SEMIANNUAL REPORT
The latest report from your
Fund's management team
Special Equities Fund
APRIL 30, 1999
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.*
William J. Cosgrove
Douglas M. Costle
Leland O. Erdahl
Richard A. Farrell
Gail D. Fosler
William F. Glavin
Anne C. Hodsdon
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
Richard S. Scipione
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer and
Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116-5072
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
CHAIRMAN'S MESSAGE
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief
Executive Officer, flush right next to third paragraph.]
DEAR SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting
ready to celebrate this historic transition to a new millennium. At John
Hancock Funds, we share the excitement, but we aren't popping the
champagne corks just yet. Rather, we are staying on the course that
we set more than two years ago to ensure that the transition to a
new millennium is a smooth one for our shareholders.
As many already know, the Year 2000 has created more than the prospect of
New Year's festivities of epic proportions. It has also presented the
world with a challenge: making sure that older computers, and any
equipment powered by computer chips, can properly read and process the
date "00" as 2000, not 1900. Much has been written about how the world
will weather the change. Some view it as a non-event, while others see the
potential for disruptions. How much disruption, and for how long, depends
on whom you talk to.
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an
important issue to be dealt with and we have made it a top priority. Two
years ago, John Hancock Funds put a full-time team of experts on the case
and established a company-wide program to evaluate all computer
applications and to modify or replace those that needed changing.
These modifications and replacements are nearly done, and the tests of all
our systems are on schedule for completion by the end of July. The rest of
1999 will be spent testing with our business partners and continuing to
participate in industry testing. We have also established additional
contingency plans beyond our regular ones to prepare for any challenges
that the Year 2000 might present. In the end, John Hancock will spend
approximately $90-$95 million to ensure we make a successful transition to
the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is
featuring articles with more detailed information on Y2K matters of
importance to our shareholders. I encourage you to read them, or contact
one of our Customer Service Representatives at 1-800-225-5291 for another
copy. For your own peace of mind, we also recommend that you save your
1999 statements, especially those you receive between October and
December, so that you are able to check them against the first one you
receive in 2000. It's a measure of prudence, not panic. Good record
keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although
we cannot make any ironclad assurances, we are confident that the steps we
have taken will provide shareholders with as smooth a transition as
possible. Once that occurs, we will happily raise our glasses to toast the
New Year, future prosperity and our hopes to serve you well into the
2000's.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY LAURA ALLEN, CFA, BERNICE BEHAR, CFA, AND ANURAG PANDIT, CFA,
PORTFOLIO MANAGERS
[A 3" x 2" photo at bottom right side of page of John Hancock
Special Equities Fund. Caption below reads "Fund management team
members (l-r): "Scott Mayo, Laura Allen, Anurag Pandit and Bernice
Behar."]
John Hancock Special Equities Fund
Technology and Internet stocks lead two small-cap rallies
As the six-month period began last November, the small-cap market had
started to rebound, sparked by the reductions in interest rates by the
Federal Reserve. From early October 1998 through year end, small caps
experienced a dramatic upturn in price and significantly outperformed
their larger peers. Nevertheless, this rebound was short-lived, as
investors once again gravitated to size, liquidity and earnings visibility
in January. While major indices reached new milestones in early 1999,
small caps gave up much of their relative gains in the first three months
and, as a result, finished behind large caps for the latest six-month
period.
Trends in interest rates, the global economy and earnings continued to be
the primary drivers of stock price returns. Renewed concerns that the U.S.
economy would slow markedly from the vibrant pace set in the fourth
quarter of 1998 caused investors to favor companies and sectors with more
stable earnings growth. However, with gathering evidence that domestic
growth was not slowing and overseas economies were improving, investor
sentiment shifted again towards small caps and economically sensitive
sectors of the market in April.
"...small caps
...finished
behind
large caps
for the
latest
six-month
period."
Fund performance
For the six months ended April 30, 1999, the Fund's Class A, Class B and
Class Y shares posted total returns of 12.11%, 11.75% and 12.30%,
respectively, at net asset value, compared to the 14.68% return of the
average small-cap fund, according to Lipper, Inc.1 Class C shares, which
were introduced on March 1, 1999, returned 1.96% at net asset value in the
two months since inception. Keep in mind that your net asset value return
will be different from the Fund's stated performance if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. Historical performance information can be found on pages
six and seven.
While the Fund performed quite well compared to its peers in the final
quarter of 1998, we gave back some of this relative gain in the first part
of 1999. Specifically, our exposure to the underperforming software,
computer services and health-care services areas hurt the Fund's results.
[Table at top left hand column entitled "Top Five Stock Holdings."
The first listing is Exodus Communications 2.4%, the second is
Intermedia Communications 2.2%, the third Metromedia Fiber Network
2.2%, the fourth Premier Parks 2.1% and the fifth National
Computer Systems 2.1%. A note below the table reads "As a
percentage of net assets on April 30, 1999."]
[Table at bottom of left hand column entitled "Scorecard". The
header for the left column is "Investment" and the header for the
right column is "Recent Performance...and What's Behind the
Numbers". The first listing is RealNetworks followed by an up
arrow with the phrase "Dominates Internet audio/visual
technology." The second listing is NEXTLINK Communications
followed by an up arrow with the phrase "Growing demand for fiber-
optic services." The third listing is Renal Care Group followed
by a down arrow with the phrase "Hurt by health-service sector
weakness." A note below the table reads "See 'Schedule of
Investments.' Investment holdings are subject to change."]
"...technology
stocks were
the top
performers
regardless
of company
size."
Technology, telecommunications connect
During the last six months, technology stocks were the top performers
regardless of company size. Internet and Internet-related companies were
particularly strong, driven in part by the continued boom in new stock
offerings. One of the Fund's best performers was RealNetworks, the leader
in the development of streaming audio and video over the Internet. Other
Internet-related names that performed exceptionally well included
Concentric Network, which provides web hosting services to small and
mid-sized businesses.
While we remain quite positive on the Internet sector over the long term,
we sense that an important sorting out process has begun. Who will be the
ultimate winners? In the absence of real earnings and with very few
barriers to entry, the challenge (and risk for investors) -- like the
opportunity -- is great. As with all companies in the Fund, we intend to
adhere to our investment philosophy of applying in-depth fundamental
analysis to find those Internet companies that we believe offer
proprietary products or services that allow them to achieve a dominant
position in their markets. Examples include Multex.com, which provides
on-line stock-market research data, and Exodus Communications, which
maintains websites for a growing, blue-chip list of clients. In addition,
we are also focusing on companies that are expanding their existing
businesses to include the Internet, such as audience tracking company
Nielsen Media Research.
The telecommunications sector also posted strong gains in the past six
months, as the industry continues to benefit from deregulation, enabling
companies to provide bundled voice, data and Internet services. NEXTLINK
Communications, for example, is experiencing rapidly growing demand for
its enhanced communications services to small and mid-sized businesses. By
association, the electronics companies serving various telecommunications
end markets have also thrived, including Level One Communications and RF
Micro Devices, the latter of which is a leading manufacturer of integrated
circuits for the wireless market. Beneficiaries of the telecom sector
gains also included service companies like Quanta Services, which offers
equipment maintenance and servicing for electric utility and telecom
companies.
[Bar chart at top of left hand column with heading "Fund
Performance". Under the heading is a note that reads "For six
months ended April 30, 1999." The chart is scaled in increments
of 5% with 0% at the bottom and 15% at the top. The first bar
represents the 12.11% total return for John Hancock Special
Equities Fund Class A. The second bar represents the 11.75% total
return for John Hancock Special Equities Fund Class B. The third
bar represents the 12.30% total return for John Hancock Special
Equities Fund Class Y. The fourth bar represents the 1.96%*
total return for John Hancock Special Equities Fund Class C. The
fifth bar represents the 14.68% total return for Average small-cap
fund. A note below the chart reads "Total returns for John
Hancock Special Equities Fund are at net asset value with all
distributions reinvested. The average small-cap fund is tracked
by Lipper, Inc. See the following two pages for historical
performance information. * From inception March 1, 1999 through
April 30, 1999."]
Software, health-care services lag
Not all sectors in the technology area performed well in the past six
months, with the most notable example being the software and services
companies. These two sub-sectors were negatively impacted by fears of a
Y2K-induced slowdown in corporate spending as well as a few significant
earnings disappointments. One of our holdings, Aspect Development,
reported a substantial profit shortfall, and we sold the position at a
loss primarily due to concerns over internal management issues. However,
other companies like Whittman-Hart were tainted by the sector's fall and
saw their share prices plunge despite solid fundamentals. We took
advantage of this price break to add to the Fund's position in this
high-quality technology services company.
Among the worst-performing groups in the past six months was health-care
services, as fears of further Medicare reimbursement cuts, concerns that
assisted living operators would be subject to increased government
scrutiny, and weak earnings at HMOs, physician practice management groups
and smaller hospitals weighed on investor confidence. Negative sentiment
cast a pall over the entire sector, regardless of fundamentals, hurting
one of our holdings, Renal Care Group, a dominant owner and operator of
kidney dialysis centers. We remain positive on the outlook for this
company given its strong earnings record and well-regarded management.
"Overall,
the stock
market's
underpinnings
are solid..."
Outlook
We are encouraged about the prospects for the stock market in general and
small-cap stocks in particular. The news from overseas is favorable, as
emerging-market economies are stabilizing and, in some cases, improving.
The U.S. economy remains robust, while inflation and interest rates are
still low - a good combination that bodes well for corporate profit
growth. Overall, the stock market's underpinnings are solid, although the
mega-cap stocks, with their lofty valuations, could be in for a pullback.
By contrast, small-cap stock valuations remain historically low, despite
the expectations of strong relative earnings growth. At the risk of
sounding like a broken record, we continue to believe that at these price
levels, small-caps are still overdue for a sustained rise, because,
inevitably, valuation does matter and stock prices do follow earnings.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
1 Figures from Lipper, Inc. 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 measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable
sales charge of 5%. Prior to January 1992, different sales charges were in
effect for Class A shares and are not reflected in the performance
information. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes a contingent deferred sales charge (1% declining to
0% after one year).
All figures represent past performance and are no guarantee of future
results. 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 read your prospectus carefully before you invest or send money.
CLASS A
For the period ended March 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- -------
Cumulative Total Returns (22.60%) 50.39% 338.17%
Average Annual Total Returns (22.60%) 8.50% 15.92%
CLASS B
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (3/1/93)
------- ------- -------
Cumulative Total Returns (23.07%) 50.86% 81.32%
Average Annual Total Returns (23.07%) 8.57% 10.28%
CLASS C
For the period ended March 31, 1999
SINCE
INCEPTION
(3/1/99)
-------
Cumulative Total Return 1.53%
Average Annual Total Return 1.53%(1)
CLASS Y
For the period ended March 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (9/1/93)
------- ------- -------
Cumulative Total Returns (18.23%) 62.12% 59.94%
Average Annual Total Returns (18.23%) 10.15% 8.78%
Notes to Performance
(1) Not annualized.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The chart on the right shows how much a $10,000 investment in the John
Hancock Special Equities Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown the
same $10,000 investment in the Russell 2000 Index and the Russell 2000
Growth Index. The Russell 2000 Index is an unmanaged, small-cap index that
is comprised of 2,000 U.S. stocks. The Russell 2000 Growth Index is an
unmanaged index containing those Russell 2000 Index stocks with a
greater-than-average growth orientation. Past performance is not
indicative of future results.
[Line chart with the heading John Hancock 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 hypothetical
$10,000 investment made in the John Hancock Special Equites Fund
on December 31, 1988, before sales charge, and is equal to $51,235
as of April 30, 1999. The second line represents the value of the
same hypothetical investment made in the John Hancock Special
Equities Fund, after sales charge, and is equal to $48,648 as of
April 30, 1999. The third line represents the Russell 2000 Index
and is equal to $34,912. The fourth line represents the Russell
2000 Growth Index and is equal to $32,159.]
Assuming all distributions were reinvested for the period indicated, the
chart below shows the value of a $10,000 investment in the Fund's Class B,
Class C and Class Y shares, respectively, as of April 30, 1999.
Performance of the classes will vary based on the difference in sales
charges paid by shareholders investing in the different classes and the
fee structure of those classes. Past performance is not indicative of
future results.
Class B Class C Class Y
Inception Date 3/1/93 3/1/99 9/1/93
Without Sales Charge $18,031 $10,196 $15,918
With Maximum Sales Charge -- $10,095 N/A
Russell 2000 Index $21,249 $11,066 $19,043
Russell 2000 Growth Index $20,606 $11,271 $18,451
FINANCIAL STATEMENTS
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, 1999.
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, 1999 (Unaudited)
- -----------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $589,495,251) $712,991,475
Receivable for investments sold 51,400,389
Receivable for shares sold 115,756
Other assets 69,195
--------------
Total Assets 764,576,815
- -----------------------------------------------------------------------
Liabilities:
Due to custodian 26,613,739
Payable for investments purchased 24,935,962
Payable for shares repurchased 1,263,431
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 674,079
Accounts payable and accrued expenses 102,804
--------------
Total Liabilities 53,590,015
- -----------------------------------------------------------------------
Net Assets:
Capital paid-in 487,338,416
Accumulated net realized gain on investments and
financial futures contracts 108,113,697
Net unrealized appreciation of
investments 123,501,738
Accumulated net investment loss (7,967,051)
--------------
Net Assets $710,986,800
=======================================================================
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 - $331,175,523/14,880,966 $22.25
=======================================================================
Class B - $367,090,178/17,212,798 $21.33
=======================================================================
Class C* - $7,065/331 $21.33
=======================================================================
Class Y - $12,714,034/556,526 $22.85
=======================================================================
Maximum Offering Price Per Share**
Class A - ($22.25 x 105.26%) $23.42
=======================================================================
* Class C shares commenced operations on March 1, 1999.
** On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains for
the period stated.
Statement of Operations
Six months ended April 30, 1999 (Unaudited)
- -----------------------------------------------------------------------
Investment Income:
Interest $600,904
Dividends 512,280
--------------
1,113,184
--------------
Expenses:
Investment management fee - Note B 3,641,708
Distribution and service fee - Note B
Class A 623,124
Class B 2,177,301
Class C 7
Transfer agent fee - Note B 2,135,013
Interest - Note A 121,267
Custodian fee 104,784
Financial services fee - Note B 64,480
Registration and filing fees 51,809
Printing 32,606
Miscellaneous 29,212
Trustees' fees 23,942
Auditing fee 22,280
Legal fees 4,597
--------------
Total Expenses 9,032,130
- -----------------------------------------------------------------------
Net Investment Loss (7,918,946)
- -----------------------------------------------------------------------
Realized and Unrealized Gain on Investments
and Financial Futures Contracts:
Net realized gain on investments sold 109,383,881
Net realized gain on financial futures
contracts 1,903,057
Change in net unrealized
appreciation/depreciation
of investments 12,132,156
--------------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts 123,419,094
- -----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $115,500,148
=======================================================================
See notes to financial statements.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($21,431,113) ($7,918,946)
Net realized gain on investments sold and
financial futures contracts 249,345,263 111,286,938
Change in net unrealized
appreciation/depreciation of investments (519,503,107) 12,132,156
---------------- --------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (291,588,957) 115,500,148
---------------- --------------
Distributions to Shareholders:
Distributions from net realized gain on
investments sold
Class A - (none and $0.3730 per share,
respectively) -- (8,117,761)
Class B - (none and $0.3730 per share,
respectively) -- (8,822,320)
Class Y - (none and $0.3730 per share,
respectively) -- (583,124)
---------------- --------------
Total Distributions to Shareholders -- (17,523,205)
---------------- --------------
From Fund Share Transactions - Net: * (616,525,449) (342,171,411)
---------------- --------------
Net Assets:
Beginning of period 1,863,295,674 955,181,268
---------------- --------------
End of period (including accumulated net
investment loss of $48,105 and $7,967,051,
respectively) $955,181,268 $710,986,800
================ ==============
<CAPTION>
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 100,661,197 $2,413,669,605 49,946,468 $1,116,924,774
Shares issued to shareholders in reinvestment
of distributions -- -- 327,000 6,661,532
-------------- -------------- -------------- --------------
100,661,197 2,413,669,605 50,273,468 1,123,586,306
Less shares repurchased (108,875,492) (2,650,476,277) (57,848,479) (1,294,262,521)
-------------- -------------- -------------- --------------
Net decrease (8,214,295) ($236,806,672) (7,575,011) ($170,676,215)
============== ============== ============== ==============
CLASS B
Shares sold 3,960,429 $95,092,203 976,624 $20,838,121
Shares issued to shareholders in reinvestment
of distributions -- -- 348,110 6,820,514
-------------- -------------- -------------- --------------
3,960,429 95,092,203 1,324,734 27,658,635
Less shares repurchased (17,545,625) (422,907,651) (7,812,634) (168,334,322)
-------------- -------------- -------------- --------------
Net decrease (13,585,196) ($327,815,448) (6,487,900) ($140,675,687)
============== ============== ============== ==============
CLASS C **
Shares sold -- -- 331 $6,934
-------------- -------------- -------------- --------------
Net increase -- -- 331 $6,934
============== ============== ============== ==============
CLASS Y
Shares sold 875,735 $23,077,653 87,627 $2,013,176
Shares issued to shareholders in reinvestment
of distributions -- -- 27,910 583,047
-------------- -------------- -------------- --------------
875,735 23,077,653 115,537 2,596,223
Less shares repurchased (2,820,828) (74,980,982) (1,504,124) (33,422,666)
-------------- -------------- -------------- --------------
Net decrease (1,945,093) ($51,903,329) (1,388,587) ($30,826,443)
============== ============== ============== ==============
* Class C shares commenced operations on March 1, 1999.
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
money shareholders invested in the Fund. The footnote illustrates the
number of Fund shares sold, reinvested and repurchased during the last two
periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns,
key ratios and supplemental data are listed as follows:
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
---------------------------------------------------------------- APRIL 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of
Period $16.13 $16.11 $22.15 $24.53 $26.32 $20.21
-------- -------- -------- -------- -------- --------
Net Investment Loss(1) (0.21) (0.18) (0.22) (0.29) (0.27) (0.16)
Net Realized and Unrealized
Gain (Loss) on Investments and
Financial Futures Contracts 0.19 6.22 3.06 2.08 (5.84) 2.57
-------- -------- -------- -------- -------- --------
Total from Investment
Operations (0.02) 6.04 2.84 1.79 (6.11) 2.41
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold -- -- (0.46) -- -- (0.37)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $16.11 $22.15 $24.53 $26.32 $20.21 $22.25
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(2) (0.12%) 37.49% 12.96% 7.30% (23.21%) 12.11%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $310,625 $555,655 $972,312 $807,371 $453,919 $331,176
Ratio of Expenses to Average
Net Assets 1.62% 1.48% 1.42% 1.43% 1.41% 1.69%(5,6)
Ratio of Net Investment Loss to
Average Net Assets (1.40%) (0.97%) (0.89%) (1.18%) (1.09%) (1.44%)(5)
Portfolio Turnover Rate 66% 82% 59% 41% 107% 74%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of
Period $16.08 $15.97 $21.81 $23.96 $25.52 $19.45
-------- -------- -------- -------- -------- --------
Net Investment Loss(1) (0.30) (0.31) (0.40) (0.46) (0.45) (0.23)
Net Realized and Unrealized
Gain (Loss) on Investments and
Financial Futures Contracts 0.19 6.15 3.01 2.02 (5.62) 2.48
-------- -------- -------- -------- -------- --------
Total from Investment
Operations (0.11) 5.84 2.61 1.56 (6.07) 2.25
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold -- -- (0.46) -- -- (0.37)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $15.97 $21.81 $23.96 $25.52 $19.45 $21.33
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(2) (0.68%) 36.57% 12.09% 6.51% (23.79%) 11.75%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $191,979 $454,934 $956,374 $951,449 $460,971 $367,090
Ratio of Expenses to Average
Net Assets 2.25% 2.20% 2.16% 2.19% 2.16% 2.36%(5,6)
Ratio of Net Investment Loss to
Average Net Assets (2.02%) (1.69%) (1.65%) (1.95%) (1.84%) (2.11%)(5)
Portfolio Turnover Rate 66% 82% 59% 41% 107% 74%
See notes to financial statements.
<CAPTION>
Financial Highlights (continued)
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT OF
OPERATIONS)
TO APRIL 30, 1999
(UNAUDITED)
----------
<S> <C>
CLASS C (3)
Per Share Operating Performance
Net Asset Value, Beginning of
Period $20.92
--------
Net Investment Loss(1) (0.21)
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts 0.62
--------
Total from Investment
Operations 0.41
--------
Net Asset Value, End of Period $21.33
========
Total Investment Return at Net
Asset Value(2) 1.96%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $7
Ratio of Expenses to Average
Net Assets 2.49%(5,6)
Ratio of Net Investment Loss to
Average Net Assets (2.45%)(5)
Portfolio Turnover Rate 74%
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
---------------------------------------------------------------- APRIL 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS Y (3)
Per Share Operating Performance
Net Asset Value, Beginning of
Period $16.14 $16.20 $22.40 $24.91 $26.86 $20.71
-------- -------- -------- -------- -------- --------
Net Investment Loss(1) (0.13) (0.09) (0.14) (0.18) (0.17) (0.14)
Net Realized and Unrealized
Gain (Loss) on Investments and
Financial Futures Contracts 0.19 6.29 3.11 2.13 (5.98) 2.65
-------- -------- -------- -------- -------- --------
Total from Investment
Operations 0.06 6.20 2.97 1.95 (6.15) 2.51
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold -- -- (0.46) -- -- (0.37)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $16.20 $22.40 $24.91 $26.86 $20.71 $22.85
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(2) 0.37% 38.27% 13.40% 7.83% (22.90%) 12.30%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) $7,123 $13,701 $67,498 $104,476 $40,291 $12,714
Ratio of Expenses to Average
Net Assets 1.11% 1.01% 1.03% 0.97% 0.97% 1.48%(5,6)
Ratio of Net Investment Loss to
Average Net Assets (0.89%) (0.50%) (0.54%) (0.73%) (0.66%) (1.21%)(5)
Portfolio Turnover Rate 66% 82% 59% 41% 107% 74%
(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 charges.
(3) Effective June 1, 1998, Class C shares were renamed Class Y shares. The Fund issued new Class C shares on March 1, 1999.
(4) Not annualized.
(5) Annualized.
(6) Expense ratios do not include interest expense due to bank loans, which amounted to less than $0.01 per share.
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>
Schedule of Investments
April 30, 1999 (Unaudited)
- -------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Special Equities Fund on April 30, 1999. It's made up of common
stocks, which are broken down by industry groups.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
COMMON STOCKS
Advertising (1.56%)
Catalina Marketing Corp.* 130,000 $11,106,875
------------
Beverages (1.11%)
Beringer Wine Estates Holdings, Inc.
(Class B)* 200,000 7,875,000
------------
Business Services - Misc. (17.99%)
Abacus Direct Corp.* 200,000 14,800,000
Charles River Associates,
Inc.* 355,700 7,825,400
Coinstar, Inc.* 260,000 6,110,000
INSpire Insurance Solutions,
Inc.* 600,000 13,050,000
META Group, Inc. * 13,300 121,362
MedQuist, Inc.* 300,000 10,275,000
Metro Networks, Inc.* 200,000 9,000,000
Metzler Group, Inc. (The)* 300,000 8,362,500
Nielsen Media Research, Inc. 450,000 12,318,750
On Assignment, Inc.* 330,000 10,003,125
ProBusiness Services, Inc.* 342,500 12,287,188
Profit Recovery Group
International, Inc. (The)* 300,000 10,950,000
Quanta Services, Inc.* 427,100 12,305,819
topjobs.net Plc, American Depositary
Receipt (ADR) (United
Kingdom)* 33,500 475,281
------------
127,884,425
------------
Computers (22.49%)
AboveNet Communications,
Inc.* 110,000 9,418,750
Advent Software, Inc.* 140,000 8,627,500
BARRA, Inc.* 340,000 6,651,250
BindView Development Corp.* 360,000 7,740,000
Concentric Network Corp. * 175,000 14,612,500
Exodus Communications, Inc.* 185,000 16,673,125
Fundtech Ltd. (Israel)* 310,000 10,675,625
IMRglobal Corp.* 375,000 6,468,750
Micromuse, Inc. * 250,000 8,609,375
Multex.com, Inc.* 210,100 9,034,300
National Computer Systems,
Inc. 530,000 14,840,000
pcOrder.com, Inc.* 145,000 8,962,812
Proxicom, Inc. * 14,150 317,491
RealNetworks, Inc.* 34,000 7,531,000
Rhythms NetConnections,
Inc.* 21,350 1,761,375
SCM Microsystems, Inc.* 103,000 6,785,125
Verio, Inc.* 100,000 7,100,000
Whittman-Hart, Inc.* 500,000 14,125,000
------------
159,933,978
------------
Electronics (9.76%)
ATMI, Inc.* 270,000 6,210,000
Level One Communications,
Inc.* 130,000 6,678,750
Micrel, Inc.* 155,000 9,125,625
Novellus Systems, Inc.* 150,000 7,087,500
PMC-Sierra, Inc. (Canada)* 80,000 7,670,000
PRI Automation, Inc.* 42,500 1,054,531
Powerwave Technologies, Inc.* 310,000 9,416,250
QLogic Corp. * 137,900 9,644,381
Vitesse Semiconductor Corp.* 270,000 12,504,375
------------
69,391,412
------------
Finance (2.36%)
AmeriCredit Corp.* 289,000 4,786,562
Medallion Financial Corp. 710,300 11,986,313
------------
16,772,875
------------
Food (1.36%)
American Italian Pasta Company
(Class A)* 360,000 9,675,000
------------
Insurance (0.96%)
Horace Mann Educators Corp. 300,000 6,825,000
------------
Leisure (5.53%)
Cinar Corp. (Class B)
(Canada)* 450,000 9,393,750
Imax Corp. (Canada)* 400,000 7,575,000
Premier Parks, Inc. 440,000 15,207,500
Steiner Leisure Ltd.* 225,000 7,143,750
------------
39,320,000
------------
Linen Supply & Related (1.05%)
G & K Services, Inc. (Class A) 160,000 $7,480,000
------------
Machinery (1.20%)
Applied Power, Inc. (Class A) 270,000 8,521,875
------------
Media (3.85%)
Adelphia Communications
Corp. (Class A)* 150,000 10,237,500
Cumulus Media, Inc. (Class A) 400,000 6,475,000
Network Event Theater, Inc.* 175,800 2,582,063
Pegasus Communications
Corp.* 198,000 8,118,000
------------
27,412,563
------------
Medical (7.75%)
Alkermes, Inc.* 280,000 7,490,000
CLOSURE Medical Corp.* 140,000 4,515,000
Gilead Sciences, Inc.* 150,000 6,909,375
Hanger Orthopedic Group,
Inc.* 247,800 3,624,075
IDEC Pharmaceuticals Corp.* 135,000 6,851,250
Inhale Therapeutic Systems,
Inc.* 270,000 7,762,500
Millennium Pharmaceuticals,
Inc.* 170,000 6,321,875
Renal Care Group, Inc.* 410,000 8,558,750
Vertex Pharmaceuticals, Inc.* 145,000 3,063,125
------------
55,095,950
------------
Oil & Gas (1.00%)
Stone Energy Corp.* 210,000 7,126,875
------------
Retail (8.38%)
99 Cents Only Stores* 240,000 11,310,000
Abercrombie & Fitch Co.
(Class A)* 100,000 9,512,500
CSK Auto Corp.* 350,000 8,750,000
Linens 'n Things, Inc.* 200,000 9,150,000
Pacific Sunwear of
California, Inc.* 300,000 11,128,140
Whole Foods Market, Inc.* 250,000 9,750,000
------------
59,600,640
------------
Schools/Education (0.94%)
ITT Educational Services,
Inc.* 270,750 6,650,297
------------
Telecommunications (10.18%)
Allegiance Telecom, Inc.* 150,000 6,900,000
Com21, Inc.* 180,000 5,602,500
Intermedia Communications,
Inc.* 486,000 15,643,125
Metromedia Fiber Network, Inc.
(Class A)* 185,000 15,586,250
NEXTLINK Communications, Inc.
(Class A)* 200,000 14,650,000
RF Micro Devices, Inc.* 250,000 13,968,750
------------
72,350,625
------------
Transport (2.81%)
Expeditors International of
Washington, Inc. 178,168 10,801,435
Forward Air Corp.* 66,900 1,488,525
MotivePower Industries,
Inc.* 450,000 7,678,125
------------
19,968,085
------------
TOTAL COMMON STOCKS
(Cost $589,495,251) (100.28%) 712,991,475
------------ ------------
TOTAL INVESTMENTS (100.28%) 712,991,475
------------ ------------
OTHER ASSETS AND
LIABILITIES, NET (0.28%) (2,004,675)
------------ ------------
TOTAL NET ASSETS (100.00%) $710,986,800
============ ============
*Non-income producing security.
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer; however, security is U.S. dollar
denominated.
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.
NOTES TO FINANCIAL STATEMENTS
(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.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B, Class C and Class Y shares. The
Fund issued Class C shares on March 1, 1999. 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, Inc., 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 qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders. Therefore, no federal income
tax provision is required.
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.
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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. Effective March 12, 1999, the Fund entered into a syndicated
line of credit agreement with various banks, and the agreements previously
in effect were terminated. This agreement enables the Fund to participate
with other funds managed by the Adviser in an unsecured line of credit
with banks which permit borrowings up to $500 million, collectively.
Interest is charged to each fund, based on its borrowing. In addition, a
commitment fee based on the average daily unused portion of the line of
credit is allocated among the participating funds. The maximum loan
balance during the period amounted to $63,100,000. The annualized interest
rate charged during the period ranged from 5.1250% thru 5.5625%. At April
30, 1999, there were no outstanding borrowings.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates
and other market conditions. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures
contract, it is required to deposit with its custodian a specified amount
of cash or U.S. government securities, known as "initial margin," equal to
a certain percentage of the value of the financial futures contract being
traded. Each day, the futures contract is valued at the official
settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and
from the broker are made on a daily basis as the market price of the
financial futures contract fluctuates. Daily variation margin
adjustments, arising from this "mark to market," are recorded by the Fund
as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts
may not correlate with changes in the value of the underlying securities.
In addition, the Fund could be prevented from opening or realizing the
benefits of closing out futures positions because of position limits or
limits on daily price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures
contracts.
At April 30, 1999, there were no open positions in financial futures
contracts.
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.
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, 1999, net sales charges received with regard to sales of Class A
shares amounted to $259,499. Out of this amount, $32,438 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $143,879 was paid as sales commissions to unrelated
broker-dealers and $83,182 was paid as sales commissions to sales
personnel of Signator Investors, Inc. ("Signator Investors"), a related
broker-dealer, formerly known as John Hancock Distributors, Inc. The
Adviser's indirect parent, John Hancock Mutual Life Insurance Company
("JHMLICo"), is the indirect sole shareholder of Signator Investors.
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 5.00% of the lesser of the current market value at the time
of redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in
part to defray its expenses for providing distribution related services to
the Fund in connection with the sale of Class B shares. For the period
ended April 30, 1999, contingent deferred sales charges paid to JH Funds
amounted to $2,156,128.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market
value at the time of redemption or the original purchase cost of the
shares being redeemed. Proceeds from the CDSC are paid to JH Funds and
are used in whole or in part to defray its expenses for providing
distribution related services to the Fund in connection with the sale of
Class C shares. There were no contingent deferred sales charges paid to JH
Funds for the year ended April 30, 1999.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00% of
Class B and Class C average daily net assets, to reimburse JH Funds for
its distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo.
Class A, Class B and Class C shares pay transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses. Class Y
shares pay a monthly transfer agent fee equivalent to 0.10% of the average
daily net assets of the Class Y shares of the Fund.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the
period was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon and
Mr. Richard S. Scipione are trustees 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. 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, 1999, the Fund's investments to cover the
deferred compensation liability had unrealized appreciation of $5,514.
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, 1999, aggregated $651,316,082 and $926,652,946,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the period ended April 30, 1999.
The cost of investments owned at April 30, 1999 (excluding the corporate
savings account) for federal income tax purposes was $590,349,914. Gross
unrealized appreciation and depreciation of investments aggregated
$163,262,788 and $40,621,227, respectively, resulting in net unrealized
appreciation of $122,641,561.
NOTE D -
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
April 30, 1999 is set forth below.
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING ------------------- --------------- ENDING
SHARE SHARE SHARE SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT AMOUNT COST AMOUNT COST AMOUNT GAIN (LOSS) INCOME VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Medallion Financial Corp. 615,300 95,000 $1,916,318 -- $ -- 710,300 $ -- $393,792 $11,986,313
pcOrder.com, Inc. -- 145,000 9,664,927 -- -- 145,000 -- -- 8,962,812
----------- ---- -------- -------- -----------
$11,581,245 $ -- $ -- $393,792 $20,949,125
</TABLE>
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This report is for the information of shareholders of the John Hancock
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180SA 4/99
6/99
