John Hancock Funds
Special
Equities
Fund
SEMI-ANNUAL REPORT
April 30, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Anne C. Hodsdon
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
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will
be a tough act to follow in 1996. In fact, we've already seen greater
market volatility this year, particularly among last year's leaders --
technology stocks. That's to be expected after a year that saw market
indexes soar, including the Standard & Poor's 500-Stock Index's 37%
advance. While many of the same economic conditions that fostered the
stellar 1995 market are still in place -- slow economic growth, muted
inflation and decent corporate earnings -- it would be unrealistic to
expect the market to stage a repeat in 1996. The old saying "trees don't
grow to the sky" comes to mind. Shareholders would do well to temper
expectations of investment returns and perhaps revisit their investment
allocations with their financial advisor to determine if
rebalancing their portfolio makes sense.
No matter how you scale back your market expectations, you should always
be able to count on consistent customer service performance. At John
Hancock Funds, we never stop working to find ways to sustain and improve
the quality of information and assistance we provide you. Our commitment
to this task is no less than John Hancock's loyalty was to his fledgling
country when he is said to have uttered, "if it does the public good,
burn Boston." We won't go that far, of course, but we share our
namesake's dedication to putting the public before all else.
In our case, that public is you, our shareholders. We take very
seriously the role you have entrusted to us, that of helping you achieve
your financial goals. Part of that will always involve good customer
service. So please do not hesitate to call your Customer Service
Representative at 1-800-225-5291 if you have any questions or need
information. We take pride in helping you with the same spirit that John
Hancock displayed at the dawning of America.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY Michael P. DiCarlo, Portfolio Manager
John Hancock
Special Equities Fund
Small-company stocks outperform
larger companies in last six months
"...small-
company
stocks
outperformed
larger
company
stocks in
the past six
months..."
After lagging their larger brethren for more than two years, small-
company stocks outperformed larger company stocks in the past six months
as the overall stock market continued to produce healthy returns. For
the six months ended April 30, 1996, the Russell 2000, a broad measure
of small-company performance, returned 18.47%, while the larger-stock
universe of the Standard & Poor's 500-Stock Index returned 13.75%. Among
the reasons for the small-company advance was a stronger dollar, which
made U.S. products more expensive overseas. That hurt larger companies
which tend to export their goods where small companies don't. What's
more, as the economy continued its slow growth, more investors turned to
smaller companies which have the ability to generate greater earnings
growth than the larger ones in a slow-growth environment.
John Hancock Special Equities Fund reaped the benefit of this
environment to an even greater degree than its peers. For the six months
ending April 30, 1996, the Fund's Class A, Class B and Class C shares
posted total returns of 24.98%, 24.49% and 25.19%, respectively, at net
asset value. That compared to the 20.15% return of the average small
company growth fund, according to Lipper Analytical Services.1
A 2" x 3" photo of the Michael P. DiCarlo at bottom right.
Caption reads: "Michael P. DiCarlo, Portfolio Manager."
On May 21, 1996, the Fund's Trustees voted to close the Fund
indefinitely to new investors when it reaches $2.5 billion in net
assets. After the anticipated closing, the Fund will continue to accept
subsequent deposits from its existing shareholders. At the time of the
announcement, the Fund's net assets under management stood at $1.9
billion, which was up 57% from the first of the year. The decision was
made to protect the interest of current investors by preserving the
disciplined investment strategy that the Fund uses in picking small-cap
stocks.
Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) Electronics for Imaging 4.3% 2)
America Online 4.1% 3) Cascade Communications 3.5% 4) Adaptec 3.3% 5)
Cognos 2.7%. A footnote below reads: "As a percentage of net assets on
April 30, 1996."
"We took
profits on a
number of
technology
companies..."
Stock picking is key
As long-time Special Equities shareholders know, we're bottom-up
investors. This means we build the portfolio stock-by-stock, searching
across the broad investment spectrum for small-cap companies that fit
our investment criteria. Our candidates must be able to grow revenues
and earnings by at least 25%, have the ability to self-finance their
growth, be leaders in their fields and have strong, committed
management. Applying this discipline to specific company analysis has
stood us in good stead so far and we have no plans to change.
Table entitled "Scorecard" at bottom of left hand column. The header
for the left column is "Investment"; the header for the right column
is "Recent performance ... and what's behind the numbers. The first
listing is Medic Computer Systems followed by an up arrow and the
phrase "Strong demand for physician management software." The second
listing is Mossimo followed by an up arrow and the phrase "Hot
clothes manufacturer takes off." The third listing is I-Stat followed
by a down arrow and the phrase "Market skepticism despite good
fundamentals." Footnote below reads: "See "Schedule of Investments."
Investment holdings are subject to change."
Often, this investment approach leads us to compelling finds within
specific industries, as it has at various times with healthcare,
consumer goods, and, most currently, technology. But we're not a
technology or a sector fund. Indeed, a look at our top holdings shows
that even though technology figures prominently, our tech companies
service a variety of industries and subsectors. It simply reflects the
prominence of technology in so many aspects of life today. America
Online, for example, has evolved into a consumer company distributing
online services. Its subscriber base keeps growing and its fortunes
improved even more during the period with the announcement of deals with
Netscape and Microsoft. Another, Cascade Communications, is more focused
on business applications. They provide the switches that allow companies
to tie workers together via computers no matter what their location. Its
stock rose 111% during the period. Another top holding and strong
performer, Medic Computer Systems, is a software company that makes
physician practice management software for doctors and hospitals.
Technology and other winners
We took profits on a number of technology companies, including some
high-flying Internet-related stocks whose valuations were realized a lot
quicker than we had expected. We also sold some that came under
pressure, including some semiconductor companies. But true to our stock-
picking approach, we didn't make any wholesale moves. For example, we
kept Vitesse Semiconductors and were rewarded when its stock rose by
154% in the period. And we also bought more technology companies, such
as the IPO of Red Brick Systems, whose data warehousing software allows
greater manipulation of any database.
Here's a look at a few other companies that were either interesting buys
or strong contributors to performance during the period.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the six months ended April 30,
1996." The chart is scaled in increments of 10% from bottom to top,
with 30% at the top and 0% at the bottom. Within the chart, there are
four solid bars. The first represents the 24.98% total return for John
Hancock Special Equities Fund: Class A. The second represents the 24.49%
total return for John Hancock Special Equities Fund: Class B. The
third represents the 25.19% total return for John Hancock Special
Equities Fund: Class C. The fourth represents the 20.15% total return
for the average small company growth fund. 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."
(bullet) Dura Pharmaceuticals: This drug delivery systems company
specializes in prescription pharmaceuticals for asthma, allergies and
other respiratory ailments. It has had terrific success with its major
product, an inhalant called "Dryhaler," and its stock rose 83% in the
period.
(bullet) Mossimo: We bought the stock of this clothes manufacturer in
the IPO during the period. Their line of basic clothes and accessories
to the under-35 set are on the cutting edge of fashion and includes the
popular "No Fear" T-shirts. Their revenue and earnings are growing
dramatically and they remind us of our other favorite retailer, Tommy
Hilfiger, in that they have created basic clothing with a fashion twist.
(bullet) Gandalf Technologies: A long-time Fund holding, this technology
company's stock rose by 212% in the last six months, after also being a
steady winner over time. The software development company does a
superior job of providing the compression technology that allows
computer data to be transferred more rapidly.
(bullet) Transaction Systems Architects: In a financial twist to
technology, Transaction Systems Architects has created software that
assures the proper electronic transfer of money charged on credit cards
and debit cards, for example. Its stock returned 106% in the period.
"We're
optimistic
about the
prospects for
small-company
stocks."
Outlook
We're optimistic about the prospects for small-company stocks. The
recent rally only began picking up real steam in April and there are
reasons to believe this one has legs. The economy appears to be staying
in its 2% growth range and the dollar remains stronger. Even with a few
recent signs of life that prompted a jump in interest rates, those rates
are still historically low, which helps keep borrowing costs down. In
any event, a further rate run-up would only serve to slow the economy
down more, something that favors the growth prospects of small companies
more than large. And after lagging for two years, small-company stocks
are relatively cheap, which could lure more investors to their camp. But
volatility has returned to the market in 1996 after being almost absent
in 1995 and the ride could remain bumpier. So we'll continue to apply
our selective investment criteria toward finding small companies with
the most compelling prospects for 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 March 31, 1996
One Five Ten
Year Years Years
------- ----------- -------
John Hancock
Special Equities Fund: Class A 37.81% 224.12% 319.24%
John Hancock
Special Equities Fund: Class B(1) 38.97% 91.69% N/A
John Hancock
Special Equities Fund: Class C(2) 45.66% 68.63% N/A
AVERAGE ANNUAL TOTAL RETURNS
For the period ended March 31, 1996
One Five Ten
Year Years Years
------- ----------- -------
John Hancock
Special Equities Fund: Class A 37.81% 26.59% 15.60%
John Hancock
Special Equities Fund: Class B(1) 38.97% 23.44% N/A
John Hancock
Special Equities Fund: Class C(2) 45.66% 22.45% 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 April 30, 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 most recent 10
years. 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 October 31, 1985, before sales
charge, and is equal to $64,399 as of April 30, 1996. The second line
represents the Special Equities Fund after sales charge and is equal
to $61,226 as of April 30, 1996. The third line represents the value
of the Standard & Poor's 500 Stock Index and is equal to $47,857 as
of April 30, 1996. The fourth line represents the value of the Russell
2000 Index and is equal to $36,237 as of April 30, 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 hypothetical $10,000
investment made in the Special Equities Fund on March 1, 1993, before
contingent deferred sales charge, and is equal to $21,713 as of April 30,
1996. The second line represents the Special Equities Fund after contingent
deferred sales charge and is equal to $21,413 as of April 30, 1996. The
third line represents the value of the Russell 2000 Index and is equal to
$16,435 as of April 30, 1996. The fourth line represents the value of the
Standard & Poor's 500 Stock Index and is equal to $16,042 as of April 30, 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 hypothetical $10,000 investment made in the
Special Equities Fund on September 1, 1993, before sales charge, and is
equal to $18,821 as of April 30, 1996. The second line represents the
value of the Standard & Poor's 500 Stock Index and is equal to $15,126
as of April 30, 1996. The third line represents the value of the Russell
2000 Index and is equal to 14,729 as of April 30, 1996.
<TABLE>
<CAPTION>
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 April 30, 1996. You'll also find the net asset value
and the maximum offering price per share as of that date.
Statement of Assets and Liabilities
April 30, 1996 (Unaudited)
- ----------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks and rights
(cost - $1,126,986,341) $1,648,800,453
Joint repurchase agreement (cost - $64,282,000) 64,282,000
Short-term notes (cost - $22,496,725) 22,496,725
Corporate savings account 673,862
------------
1,736,253,040
Receivable for shares sold 9,880,255
Interest receivable 12,154
Other assets 158,364
------------
Total Assets 1,746,303,813
- ----------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 967,382
Payable for investments purchased 32,575,897
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 1,487,239
------------
Total Liabilities 35,030,518
- ----------------------------------------------------------------------
Net Assets:
Capital paid-in 1,092,631,335
Accumulated net realized gain on investments 102,532,705
Net unrealized appreciation of investments 521,816,099
Accumulated net investment loss (5,706,844)
------------
Net Assets $1,711,273,295
======================================================================
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 - $875,926,051/ 32,272,566 $27.14
======================================================================
Class B - $799,376,910/ 30,041,254 $26.61
======================================================================
Class C - $35,970,334/ 1,308,005 $27.50
======================================================================
Maximum Offering Price Per Share*
Class A - ($27.14 x 105.26%) $28.57
======================================================================
* On single retail sales of less than $50,000. On sales of
$50,000 or more and on group sales the offering price is reduced.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment
income earned and expenses incurred in operating the Fund. It
also shows net gains (losses) for the period stated.
Statement of Operations
Six months ended April 30, 1996 (Unaudited)
- ----------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $3,912,116
Dividends 1,170,616
------------
5,082,732
------------
Expenses:
Investment management fee - Note B 5,192,804
Distribution/service fee - Note B
Class A 1,003,906
Class B 2,939,013
Transfer agent fee - Note B 1,448,246
Financial services fee - Note B 86,128
Registration and filing fees 33,265
Custodian fee 32,877
Printing 25,183
Trustees' fees 16,195
Auditing fee 6,115
Legal fees 3,447
Miscellaneous 2,397
------------
Total Expenses 10,789,576
- ----------------------------------------------------------------------
Net Investment Loss (5,706,844)
- ----------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 102,536,097
Change in net unrealized appreciation/depreciation
of investments 214,042,447
------------
Net Realized and Unrealized
Gain on Investments 316,578,544
- ----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $310,871,700
======================================================================
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
-------------- --------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($5,706,844) ($8,551,548)
Net realized gain on investments sold 102,536,097 49,485,997
Change in net unrealized appreciation/
depreciation of investments 214,042,447 186,642,714
-------------- --------------
Net Increase in Net Assets Resulting
from Operations 310,871,700 227,577,163
-------------- --------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.4639 and none and none
per share, respectively) (12,437,869) --
Class B - ($0.4639 and none and none
per share, respectively) (10,570,767) --
Class C - ($0.4639 and none and none
per share, respectively) (460,613) --
-------------- --------------
Total Distributions to Shareholders (23,469,249) --
-------------- --------------
From Fund Share Transactions - Net* 399,580,679 286,986,120
-------------- --------------
Net Assets:
Beginning of period 1,024,290,165 509,726,882
-------------- --------------
End of period (including accumulated net
investment loss of $5,706,844 and none, respectively) $1,711,273,295 $1,024,290,165
============== ==============
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31,
(UNAUDITED) 1995
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS A
Shares sold 42,964,315 $1,014,276,934 30,038,347 $583,642,775
Shares issued to shareholders in reinvestment
of distributions 501,215 11,643,376 -- --
---------- ------------ ---------- ------------
43,465,530 $1,025,920,310 30,038,347 $583,642,775
Less shares repurchased (36,273,525) (855,545,971) (24,245,104) (469,112,794)
---------- ------------ ---------- ------------
Net increase 7,192,005 $170,374,339 5,793,243 $114,529,981
========== =========== ========== ===========
CLASS B
Shares sold 17,253,396 $401,134,934 14,217,398 $274,338,380
Shares issued to shareholders in r
einvestment of distributions 390,006 8,903,883 -- --
---------- ------------ ---------- ------------
17,643,402 $410,038,817 14,217,398 $274,338,380
Less shares repurchased (8,464,694) (197,395,065) (5,376,470) (105,131,366)
---------- ------------ ---------- ------------
Net increase 9,178,708 $212,643,752 8,840,928 $169,207,014
========== =========== ========== ===========
CLASS C
Shares sold 725,024 $17,238,640 242,819 $4,518,410
Shares issued to shareholders in
reinvestment of distributions 19,657 461,946 -- --
---------- ------------ ---------- ------------
744,681 $17,700,586 242,819 $4,518,410
Less shares repurchased (48,348) (1,137,998) (70,748) (1,269,285)
---------- ------------ ---------- ------------
Net increase 696,333 $16,562,588 172,071 $3,249,125
========== =========== ========== ===========
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the
previous period. The difference reflects earnings less expenses, any investment gains and losses, distributions paid
to shareholders, and any increase or decrease in the amount of 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 values.
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:
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 1996 -----------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $22.15 $16.11 $16.13 $10.99 $9.71 $4.97
-------- -------- -------- -------- ------- -------
Net Investment Loss (a) (0.09)(b) (0.18)(b) (0.21)(b) (0.20)(b) (0.19)(b) (0.10)
Net Realized and Unrealized Gain on
Investments 5.54 6.22 0.19 5.43 2.14 4.84
-------- -------- -------- -------- ------- -------
Total from Investment Operations 5.45 6.04 (0.02) 5.23 1.95 4.74
-------- -------- -------- -------- ------- -------
Less Distributions:
Distributions from Net Realized Gain
on Investments Sold (0.46) -- -- (0.09) (0.67) --
-------- -------- -------- -------- ------- -------
Total Distributions (0.46) -- -- (0.09) (0.67) --
-------- -------- -------- -------- ------- -------
Net Asset Value, End of Period $27.14 $22.15 $16.11 $16.13 $10.99 $9.71
======== ======== ======== ======== ======= =======
Total Investment Return at Net
Asset Value (a)(f) 24.98%(d) 37.49% (0.12%) 47.83% 20.25% 95.37%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $875,926 $555,655 $310,625 $296,793 $44,665 $19,713
Ratio of Expenses to Average
Net Assets (a) 1.36%* 1.48% 1.62% 1.84% 2.24% 2.75%
Ratio of Net Investment Income
to Average Net Assets (a) (0.74%)* (0.97%) (1.40%) (1.49%) (1.91%) (2.12%)
Portfolio Turnover Rate 40% 82% 66% 33% 114% 163%
Average Broker Commission Rate
(per share of security) (g) $0.07 N/A N/A N/A N/A N/A
CLASS B (c)
Per Share Operating Performance
Net Asset Value, Beginning
of Period $21.81 $15.97 $16.08 $12.30
-------- -------- -------- --------
Net Investment Loss (0.17)(b) (0.31)(b) (0.30)(b) (0.18)(b)
Net Realized and Unrealized
Gain on Investments 5.43 6.15 0.19 3.96
-------- -------- -------- --------
Total from Investment Operations 5.26 5.84 (0.11) 3.78
-------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold (0.46) -- -- --
-------- -------- -------- --------
Total Distributions (0.46) -- -- --
-------- -------- -------- --------
Net Asset Value, End
of Period $26.61 $21.81 $15.97 $16.08
======== ======== ======== ========
Total Investment Return at
Net Asset Value (f) 24.49%(d) 36.57% (0.68%) 30.73%(d)
Ratios and Supplemental
Data
Net Assets, End of Period
(000's omitted) $799,377 $454,934 $191,979 $158,281
Ratio of Expenses to Average
Net Assets 2.08%* 2.20% 2.25% 2.34%*
Ratio of Net Investment Income
to Average Net Assets (1.46)* (1.69%) (2.02%) (2.03%)*
Portfolio Turnover Rate 40% 82% 66% 33%
Average Broker Commission Rate
(per share of security) (g) $0.07 N/A N/A N/A
CLASS C (e)
Per Share Operating
Performance
Net Asset Value,
Beginning of Period $ 22.40 $ 16.20 $ 16.14 $ 14.90
-------- -------- -------- ---------
Net Investment Loss (0.04)(b) (0.09)(b) (0.13)(b) (0.03)(b)
Net Realized and
Unrealized Gain on
Investments 5.60 6.29 0.19 1.27
-------- -------- -------- ---------
Total from Investment
Operations 5.56 6.20 0.06 1.24
-------- -------- -------- ---------
Less Distributions:
Distributions from Net
Realized Gain on
Investments Sold (0.46) -- -- --
-------- -------- -------- ---------
Total Distributions (0.46) -- -- --
-------- -------- -------- ---------
Net Asset Value,
End of Period $ 27.50 $ 22.40 $ 16.20 $ 16.14
======== ======== ======== ========
Total Investment Return at
Net Asset Value (f) 25.19%(d) 38.27% 0.37% 8.32%(d)
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $ 35,970 $ 13,701 $ 7,123 $ 2,838
Ratio of Expenses to
Average Net Assets 0.99%* 1.01% 1.11% 1.45%*
Ratio of Net Investment
Loss to Average Net Assets (0.36%)* (0.50%) (0.89%) (1.35%)*
Portfolio Turnover Rate 40% 82% 66% 33%
Average Broker Commission
Rate (per share of security) (g) $ 0.07 N/A N/A N/A
* 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 limitations, 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 of sales charges.
(g) Average Broker Commission Rate (per share of security) as required by amended disclosure requirements
effective September 1, 1995.
The Financial Highlights summarizes the impact of the following factors on a single share for the period
indicated: the net investment income, net realized and unrealized 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>
<CAPTION>
Schedule of Investments
April 30, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Fund on April
30, 1996. It's divided into two main categories: common stocks and rights and short-term
Investments. The common stocks and rights are further broken down by industry groups.
Under each industry group is a list of the stocks owned by the Fund. Short-term
investments, which represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS and rights
Advertising (0.57%)
Eagle River Interactive, Inc.* 264,000 $5,676,000
Outdoor Systems, Inc.* 175,600 4,038,800
-------------
9,714,800
-------------
Building (0.43%)
LSI Industries, Inc. 400,000 7,400,000
-------------
Business Services - Miscellaneous (2.96%)
Apollo Group Inc. (Class A)* 420,000 18,480,000
Health Management Systems, Inc.* 707,500 18,218,125
IntelliQuest Information Group, Inc.* 37,500 1,443,750
On Assignment, Inc.* 200,000 6,625,000
PIA Merchandising Services, Inc.* 221,700 5,819,625
-------------
50,586,500
-------------
Computers - Peripheral (3.86%)
Adaptec, Inc.* 990,000 56,925,000
Secure Computing Corp.* 335,000 9,128,750
-------------
66,053,750
-------------
Computers - Services (8.54%)
America Online, Inc.* 1,100,000 70,400,000
Bell & Howell Co.* 700,000 22,050,000
C-Cube Microsystems, Inc.* 535,000 26,482,500
Harbinger Corp.* 500,000 10,750,000
Network Appliance, Inc.* 400,000 12,800,000
Technology Solutions Co.* 138,500 3,739,500
-------------
146,222,000
-------------
Computers - Software (22.21%)
Atria Software, Inc.* 700,000 38,150,000
CBT Group PLC American
Depositary Receipt (ADR)* 314,500 23,273,000
Centennial Technologies, Inc.* 250,000 5,250,000
CFI Proservices, Inc. * 240,000 6,360,000
Cognos, Inc.* 680,000 46,070,000
Cylink Corp.* 18,000 328,500
Electronics For Imaging, Inc.* 1,200,000 73,200,000
Engineering Animation, Inc.* 200,000 4,650,000
Forte Software, Inc.* 6,000 370,500
Intuit, Inc.* 345,900 17,986,800
Macromedia, Inc.* 500,000 18,843,750
Medic Computer Systems, Inc.* 482,500 45,113,750
Prism Solutions, Inc.* 43,300 1,412,662
Raptor Systems, Inc.* 7,500 247,500
Computers - Software (continued)
Red Brick Systems, Inc.* 215,300 $12,756,525
Segue Software, Inc.* 239,900 7,077,050
Software 2000 Inc.* 150,000 2,381,250
Spyglass Inc.* 90,000 2,621,250
Transaction Systems Architects, Inc.
(Class A) * 500,000 26,750,000
Wang Laboratories, Inc.* 1,500,000 35,531,250
Wind River Systems* 300,000 11,700,000
-------------
380,073,787
-------------
Electronics (7.38%)
Atmel Corp.* 600,000 24,000,000
DSP Communications, Inc.* 800,000 31,800,000
ESS Technology, Inc.* 980,000 22,172,500
Gemstar International Group Ltd.* 60,000 1,987,500
Level One Communications, Inc.* 500,000 13,250,000
Teradyne, Inc. * 10,000 205,000
Uniphase Corp.* 222,000 11,710,500
Vitesse Semiconductor Corp.* 400,000 11,950,000
Xilinx, Inc.* 249,500 9,200,313
-------------
126,275,813
-------------
Finance (4.01%)
Credit Acceptance Corp.* 850,000 15,937,500
Envoy Corp.* 210,000 6,063,750
PMT Services, Inc.* 800,000 23,100,000
Safeguard Scientifics, Inc.* 350,000 23,450,000
-------------
68,551,250
-------------
Leisure (1.08%)
Anchor Gaming* 176,000 7,777,000
Trump Hotels & Casino Resorts, Inc. * 330,000 10,683,750
-------------
18,460,750
-------------
Media (1.25%)
Chancellor Broadcasting Co. (Class A)* 304,400 $7,762,200
United States Satellite Broadcasting
Co., Inc.(Class A)* 400,000 13,700,000
-------------
21,462,200
-------------
Medical (17.95%)
ABR Information Services, Inc.* 315,000 19,687,500
American Oncology Resources, Inc.* 277,600 13,255,400
Apria Healthcare Group, Inc.* 448,000 15,232,000
CNS, Inc.* 760,000 15,010,000
Compdent Corp.* 400,000 17,700,000
Dura Pharmaceuticals, Inc.* 400,000 21,400,000
Elan Corp., PLC (ADR) * 500,000 33,062,500
Gulf South Medical Supply, Inc.* 650,000 26,325,000
Gynecare, Inc.* 140,000 1,172,500
Healthsource, Inc.* 885,000 30,200,625
Henry Schein, Inc.* 685,100 24,663,600
i-Stat Corp.* 570,000 16,601,250
Physician Reliance Network, Inc.* 500,000 21,625,000
Physician Sales & Service, Inc.* 900,000 24,300,000
Universal Health Services, Inc.
(Class B)* 486,200 26,984,100
-------------
307,219,475
-------------
Oil & Gas (3.59%)
Cairn Energy USA, Inc.* 250,000 3,093,750
Chesapeake Energy Corp.* 450,000 31,837,500
Flores & Rucks, Inc.* 389,800 8,137,075
Global Natural Resources, Inc.* 300,000 4,350,000
Lomak Petroleum, Inc. 200,000 2,675,000
Pride Petroleum Services, Inc.* 500,000 8,187,500
Swift Energy Co.* 200,000 3,100,000
-------------
61,380,825
-------------
Printing - Commercial (0.07%)
World Color Press, Inc. * 52,000 1,248,000
-------------
Protection - Safety Equipment &Services (0.49%)
Identix, Inc.* 700,000 8,312,500
-------------
Retail (9.51%)
Barnett, Inc.* 82,500 $1,938,750
CUC International, Inc. * 900,000 29,587,500
Men's Wearhouse, Inc., (The) * 500,000 18,500,000
MSC Industrial Direct Co., Inc.
(Class A)* 360,000 13,095,000
Papa John's International, Inc. * 517,050 25,497,028
PetSmart, Inc.* 970,000 43,043,750
Planet Hollywood International, Inc.
(Class A)* 435,000 11,038,125
Rainforest Cafe, Inc.* 300,000 11,100,000
Seattle Filmworks, Inc.* 450,000 8,887,500
-------------
162,687,653
-------------
Telecommunications (8.47%)
Brite Voice Systems, Inc.* 348,000 6,699,000
Cascade Communications Corp.* 600,000 60,150,000
CMG Information Services, Inc.* 290,000 8,627,500
Gandalf Technologies, Inc.* 1,700,000 30,175,000
Omnipoint Corp.* 253,000 7,590,000
Premiere Technologies, Inc.* 333,000 12,570,750
Transaction Network Services, Inc.* 133,000 5,120,500
US Order, Inc.* 700,000 14,087,500
-------------
145,020,250
-------------
Textile (3.71%)
Authentic Fitness Corp. 400,000 9,550,000
Mossimo, Inc. * 580,300 22,051,400
Tommy Hilfiger Corp.* 700,000 31,850,000
-------------
63,451,400
-------------
Tobacco (0.21%)
Culbro Corp.* 68,000 3,629,500
-------------
TOTAL COMMON STOCKS
(Cost $1,125,878,008) (96.29%) 1,647,750,453
------- -------------
<CAPTION>
ISSUER, DESCRIPTION RIGHTS VALUE
- -------------------- ------------ ----------------
<S> <C> <C>
RIGHTS
Computers - Services (0.06%)
Integrated Systems Consulting
Group, Inc.* 58,333 $1,050,000
-------------
TOTAL RIGHTS
(Cost $1,108,333) (0.06%) 1,050,000
------- -------------
TOTAL common stocks and rights
(Cost $1,126,986,341) (96.35%) 1,648,800,453
------- -------------
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- -------------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.76%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.,
Dated 4-30-96, Due 5-01-96
(secured by U.S. Treasury Bonds
10.375% due 11-15-12 and
7.25% due 05-15-16)
Note A 5.33% 64,282 $64,282,000
--------------
Short-Term Note (1.31%)
Merrill Lynch & Co., Inc.,
due 05-02-96 5.24% 22,500 22,496,725
--------------
Corporate Savings Account (0.04%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 673,862
==============
TOTAL SHORT-TERM INVESTMENTS (5.11%) 87,452,587
--------- --------------
TOTAL INVESTMENTS (101.46%) $1,736,253,040
========= ==============
*Non-income producing security.
The percentage shown for each investment category is the total
value of that category as a percentage of the net assets of the fund.
See notes to financial statements
</TABLE>
Notes to Financial Statements
John Hancock Funds - Special Equities Fund
(UNAUDITED)
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 emerging growth companies and
companies in "special situations," collectively referred to as "Special
Equities."
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 and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under terms of a distribution
plan, have exclusive voting rights to such 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.
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.
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 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.
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
April 30, 1996 net sales charges received with regard to sales of Class
A shares amounted to $4,919,421. Out of this amount, $735,722 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $3,306,571 was paid as sales commissions
to unrelated broker-dealers and $877,128 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 related to providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended April 30, 1996, contingent deferred sales
charges paid to JH Funds amounted to $602,425.
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 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. 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, to 0.10% of the average daily net asset
value of Class C shares of the Fund.
On March 26, 1996, the Board of Trustees approved, retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary tax
and financial management services for the Fund. The compensation for
1996 is estimated to be at an annual rate of 0.01875% of the average net
assets of the Fund.
Messrs. Edward J. Boudreau, Jr., and 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
April 30, 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 April 30, 1996, aggregated $869,412,663 and
$477,942,556, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended April 30, 1996.
The cost of investments owned at April 30, 1996 (including the short-
term investments) for Federal income tax purposes was $1,213,765,066.
Gross unrealized appreciation and depreciation of investments aggregated
$553,804,250 and $31,990,138, respectively, resulting in net unrealized
appreciation of $521,814,112.
[EMPTY PAGE]
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a circle
in upper right, a cube in lower left and a diamond in lower right. A tag
line below reads: "A Global Investment Management Firm."
John Hancock Funds
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
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 the caption " Printed
on Recycled Paper."
180SA 4/96
6/96
