<PAGE> 1
JOHN HANCOCK FUNDS
- --------------------------------------------------------------------------------
SPECIAL
EQUITIES
FUND
ANNUAL REPORT
October 31, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Bayard Henry*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and Chief Financial Officer
Susan S. Newton
Vice President, Assistant Secretary and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENTAUDITORS
Ernst & Young llp
200 Clarendon Street
Boston, Massachusetts 02116
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Investors around the world have been watching Wall Street in awe for the better
part of 1995. Through October, the Standard & Poor's 500-Stock Index, a
widely-used barometer of stock performance, had grown by more than 25%.
Investors who stayed in the market after a disappointing 1994 have been
rewarded.
[A 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to first paragraph.]
On another street, Pennsylvania Avenue, one of the hot topics many people are
watching is Medicare reform. While there's no clear-cut solution on the horizon,
today's Medicare debate should serve as another wake-up call to all Americans
about the need to have a financial plan and to save for retirement. Whether or
not the government changes the way health-care benefits are allotted to senior
citizens, the message is clear: your future security and well-being lies in your
own hands -- not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them will
perhaps scare you or make you think that the task of saving for retirement is
just too daunting. But take heart. We don't believe that and neither do many
financial experts.
Yet retirement planning is not to be taken lightly. To live the way you want
to -- the way you deserve to after all those years of hard work -- you need to
plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial adviser
about establishing your retirement planning roadmap, if you haven't already. And
educate yourself by reading some of the many articles about how to save for
retirement. Take control of your future by saving today. That way, when it comes
time for retirement, you shouldn't have to think about any street but Easy
Street.
Sincerely,
/s/EDWARD J. BOUDREAU JR.
- -------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY MICHAEL P. DICARLO,
CHIEF EQUITY OFFICER AND PORTFOLIO MANAGER
JOHN HANCOCK
SPECIAL EQUITIES FUND
Growth stocks deliver earnings, outperform broader market;
technology stocks lead the pack
Declining interest rates, low inflation and steady corporate earnings helped
drive stocks sharply higher during the year. Growth stocks, because they
produced especially strong earnings in a generally weaker economy, drew
attention from Wall Street and outpaced the broader market. Among the leading
performers during the period were fast-growing small-company stocks -- many of
them technology stocks -- that are the focus of the Fund's investment strategy.
Returns were gratifying, marking a sharp turnaround from the previous fiscal
year. The Fund not only performed well in absolute terms, it also outpaced the
competition. For the year that ended October 31, 1995, Class A, Class B and
Class C shares of John Hancock Special Equities Fund had total returns at net
asset value of 37.49%, 36.57% and 38.27%, respectively, compared to 22.72% for
the average small-company growth fund, according to Lipper Analytical Services.1
TECHNOLOGY DRIVES PERFORMANCE
It's no accident that about 40% of the Fund's assets -- including many of its
largest investments and most impressive performers -- were technology stocks.
We consider ourselves bottom-up investors. If a stock meets one of our most
important criteria -- that is, if it has the potential to deliver 25% growth in
both revenues and earnings -- we'll buy it, no matter what sector it's in.
Still, it happens from time to time that broad social and economic forces
[CAPTION]
"AMONG THE LEADING PERFORMERS ...WERE FAST-GROWING SMALL-COMPANY STOCKS..."
[A 2" x 3" photo of Michael DiCarlo at bottom right. Caption reads: "Michael P.
DiCarlo, Portfolio Manager."]
3
<PAGE> 4
John Hancock Funds - Special Equities Fund
TOP FIVE COMMON STOCK HOLDINGS
1. AMERICA ONLINE 5.1%
2. NETSCAPE 3.9%
3. UUNET 3.3%
4. ELECTRONICS FOR IMAGING 3.2%
5. CUC INTERNATIONAL 3.0%
As a percentage of net assets on October 31, 1995
Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) America Online 5.1% 2) Netscape 3.9% 3) UUNET
3.3% 4) Electronics for Imaging 3.2% 5) CUC International 3.0%. A footnote below
reads "As a percentage of net assets on October 31, 1995."
propel whole sectors of the market to outstanding performance levels, and that's
certainly been the case lately with technology stocks. The evidence is
everywhere: in the explosion in multimedia computing; in the way semiconductors
have found their way into whole new categories of products; in the introduction
of Windows 95, which has increased demand for sophisticated computer hardware
and, broadly speaking, in the fact that during the 1990s, the United States has
defied all expectations by regaining its position as the world's low-cost
producer, mainly due to productivity gains tied to technology.
The Fund's largest investment, as well as the stock with the greatest
positive impact on performance during the Fund's fiscal year, was America Online
(AOL). By targeting mainstream consumers, AOL has emerged as the fastest growing
distributor of on-line computer services. Netscape, the Fund's second largest
investment at the end of the period, designs a powerful software program for
navigating the Internet. We bought Netscape at the initial public offering price
of $28 this past summer and continued buying as the stock rose sharply on a wave
of investor enthusiasm. Netscape shares were trading at close to $100 at the end
of the period. Other major technology investments included Electronics For
Imaging, a desktop publishing software company; Cypress Semiconductor, a leading
manufacturer and Novellus Systems, which makes equipment for making
semiconductors and has profited from an industry-wide push to increase capacity.
CONSUMER DISCRETIONARY
In our view, a broad, new category of stocks has been created by today's
economy. We call it "consumer discretionary." It includes traditional sectors
such as retail, consumer products and communications, which are well-represented
in the Fund. Together these consumer-focused companies account for close to 30%
of the Fund's assets, depending on how we categorize individual stocks. AOL for
example, as the McDonald's of the on-line services, may belong here rather than
with the technology stocks. Another example is CUC International, an on-line
retailer that has just launched an Internet shopping service.
Tommy Hilfiger, an apparel manufacturer with a strong retail presence, was
among the largest investments in this category, and the Fund's tenth largest
holding overall. It has also been one of the Fund's solid performers. With its
extensive line of casual clothing, Tommy Hilfiger has profited from "casual
Fridays" and other expressions of relaxed dress standards in Corporate America.
Recently Tommy Hilfiger has
[CAPTION]
[Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) America Online 5.1% 2) Netscape 3.9%
3) UUNET 3.3% 4) Electronics for Imaging 3.2% 5) CUC International 3.0%. A
footnote below reads "As a percentage of net assets on October 31, 1995."
Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is America
Online followed by an up arrow and the phrase "Captures mainstream
subscribers." The second listing is Netscape followed by an up arrow and the
phrase "Wave of interest in Internet." The third listing is Coventry Corp.
followed by a down arrow and the phrase "High medical loss ratio for HMO"
Footnote below reads: "See "Schedule of Investments." Investment holdings are
subject to change."]
[CAPTION]
"...ABOUT 40% OF THE FUND'S ASSETS ... WERE TECHNOLOGY STOCKS."
4
<PAGE> 5
John Hancock Funds - Special Equities Fund
- --------------------------------------------------------------------------------
begun leveraging its strong market presence by putting its name on ties,
underwear, suits and fragrances. Seattle Filmworks is an established mail-order
film processing company that now offers consumers the option of developing
pictures on a disk so that they can be viewed and organized on a computer.
HEALTH-CARE RESULTS MIXED
More than 10% of the Fund's assets at the end of the period were invested in
health-care stocks, with mixed results. Most were companies in a position to
profit from the drive to contain costs, a mission which the government seems to
have relegated to the private sector. They include medical device manufacturers
such as i-Stat, makers of a blood-testing tool that's not only cheaper than
traditional means, but also more accurate. The Fund's most disappointing
investment recently has been Coventry, an HMO with facilities in Florida,
Pennsylvania and other Eastern and Midwestern states. We think it's a terrific
company, and it's growing fast, but an unexpectedly high medical loss ratio has
sent the stock tumbling 17% year-to-date. We've reduced our holdings as a
result.
OUTLOOK
After the kind of year we've had, it would be sensible for shareholders to lower
their expectations going forward. That said, the climate for small-company
growth stocks remains attractive. Positive factors include a market-friendly
Congress, which seems poised to deliver both a capital-gains tax cut and looser
regulations concerning IRAs; a slowing economy, in which growth companies have
the potential to deliver better earnings than so-called cyclical companies; and
a downturn in market sentiment, which often precedes a market rally. Finally,
history tells us that stock prices follow earnings. By taking a disciplined
approach that focuses on companies across all sectors with the strongest
potential for earnings growth, we hope to continue delivering attractive results
for long-term investors through good climates and bad.
- -------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is lower.
[Bar chart with heading "Fund Performance" at top of left hand column. Under
the heading is the footnote: "For the year ended October 31, 1995." The chart
is scaled in increments of 10% from bottom to top, with 40% at the top and 0%
at the bottom. Within the chart there are four solid bars. The first represents
the 37.49% total return for the John Hancock Special Equities Fund, Class A.
The second represents the 36.57% total return for John Hancock Special Equities
Fund, Class B. The third represents the 38.27% total return for John Hancock
Special Equities Fund, Class C. The fourth represents the 22.72% total return
for the average small-company growth fund. A footnote below reads: "Total
returns for John Hancock Special Equities Fund are at net asset value with all
distributions reinvested. The average small-company growth fund is tracked by
Lipper Analytical Services. (1) See following page for historical performance
information."]
[CAPTION]
"...THE CLIMATE FOR SMALL-COMPANY GROWTH STOCKS REMAINS ATTRACTIVE."
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Special Equities Fund. Total return is a
performance measure that equals the sum of all dividend and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's average net assets.
Performance figures include the maximum applicable sales charge of 5% for Class
A shares. The effect of the maximum contingent deferred sales charge for Class B
shares (maximum 5% and declining to 0% over six years) is included in Class B
performance. Prior to January 1992, different sales charges were in effect for
Class A shares and are not reflected in the performance information. 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 your prospectus for information on the risks associated with
emerging growth stock investments.
- -------------
Note: Participant-directed defined-contribution plans with at least 100
eligible employees at inception of the Fund account may purchase Class A shares
without an initial sales charge as of March 15, 1995. If those shares are
redeemed, however, during the year following the calendar year end during which
they were purchased, a contingent deferred sales charge will be assessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
<S> <C> <C> <C>
John Hancock Special Equities
Fund: Class A 37.28% 338.80% 399.77%
John Hancock Special Equities
Fund: Class B 38.43% 73.67%(1) N/A
John Hancock Special Equities
Fund: Class C 45.34% 49.73%(2) N/A
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
<S> <C> <C> <C>
John Hancock Special Equities
Fund: Class A 37.28% 34.42% 17.46%
John Hancock Special Equities
Fund: Class B 38.43% 23.75%(1) N/A
John Hancock Special Equities
Fund: Class C 45.34% 21.42%(2) N/A
</TABLE>
NOTES TO PERFORMANCE
(1) Class B shares started on March 1, 1993.
(2) Class C shares started on September 1, 1993.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Special
Equities Fund would be worth on October 31, 1995, assuming either you had
invested on the day each class of shares started or have been for the most
recent ten years and have reinvested all distributions. For comparison, we've
shown the same $10,000 investment in both the Standard & Poor's 500 Stock Index
and the Russell 2000 Index. This Standard & Poor's 500 Stock Index is an
unmanaged index that includes 500 widely traded common stocks and is a commonly
used measure of stock market performance. The Russell 2000 Index is an
unmanaged, small-cap index that is comprised of 2000 stocks of U.S.-domiciled
companies whose common stock traded in the United States on the New York Stock
Exchange, American Stock Exchange and NASDAQ.
[Special Equities Fund
Class A shares
Line chart with the heading Special Equities: Class A, representing the growth
of a hypothetical $10,000 investment over the life of the fund. Within the
chart are four lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Special Equities Fund on April 20, 1985, before sales charge, and is
equal to $51,529 as of October 31, 1995. The second line represents the Special
Equities Fund after sales charge and is equal to $48,990 as of October 31,
1995. The third line represents the value of the Standard & Poor's 500 Stock
Index and is equal to $42,070 as of October 31, 1995. The fourth line
represents the value of the Russell 2000 Index and is equal to $30,601 as of
October 31, 1995.]
[Special Equities Fund
Class B shares
Line chart with the heading Special Equities Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are four lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Special Equities Fund on March 3, 1993, before contingent deferred sales
charge, and is equal to $17,732 as of October 31, 1995. The second line
represents Special Equities Fund after contingent deferred sales charge and is
equal to $17,432 as of October 31, 1995. The third line represents the value of
the Standard & Poor's 500 Stock Index and is equal to $14,102 as of October 31,
1995. The fourth line represents the value of the Russell 2000 Index and is
equal to $13,879 as of October 31, 1995.]
[Special Equities Fund
Class C shares
Line chart with the heading Special Equities Fund: Class C, 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 hypothetical $10,000 investment made in the
Special Equities Fund on September 1, 1993, and is equal to $15,034 as of
October 31, 1995. The second line represents the value of the Standard & Poor's
500 Stock Index and is equal to $13,297 as of October 31, 1995. The fourth line
represents the value of the Russell 2000 Index and is equal to $12,438 as of
October 31, 1995.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Special Equities Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $631,871,804)...................... $ 939,645,456
Short-term notes (cost - $18,298,067).................... 18,298,067
Joint repurchase agreement (cost - $48,750,000) ......... 48,750,000
Corporate savings account................................ 701,702
--------------
1,007,395,225
Receivable for shares sold................................ 3,694,526
Receivable for investments sold........................... 26,705,928
Interest receivable....................................... 8,292
Dividends receivable...................................... 8,000
--------------
Total Assets............................ 1,037,811,971
------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased............................ 603,440
Payable for investments purchased......................... 11,428,592
Payable to John Hancock Advisers, Inc. and
affiliates - Note B .................................... 1,274,959
Accounts payable and accrued expenses..................... 214,815
--------------
Total Liabilities....................... 13,521,806
------------------------------------------------------------
NET ASSETS:
Capital paid-in........................................... 693,050,656
Accumulated net realized gain on investments ............. 23,465,857
Net unrealized appreciation of investments ............... 307,773,652
--------------
Net Assets.............................. $1,024,290,165
============================================================
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 - $555,655,382/ 25,080,561........................ $ 22.15
==============================================================================
Class B - $454,934,305/ 20,862,546........................ $ 21.81
==============================================================================
Class C - $13,700,478/ 611,672............................ $ 22.40
==============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - $(22.15 x 105.26)%.............................. $ 23.32
==============================================================================
</TABLE>
- ---------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS FOR THE PERIOD
STATED.
<TABLE>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest............................................... $ 3,344,079
Dividends.............................................. 79,312
------------
3,423,391
------------
Expenses:
Investment management fee - Note B.................... 5,538,912
Distribution/service fee - Note B
Class A............................................. 1,163,909
Class B............................................. 2,792,602
Transfer agent fee - Note B........................... 1,894,790
Registration and filing fees.......................... 219,795
Custodian fee......................................... 133,764
Printing.............................................. 85,591
Trustees' fees........................................ 56,131
Auditing fee.......................................... 35,000
Miscellaneous......................................... 32,454
Legal fees............................................ 21,991
------------
Total Expenses....................... 11,974,939
------------------------------------------------------------
Net Investment Loss.................. (8,551,548)
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold. ................ 49,485,997
Change in net unrealized appreciation/depreciation
of investments ...................................... 186,642,714
------------
Net Realized and Unrealized
Gain on Investments ................. 236,128,711
------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........... $227,577,163
============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Special Equities Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss ........................................................ $ (8,551,548) $ (7,073,460)
Net realized gain (loss) on investments sold ............................... 49,485,997 (20,708,728)
Change in net unrealized appreciation/depreciation of investments .......... 186,642,714 29,140,783
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ...................... 227,577,163 1,358,595
--------------- ---------------
FROM FUND SHARE TRANSACTIONS -- NET* ......................................... 286,986,120 50,457,201
--------------- ---------------
NET ASSETS:
Beginning of period ........................................................ 509,726,882 457,911,086
--------------- ---------------
End of period .............................................................. $ 1,024,290,165 $ 509,726,882
=============== ===============
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------
1995 1994
------------------------------------ ------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .......................... 30,038,347 $ 583,642,775 15,399,407 $ 233,394,230
Less shares repurchased .............. (24,245,104) (469,112,794) (14,507,334) (219,847,278)
------------- ------------- ------------- -------------
Net increase ......................... 5,793,243 $ 114,529,981 892,073 $ 13,546,952
============= ============= ============= =============
CLASS B
Shares sold .......................... 14,217,398 $ 274,338,380 4,220,733 $ 63,417,649
Less shares repurchased .............. (5,376,470) (105,131,366) (2,043,273) (30,587,828)
------------- ------------- ------------- -------------
Net increase ......................... 8,840,928 $ 169,207,014 2,177,460 $ 32,829,821
============= ============= ============= =============
CLASS C
Shares sold .......................... 242,819 $ 4,518,410 318,075 $ 4,881,336
Less shares repurchased .............. (70,748) (1,269,285) (54,405) (800,908)
------------- ------------- ------------- -------------
Net increase ......................... 172,071 $ 3,249,125 263,670 $ 4,080,428
============= ============= ============= =============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS YEAR. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, AND ANY INCREASE OR
DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES
THE NUMBER OF FUND SHARES SOLD, REINVESTED AND REDEEMED DURING THE LAST TWO
PERIODS, ALONG WITH THE CORRESPONDING DOLLAR VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Special Equities Fund
<TABLE>
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:
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ................ $ 16.11 $ 16.13 $ 10.99 $ 9.71 $ 4.97
----------- ----------- ----------- -------- --------
Net Investment Loss (a) ............................. (0.18)(b) (0.21)(b) (0.20)(b) (0.19)(b) (0.10)
Net Realized and Unrealized Gain on Investments ..... 6.22 0.19 5.43 2.14 4.84
----------- ----------- ----------- -------- --------
Total from Investment Operations .................. 6.04 (0.02) 5.23 1.95 4.74
----------- ----------- ----------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold .................................. -- -- (0.09) (0.67) --
----------- ----------- ----------- -------- --------
Total Distributions ............................... -- -- (0.09) (0.67) --
----------- ----------- ----------- -------- --------
Net Asset Value, End of Period ...................... $ 22.15 $ 16.11 $ 16.13 $ 10.99 $ 9.71
=========== =========== =========== ======== ========
Total Investment Return at Net Asset Value (a)(f) ... 37.49% (0.12)% 47.83% 20.25% 95.37%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ........... $ 555,655 $ 310,625 $ 296,793 $ 44,665 $ 19,713
Ratio of Expenses to Average Net Assets (a) ......... 1.48% 1.62% 1.84% 2.24% 2.75%
Ratio of Net Investment Loss to Average Net
Assets (a) ........................................ (0.97)% (1.40)% (1.49)% (1.91)% (2.12)%
Portfolio Turnover Rate ............................. 82% 66% 33% 114% 163%
CLASS B (c)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ................ $ 15.97 $ 16.08 $ 12.30
----------- ----------- -----------
Net Investment Loss ................................. (0.31)(b) (0.30)(b) (0.18)(b)
Net Realized and Unrealized Gain on Investments ..... 6.15 0.19 3.96
----------- ----------- -----------
Total from Investment Operations .................. 5.84 (0.11) 3.78
----------- ----------- -----------
Net Asset Value, End of Period ...................... $ 21.81 $ 15.97 $ 16.08
=========== =========== ===========
Total Investment Return at Net Asset Value (f) ...... 36.57% (0.68)% 30.73%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ........... $ 454,934 $ 191,979 $ 158,281
Ratio of Expenses to Average Net Assets ............. 2.20% 2.25% 2.34%*
Ratio of Net Investment Loss to Average Net Assets .. (1.69)% (2.02)% (2.03)%*
Portfolio Turnover Rate ............................. 82% 66% 33%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Special Equities Fund
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CLASS C (e)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .......................... $ 16.20 $ 16.14 $ 14.90
---------- ---------- ----------
Net Investment Loss ........................................... (0.09)(b) (0.13)(b) (0.03)(b)
Net Realized and Unrealized Gain on Investments ............... 6.29 0.19 1.27
---------- ---------- ----------
Total from Investment Operations ............................ 6.20 0.06 1.24
---------- ---------- ----------
Net Asset Value, End of Period ................................ $ 22.40 $ 16.20 $ 16.14
========== ========== ==========
Total Investment Return at Net Asset Value (f) ................ 38.27% 0.37% 8.32%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ..................... $ 13,701 $ 7,123 $ 2,838
Ratio of Expenses to Average Net Assets ....................... 1.01% 1.11% 1.45%*
Ratio of Net Investment Loss to Average Net Assets ............ (0.50)% (0.89)% (1.35)%*
Portfolio Turnover Rate ....................................... 82% 66% 33%
</TABLE>
* On an annualized basis.
(a) Reflects expense limitation in effect during the year ended October 31, 1991
(see Note B). As a result of such limitations, expenses of the Fund for the
year ended October 31, 1991 reflects a reduction of $.002. Absent of such
limitation, for the year ended October 31, 1991 the ratio of net expenses
would have been 2.79%, and the ratio of net investment loss to average net
assets would have been (2.16)%. Without the limitation, total investment
return would be lower.
(b) On average month end shares outstanding.
(c) Class B shares commenced operations on March 1, 1993.
(d) Not annualized.
(e) Class C shares commenced operations on September 1, 1993.
(f) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: INCOME, EXPENSES AND GAINS 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.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Special Equities Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
SPECIAL EQUITIES FUND ON OCTOBER 31, 1995. 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.
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
APPLIANCES - HOUSEHOLD (0.44)%
Fedders Corp. ............................. 475,000 $ 2,790,625
Fedders Corp. (Class A) ................... 415,625 1,766,406
------------
4,557,031
------------
BROADCASTING (0.44)%
American Radio Systems Corp. (Class A)** .. 200,000* 4,500,000
------------
COMPUTERS -- GRAPHICS (2.82)%
Diamond Multimedia Systems, Inc.** ........ 400,000* 11,800,000
S3, Inc.** ................................ 1,000,000* 17,125,000
------------
28,925,000
------------
COMPUTERS -- MINI/MICRO(1.63)%
ESS Technology, Inc.** .................... 400,000* 12,000,000
Vitesse Semiconductor Corp.** ............. 400,000* 4,700,000
------------
16,700,000
------------
COMPUTERS -- PHERIPHERAL (2.61)%
Adaptec, Inc.** ........................... 600,000 26,700,000
------------
COMPUTERS -- SERVICES (15.89)%
America Online, Inc.** .................... 650,000 52,000,000
C-Cube Microsystems, Inc.** ............... 325,000 22,465,625
Gandalf Technologies, Inc.** .............. 850,000* 4,834,375
Netscape Communications Corp.** ........... 450,000* 39,600,000
Spyglass Inc.** ........................... 180,000* 8,955,000
Transaction Network Services, Inc.** ...... 66,000* 1,518,000
UUNET Technologies, Inc.** ............... 550,000* 33,412,500
------------
162,785,500
------------
COMPUTERS -- SOFTWARE (19.48)%
Atria Software, Inc.** .................... 500,000* 17,875,000
Cognos, Inc.** ............................ 520,000* 16,575,000
Electronics for Imaging, Inc.** ........... 400,000 32,900,000
Harbinger Corp.** ......................... 100,000* 1,400,000
Intuit, Inc.** ............................ 322,600* 23,227,200
Macromedia, Inc.** ........................ 790,000* 29,230,000
Medic Computer Systems, Inc.** ............ 192,500* 10,250,625
Oak Technology, Inc.** .................... 500,000* 27,375,000
Softkey International, Inc.** ............. 600,000 18,900,000
Systemsoft Corp.** ........................ 300,000* 4,312,500
Transaction Systems Architects, Inc.** .... 358,700* 9,326,200
Wind River Systems** ...................... 300,000* 8,100,000
------------
199,471,525
------------
DIVERSIFIED OPERATIONS (0.53)%
On Assignment, Inc.** ..................... 200,000* 5,400,000
------------
DRUGS (1.14)%
Dura Pharmaceuticals, Inc.** .............. 400,000* 11,700,000
------------
ELECTRONICS (16.49)%
Altera Corp.** ............................ 350,000 21,175,000
Atmel Corp.** ............................. 800,000 25,000,000
Cypress Semiconductor Corp.** ............. 700,000 24,675,000
FSI International, Inc.** ................. 300,000* 7,125,000
Identix , Inc.** .......................... 337,800* 3,969,150
Linear Technology Corp. ................... 200,000 8,750,000
LSI Industries, Inc. ...................... 300,000* 5,025,000
Micron Technology, Inc. ................... 200,000* 14,125,000
Novellus Systems, Inc.** .................. 450,000 30,993,750
Ultratech Stepper, Inc.** ................. 100,000* 4,000,000
Vicor Corp.** ............................. 322,000* 6,580,875
VLSI Technology, Inc.,** .................. 254,000* 5,969,000
Xilinx, Inc.** ............................ 249,500 11,477,000
------------
168,864,775
------------
FINANCIAL/BUSINESS SERVICES (5.98)%
American Business Information, Inc.** ..... 311,250* 5,446,875
Credit Acceptance Corp.** ................. 850,000* 19,975,000
Physician Sales & Service, Inc.** ......... 900,000* 14,625,000
PMT Services, Inc.**+ ..................... 400,000* 10,750,000
US Order, Inc.** .......................... 700,000* 10,500,000
------------
61,296,875
------------
HEALTHCARE (5.62)%
Americal Oncology Resources, Inc.,** ...... 277,600* 9,716,000
Apria Healthcare Group, Inc.,**
(formerly Abbey Healthcare
Group, Inc.) ............................ 448,000* 9,688,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Special Equities Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
HEALTHCARE (CONTINUED)
Coventry Corp.** ........................ 325,000 $ 6,378,125
Health Management Systems, Inc.** ....... 225,000 7,200,000
Healthsource, Inc.** .................... 150,000 7,950,000
Physician Reliance Network, Inc.** ...... 500,000* 16,625,000
-----------
57,557,125
-----------
INSURANCE (1.22)%
Compdent Corp.** ........................ 400,000* 12,450,000
-----------
LEISURE & RECREATION (0.94)%
Ride, Inc.** ............................ 400,000* 9,650,000
-----------
MEDICAL/DENTAL (2.83)%
Gulf South Medical Supply, Inc.** ....... 650,000* 13,487,500
i-Stat Corp.** .......................... 500,000* 15,500,000
-----------
28,987,500
-----------
MOTION PICTURES (0.53)%
Regal Cinemas, Inc.,** .................. 137,600* 5,400,800
-----------
OIL & GAS (1.08)%
Cairn Energy USA, Inc.** ................ 393,400* 4,720,800
Pride Petroleum Services, Inc.** ........ 500,000* 4,375,000
Tetra Technologies, Inc.** ............. 150,000* 1,987,500
-----------
11,083,300
-----------
PUBLISHING (0.55)%
Desktop Data, Inc.** .................... 158,700* 5,673,525
-----------
RETAIL (6.21)%
CUC International, Inc.** ............... 900,000 31,162,500
Dollar Tree Stores, Inc.** ............. 167,500* 4,522,500
Men's Wearhouse Inc., (The)** ........... 200,000* 7,800,000
PetSmart, Inc.** ........................ 420,000 14,070,000
Seattle Filmworks, Inc.** ............... 300,000* 6,075,000
-----------
63,630,000
-----------
TELECOMMUNICATIONS (2.70)%
DSP Communications, Inc.** ............. 400,000* 14,500,000
EIS International, Inc.** ............... 250,000* 4,625,000
Global Village Communication, Inc.** .... 500,000 8,500,000
-----------
27,625,000
-----------
TEXTILES (2.61)%
Tommy Hilfiger Corp.** .................. 700,000 26,687,500
-----------
TOTAL COMMON STOCKS
(Cost $631,871,804) (91.74)% 939,645,456
-------- -----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (4.76)%
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets Inc.
dated 10-31-95, due 11-01-95
(secured by U.S. Treasury Bond,
8.750% due 05-15-17 and
U.S. Treasury Note, 5.750%
due 09-30-97) -- Note A ............. 5.89% $48,750 $48,750,000
-------------
SHORT-TERM NOTES (1.78)%
Ford Motor Co., due 11-01-95 .......... 5.72 7,300 7,300,000
Merrill Lynch & Co., Inc., due 11-01-95 5.87 5,000 5,000,000
Merrill Lynch & Co., Inc., due 11-03-95 5.80 6,000 5,998,067
-------------
18,298,067
-------------
CORPORATE SAVINGS ACCOUNT (0.07)%
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% .................. 701,702
-------------
TOTAL SHORT-TERM INVESTMENTS ........ (6.61)% 67,749,769
----- -------------
TOTAL INVESTMENTS ........ (98.35)% $1,007,395,225
======= =============
</TABLE>
- ---------------
* Securities, other than short-term investments, newly added to the portfolio
during the year ended October 31, 1995.
** Non-income producing security.
+ Denotes an affiliated company in which the Fund has ownership of at least 5%
of the voting securities. Investments in affiliates at October 31, 1995 were
as follows:
<TABLE>
<CAPTION>
AFFILIATE COST DIVIDEND INCOME
--------- ---- ---------------
<S> <C> <C>
PMT Services, Inc. $7,786,883 ****
</TABLE>
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.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Equities Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Special Equities Fund (the "Fund") is a diversified open-end
management investment company, registered under the Investment Company Act of
1940.
The Trustees have authorized the issuance of three classes of shares of the
Fund, designated as Class A, Class B and Class C shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends, and liquidation, except
that certain expenses subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission. Shareholders of a class which bears
distribution/service expenses under terms of a distribution plan, have exclusive
voting rights to such distribution plan. Class Aand Class B shares of the Fund
were reopened to new shareholders on February 15, 1995. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all 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. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principals. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class as explained previously.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/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.
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) 0.85% of the first $250,000,000 of the Fund's
average daily net asset value, and (b) 0.80% of the Fund's average daily net
asset value in excess of $250,000,000.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Equities Fund
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000, and 1.5% of
the remaining average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. Prior to January 1, 1995 JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended October 31, 1995, net sales charges received with regard to sales
of Class A shares amounted to $4,505,322. Out of this amount, $685,379 was
retained and used for printing prospectuses, advertising, sales literature and
other purposes, $2,990,410 was paid as sales commissions to unrelated
broker-dealers and $829,533 was paid as sales commissions to sales personnel of
John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., ("Sutro"), all of which are broker dealers.
The Adviser's indirect parent, John Hancock Mutual Life Insurance Company, is
the indirect sole shareholder of Distributors and John Hancock Freedom
Securities Corporation and its subsidiaries which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% (4.0% on purchases made prior to January 1, 1994) 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 CDSC are paid to JH
Funds and are used in whole or in part to defray its expenses related to
providing distribution related services to the Fund in connection with the sale
of Class B shares. For the period ended October 31, 1995, contingent deferred
sales charges paid to JH Funds amounted to $795,354.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B shares 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/service costs. Up to a maximum
of 0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc.
Prior to January 1, 1995, the Fund paid Investor Services a monthly transfer
agent fee equivalent, on an annual basis, to 0.40%, 0.42% and 0.10% of the
average daily net asset value of Class A, Class B and Class C shares of the
Fund, respectively, plus out-of-pocket expenses incurred by Fund Services on
behalf of the Fund. For the period January 1, 1995 through October 31, 1995,
Class A, Class B and Class C shares paid transfer agent fees based on the number
of shareholder accounts and certain out-of-pocket expenses. For the year ended
October 31, 1995 the transfer agent expense, calculated as a class specific
expense was $1,045,963 for Class A, $839,318 for Class B and $9,509 for Class C,
respectively.
Messrs. Edward J. Boudreau, Jr., and Richard S. Scipione are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of the Fund.
The compensation of unaffiliated Trustees is borne by the Fund. 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 will make investments into other John
Hancock funds, as applicable, to cover its liability for the
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Special Equities Fund
deferred compensation. Investments to cover the Fund's deferred compensation
liability will be recorded on the Fund's books as an other asset. The deferred
compensation liability will be marked to market on a periodic basis and income
earned by the investment will be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS:
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended October 31, 1995, aggregated $738,929,047 and $513,809,441, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended October 31, 1995.
The cost of investments owned at October 31, 1995 (including the short-term
investments) for Federal income tax purposes was $698,919,871. Gross unrealized
appreciation and depreciation of investments aggregated $320,647,759 and
$12,874,107, respectively, resulting in net unrealized appreciation of
$307,773,652.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1995, the Fund has reclassified the
accumulated net investment loss of $8,551,548 to capital paid-in. This
represents the cumulative amount necessary to report these balances on a tax
basis, excluding certain temporary differences, as of October 31, 1995.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to the treatment of net operating losses in the
computation of distributable income and capital gains under federal tax rules
versus generally accepted accounting principle.
16
<PAGE> 17
John Hancock Funds -- Special Equities Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of John Hancock Special Equities Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Special Equities Fund (the "Fund"), including the schedule of
investments, as of October 31, 1995, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers, or other
appropriate auditing procedures when replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of John
Hancock Special Equities Fund at October 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the indicated
periods in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
---------------------
Boston, Massachusetts
December 15, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the taxable distribution of the Fund during its fiscal year ended
October 31, 1995.
The Fund has not paid any distributions of ordinary income, dividends or net
long-term capital gains during the fiscal year.
17
<PAGE> 18
NOTES
John Hancock Funds - Special Equities Fund
18
<PAGE> 19
NOTES
John Hancock Funds - Special Equities Fund
19
<PAGE> 20
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
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box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Special
Equities Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
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Paper."]
