
United Technologies Corp. 13,100 1,837,275
------------
3,533,075
------------
Automobile / Trucks (3.35%)
Chrysler Corp. 18,800 667,400
Ford Motor Co. 24,900 815,475
General Motors Corp. 15,500 893,187
------------
2,376,062
------------
Banks -- United States (5.45%)
Banc One Corp. 15,400 733,425
BankAmerica Corp. 3,100 319,300
Chase Manhattan Corp. 6,000 567,000
First Bank Systems, Inc. 2,800 204,050
First Chicago NBD Corp. 5,400 317,250
Fleet Financial Group, Inc. 13,400 742,025
NationsBank Corp. 9,500 984,437
------------
3,867,487
------------
Chemicals (2.48%)
Monsanto Co. 13,000 516,750
Morton International, Inc. 9,200 371,450
PPG Industries, Inc. 14,200 869,750
------------
1,757,950
------------
Computers (4.55%)
Compaq Computer Corp.* 5,200 412,100
Computer Associates International, Inc. 1,800 118,350
Hewlett-Packard Co. 13,500 727,312
International Business Machines Corp. 8,500 1,354,687
Mentor Graphics Corp.* 7,500 73,125
Computers (continued)
Microsoft Corp.* 2,700 423,563
Sybase, Inc.* 7,000 123,375
------------
3,232,512
------------
Cosmetics & Personal Care (1.02%)
Avon Products, Inc. 1,100 61,325
Gillette Co. 9,000 663,750
------------
725,075
------------
Diversified Operations (4.89%)
Du Pont (E.I.) De Nemours and Co. 22,800 2,148,900
Lockheed Martin Corp. 8,672 785,900
Ogden Corp. 6,000 116,250
Tenneco, Inc. 2,700 137,700
Textron, Inc. 3,000 286,125
------------
3,474,875
------------
Electronics (6.00%)
General Electric Co. 14,700 1,528,800
General Signal Corp. 1,500 64,687
Honeywell, Inc. 5,000 343,125
Intel Corp. 13,400 1,700,125
Raychem Corp. 7,300 622,325
------------
4,259,062
------------
Finance (2.26%)
American Express Co. 9,400 491,150
Dean Witter Discover & Co. 16,300 1,114,512
------------
1,605,662
------------
Food (1.62%)
ConAgra, Inc. 7,300 387,813
Unilever N.V. American Depositary Receipts
(ADR) (Netherlands) 4,400 761,750
------------
1,149,563
------------
Instruments -- Scientific (1.08%)
Millipore Corp. 2,700 110,363
Perkin-Elmer Corp. 10,700 659,388
------------
769,751
------------
Insurance (7.11%)
American International Group, Inc. 4,600 529,000
CIGNA Corp. 9,700 1,371,337
General Re Corp. 8,100 1,366,875
Insurance (continued)
ITT Hartford Group, Inc. 7,500 512,812
Marsh & McLennan Cos., Inc. 11,200 1,269,800
------------
5,049,824
------------
Leisure (3.63%)
Disney (Walt) Co., (The) 5,200 383,500
Eastman Kodak Co. 9,100 737,100
HFS, Inc.* 8,500 550,375
Hilton Hotels Corp. 18,100 529,425
ITT Corp.* 8,100 373,612
------------
2,574,012
------------
Machinery (1.10%)
Cooper Industries, Inc. 12,000 498,000
Dover Corp. 5,300 282,887
------------
780,887
------------
Media (0.72%)
McGraw-Hill Cos., Inc. 11,200 509,600
------------
Medical (10.95%)
Abbott Laboratories 24,500 1,365,875
Alza Corp. * 2,600 73,450
Amgen, Inc.* 4,100 249,587
Bristol-Myers Squibb Co. 14,700 1,672,125
Columbia/HCA Healthcare Corp. 7,650 306,000
Glaxo Wellcome PLC (ADR)
(United Kingdom) 11,200 368,200
HEALTHSOUTH Corp. * 5,500 206,938
Johnson & Johnson 29,700 1,577,813
Merck & Co., Inc. 9,100 755,300
Pfizer, Inc. 4,200 376,425
Schering-Plough Corp. 3,900 277,875
SmithKline Beecham PLC (ADR)
(United Kingdom) 6,600 454,575
Vencor, Inc.* 2,700 87,413
------------
7,771,576
------------
Mortgage Banking (0.55%)
Federal National Mortgage Assn. 9,500 391,875
------------
Office (2.47%)
Avery Dennison Corp. 3,800 268,375
Pitney Bowes, Inc. 8,700 513,300
Staples, Inc.* 33,750 666,563
Xerox Corp. 6,200 304,575
------------
1,752,813
------------
Oil & Gas (8.96%)
Anadarko Petroleum Corp. 6,800 454,750
Atlantic Richfield Co. 8,100 1,126,913
Chevron Corp. 6,100 408,700
Dresser Industries, Inc. 5,200 170,300
Kerr -- McGee Corp. 10,100 707,000
Mobil Corp. 1,200 145,200
PanEnergy Corp. 3,500 154,000
Phillips Petroleum Co. 26,400 1,191,300
Texaco Inc. 11,500 1,139,938
Unocal Corp. 21,200 863,900
------------
6,362,001
------------
Paper & Paper Products (1.42%)
James River Corp. of Virginia 4,000 128,000
Kimberly-Clark Corp. 9,000 879,750
------------
1,007,750
------------
Retail (4.93%)
Dayton Hudson Corp. 2,300 89,412
Federated Department Stores, Inc. * 5,300 180,862
Home Depot, Inc. 21,900 1,141,538
Lowe's Cos., Inc. 14,700 597,188
Price/Costco, Inc.* 16,400 381,300
Toys "R" Us, Inc.* 13,800 476,100
Wal-Mart Stores, Inc. 25,000 637,500
------------
3,503,900
------------
Shoes & Related Apparel (0.42%)
Nike, Inc. (Class B) 5,200 295,750
------------
Telecommunications (3.99%)
A T & T Corp. 40,000 1,570,000
General Instrument Corp.* 4,100 90,712
Lucent Technologies, Inc. 8,663 443,979
MCI Communications Corp. 18,200 555,100
Sprint Corp. 4,200 175,875
------------
2,835,666
------------
Textile (0.36%)
Fruit of the Loom, Inc. (Class A)* 7,200 256,500
------------
Tobacco (2.82%)
Philip Morris Cos., Inc. 14,600 1,505,625
UST, Inc. 15,300 499,163
------------
2,004,788
------------
Transport (0.82%)
CSX Corp. 12,400 579,700
------------
Utilities (7.23%)
BellSouth Corp. 14,000 565,250
Consolidated Natural Gas Co. 13,200 754,050
Entergy Corp. 42,500 1,152,812
GTE Corp. 12,400 556,450
NYNEX Corp. 2,500 115,938
SBC Communications, Inc. 21,100 1,110,388
Texas Utilities Co. 22,300 880,850
------------
5,135,738
------------
TOTAL COMMON STOCKS
(Cost $59,728,232) (95.16%) 67,563,454
------- ------------
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ---------------------------- --------- ------------ --------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.39%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
dated 11-29-96, due
12-02-96 (Secured by U.S.
Treasury Bonds, 7.25% thru
11.25% due 2-15-15
thru 2-15-20) -- Note A 5.68% $3,828 $3,828,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 515
------------
TOTAL SHORT-TERM INVESTMENTS (5.39%) 3,828,515
------------
TOTAL INVESTMENTS (100.55%) $71,391,969
============ ============
* 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
(UNAUDITED)
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.
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. 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 $102,671.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended
November 30, 1996, JH Funds received net sales charges of $282,845 with
regard to sales of Class A shares. Out of this amount, $41,808 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $149,876 was paid as sales commissions to
unrelated broker-dealers, and $91,161 was paid as sales commissions to
sales personnel of John Hancock Distributors, Inc. ("Distributors"),
Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc.
("Sutro"), all of which are broker-dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company, is the indirect sole
shareholder of Distributors and John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within six years of purchase 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 November 30, 1996, the contingent deferred
sales charges received by JH Funds amounted to $13,883.
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"), a wholly-owned subsidiary of The
Berkeley Financial Group. 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 is
estimated to be 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
November 30, 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 November 30, 1996, aggregated $46,539,943 and
$14,482,967, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended November 30, 1996.
The cost of investments owned at November 30, 1996 (including the joint
repurchase agreement) for Federal income tax purposes was $63,556,232.
Gross unrealized appreciation and depreciation of investments aggregated
$8,276,368 and $441,146, respectively, resulting in net unrealized
appreciation of $7,835,222.
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
NOTES
John Hancock Funds - Independence Equity Fund
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." 250SA 11/96
1/97
John Hancock Funds
Utilities
Fund
SEMI-ANNUAL REPORT
November 30, 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.
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
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:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to make
their prospectuses more user-friendly. He noted that prospectuses are
often overloaded with technical detail and are hard for most investors
to understand. Many industry observers agreed, and rightly so.
So it is my pleasure to let you know that after being under development
for a year, John Hancock Funds has introduced new simplified and
consolidated prospectuses. The prospectuses feature shorter, clearer
language with a streamlined design, and they incorporate several funds
with similar investment objectives into one document. They cover our
income, growth, growth and income, tax-free income, international/global
and money market funds. We are gratified at the favorable reviews that
our new prospectuses have received from shareholders, financial
advisers, industry analysts and the press. We believe they are a bold
but sensible step forward. And while they are easier to read, they still
comply with all federal and needed guidelines.
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page
spread highlighting each fund's goals and investment strategy, the types
of securities it buys, its portfolio management and risk factors, all in
plainer language. Fund expenses and financial highlights are now found
here, too, as is a new bar chart that shows year-to-year volatility for
each fund. Other features include a better presentation of fund
services, a new glossary of investment risks and a discussion about how
funds are organized, including a diagram showing the connection of the
various players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive toward
better mutual fund prospectuses. We hope you will agree because in the
end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY GREGORY K. PHELPS, PORTFOLIO MANAGER
John Hancock
Utilities Fund
Electric utilities under pressure;
gas companies benefit from takeover activity
Utility stocks experienced a series of power surges and outages during
the period, due to an unusual amount of volatility in the bond market.
As investors tried to figure out where the U.S. economy was headed,
sentiment swung sharply and quickly. The result was a fickle bond market
susceptible to the whims of the latest economic reports. As strong
economic news sparked fears of inflation, bond prices dropped, dragging
utility stocks down with them. Then, as weaker economic reports
reassured investors that economic growth was under control, bonds
rallied back, lifting utilities back up.
In recent months, however, bond investors have breathed a collective
sigh of relief, thanks to September's weaker-than-expected em-ployment
report and the Federal Reserve's continued neutral stance on interest
rates. As a result, utility stocks have followed bond prices up, ending
the period on a high note.
Despite the volatility during the period, John Hancock Utilities Fund
outshone its competitors. For the six months ending November 30, 1996,
the Fund's Class A and Class B shares had total returns of 10.04% and
9.69%, respectively, at net asset value. By comparison, the average
utility fund had a total return of 8.07%, according to Lipper Analytical
Services.1 Please see pages six and seven for longer-term performance
information.
"Utility stocks experienced a series
of power surges and outages..."
Reducing electric utilities
Electric utility stocks suffered not only from the bond market's
turmoil, but also from worries about increased competition. Electric
utilities are facing deregulation -- similar to what the telephone
companies went through in the early '80s. Essentially what this means is
that competition will eventually replace long-standing regulations as
the driving force in the industry. While increased competition is likely
to be a positive in the long term, it has created anxiety in the short
term as investors worry about how deregulation will play out.
A 2 1/4" x 3 3/4 " photo of the Utilities Fund 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."
A pie chart with the heading "Portfolio Diversification" at top of left
hand column. The chart is divided into six sections. Going from top left
to right: Short-Term Investments & Other 1%, Oil & Gas 16%, Diversified
Operations 1%, Electric Utilities 30%, Telephone/Telecommunications 8%,
Natural Gas Utilities 14%. A footnote states: "As a percentage of net
assets on November 30, 1996."
"...we've increased
the Fund's stake in
natural gas
companies..."
Fears of increased industry competition heated up this summer as closely
watched regulators in Massachusetts, New York and New Hampshire pushed
aggressively for lower utility rates. Those fears, combined with
operating problems at several high-profile nuclear plants, dimmed
investor sentiment throughout the industry. Given that, we pared our
electric utility holdings to 30% of the Fund's net assets, from 47% six
months ago.
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 "Boston Edison " followed by an up arrow and the phrase "Improving
balance sheet/strategic alliances". The second listing is "PanEnergy"
followed by an up arrow and the phrase "Pending acquisition by Duke
Power". The third listing is "Frontier Corp." followed by a down arrow
and the phrase "Unexpected writeoffs". Footnote below reads: "See
'"Schedule of Investments." Investment holdings are subject to change."
Our focus remains on fundamentally sound electric utilities with strong
financials, with little or no nuclear exposure and preferably a gas
subsidiary. Boston Edison, for example, is one of our favorites. In
addition to its solid relationship with state regulators, it has an
improving balance sheet and key strategic alliances with
telecommunications and natural gas companies. We believe the company is
well-positioned to be one of the winners in this increasingly
competitive landscape.
Takeover activity buoys oil/gas companies
With the proceeds from our electric utility sales, we've increased the
Fund's stake in natural gas companies for several reasons. First, gas
utilities have already been through the regulatory battles that are now
facing electric utilities. As a result, they are much more competitive
in terms of costs, margins and marketing. Second, gas prices remained
stable throughout the summer months -- when they normally fall off --
and are likely to rise as we enter the winter months, due to low storage
levels.
Most importantly, there's an increasing trend toward mergers and
acquisitions in the industry. Many electric companies are quickly
acquiring gas companies in an attempt to become full-
service energy providers. That's really the only way they will survive
in the new deregulated industry. As result, we've looked for gas
companies that are primary takeover candidates. However, it's important
to point out that we're not just buying companies based on idle takeover
speculation. We are careful to target gas companies with good
fundamentals. That way the stock is likely to perform well, regardless
of whether or not the company is taken over. Below are two of our
favorite new gas holdings.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote "For the six months ended November 30,
1996." The chart is scaled in increments of 2% from top to bottom with
12% at the top and 0% at the bottom. Within the chart, there are three
solid bars. The first represents the 10.04% total return for John
Hancock Utilities Fund: Class A. The second represents the 9.69% total
return for John Hancock Utilities Fund: Class B. The third represents
the 8.07% total return for the average utilities fund. Footnote below
reads: "Total returns for John Hancock Utilities Fund are at net asset
value with all distributions reinvested. The average general utility
fund is tracked by Lipper Analytical Services. (1) See the following two
pages for historical performance information.
PanEnergy Corp. Duke Power, a North Carolina-based electric utility, has
recently announced that it will acquire this gas pipeline company. One of
the company's key strengths is its ability to successfully market its
services to new customers. The acquisition will not only allow Duke to
provide full energy services to its customers, but it will give it the
marketing savvy it needs to survive in an increasingly competitive market.
United Cities Gas Co. This gas distributor operates in a number of
different states. By geographically diversifying its business, United
Cities has been able to reduce its exposure to doing business in just
one type of climate (i.e. warm or cold). What's more, the company has
been successful at growing its customer base and cutting operating
costs. The net result has been a significant increase in earnings. Atmos
Energy, another gas distribution company, has recently announced that it
will acquire United Cities. Once the merger is finalized, we believe
that the combined entity will also be an attractive takeover candidate
in its own right. As a result, we're holding our position.
Outlook
With the recent strength of the bond market, utility stocks have bounced
back nicely in the last few months. To some degree, we believe that
investors will begin to evaluate utility stocks individually, rather
than painting the group with the same brush -- as they have during the
past year. As a result, it will become even more critical to own the
most competitive companies, especially within the electric utility
sector. Given that, we will keep a close eye on the underlying
fundamentals of our electric utility holdings. On the oil and gas side,
we will continue to target the most attractive takeover candidates to
benefit from the growing number of mergers and acquisitions. Having said
that, though, the key to performance, as always, will be the direction
of interest rates. With the economy growing moderately, the Federal
Reserve is likely to hold rates steady for the time being. However, we
do not believe the market's volatility is necessarily over. Fears of an
overheating economy could easily surface again. With uncertainty still
looming over the market, the Fund will maintain its focus on natural gas
stocks that should continue to benefit from growing demand and merger
activity.
"...the key to
performance,
as always,
will be the
direction of
interest
rates."
Footnote reads:
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
1 Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales 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 September 30, 1996
ONE LIFE OF
YEAR FUND
-------------- ----------------
John Hancock Utilities Fund: Class A 6.75%(1) 16.75%(1)
John Hancock Utilities Fund: Class B 6.51%(1) 17.66%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
ONE LIFE OF
YEAR FUND
-------------- ----------------
John Hancock Utilities Fund: Class A 6.75%(1,2) 6.00%(1,2)
John Hancock Utilities Fund: Class B 6.51%(1,2) 6.30%(1,2)
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
6.27% and 4.18% for Class A shares and 6.03% and 4.48% 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 November 30, 1996, assuming you
had invested on the day each class of shares started and 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 $13,107 as of
November 30, 1996. The second line represents the value of the hypothetical
$10,000 investment made in the Utilities Fund on February 1, 1994, after
sales charge, and is equal to $12,448 as of November 30, 1996. The third
line represents the Dow Jones Utilities Average Index, and is equal to
$10,428 as of November 30, 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 $12,867 as
of November 30, 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 $12,567 as of November 30,
1996. The third line represents the value of the Dow Jones Utilities
Average Index, and is equal to $10,428 as of November 30, 1996.
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 November 30, 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
November 30, 1996 (Unaudited)
- ----------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $59,374,970) $ 66,279,206
Preferred stocks (cost - $8,495,278) 8,815,799
Corporate savings account 148,975
-------------
75,243,980
Receivable for shares sold 275,767
Receivable for investments sold 208,043
Dividends and interest receivable 303,475
Deferred organization expenses - Note A 19,961
Other assets 1,957
-------------
Total Assets 76,053,183
- ----------------------------------------------------------
Liabilities:
Payable for shares repurchased 32,661
Payable for investments purchased 313,755
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 71,450
Accounts payable and accrued expenses 25,724
-------------
Total Liabilities 443,590
- ----------------------------------------------------------
Net Assets:
Capital paid-in 62,183,704
Accumulated net realized gain on investments
and foreign currency transactions 5,693,069
Net unrealized appreciation of investments
and foreign currency transactions 7,224,918
Undistributed net investment income 507,902
-------------
Net Assets $ 75,609,593
==========================================================
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 - $23,652,593 / 2,405,375 $ 9.83
==========================================================
Class B - $51,957,000 / 5,303,979 $ 9.80
==========================================================
Maximum Offering Price Per Share *
Class A - ($9.83 x 105.26%) $ 10.35
==========================================================
* 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.
The Statement of Operations summarizes the Fund's investment
income earned and expenses incurred in operating the Fund.
It also shows net gains (losses) for the period stated.
Statement of Operations
Six months ended November 30, 1996 (Unaudited)
- ------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding
taxes of $1,003) $ 2,317,408
Interest 84,779
-----------
2,402,187
-----------
Expenses:
Investment management fee - Note B 252,322
Distribution/service fee - Note B
Class A 34,155
Class B 246,611
Transfer agent fee - Note B 98,239
Registration and filing fees 25,617
Custodian fee 23,906
Auditing fee 17,070
Printing 10,130
Financial services fee - Note B 6,758
Organization expense - Note A 4,241
Legal fees 1,860
Miscellaneous 1,607
Trustees' fees 930
-----------
Total Expenses 723,446
Less expense reductions -
Note B (170,052)
- ------------------------------------------------------------
Net Expenses 553,394
- ------------------------------------------------------------
Net Investment Income 1,848,793
- ------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 2,548,565
Change in net unrealized appreciation/depreciation
of investments 2,428,268
Change in net unrealized appreciation/depreciation
of foreign currency transactions 1,870
-----------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions 4,978,703
- ------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 6,827,496
============================================================
See notes to financial statements.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1996
MAY 31, 1996 (UNAUDITED)
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 2,821,920 $ 1,848,793
Net realized gain on investments sold and foreign currency transactions 3,976,064 2,548,565
Change in net unrealized appreciation/depreciation
of investments and foreign currency transactions 2,347,755 2,430,138
------------ ------------
Net Increase in Net Assets Resulting from Operations 9,145,739 6,827,496
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.4066 and $0.2416 per share, respectively) ( 1,082,445) ( 588,232)
Class B - ($0.3441 and $0.2094 per share, respectively) ( 1,783,735) ( 1,113,810)
Distributions from net realized gain on investments sold
Class A - ($0.0963 and none per share, respectively) ( 311,873) --
Class B - ($0.0963 and none per share, respectively) ( 513,330) --
------------ ------------
Total Distributions to Shareholders ( 3,691,383) ( 1,702,042)
------------ ------------
From Fund Share Transactions -- Net* 7,306,556 150,535
------------ ------------
Net Assets:
Beginning of period 57,572,692 70,333,604
------------ ------------
End of period (including undistributed net investment
income of $361,151 and $507,902, respectively) $ 70,333,604 $ 75,609,593
============ ============
CLASS B
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1996
MAY 31, 1996 (UNAUDITED)
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
CLASS A
Shares sold 4,072,162 $ 35,815,891 1,023,016 $ 9,503,696
Shares issued to shareholders in
reinvestment of distributions 107,077 941,191 57,083 523,052
--------- ------------ --------- ------------
4,179,239 36,757,082 1,080,099 10,026,748
Less shares repurchased (3,987,048) ( 35,252,919) (1,135,561) ( 10,572,534)
--------- ------------ --------- ------------
Net increase 192,191 $ 1,504,163 ( 55,462) ($ 545,786)
========= ============ ========= ============
CLASS B
Shares sold 2,183,807 $ 18,762,882 718,364 $ 6,683,295
Shares issued to shareholders
in reinvestment of distributions 161,956 1,417,990 96,477 882,339
--------- ------------ --------- ------------
2,345,763 20,180,872 814,841 7,565,634
Less shares repurchased (1,656,864) ( 14,378,479) ( 737,068) ( 6,869,313)
--------- ------------ --------- ------------
Net increase (decrease) 688,899 $ 5,802,393 77,773 $ 696,321
========= ============ ========= ============
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 during the last two periods, along with the corresponding
dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
John Hancock Funds - Utilities Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the period indicated,
investment returns, key ratios and supplemental data are listed as follows:
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, SIX MONTHS ENDED
------------------------------------ NOVEMBER 30, 1996
1994 (1) 1995 1996 (UNAUDITED)
------- ------- ------- ---------
<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 0.26
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions ( 0.36) 0.12 0.79 0.64
------- ------- ------- -------
Total from Investment Operations ( 0.24) 0.56 1.20 0.90
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income -- ( 0.34) ( 0.41) ( 0.24)
Distributions from Net Realized Gain
on Investments Sold -- -- ( 0.10) --
------- ------- ------- -------
Total Distributions -- ( 0.34) ( 0.51) ( 0.24)
------- ------- ------- -------
Net Asset Value, End of Period $ 8.26 $ 8.48 $ 9.17 $ 9.83
======= ======= ======= =======
Total Investment Return at Net Asset Value (3) ( 2.82%)(4) 7.10% 14.44% 10.04%(4)
Total Adjusted Investment Return
at Net Asset Value (3)(5) ( 13.89%)(4) 6.44% 14.01% 9.80%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 781 $19,229 $22,574 $23,653
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% 1.53%(6)
Ratio of Net Investment Income to Average Net Assets 4.53%(6) 5.39% 4.49% 5.61%(6)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (7) ( 6.54%)(6) 4.73% 4.06% 5.14%(6)
Portfolio Turnover Rate 6% 98% 124% 44%
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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, SIX MONTHS ENDED
------------------------------------ NOVEMBER 30, 1996
1994 (1) 1995 1996 (UNAUDITED)
------- ------- ------- ---------
<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 0.23
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions ( 0.33) 0.12 0.79 0.64
------- ------- ------- -------
Total from Investment Operations ( 0.25) 0.50 1.13 0.87
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income -- ( 0.30) ( 0.34) ( 0.21)
Distributions from Net Realized Gain
on Investments Sold -- -- ( 0.10) --
------- ------- ------- -------
Total Distributions -- ( 0.30) ( 0.44) ( 0.21)
------- ------- ------- -------
Net Asset Value, End of Period $ 8.25 $ 8.45 $ 9.14 $ 9.80
======= ======= ======= =======
Total Investment Return at Net Asset Value (3) ( 2.94%)(4) 6.31% 13.68% 9.69%(4)
Total Adjusted Investment Return
at Net Asset Value (3)(5) ( 14.01%)(4) 5.65% 13.25% 9.45%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 445 $38,344 $47,759 $51,957
Ratio of Expenses to Average Net Assets 1.72%(6) 1.71% 1.77% 1.76%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) 12.79%(6) 2.37% 2.20% 2.23%(6)
Ratio of Net Investment Income to Average Net Assets 4.20%(6) 4.64% 3.77% 4.91%(6)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (7) ( 6.87%)(6) 3.98% 3.34% 4.44%(6)
Portfolio Turnover Rate 6% 98% 124% 44%
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.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
November 30, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Utilities Fund on
November 30, 1996. It's divided into three main categories: common stocks, preferred stocks and
short-term investments. Common and preferred stocks are further broken down by industry group.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -------
<S> <C> <C>
COMMON STOCKS
Oil & Gas (10.95%)
Coastal Corp. , Inc. 20,000 $ 962,500
Columbia Gas System 12,500 807,813
Enron Corp. 30,000 1,372,500
Equitable Resources, Inc. 24,000 732,000
Forcenergy, Inc.* 28,100 860,562
Global Marine, Inc.* 50,000 975,000
NGC Corp. 35,100 763,425
PanEnergy Corp. 23,500 1,034,000
Williams Companies, Inc. (The) 13,800 774,525
-----------
8,282,325
-----------
Utilities (76.71%)
AGL Resources, Inc. 47,000 992,875
Ameritech Corp. 9,500 559,312
Bay State Gas Co. 36,800 1,071,800
Bell Atlantic Corp. 14,750 927,406
Boston Edison Co. 46,000 1,178,750
Brooklyn Union Gas Co. 60,000 1,875,000
Cascade Natural Gas Corp. 21,300 364,763
Century Telephone Enterprises 17,000 541,875
CMS Energy Corp. 65,860 2,140,450
Colonial Gas Co. 41,000 937,875
Connecticut Energy Corp. 50,000 1,081,250
Connecticut Natural Gas Corp. 40,000 950,000
Consolidated Natural Gas Co. 12,500 714,063
Delmarva Power & Light Co. 57,800 1,163,225
Eastern Enterprises 19,000 712,500
Energen Corp. 55,000 1,491,875
Florida Progress Corp. 27,500 890,312
Frontier Corp. 35,000 918,750
GTE Corp. 14,700 659,662
Houston Industries, Inc. 53,500 1,177,000
IPALCO Enterprises, Inc. 32,250 878,812
KN Energy, Inc. 20,000 812,500
LG&E Energy Corp. 39,000 955,500
Long Island Lighting Co. 68,000 1,351,500
MDU Resources Group, Inc. 41,500 928,563
MidAmerican Energy Holdings Corp. 71,800 1,068,025
National Fuel Gas Co. 34,600 1,474,825
National Power PLC, American
Depositary Receipt (ADR)
(United Kingdom) 25,000 796,875
NUI Corp. 52,000 1,040,000
New England Electric System 42,600 1,459,050
New Jersey Resources Corp. 35,000 1,036,875
NICOR, Inc. 24,000 885,000
North Carolina Natural Gas Corp. 17,000 495,125
Northwest Natural Gas Co. 30,500 762,500
NYNEX Corp 30,000 1,391,250
ONEOK Inc. 36,500 1,003,750
Pacific Enterprises 75,000 2,296,875
PacifiCorp 50,000 1,050,000
People's Energy Corp. 28,000 1,015,000
Piedmont Natural Gas Co., Inc. 33,000 829,125
Providence Energy Corp. 52,200 920,025
Public Service Enterprise
Group, Inc. 56,000 1,603,000
Puget Sound Power & Light Co. 37,000 841,750
Questar Corp. 24,500 958,562
Sierra Pacific Resources 30,000 858,750
South Jersey Industries, Inc. 49,000 1,182,125
Southern Union Co.* 48,300 1,189,387
Tejas Gas Corp.* 19,000 833,625
UGI Corp. 37,500 820,313
United Cities Gas Co. 57,000 1,346,625
UtiliCorp United, Inc. 47,000 1,263,125
Washington Gas Light Co. 43,500 1,038,563
Washington Water Power Co. 35,000 660,625
Western Resources, Inc. 17,000 537,625
Wicor, Inc. 30,100 1,094,888
Yankee Energy System, Inc. 44,000 968,000
-----------
57,996,881
-----------
TOTAL COMMON STOCKS
(Cost $59,374,970) ( 87.66%) $66,279,206
----- -----------
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -------
<S> <C> <C>
PREFERRED STOCKS
Diversified Operations (.94%)
Tenneco Inc., 8.25%, Ser A 14,000 $ 707,000
-----------
Oil & Gas (5.50%)
Coastal Corp., $2.125, Ser H 67,130 1,703,424
Lasmo PLC, 10.00%, Ser A, American
Depositary Shares (ADS)
(United Kingdom) 57,000 1,482,000
Phillips 66 Capital I, 8.24% 38,500 972,125
-----------
4,157,549
-----------
Utilities (5.22%)
Capita Preferred Trust, 9.06% 20,000 517,500
Kentucky Power, 8.72%, Ser A 40,000 1,020,000
MCN Michigan L.P., 9.375%, Ser A 30,000 802,500
Minnesota Power & Light
Capital I, 8.05% 35,000 866,250
Sprint Corp., 8.25% 20,000 745,000
-----------
3,951,250
-----------
TOTAL PREFERRED STOCKS
(Cost $8,495,278) ( 11.66%) $ 8,815,799
----- -----------
SHORT-TERM INVESTMENTS
Corporate Savings Account (0.20%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 148,975
-----------
TOTAL SHORT-TERM INVESTMENTS ( 0.20%) $ 148,975
----- -----------
TOTAL INVESTMENTS ( 99.52%) $75,243,980
===== ===========
* 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
(UNAUDITED)
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. 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
this 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.
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 $170,052 for the period ended November
30, 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
November 30, 1996, JH Funds received net sales charges of $36,303 with
regard to sales of Class A shares. Out of this amount, $5,459 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $15,198 was paid as sales commissions to
unrelated broker-dealers, and $15,646 was paid as sales commissions to
sales personnel of John Hancock Distributors, Inc. ("Distributors"),
Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc.
("Sutro"), all of which are broker-dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company, is the indirect sole
shareholder of Distributors and John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within six years of purchase 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 November 30, 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 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 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"), a wholly-owned subsidiary of The
Berkeley Financial Group. 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 is
estimated to be 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
November 30, 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 November 30, 1996, aggregated $33,756,504 and
$30,527,794, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended November 30, 1996.
The cost of investments owned at November 30, 1996 for Federal income
tax purposes was $67,870,248. Gross unrealized appreciation and
depreciation of investments aggregated $8,004,490 and $779,733,
respectively, resulting in net unrealized appreciation of $7,224,757.
John Hancock Funds - Utilities Fund
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
NOTES
John Hancock Funds - Utilities Fund
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John Hancock Funds - Utilities Fund
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