- --------------------------------------------------------------------------------
John Hancock Funds
Utilities
Fund
FINAL REPORT
December 5, 1997
- --------------------------------------------------------------------------------
<PAGE>
John Hancock Funds - Utilities Fund
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
John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
* Members of the Audit Committee
Officers
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
Custodian
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
Transfer Agent
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
<PAGE>
John Hancock Funds - Utilities Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
Final Report December 5, 1997* (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $ 41,698,085 ) $53,683,554
Preferred stocks (cost - $ 9,755,003 ) 10,566,963
Joint repurchase agreement (cost - $ 1,348,000 ) 1,348,000
Corporate savings account 466
-------------------
65,598,983
Receivable for shares sold 59,871
Dividends and interest receivable 168,389
Foreign tax receivable 645
Other assets 2,331
-------------------
Total Assets 65,830,219
----------------------------------------------
Liabilities:
Payable for shares repurchased 14,805
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 56,838
Accounts payable and accrued expenses 34,209
-------------------
Total Liabilities 105,852
----------------------------------------------
Net Assets:
Capital paid-in 52,876,207
Accumulated net realized gain on investments (26,208)
Net unrealized appreciation of investments 12,797,822
Undistributed net investment income 76,546
===================
Net Assets $65,724,367
==============================================
<CAPTION>
<S> <C> <C> <C>
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 - $22,250,320 2,249,804 $9.89
======================================================================================================================
Class B - $43,474,047 4,410,225 $9.86
======================================================================================================================
<CAPTION>
Maximum Offering Price Per Share**
<S> <C> <C>
Class A - ($9.89 x 105.26%) $10.41
======================================================================================================================
</TABLE>
* The net assets of the John Hancock Utilities Fund ("the Fund") were merged
into the John Hancock Growth and Income Fund as of the close of business on
December 5, 1997 and the Fund was subsequently terminated. The Statement of
Assets and Liabilities reflect the Fund's position prior to the transfer of
net assets and the termination of the Fund. (See Note A to the Notes to
Financial Statements).
** 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
<PAGE>
John Hancock Funds - Utilities Fund
Statement of Operations
For the Period January 1, 1997 to December 5, 1997* (Unaudited)
================================================================
Investment Income:
Dividends (net of foreign withholding taxes of $7,750) $ 2,949,248
Interest 105,089
-------------------
3,054,337
-------------------
Expenses:
Investment management fee - Note B 443,132
Distribution and service fee - Note B
Class A 62,639
Class B 424,248
Transfer agent fee - Note B 177,174
Custodian fee 39,349
Registration and filing fees 21,507
Organization expense - Note A 19,215
Auditing fee 17,400
Financial services fee - Note B 11,563
Printing 9,742
Trustees'fees 5,646
Miscellaneous 2,708
Legal fees 796
-------------------
Total Expenses 1,235,119
--------------------------------------------------------------
Less Expense Reductions - Note B (254,572)
--------------------------------------------------------------
Net Expenses 980,547
--------------------------------------------------------------
Net Investment Income 2,073,790
--------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 3,480,764
Change in net unrealized appreciation/depreciation
of investments 5,590,650
-------------------
Net Realized and Unrealized
Gain on Investments 9,071,414
--------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 11,145,204
==============================================================
* The net assets of the John Hancock Utilities Fund ("the Fund") were
merged into the John Hancock Growth and Income Fund as of the close of
business on December 5, 1997 and the Fund was subsequently terminated. The
Statement of Operations reflects the Fund's position prior to the transfer
of net assets and the termination of the Fund. (See Note A to the Notes to
Financial Statements).
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - Utilities Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
==============================================================================================================
PERIOD FROM FOR THE PERIOD
YEAR ENDED JUNE 1, 1996 TO JANUARY 1, 1997 TO
MAY 31, DECEMBER 31, DECEMBER 5, 1997**
1996 1996 (1) (UNAUDITED)
------------ ------------------ --------------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $2,821,920 $2,112,347 $2,073,790
Net realized gain on investments sold 3,976,064 2,892,488 3,480,764
Change in net unrealized appreciation/
depreciation of investments 2,347,755 2,412,392 5,590,650
------------ ------------------ --------------------
Net Increase in Net Assets Resulting from Operations 9,145,739 7,417,227 11,145,204
------------ ------------------ --------------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.4066, $0.3540 and $0.2767
per share, respectively) (1,082,445) (858,923) (778,200)
Class B - ($0.3441, $0.3052 and $0.2283
per share, respectively) (1,783,735) (1,614,575) (1,293,821)
Distributions from net realized gain on investments sold
Class A - ($0.0963, $0.7294 and $0.5262
per share, respectively) (311,873) (1,758,261) (1,124,618)
Class B - ($0.0963, $0.7294 and $0.5262
per share, respectively) (513,330) (3,816,535) (2,216,719)
------------ ------------------ --------------------
Total Distributions to Shareholders (3,691,383) (8,048,294) (5,413,358)
------------ ------------------ --------------------
From Fund Share Transactions - Net:* 7,306,556 5,121,469 (14,831,485)
------------ ------------------ --------------------
Net Assets:
Beginning of period 57,572,692 70,333,604 74,824,006
------------ ------------------ --------------------
End of period (including undistributed net
investment income $361,151 and distributions
in excess of net investment income of $1,796,
and undistributed net investment income of
$76,546, respectively) $70,333,604 $74,824,006 $65,724,367
============ ================== ====================
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
FOR THE PERIOD
PERIOD FROM JANUARY 1, 1997 TO
YEAR ENDED JUNE 1, 1996 TO DECEMBER 5, 1997**
MAY 31, 1996 DECEMBER 31, 1996 (1) (UNAUDITED)
---------------------------- ------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold 4,072,162 $35,815,891 1,071,338 $9,968,327 372,763 $3,480,519
Shares issued to shareholders in
reinvestment of distributions 107,077 941,191 265,854 2,397,803 176,999 1,708,637
------------ -------------- ----------- ------------ ------------ --------------
4,179,239 36,757,082 1,337,192 12,366,130 549,762 5,189,156
Less shares repurchased (3,987,048) (35,252,919) (1,175,294) (10,956,893) (922,693) (8,624,482)
------------ -------------- ----------- ------------ ------------ --------------
Net increase (decrease) 192,191 $1,504,163 161,898 $1,409,237 (372,931) ($3,435,326)
============ ============== =========== ============ ============ ==============
CLASS B
Shares sold 2,183,807 $18,762,882 835,138 $7,777,441 463,218 $4,236,226
Shares issued to shareholders in
reinvestment of distributions 161,956 1,417,990 489,560 4,404,386 291,918 2,813,770
------------ -------------- ----------- ------------ ------------ --------------
2,345,763 20,180,872 1,324,698 12,181,827 755,136 7,049,996
Less shares repurchased (1,656,864) (14,378,479) (904,956) (8,469,595) (1,990,859) (18,446,155)
------------ -------------- ----------- ------------ ------------ --------------
Net increase (decrease) 688,899 $5,802,393 419,742 $3,712,232 (1,235,723) ($11,396,159)
============ ============== =========== ============ ============ ==============
</TABLE>
** The net assets of the John Hancock Utilities Fund ("the Fund") were merged
into the John Hancock Growth and Income Fund as of the close of business on
December 5, 1997 and the Fund was subsequently terminated. The Statement of
Changes in Net Assets reflects the Fund's position prior to the transfer of net
assets and the termination of the Fund. (See Note A to the Notes to Financial
Statements). (1) Effective December 31, 1996, the fiscal year end changed from
May 31 to December 31.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - John Hancock 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:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------------
1994 (1) 1995 1996
---------- ---------- ---------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50 $ 8.26 $ 8.48
---------- ---------- ---------
Net Investment Income (2) 0.12 0.44 0.41
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions (0.36) 0.12 0.79
---------- ---------- ---------
Total from Investment Operations (0.24) 0.56 1.20
---------- ---------- ---------
Less Distributions:
Dividends from Net Investment Income ---- (0.34) (0.41)
Distributions from Net Realized Gain on
Investments Sold ---- ---- (0.10)
---------- ---------- ---------
Total Distributions ---- (0.34) (0.51)
---------- ---------- ---------
Net Asset Value, End of Period $ 8.26 $ 8.48 $ 9.17
========== ========== =========
Total Investment Return at Net Asset Value (3) (2.82%)(4) 7.10% 14.44%
Total Adjusted Investment Return at Net Asset
Value (3,5) (13.89%)(4) 6.44% 14.01%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 781 $ 19,229 $ 22,574
Ratio of Expenses to Average Net Assets 1.00%(6) 1.04% 1.04%
Ratio of Adjusted Expenses to Average Net Assets (7) 12.07%(6) 1.70% 1.47%
Ratio of Net Investment Income to Average
Net Assets 4.53%(6) 5.39% 4.49%
Ratio of Net Investment Income (Loss) to Average
Net Assets (7) (6.54%)(6) 4.73% 4.06%
Portfolio Turnover Rate 6% 98% 124%
Fee Reduction Per Share (2) $ 0.27 $ 0.05 $ 0.04
Average Brokerage Commission Rate (8) N/A N/A N/A
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50 $ 8.25 $ 8.45
---------- ---------- ---------
Net Investment Income (2) 0.08 0.38 0.34
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions (0.33) 0.12 0.79
---------- ---------- ---------
Total from Investment Operations (0.25) 0.50 1.13
---------- ---------- ---------
Less Distributions:
Dividends from Net Investment Income ---- (0.30) (0.34)
Distributions from Net Realized Gain on
Investments Sold ---- ---- (0.10)
---------- ---------- ---------
Total Distributions ---- (0.30) (0.44)
---------- ---------- ---------
Net Asset Value, End of Period $ 8.25 $ 8.45 $ 9.14
========== ========== =========
Total Investment Return at Net Asset Value (3) (2.94%)(4) 6.31% 13.68%
Total Adjusted Investment Return at Net Asset
Value (3,5) (14.01%)(4) 5.65% 13.25%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 445 $ 38,344 $ 47,759
Ratio of Expenses to Average Net Assets 1.72%(6) 1.71% 1.77%
Ratio of Adjusted Expenses to Average Net Assets (7) 12.79%(6) 2.37% 2.20%
Ratio of Net Investment Income to Average
Net Assets 4.20%(6) 4.64% 3.77%
Ratio of Net Investment Income (Loss) to Average
Net Assets (7) (6.87%)(6) 3.98% 3.34%
Portfolio Turnover Rate 6% 98% 124%
Fee Reduction Per Share (2) $ 0.27 $ 0.05 $ 0.04
Average Brokerage Commission Rate (8) N/A N/A N/A
<CAPTION>
FOR THE PERIOD
PERIOD FROM JANUARY 1, 1997 TO
JUNE 1, 1996 TO DECEMBER 5, 1997
DECEMBER 31, 1996(9) (UNAUDITED)
---------------------- --------------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.17 $ 9.07
-------------- --------------
Net Investment Income (2) 0.30 0.33
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 0.68 1.30
-------------- --------------
Total from Investment Operations 0.98 1.63
-------------- --------------
Less Distributions:
Dividends from Net Investment Income (0.35) (0.28)
Distributions from Net Realized Gain on
Investments Sold (0.73) (0.53)
-------------- --------------
Total Distributions (1.08) (0.81)
-------------- --------------
Net Asset Value, End of Period $ 9.07 $ 9.89
============== ==============
Total Investment Return at Net Asset Value (3) 11.05%(4) 18.93%(4)
Total Adjusted Investment Return at Net Asset
Value (3,5) 10.78%(4) 18.53%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 23,781 $ 22,250
Ratio of Expenses to Average Net Assets 1.06%(6) 1.08%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) 1.51%(6) 1.48%(6)
Ratio of Net Investment Income to Average
Net Assets 5.44%(6) 3.74%(6)
Ratio of Net Investment Income (Loss) to Average
Net Assets (7) 4.99%(6) 3.34%(6)
Portfolio Turnover Rate 48% 62%
Fee Reduction Per Share (2) $ 0.02 $ 0.04
Average Brokerage Commission Rate (8) $ 0.0700 $ 0.0700
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.14 $ 9.04
-------------- --------------
Net Investment Income (2) 0.26 0.26
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 0.68 1.32
-------------- --------------
Total from Investment Operations 0.94 1.58
-------------- --------------
Less Distributions:
Dividends from Net Investment Income (0.31) (0.23)
Distributions from Net Realized Gain on
Investments Sold (0.73) (0.53)
-------------- --------------
Total Distributions (1.04) (0.76)
-------------- --------------
Net Asset Value, End of Period $ 9.04 $ 9.86
================ =================
Total Investment Return at Net Asset Value (3) 10.50%(4) 18.24%(4)
Total Adjusted Investment Return at Net Asset
Value (3,5) 10.23%(4) 17.84%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 51,043 $ 43,474
Ratio of Expenses to Average Net Assets 1.75%(6) 1.78%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) 2.20%(6) 2.18%(6)
Ratio of Net Investment Income to Average
Net Assets 4.74%(6) 3.05%(6)
Ratio of Net Investment Income (Loss) to Average
Net Assets (7) 4.29%(6) 2.65%(6)
Portfolio Turnover Rate 48% 62%
Fee Reduction Per Share (2) $ 0.02 $ 0.03
Average Brokerage Commission Rate (8) $ 0.0700 $ 0.0700
</TABLE>
(1) Class A and Class B shares commenced operations on February 1, 1994.
(2) Based on the average of shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized
(5) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
(6) Annualized
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(9) Effective December 31, 1996, the fiscal year end changed from May 31 to
December 31.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - Utilities Fund
Schedule of Investments
December 5, 1997 (Unaudited)
NUMBER OF MARKET
ISSUER DESCRIPTION SHARES VALUE
- ------------------ ------ -----
COMMON STOCKS
Insurance (0.76%)
Mid Ocean Ltd. (Bermuda) 8,000 $ $501,500
------------
Oil & Gas (8.21%)
Coastal Corp. (Class A) 17,000 1,022,125
Columbia Gas System, Inc. 11,000 820,187
El Paso Natural Gas Co. 14,500 876,344
Tejas Gas Corp.* 19,800 1,205,325
Williams Cos., Inc. (The) 28,000 1,468,250
------------
5,392,231
------------
Telecommunications (11.17%)
Bell Atlantic Corp. 30,110 2,706,136
BellSouth Corp. 20,000 1,096,250
GTE Corp. 15,000 731,250
MCI Communications Corp. 40,000 1,792,500
Telecomunicacoes Brasileiras S/A, American
Depositary Receipts (ADR)(Brazil) 1,300 149,175
U.S. WEST Media Group* 32,000 868,000
------------
7,343,311
------------
Utilities (61.54%)
Atmos Energy Corp. 54,000 1,454,625
Bay State Gas Co. 36,800 1,138,500
Boston Edison Co. 46,000 1,607,125
CalEnergy Co., Inc* 23,000 764,750
CMS Energy Corp. 47,000 1,830,062
Companhia Paranaense de Energia (ADR) (Brazil) 31,900 460,556
DTE Energy Co. 30,000 960,000
Eastern Enterprises 27,000 1,090,125
Edison International 33,000 899,250
Energen Corp. 50,000 1,962,500
Florida Progress 26,500 934,125
Corp.
IPALCO Enterprises, Inc. 29,000 1,107,438
KeySpan Energy Corp. 17,100 577,125
KN Energy Inc. 25,000 1,173,437
Long Island Lighting Co. 133,000 3,599,312
MDU Resources Group, Inc. 35,000 1,023,750
National Fuel Gas 36,000 1,633,500
Co.
National Power PLC, (ADR) (United 4,000 157,000
Kingdom)
New England Electric System 37,000 1,517,000
NUI Corp. 52,000 1,332,500
Pacific Enterprises 50,000 1,800,000
PacifiCorp 50,000 1,196,875
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - Utilities Fund
NUMBER OF MARKET
ISSUER DESCRIPTION SHARES VALUE
- ------------------ ------ -----
People's Energy Corp 30,000 $ 1,096,875
Potomac Electric Power Co. 23,000 566,375
PowerGen PLC, (ADR) (United Kingdom) 13,000 688,188
Providence Energy Corp. 42,000 795,375
Puget Sound Energy, Inc. 32,000 884,000
Sierra Pacific Resources 30,000 1,006,875
Southern Co. 36,000 841,500
Texas Utilities Co. 14,500 578,188
UtiliCorp United, Inc. 47,000 1,612,687
Washington Gas Light Co. 36,000 981,000
Washington Water Power Co. 48,500 1,054,875
WICOR, Inc. 30,100 1,378,956
Yankee Energy System, Inc. 31,000 742,063
------------
40,446,512
------------
TOTAL COMMON STOCKS
(Cost $41,698,085 )(81.68%) 53,683,554
------------
PREFERRED STOCKS
Banks - United States (2.13%)
Chase Manhattan Corp., 10.84%, Ser C 44,900 1,397,513
------------
Diversified Operations (1.62%)
El Paso Tennessee Pipeline Co., 8.25%,Ser A 19,000 1,064,000
------------
Financial Services (3.86%)
Salomon Inc. 7.625%, Ser FSA 65,000 2,535,000
------------
Food (1.13%)
Ralston Purina Co., 7.00% 11,000 741,125
------------
Insurance (1.84%)
Conseco, Inc., 7.00% 7,700 1,210,825
------------
Tobacco (2.28%)
DECS Trust, 8.50% 60,000 1,500,000
------------
Utilities (3.22%)
Capita Preferred Trust, 9.06% 20,000 538,750
MCN Michigan, L.P., 9.375%, Ser A 30,000 791,250
Sprint Corp. 8.25% 19,000 788,500
------------
2,118,500
------------
TOTAL PREFERRED STOCKS
(Cost $9,755,003)(16.08%) 10,566,963
------------
TOTAL COMMON STOCKS AND PREFERRED STOCKS
(Cost $51,453,088)(97.76%) 64,250,517
------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - Utilities Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------ ---- -------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.05%)
Investment in a joint repurchase agreement
transaction with Hong Kong & Shanghai Banking Corp. -
Dated 12-05-97, Due 12-08-97 (secured by U.S.
Treasury Bonds, 6.875% thru 9.125%
Due 05-15-09 thru 08-15-25 and U.S Treasury
Notes, 5.625% thru 9.125% Due 05-15-99 thru 10-15-06)
Note A 5.44% $1,348 $1,348,000
----------------
Corporate Savings Account ( 0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 466
----------------
TOTAL SHORT-TERM INVESTMENTS (2.05%) 1,348,466
----------------
TOTAL INVESTMENTS (99.81%) $65,598,983
================
</TABLE>
* 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
<PAGE>
Notes to the 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. 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 objective, growth of income and long-term growth of capital.
The Trustees authorized the issuance of multiple classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represented an interest in the same portfolio of investments of the Fund and had
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may have been 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 bore distribution and service expenses under terms
of a distribution plan have exclusive voting rights regarding that distribution
plan.
On November 12, 1997, the shareholders of the Fund approved a plan of
reorganization between the Fund and John Hancock Growth and Income Fund ("Growth
and Income Fund") providing for the transfer of substantially all of the assets
and liabilities of the Fund to the Growth and Income Fund in exchange solely for
shares of beneficial interest of Growth and Income Fund. After this transaction
and as of the close of business December 5, 1997, the Fund was terminated. The
financial statements presented herein reflect the position of the Fund prior to
the exchange of net assets and termination of the Fund.
Significant policies of the Fund were as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio were 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
were valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies had 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 were invested in one or more repurchase agreements, whose underlying
securities were obligations of the U.S. government and/or its agencies. The
Fund's custodian bank received delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser was responsible for ensuring
that the agreement was fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions were recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments were determined on the identified cost basis. Capital gains realized
on some foreign securities were subject to foreign taxes and are accrued as
applicable.
FEDERAL INCOME TAXES The Fund's policy was 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 was
required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
was recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund was made aware of the dividend. Interest
income on investment securities was recorded on the accrual basis. Foreign
income may have been subject to foreign withholding taxes which were accrued as
applicable.
<PAGE>
The Fund recorded all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions were
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 were calculated in the same manner, at the same
time and were in the same amount, except for the effect of expenses that may
have been applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) were 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, were 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.
EXPENSES The majority of the expenses of the Trust were directly identifiable to
an individual fund. Expenses which were not readily identifiable to a specific
fund were 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.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and were being charged to the Fund's operations
over the period that began with the commencement of investment operations of the
Fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporated estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund.
BANK BORROWINGS The Fund was permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might have required the untimely disposition of securities. These agreements
enabled the Fund to participate with other Funds managed by the Adviser in an
unsecured line of credit with banks which permitted borrowings up to $600
million, collectively. Interest was charged to each Fund, based on its
borrowing, at a rate equal to 0.50% over the Fed Funds Rate. In addition, a
commitment fee, at a rate of 0.075% per annum based on the average daily unused
portion of the line of credit, was allocated among the participating Funds. The
Fund had no borrowing activity for the period ended December 5, 1997.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies were 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
were translated at the rates prevailing at the dates of the transactions.
The Fund did 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 were 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 investment management contract, the Fund paid a monthly management fee
to the Adviser for a continuous investment program equivalent, on an annual
basis, to the sum of (a) 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 had agreed to limit the 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 $254,572 for the period ended December 5, 1997. The
Adviser reserved the right to terminate this limitation in the future.
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The Fund had a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended December
5, 1997, JH Funds received net sales charges of $50,090 with regard to sales of
Class A shares. Out of this amount, $7,781 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $22,278 was paid
as sales commissions to unrelated broker-dealers, and $20,031 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which were redeemed within six years of purchase were
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 were paid to JH Funds and were used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended December 5,
1997, the contingent deferred sales charges received by JH Funds amounted to
$201,544.
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 made 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 had a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), a wholly owned subsidiary of JHMLICo. The
Fund paid transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund had an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser, and its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees was
borne by the Fund. The unaffiliated Trustees could elect to defer for tax
purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund made 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
were recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At December 5, 1997, the Fund's investments to
cover the defined compensation liability had unrealized appreciation of $393.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended December 5, 1997, aggregated $40,656,417 and $58,717,133, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended December 5, 1997.
The cost of investments owned at December 5, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $52,827,296. Gross
unrealized appreciation and depreciation of investments aggregated $13,008,953
and $237,732, respectively, resulting in net unrealized appreciation of
$12,771,221.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended December 5, 1997, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of $632,575,
an increase in accumulated net investment
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income of $76,573 and an increase in capital paid-in of $556,002. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of December 5, 1997. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended December
5, 1997.
The Fund designated a distribution to shareholders of $2,766,096 as a
capital gain dividend. Of this amount, $1,964,480 is a 28% rate gain
distribution and $801,616 is a 20% rate gain distribution.
With respect to the dividends paid by the Fund for the fiscal year ended
December 5, 1997, 66.26% qualify for the corporate dividends received deduction.
