John Hancock Funds
Special
Equities
Fund
Annual Report
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Michael P. DiCarlo
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 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 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
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
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 state 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
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to first paragraph.
By Michael P. DiCarlo, Portfolio Manager
John Hancock
Special Equities Fund
Acrobatic year for small-company stocks
"Small-company
stocks lived
up to their
volatile
nature..."
Small-company stocks lived up to their volatile nature over the past 12
months, gyrating even more wildly than the rest of the market. But
overall, they produced solid double-digit returns, even though they
lagged their larger brethren. During the first half of the Fund's fiscal
year, small-company stocks were riding high, outperforming larger-
company stocks as the slow-growing economy caused investors to flock to
faster-growing small companies. But as interest rates rose and the
economy showed signs of picking up steam, investors retreated to the
larger, more tested and liquid companies. Then in July, the bottom fell
out of the small-cap market, with technology stocks taking a
particular pounding as the technology-laden Nasdaq Composite Index fell
by more than 15% from its May high. But one month later, small caps
began a rebound, thanks to some respectable earnings, and the Russell
2000 Index, a broad measure of small-company performance, wound up
advancing 16.61% for the year ended October 31, 1996. Yet that wasn't
enough to catch up to the broader market, as measured by the Standard &
Poor's 500-Stock Index which advanced 24.10% in the same period.
A 2" x 3" photo of Michael DiCarlo at bottom right. Caption reads:
"Michael DiCarlo, Portfolio Manager."
Large technology stake holds back performance
For the 12 months ended October 31, 1996, John Hancock Special Equities
Fund's Class A, Class B and Class C shares posted total returns of
12.96%, 12.09% and 13.40%, respectively, at net asset value. That
compared to the 20.44% return of the average small-company growth fund,
according to Lipper-Analytical Services.1 As long-time investors in John
Hancock Special Equities Fund know, this relative underperformance is
uncharacteristic for the Fund. For the 5 and 10-year periods ending
October 31, 1996, the Fund's Class A shares had average annual returns
of 22.56% and 17.40% respectively. That performance placed the Fund
sixth out of 97 small-company growth funds for the 5-year period and
sixth out of 45 funds for the 10-year period, according to Lipper.
Still, it would be less than truthful to say this one-year result, which
placed the Fund's Class A shares 282 out of 358 small-company growth
funds, wasn't disappointing.
Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) Cascade Communications 4.4%
2) Electronics for Imaging 4.3% 3) Cognos 3.2% 4) Adaptec 3.0% 5)
Chesapeake Energy 2.9%. A footnote below reads "As a percentage of net
assets on October 31, 1996."
"... we
consolidated
the Fund's
holdings..."
To recap our disciplined investment process, we search the broad
investment spectrum for small companies growing revenues and earnings by
at least 25% per year, having an industry leadership position and a
strong, committed management team. We're continuing to find some of the
best candidates among technology companies, which accounted for more
than one third of the Fund's net assets by the end of October. Having a
heavy stake in the sector during this fiscal year, however, caused us to
lag our peers because even strong performing tech companies fell out
of favor, pulled down by the sector rout in the summer. Our largest
holding, Cascade Communications Corp. was a perfect example. This
networking company has been rock steady, producing earnings as expected
like clockwork. But the more skittish, demanding stock market punished
Cascade for simply meeting its third- quarter projection, instead of
surpassing it. In general, we're sticking with technology, however,
because we believe the group is still in the middle of a secular bull
market and that it still represents one of the best places to find
superior earnings growth. Even if the market isn't interested now, it
will be later, because one thing we know is that inevitably, stock
prices follow earnings. And these companies have the ability to keep
producing.
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 Energy Ventures followed by an up arrow and the phrase "Rising oil
prices, strong demand." The second listing is Tommy Hilfiger followed by
an up arrow and the phrase "Successful new women's apparel & fragrance
lines." The third listing is Bell & Howell followed by a flat arrow and
the phrase "Market slow to recognize company's transformation" Footnote
below reads: "See "Schedule of Investments." Investment holdings are
subject to change."
Consolidating the Fund
After the summer correction, we consolidated the Fund's holdings to be
ready to take advantage of the next move up. We did this by cutting the
number of individual positions by about 25%, eliminating smaller ones
that were not contributing much to performance and taking advantage of
very attractive stock prices to buy some new holdings and increase many
of our existing positions.
One new addition that's done well was Outdoor Systems, a billboard
company reaping the benefits of industry consolidation by buying smaller
companies, realizing economies of scale and improving profitability in
the process. United Auto Group is another company taking the upper hand
in consolidating the auto dealership business. They've also found ways
to capture the higher profits that come from selling car accessories,
services, warranties and financing. Two great energy additions were
Chesapeake Energy, a very successful oil drilling company, and Energy
Ventures, which does drilling, as well as manufacturing and distributing
oil field equipment. More on energy in a minute.
On the technology side, we bought back Netscape, now that this Internet
stock is selling at a more realistic price. We also began boosting our
semiconductor holdings, by adding Altera and Linear Technology and
upping our stake in Xilinx, while their stocks were still cheap. Now
that chip supply and demand are more in balance, those stocks have begun
to rebound. We also bought more of a perennial favorite, America Online,
because after several years of explosive growth, it experienced some
growing pains during the period and its stock price fell to very
attractive levels. But recent pricing and accounting changes should help
put the company back on the fast track.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended October 31,
1996." The chart is scaled in increments of 5% from bottom to top, with
25% at the top and 0% at the bottom. Within the chart there are four
solid bars. The first represents the 12.96% total return for the John
Hancock Special Equities Fund: Class A. The second represents the 12.09%
total return for John Hancock Special Equities Fund: Class B. The third
represents the 13.40% total return for John Hancock Special Equities
Fund: Class C. The fourth represents the 20.44% 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 two pages
for historical performance information."
Energy and retail winners
Rising oil and gas prices and favorable supply/demand fundamentals
worldwide gave the Fund's energy holdings a boost during the period. A
group that did especially well were the oil and gas exploration
companies, such as Energy Venture, Flores & Rucks, Lomak Petroleum and
Pride Petroleum. By association, Hvide Marine, which owns and operates
marine companies that support offshore drilling, also profited. Our
favorite retailer, Tommy Hilfiger, hit another home run this period with
its very successful launch of women's fragrance and apparel lines. We
also added CompUSA, the nation's largest computer retail chain, and even
though its stock was hurt recently by concerns about holiday sales,
we're not worried. We think these concerns will prove to be unfounded.
Computer sales have been strong all year and the company's earnings
growth is solid.
"In our view...
prospects for
small company
growth
stocks remain
very bright."
A look ahead
In our view, there are a number of reasons why prospects for small-
company growth stocks remain very bright. First, the summer small-cap
correction made valuations even more compelling for the smaller names,
while larger company stocks are beginning to be viewed by some as
pricey. Next, as you read this, the uncertainties and fears surrounding
the presidential election and potential fallout from a change in
Congressional control are gone. And with the economy appearing to stick
to a moderate growth path, interest rates have the ability to come down
more, an environment that historically favors the small, fast-growing
companies we favor. On a final note, the record amounts of 401(k)
retirement money still flowing into aggressive growth stock mutual funds
bodes well for the long term.
That said, we certainly expect to see more volatility along the way.
Small-cap investors need to keep a long-term investment perspective and
a healthy tolerance for this more aggressive investment style. And no
matter what the market does in the near term, we'll keep applying our
disciplined strategy to find companies that fit our criteria for strong
revenue and earnings growth.
- ----------------------------------------------------------------------
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.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Special Equities 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. 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 small-company stocks.
CUMULATIVE TOTAL RETURNS
For the period ended September 30, 1996
MOST
ONE FIVE RECENT
YEAR YEARS TEN YEARS
----- ------ ---------
John Hancock Special
Equities Fund: Class A 16.54% 194.58% 442.56%
John Hancock Special
Equities Fund: Class B 16.75% 108.58%(1) N/A
John Hancock Special
Equities Fund: Class C 23.09% 84.31%(2) N/A
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
MOST
ONE FIVE RECENT
YEAR YEARS TEN YEARS
----- ------ ---------
John Hancock Special
Equities Fund: Class A 16.54% 24.12% 18.43%
John Hancock Special
Equities Fund: Class B 16.75% 22.73%(1) N/A
John Hancock Special
Equities Fund: Class C 23.09% 21.96%(2) N/A
Notes to Performance
(1) Class B shares commenced on March 1, 1993.
(2) Class C shares commenced on September 1, 1993.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Special Equities Fund would be worth on October 31, 1996,
assuming either you had invested on the day each class of shares started
or have been investing 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. The 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 stocks trade 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 Fund: 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 Special Equities Fund, before sales charge, and is equal to
$49,589 as of October 31, 1996. The second line represents the value of
the hypothetical $10,000 investment made in the Special Equities Fund,
after sales charge, on October 31, 1986, and is equal to $47,110 as of
October 31, 1996. The third line represents the Standard & Poor's 500
Stock Index and is equal to $39,194 as of October 31, 1996. The fourth
line represents the Russell 2000 Index and is equal to $29,198 as of
October 31, 1996.
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 Special Equities Fund, before sales charge, and is equal to
$19,551 as of October 31, 1996. The second line represents the value of
the hypothetical $10,000 investment made in the Special Equities Fund,
after sales charge, on March 1, 1993 and is equal to $19,251 as of
October 31, 1996. The third line represents the value of the Standard &
Poor's 500 Stock Index and is equal to $17, 498 as of October 31,
1996.The fourth line represents the Russell 2000 Index and is equal to
$16,184 as of October 31, 1996.
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
value of the hypothetical $10,000 investment made in the Special
Equities Fund, before sales charge, on September 1, 1993 and is equal to
$17,048 as of October 31, 1996. The second line represents the value of
the Standard & Poor's 500 Stock Index and is equal to $16,499 as of
October 31, 1996. The third line represents the value of the Russell
2000 Index and is equal to $14,503 as of October 31, 1996.
<TABLE>
<CAPTION>
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, 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
October 31, 1996
- ------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks and rights
Unaffiliated Issuers (cost - $971,090,905) $1,288,027,175
Affiliated Issuers (cost - $456,271,203) 619,346,906
Joint repurchase agreement (cost - $91,395,000) 91,395,000
Corporate savings account 950,085
--------------
1,999,719,166
Receivable for investments sold 3,380,112
Receivable for shares sold 3,393,403
Dividends receivable 20,000
Interest receivable 14,775
Other assets 27,561
--------------
Total Assets 2,006,555,017
- ------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 6,590,784
Payable for shares repurchased 1,272,925
Payable to John Hancock Advisers, Inc. and
and affiliates - Note B 2,004,845
Accounts payable and accrued expenses 503,123
--------------
Total Liabilities 10,371,677
- ------------------------------------------------------------------------
Net Assets:
Capital paid-in 1,543,158,420
Accumulated net realized loss on investments 26,961,479)
Net unrealized appreciation of investments 480,013,960
Accumulated net investment loss 27,561)
--------------
Net Assets $1,996,183,340
========================================================================
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 - 972,311,651/39,631,340 $24.53
========================================================================
Class B - 956,373,995/39,912,183 $23.96
========================================================================
Class C - 67,497,694/2,709,405 $24.91
========================================================================
Maximum Offering Price Per Share*
Class A - ($24.53 x 105.26%) $25.82
========================================================================
* 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
Year ended October 31, 1996
- ------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $7,105,190
Dividends 1,234,099
------------
8,339,289
------------
Expenses:
Investment management fee - Note B 12,884,307
Distribution/service fee - Note B
Class A 2,390,517
Class B 7,577,560
Transfer agent fee - Note B 3,790,547
Financial services fee - Note B 264,274
Registration and filing fees 506,556
Custodian fee 255,243
Printing 176,423
Trustees' fees 120,328
Auditing fee 46,497
Miscellaneous 27,833
Legal fees 65,211
------------
Total Expenses 28,105,296
- ------------------------------------------------------------------------
Net Investment Loss (19,766,007)
- ------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold
(including $27,641,318 gain on sales
of investments in affiliated issuers) (26,961,479)
Change in net unrealized appreciation/depreciation
of investments 172,240,308
------------
Net Realized and Unrealized Gain
on Investments 145,278,829
- ------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $125,512,822
========================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------
1995 1996
--------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($8,551,548) ($19,766,007)
Net realized gain (loss) on
investments sold 49,485,997 (26,961,479)
Change in net unrealized
appreciation/depreciation of
investments 186,642,714 172,240,308
--------------- ---------------
Net Increase in Net Assets
Resulting from Operations 227,577,163 125,512,822
--------------- ---------------
Distributions to Shareholders:
Distributions from net realized
gain on investments sold
Class A - (none and $0.4639
per share, respectively) -- (12,437,928)
Class B - (none and $0.4639
per share, respectively) -- (10,571,390)
Class C - (none and $0.4639
per share, respectively) -- (460,613)
--------------- ---------------
Total Distributions to Shareholders -- (23,469,931)
--------------- ---------------
From Fund Share Transactions - Net* 286,986,120 869,850,284
--------------- ---------------
Net Assets:
Beginning of period 509,726,882 1,024,290,165
--------------- ---------------
End of period (including accumulated
net investment loss of
none and $27,561, respectively) $1,024,290,165 $1,996,183,340
=============== ===============
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 redeemed during the last two periods, along
with the corresponding dollar value.
<CAPTION>
* Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
1995 1996
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 30,038,347 $583,642,775 110,082,015 $2,718,486,461
Shares issued to shareholders
in reinvestment of distributions -- -- 501,217 11,643,438
--------------- --------------- --------------- ---------------
30,038,347 $583,642,775 110,583,232 2,730,129,899
Less shares repurchased (24,245,104) (469,112,794) (96,032,453) (2,383,787,239)
--------------- --------------- --------------- ---------------
Net increase 5,793,243 $114,529,981 14,550,779 $346,342,660
=============== =============== =============== ===============
CLASS B
Shares sold 14,217,398 $274,338,380 38,613,360 $943,635,698
Shares issued to shareholders
in reinvestment of distributions -- -- 390,193 8,908,829
--------------- --------------- --------------- ---------------
14,217,398 $274,338,380 39,003,553 952,544,527
Less shares repurchased (5,376,470) (105,131,366) (19,953,916) (482,735,858)
--------------- --------------- --------------- ---------------
Net increase 8,840,928 $169,207,014 19,049,637 $469,808,669
=============== =============== =============== ===============
CLASS C
Shares sold 242,819 $4,518,410 2,184,875 $55,912,531
Shares issued to shareholders
in reinvestment of
distributions -- -- 19,658 461,946
--------------- --------------- --------------- ---------------
242,819 $4,518,410 2,204,533 56,374,477
Less shares repurchased (70,748) (1,269,285) (106,800) (2,675,522)
--------------- --------------- --------------- ---------------
Net increase 172,071 $3,249,125 2,097,733 $53,698,955
=============== =============== =============== ===============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are listed
as follows:
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $9.71 $10.99 $16.13 $16.11 $22.15
----------- ----------- ----------- ----------- -----------
Net Investment Loss(1) (0.19) (0.20) (0.21) (0.18) (0.22)
Net Realized and Unrealized Gain
on Investments 2.14 5.43 0.19 6.22 3.06
----------- ----------- ----------- ----------- -----------
Total from Investment Operations 1.95 5.23 (0.02) 6.04 2.84
----------- ----------- ----------- ----------- -----------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold (0.67) (0.09) -- -- (0.46)
----------- ----------- ----------- ----------- -----------
Total Distributions (0.67) (0.09) -- -- (0.46)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $10.99 $16.13 $16.11 $22.15 $24.53
=========== =========== =========== =========== ===========
Total Investment Return at Net Asset
Value(2) 20.25% 47.83% (0.12%) 37.49% 12.96%
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $44,665 $296,793 $310,625 $555,655 $972,312
Ratio of Expenses to Average
Net Assets 2.24% 1.84% 1.62% 1.48% 1.42%
Ratio of Net Investment Loss to
Average Net Assets (1.91%) (1.49%) (1.40%) (0.97%) (0.89%)
Portfolio Turnover Rate 114% 33% 66% 82% 59%
Average Broker Commission Rate
(per share of security)(3) N/A N/A N/A N/A $0.0677
CLASS B(4)
Per Share Operating Performance
Net Asset Value, Beginning of Period $12.30 $16.08 $15.97 $21.81
----------- ----------- ----------- -----------
Net Investment Loss(1) (0.18) (0.30) (0.31) (0.40)
Net Realized and Unrealized Gain on
Investments 3.96 0.19 6.15 3.01
----------- ----------- ----------- -----------
Total from Investment Operations 3.78 (0.11) 5.84 2.61
----------- ----------- ----------- -----------
Less Distributions:
Distributions from Net Realized Gain
on Investments Sold -- -- -- (0.46)
----------- ----------- ----------- -----------
Total Distributions -- -- -- (0.46)
----------- ----------- ----------- -----------
Net Asset Value, End of Period $16.08 $15.97 $21.81 $23.96
=========== =========== =========== ===========
Total Investment Return at Net
Asset Value(2) 30.73%(6) (0.68%) 36.57% 12.09%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $158,281 $191,979 $454,934 $956,374
Ratio of Expenses to Average
Net Assets 2.34%(7) 2.25% 2.20% 2.16%
Ratio of Net Investment Loss
to Average Net Assets (2.03%)(7) (2.02%) (1.69%) (1.65%)
Portfolio Turnover Rate 33% 66% 82% 59%
Average Broker Commission Rate
(per share of security)(3) N/A N/A N/A $0.0677
CLASS C(5)
Per Share Operating Performance
Net Asset Value, Beginning of Period $14.90 $16.14 $16.20 $22.40
----------- ----------- ----------- -----------
Net Investment Loss(1) (0.03) (0.13) (0.09) (0.14)
Net Realized and Unrealized Gain
on Investments 1.27 0.19 6.29 3.11
----------- ----------- ----------- -----------
Total from Investment Operations 1.24 0.06 6.20 2.97
----------- ----------- ----------- -----------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold -- -- -- (0.46)
----------- ----------- ----------- -----------
Total Distributions -- -- -- (0.46)
----------- ----------- ----------- -----------
Net Asset Value, End of Period $16.14 $16.20 $22.40 $24.91
=========== =========== =========== ===========
Total Investment Return at Net
Asset Value(2) 8.32%(6) 0.37% 38.27% 13.40%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $2,838 $7,123 $13,701 $67,498
Ratio of Expenses to Average
Net Assets 1.45%(7) 1.11% 1.01% 1.03%
Ratio of Net Investment Loss
to Average Net Assets (1.35%)(7) (0.89%) (0.50%) (0.54%)
Portfolio Turnover Rate 33% 66% 82% 59%
Average Broker Commission Rate
(per share of security)(3) N/A N/A N/A $0.0677
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charge.
(3) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(4) Class B shares commenced operations on March 1, 1993.
(5) Class C shares commenced operations on September 1, 1993.
(6) Not annualized.
(7) Annualized.
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.
See notes to financial statements.
</TABLE
</TABLE>
<TABLE>
<CAPTION>
John Hancock Funds - Special Equities Fund
Schedule of Investments
October 31, 1996
- --------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Special Equities Fund on October 31, 1996. It's divided into two main categories:
common stocks and short-term investments. Common stocks are further broken down by
industry group. Short-term investments, which represent the Fund's "cash" position,
are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ----------------------------------- ---------- --------------
<S> <C> <C>
COMMON STOCK
Advertising (3.64%)
Outdoor Systems, Inc.* 1,100,000 $49,225,000
Universal Outdoor Holdings, Inc.* 801,500 23,544,063
--------------
72,769,063
--------------
Automobile / Trucks (0.84%)
United Auto Group, Inc.*+ 487,700 16,764,687
--------------
Broker Services (0.41%)
Hambrecht & Quist Group* 414,300 8,234,212
--------------
Business Services - Misc (2.68%)
ABR Information Services, Inc.* 315,000 21,813,750
Health Management Systems, Inc.* 707,500 16,626,250
Iron Mountain, Inc.*+ 500,000 15,000,000
--------------
53,440,000
--------------
Computers (4.89%)
Adaptec, Inc.* 990,000 60,266,250
Medic Computer Systems, Inc.*+ 645,000 18,221,250
Wind River Systems*+ 450,000 19,125,000
--------------
97,612,500
--------------
Computer Services (6.79%)
America Online, Inc.*+ 2,000,000 54,250,000
Bell & Howell Co.* 700,000 18,725,000
Envoy Corp.* 500,000 18,375,000
Harbinger Corp.*+ 500,000 13,500,000
Technology Solutions Co.*+ 574,250 22,323,969
XLConnect Solutions, Inc.* 284,200 8,312,850
--------------
135,486,819
--------------
Computer Software (17.76%)
CBT Group PLC (American Depositary
Receipt) (ADR) (Ireland)* 790,000 43,450,000
Cognos, Inc.* 2,040,000 64,005,000
Electronics for Imaging, Inc.* 1,200,000 86,400,000
Intuit, Inc.* 600,000 16,200,000
Macromedia, Inc.* 750,000 12,468,750
Memco Software Ltd.* (Israel) 48,300 881,475
Netscape Communications Corp.* 700,000 30,975,000
Prism Solutions, Inc.* 200,000 987,500
Transaction Systems Architects, Inc.
(Class A)*+ 1,000,000 41,500,000
Viasoft, Inc.*+ 460,000 22,655,000
Wang Laboratories, Inc.* 1,500,000 35,062,500
--------------
354,585,225
--------------
Electronics (7.37%)
Altera Corp.* 400,000 24,800,000
C-Cube Microsystems, Inc.* 535,000 20,731,250
DSP Communications, Inc.* 800,000 30,400,000
Linear Technology Corp. 400,000 13,400,000
SRS Labs, Inc.* 455,000 7,166,250
Uniphase Corp.*+ 444,000 21,423,000
Vitesse Semiconductor Corp.* 400,000 12,750,000
Xilinx, Inc.* 501,000 16,407,750
--------------
147,078,250
--------------
Finance (4.88%)
Credit Acceptance Corp.* 1,500,000 40,500,000
PMT Services, Inc.*+ 1,200,000 24,000,000
Safeguard Scientifics, Inc.* 700,000 27,825,000
Security First Network Bank* 350,000 5,075,000
--------------
97,400,000
--------------
Insurance (0.69%)
Compdent Corp.* 400,000 13,750,000
--------------
Leisure (0.94%)
Anchor Gaming* 121,000 6,050,000
Premier Parks, Inc.* 400,000 12,700,000
--------------
18,750,000
--------------
Machinery (0.34%)
Rental Service Corp.* 300,000 6,900,000
--------------
Media (2.93%)
Chancellor Corp. (Class A)* 304,400 9,816,900
Cox Radio Inc. (Class A)* 305,000 5,528,125
Evergreen Media Corp. (Class A)*+ 1,077,000 29,079,000
Jacor Communications, Inc.* 500,000 14,000,000
--------------
58,424,025
--------------
Medical (8.40%)
Carematrix Corp. * 200,000 3,200,000
Dura Pharmaceuticals, Inc.*+ 800,000 27,600,000
Elan Corp., PLC (ADR) (Ireland) *+ 2,000,000 55,500,000
Gulf South Medical Supply, Inc.* 650,000 14,300,000
i-Stat Corp.*+ 570,000 11,827,500
Schein (Henry), Inc.* 776,500 30,865,875
Universal Health Services, Inc.
(Class B)*+ 972,400 24,310,000
--------------
167,603,375
--------------
Oil & Gas (7.86%)
Chesapeake Energy Corp.*+ 1,000,000 58,250,000
Energy Ventures, Inc.*+ 750,000 33,000,000
Flores & Rucks, Inc.* 650,000 30,712,500
Lomak Petroleum, Inc. 500,000 8,187,500
Pride Petroleum Services, Inc.* 500,000 8,750,000
Seagull Energy Corp.* 264,000 5,709,000
Swift Energy Co.* 500,000 12,250,000
--------------
156,859,000
--------------
Retail (12.19%)
CompUSA, Inc.* 1,000,000 46,250,000
Corporate Express, Inc.* 300,000 9,787,500
CUC International, Inc. * 2,250,000 55,125,000
MSC Industrial Direct Co., Inc.
(Class A)* 560,000 20,720,000
Papa John's International, Inc. * 517,050 25,723,237
PETsMART, Inc.*+ 1,940,000 52,380,000
Rainforest Cafe, Inc.*+ 557,000 18,102,500
Seattle Filmworks, Inc.* 450,000 8,550,000
West Coast Entertainment Corp.* 600,000 6,675,000
--------------
243,313,237
--------------
Schools / Education (2.03%)
Apollo Group, Inc. (Class A)*+ 1,474,000 40,535,000
--------------
Service (0.69%)
Memberworks, Inc.* 6,000 87,000
Telespectrum Worldwide, Inc.* 800,000 13,700,000
--------------
13,787,000
--------------
Telecommunications (5.87%)
Cascade Communications Corp.* 1,200,000 87,150,000
Gandalf Technologies, Inc.* (Canada) 1,700,000 5,843,750
Premiere Technologies, Inc.* 823,600 13,383,500
RMH Teleservices, Inc.* 134,500 991,938
Telco Communications Group* 600,000 9,750,000
--------------
117,119,188
--------------
Textile (3.83%)
Donna Karan International Inc.* 500,000 9,250,000
GUESS ? INC* 1,200,000 15,300,000
Tommy Hilfiger Corp.* 1,000,000 52,000,000
--------------
76,550,000
--------------
Transport (0.52%)
Hvide Marine, Inc. (Class A)* 700,000 10,412,500
--------------
TOTAL COMMON STOCK
(Cost $1,427,362,108) (95.55%) $1,907,374,081
-------- --------------
CAPTION>
INTEREST PAR VALUE MARKET
RATE (000'S OMITTED) VALUE
-------- ------------- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.58%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 10-31-96, due
11-01-96 (secured by US
Treasury Bonds, 10.375%
due 11-15-12, 12.00%
due 8-15-13, 11.25%
Due 2-15-15 and 6.25%
due 8-15-23) Note A 5.54% $91,395 $91,395,000
--------------
Corporate Savings Account (0.05%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% $950,085
--------------
TOTAL SHORT-TERM INVESTMENTS (4.63%) $92,345,085
-------- --------------
TOTAL INVESTMENTS (100.18%) $1,999,719,166
======== ==============
* 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.
+ Denotes an affiliated company in which the Fund has ownership of at least 5% of the voting
securities. (See Note E of the Notes to Financial Statements).
See notes to financial statements
<CAPTION>
AFFILIATE COST
- ------------------------------------- ---------------
Investments in affiliates at October 31, 1996 were as follows:
<S> <C>
America Online, Inc. $57,820,727
Apollo Group, Inc. (Class A) 37,383,314
Chesapeake Energy Corp. 31,757,798
Dura Pharmaceuticals, Inc. 7,351,906
Elan Corp., PLC (ADR) 62,193,624
Energy Ventures, Inc. 27,428,269
Evergreen Media Corp. (Class A) 31,437,123
Harbinger Corp. 10,763,566
i-Stat Corp. 12,405,814
Iron Mountain, Inc. 11,963,572
Medic Computer Systems, Inc. 18,959,299
PMT Services, Inc. 7,786,883
PETsMART, Inc. 26,169,061
Rainforest Cafe, Inc. 14,294,860
Technology Solutions Co. 11,420,569
Transaction Systems
Architects, Inc. (Class A) 13,205,954
Uniphase Corp. 8,397,250
United Auto Group, Inc. 16,464,164
Universal Health Services, Inc. 21,515,603
Viasoft, Inc. 23,319,334
Wind River Systems 4,232,513
-----------
$456,271,203
===========
See notes to financial statements.
</TABLE>
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 investment objective of the Fund is to seek
growth of capital by investing in a diversified portfolio of equity
securities consisting primarily of small-capitalization companies and
companies in situations offering unusual or non-recurring opportunities.
The Trustees have authorized the issuance of multiple 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 and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement 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. For federal
income tax purposes, the fund has $26,806,579 of capital loss
carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. If such carryforwards are used
by the Fund, no capital gains distributions will be made. The
carryforwards expire as follows: $26,806,579, October 31, 2004.
DIVIDENDS, INTEREST AND DISTRIBUTIONS 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 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 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 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.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (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.
DiCarlo, Forbes and St. Pierre Advisors, LLC, (The "Subadviser") (DFS)
serves as subadviser to the Fund pursuant to a subadvisory agreement
with the Fund and the Adviser. The Subadviser was organized in 1996. The
Adviser, not the Fund, pays all subadvisory fees. The Adviser pays DFS
an annual fee of 0.25% of the average daily net assets of the 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. For the period ended
October 31,1996 net sales charges received with regard to sales of Class
A shares amounted to $10,815,398. Out of this amount, $1,662,406 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $7,441,884 was paid as sales commissions
to unrelated broker-dealers and $1,711,108 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% 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 for providing distribution related
services to the Fund in connection with the sale of Class B shares. For
the period ended October 31, 1996, contingent deferred sales charges
paid to JH Funds amounted to $1,613,688.
In addition, to compensate 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 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 compensate 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 Investor
Services Corporation ("Investor Services"), a wholly-owned subsidiary of
The Berkeley Financial Group. Class A and Class B shares pay transfer
agent fees based on the number of shareholder accounts and certain out-
of-pocket expenses. Class C shares pay a monthly transfer agent fee
equivalent, on an annual basis, of 0.10% of the average daily net asset
value of Class C shares of the Fund.
On March 5, 1996 the Board of Trustees approved retroactively to January
1, 1996, and 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/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid
for 1995, the unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
October 31, 1996, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $1,987.
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 October 31, 1996, aggregated $1,687,274,601 and
$865,289,502, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended October 31, 1996.
The cost of investments owned at October 31, 1996 (including the short-
term investments) for Federal income tax purposes was $1,518,912,008.
Gross unrealized appreciation and depreciation of investments aggregated
$585,441,699 and $105,584,626, respectively, resulting in net unrealized
appreciation of $479,857,073.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1996, the Fund has reclassified amounts
to reflect a decrease in accumulated net realized loss on investments of
$4,074, a decrease in accumulated net investment loss of $19,738,446, and
a decrease in capital paid-in of $19,742,520. This represents the cumulative
amount necessary to report these balances on a tax basis, excluding certain
temporary differences, as of October 31, 1996. Additonal 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. The calculation of net investment income per share in
the financial highlights excludes these adjustments.
<TABLE>
<CAPTION>
NOTE E --
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of 1940,
are those in which the Fund's holdings of an issuer represent 5% or more
of the outstanding voting securities of the issuer. A summary of the
Fund's transactions in the securities of these issuers during the period
ended October 31, 1996 is set forth below.
Beginning Acquisitions Dispositions
Ending --------------------------------------------------------
Share Share Share
Affiliate Amount Amount Cost Amount Cost
- ------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
America Online, Inc. 650,000 1,881,500 $45,981,243 531,500 $5,890,594
Apollo Group, Inc.
(Class A) -- 1,500,000 37,744,425 26,000 36,111
Chesapeake Energy Corp. -- 1,000,000 31,757,798 -- --
Dura Pharmaceuticals, Inc. 800,000 -- -- -- --
Elan Corp., PLC (ADR) -- 2,000,000 62,193,624 -- --
Energy Ventures, Inc. -- 750,000 27,428,269 -- --
Evergreen Media Corp.
(Class A) -- 1,077,000 31,437,123 -- --
Harbinger Corp. 100,000 400,000 9,294,813 -- --
i-Stat Corp. 500,000 70,000 2,309,377 -- --
Iron Mountain, Inc. -- 500,000 11,963,572 -- --
Medic Computer
Systems, Inc. 192,500 772,500 17,558,674 320,000 6,660,301
PMT Services, Inc. 1,200,000 -- -- -- --
PETsMART, Inc. 420,000 1,520,000 17,872,178 -- --
Rainforest Cafe, Inc. -- 557,000 14,294,860 -- --
Technology Solutions Co. -- 724,250 14,500,816 150,000 3,080,247
Transaction Systems
Architects, Inc. (Class A) 358,700 641,300 3,903,784 -- --
Uniphase Corp. -- 444,000 8,397,250 -- --
United Auto Group, Inc. -- 487,700 16,464,164 -- --
Universal Health
Services, Inc. -- 972,400 21,515,603 -- --
Viasoft, Inc. -- 460,000 23,319,334 -- --
Wind River Systems 450,000 -- -- -- --
------------ ------------
$397,936,907 $15,667,253
============ ============
<CAPTION>
Note E- (Continued)
Ending
Share Realized Dividend Ending
Affiliate Amount Gain (Loss) Income Value
- ------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
America Online, Inc. 2,000,000 $25,185,607 $ -- $54,250,000
Apollo Group, Inc.
(Class A) 1,474,000 245,898 -- 40,535,000
Chesapeake Energy Corp. 1,000,000 -- -- 58,250,000
Dura Pharmaceuticals, Inc. 800,000 -- -- 27,600,000
Elan Corp., PLC (ADR) 2,000,000 -- -- 55,500,000
Energy Ventures, Inc. 750,000 -- -- 33,000,000
Evergreen Media Corp.
(Class A) 1,077,000 -- -- 29,079,000
Harbinger Corp. 500,000 -- -- 13,500,000
i-Stat Corp. 570,000 -- -- 11,827,500
Iron Mountain, Inc. 500,000 -- -- 15,000,000
Medic Computer
Systems, Inc. 645,000 2,669,619 -- 18,221,250
PMT Services, Inc. 1,200,000 -- -- 24,000,000
PETsMART, Inc. 1,940,000 -- -- 52,380,000
Rainforest Cafe, Inc. 557,000 -- -- 18,102,500
Technology Solutions Co. 574,250 (459,806) -- 22,323,969
Transaction Systems
Architects, Inc. (Class A) 1,000,000 -- -- 41,500,000
Uniphase Corp. 444,000 -- -- 21,423,000
United Auto Group, Inc. 487,700 -- -- 16,764,687
Universal Health-
Services, Inc. 972,400 -- -- 24,310,000
Viasoft, Inc. 460,000 -- -- 22,655,000
Wind River Systems 450,000 -- -- 19,125,000
------------ ---- ------------
$27,641,318 $ -- $619,346,906
============ ==== ============
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Special Equities Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock Special Equities Fund (the "Fund"), including the
schedule of investments, as of October 31, 1996, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods 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, 1996, by
correspondence with the custodian and brokers, and other 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 the John Hancock Special Equities Fund at October
31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the indicated periods,
in conformity with generally accepted accounting principles.
/S/Ernst & Young LLP
Boston, Massachusetts
December 10, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished
with respect to the distributions of the Fund for its fiscal year ended
October 31, 1996.
The Fund designated distributions to shareholders of $23,469,931 as
long-term capital gain dividends. Shareholders will be mailed a 1996
U.S. Treasury Department Form 1099-DIV in January 1997 representing
their proportionate share. The Fund has not paid any distributions of
ordinary income dividends during the fiscal year ended October 31, 1996.
None of the distributions noted above qualify for the corporate
dividends received deductions.
SHAREHOLDER MEETING (UNAUDITED)
On June 26, 1996, a special meeting of John Hancock Special Equities
Fund was held.
The Shareholders approved a new Subadvisory Agreement between the Fund
and DiCarlo, Forbes and St. Pierre Advisors, L.L.C. The shareholder
votes were 34,445,856 FOR, 578,805 AGAINST and 1,683,937 ABSTAINING.
The Shareholders elected the following Trustees with the votes
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ------------------- ---------- --------
Dennis S. Aronowitz 36,077,530 631,068
Edward J. Boudreau 36,069,041 639,557
Richard P. Chapman 36,082,869 625,729
William J. Cosgrove 36,064,002 644,596
Douglas M. Costle 36,029,078 679,520
Michael DiCarlo 36,053,447 655,150
Leland O. Erdahl 36,045,569 663,029
Richard A. Farrell 36,041,143 667,455
Gail D. Fosler 36,054,451 654,147
William F. Glavin 36,024,721 683,876
Anne C. Hodsdon 36,069,313 639,285
Dr. John A. Moore 36,073,171 635,427
Patti McGill Peterson 36,048,302 660,296
John W. Pratt 36,071,258 637,339
Richard S. Scipione 36,068,053 640,545
Edward J. Spellman 36,067,639 640,959
NOTES
John Hancock Funds - Special Equities Fund
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NOTES
John Hancock Funds - Special Equities Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
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
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Permit No. 75
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.
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper." 1800A 10/96
12/96
