---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Special Equities
Fund
OCTOBER 31, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
================================================================================
John Hancock Funds - Special Equities Fund
- --------------------------------------------------------------------------------
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 September 30, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns 23.51% 59.84% 293.18%
Average Annual Total Returns 23.51% 9.83% 14.67%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (3/1/93)
------- ------- --------
Cumulative Total Returns 24.11% 60.17% 99.75%
Average Annual Total Returns 24.11% 9.88% 11.08%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
INCEPTION
(3/1/99)
--------
Cumulative Total Return 11.95%
Average Annual Total Return 11.95%(1)
- --------------------------------------------------------------------------------
CLASS Y
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (9/1/93)
------- ------- --------
Cumulative Total Returns 30.31% 71.75% 76.94%
Average Annual Total Returns 30.31% 11.42% 9.84%
Note to Performance
(1) Not annualized.
2
<PAGE>
================================================================================
John Hancock Funds - Special Equities Fund
- --------------------------------------------------------------------------------
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. It is
not possible to invest in an index. Past performance is not indicative of future
results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Special Equities Fund Class A, repre-
senting 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 Equities
Fund on October 31, 1989, before sales charge, and is equal to $45,594 as of
October 31, 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 $43,314 as of October 31, 1999. The third line represents the
Russell 2000 Index and is equal to $30,123 as of October 31, 1999. The fourth
line represents the Russell 2000 Growth Index and is equal to $27,851 as of
October 31, 1999.
- --------------------------------------------------------------------------------
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 October 31, 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 $21,082 $11,922 $18,836
- --------------------------------------------------------------------------------
With Maximum Sales Charge - $11,822 -
- --------------------------------------------------------------------------------
Russell 2000 Growth Index $21,187 $11,588 $18,970
- --------------------------------------------------------------------------------
Russell 2000 Index $21,195 $11,038 $18,995
* No contingent deferred sales charge applicable.
3
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Special Equities Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 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
October 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $467,909,906)......................... $630,530,632
Joint repurchase agreement (cost - $19,617,000) ............ 19,617,000
Corporate savings account .................................. 15
--------------
650,147,647
Receivable for investments sold ............................. 43,776,705
Receivable for shares sold .................................. 10,239
Interest receivable ......................................... 8,605
Other assets ................................................ 87,177
--------------
Total Assets ......................... 694,030,373
-----------------------------------------------------
Liabilities:
Payable for investments purchased ........................... 20,879,072
Payable for shares repurchased .............................. 505,841
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 799,502
--------------
Total Liabilities .................... 22,184,415
-----------------------------------------------------
Net Assets:
Capital paid-in ............................................. 415,365,835
Accumulated net realized gain on investments and
financial futures contracts ................................ 93,920,283
Net unrealized appreciation of investments .................. 162,620,726
Accumulated net investment loss ............................. (60,886)
--------------
Net Assets ........................... $671,845,958
=====================================================
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 - $321,670,699/12,323,364 ........................... $26.10
============================================================================
Class B - $336,979,084/13,516,222 ........................... $24.93
============================================================================
Class C - $62,388/2,502 ..................................... $24.94
============================================================================
Class Y - $13,133,787/485,801 ............................... $27.04
============================================================================
Maximum Offering Price Per Share*
Class A - ($26.10 x 105.26%) ................................ $27.48
============================================================================
* 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
Year ended October 31, 1999
- --------------------------------------------------------------------------------
Investment Income:
Dividends ................................................... $941,585
Interest 764,251
--------------
1,705,836
--------------
Expenses:
Investment management fee - Note B ......................... 6,403,075
Distribution and service fee - Note B
Class A ................................................... 1,101,571
Class B ................................................... 3,805,327
Class C ................................................... 232
Transfer agent fee - Note B ................................ 3,757,290
Custodian fee .............................................. 228,824
Interest - Note A .......................................... 142,809
Accounting and legal services fee - Note B ................. 127,448
Registration and filing fees ............................... 111,296
Printing ................................................... 88,016
Trustees' fees ............................................. 50,261
Miscellaneous .............................................. 47,070
Auditing fee ............................................... 44,898
Legal fees ................................................. 7,160
--------------
Total Expenses ....................... 15,915,277
-----------------------------------------------------
Net Investment Loss .................. (14,209,441)
-----------------------------------------------------
Realized and Unrealized Gain on Investments
and Financial Futures Contracts:
Net realized gain on investments sold ....................... 181,551,349
Net realized gain on financial futures contracts ............ 1,903,057
Change in net unrealized appreciation/depreciation
of investments ............................................. 51,251,144
--------------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts .......... 234,705,550
-----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............ $220,496,109
=====================================================
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Special Equities Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------
1998 1999
--------------------- ---------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .......................................................... ($21,431,113) ($14,209,441)
Net realized gain on investments sold and financial futures contracts ........ 249,345,263 183,454,406
Change in net unrealized appreciation/depreciation of investments ............ (519,503,107) 51,251,144
-------------- ---------------
Net Increase (Decrease) in Net Assets Resulting from Operations ...... (291,588,957) 220,496,109
-------------- ---------------
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) (486,308,214)
-------------- ---------------
Net Assets:
Beginning of period .......................................................... 1,863,295,674 955,181,268
-------------- ---------------
End of period (including accumulated net investment loss
of $48,105 and $60,886, respectively) ....................................... $955,181,268 $671,845,958
============== ===============
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.
5
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Special Equities Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
*Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1998 1999
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold....................................................... 100,661,197 $2,413,669,605 55,124,810 $1,238,433,262
Shares issued to shareholders in reinvestment of distributions ... - - 327,026 6,662,070
------------- --------------- ----------- --------------
100,661,197 2,413,669,605 55,451,836 1,245,095,332
Less shares repurchased .......................................... (108,875,492) (2,650,476,277) (65,584,449) (1,475,529,331)
------------- --------------- ----------- --------------
Net decrease ..................................................... (8,214,295) ($236,806,672) (10,132,613) ($230,433,999)
============= =============== =========== ==============
CLASS B
Shares sold ...................................................... 3,960,429 $95,092,203 1,546,196 $33,605,852
Shares issued to shareholders in reinvestment of distributions ... - - 348,167 6,821,932
------------- --------------- ----------- --------------
3,960,429 95,092,203 1,894,363 40,427,784
Less shares repurchased .......................................... (17,545,625) (422,907,651) (12,078,839) (263,898,001)
------------- --------------- ----------- --------------
Net decrease ..................................................... (13,585,196) ($327,815,448) (10,184,476) ($223,470,217)
============= =============== =========== ==============
CLASS C **
Shares sold ...................................................... - - 2,645 $58,121
Less shares repurchased .......................................... - - (143) (3,402)
------------- --------------- ----------- --------------
Net increase ..................................................... - - 2,502 $54,719
============= =============== =========== ==============
CLASS Y
Shares sold ...................................................... 875,735 $23,077,653 132,438 $3,098,000
Shares issued to shareholders in reinvestment of distributions ... - - 27,910 583,047
------------- --------------- ----------- --------------
875,735 23,077,653 160,348 3,681,047
Less shares repurchased .......................................... (2,820,828) (74,980,982) (1,619,660) (36,139,764)
------------- --------------- ----------- --------------
Net decrease ..................................................... (1,945,093) ($51,903,329) (1,459,312) ($32,458,717)
============= =============== =========== ==============
** Class C shares commenced operations on March 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Special Equities Fund
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,
----------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ -----------
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $16.11 $22.15 $24.53 $26.32 $20.21
----------- ---------- ---------- ---------- ----------
Net Investment Loss(1) .................................... (0.18) (0.22) (0.29) (0.27) (0.33)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .............................. 6.22 3.06 2.08 (5.84) 6.59
----------- ---------- ---------- ---------- ----------
Total from Investment Operations ......................... 6.04 2.84 1.79 (6.11) 6.26
----------- ---------- ---------- ---------- ----------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold .. - (0.46) - - (0.37)
----------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................ $22.15 $24.53 $26.32 $20.21 $26.10
Total Investment Return at Net Asset Value(2) ............. 37.49% 12.96% 7.30% (23.21%) 31.51%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $555,655 $972,312 $807,371 $453,919 $321,671
Ratio of Expenses to Average Net Assets ................... 1.48% 1.42% 1.43% 1.41% 1.71%
Ratio of Net Investment Loss to Average Net Assets ........ (0.97%) (0.89%) (1.18%) (1.09%) (1.50%)
Portfolio Turnover Rate ................................... 82% 59% 41% 107% 136%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $15.97 $21.81 $23.96 $25.52 $19.45
----------- ---------- ---------- ---------- ----------
Net Investment Loss(1) .................................... (0.31) (0.40) (0.46) (0.45) (0.47)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .............................. 6.15 3.01 2.02 (5.62) 6.32
----------- ---------- ---------- ---------- ----------
Total from Investment Operations ......................... 5.84 2.61 1.56 (6.07) 5.85
----------- ---------- ---------- ---------- ----------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold .. - (0.46) - - (0.37)
----------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................ $21.81 $23.96 $25.52 $19.45 $24.93
=========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value(2) ............. 36.57% 12.09% 6.51% (23.79%) 30.62%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $454,934 $956,374 $951,449 $460,971 $336,979
Ratio of Expenses to Average Net Assets ................... 2.20% 2.16% 2.19% 2.16% 2.38%
Ratio of Net Investment Loss to Average Net Assets ........ (1.69%) (1.65%) (1.95%) (1.84%) (2.16%)
Portfolio Turnover Rate ................................... 82% 59% 41% 107% 136%
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.
7
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Special Equities Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
FOR THE PERIOD FROM
MARCH 1, 1999
(COMMENCEMENT
OF OPERATIONS)
TO OCTOBER 31, 1999
-------------------
CLASS C (3)
Per Share Operating Performance
Net Asset Value, Beginning of Period.................................................................... $20.92
--------
Net Investment Loss(1) ................................................................................. (0.35)
Net Realized and Unrealized Gain on Investments and
Financial Futures Contracts ........................................................................... 4.37
--------
Total from Investment Operations ...................................................................... 4.02
--------
Net Asset Value, End of Period ......................................................................... $24.94
========
Total Investment Return at Net Asset Value(2) .......................................................... 19.22%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................................................... $62
Ratio of Expenses to Average Net Assets ................................................................ 2.39%(5)
Ratio of Net Investment Loss to Average Net Assets ..................................................... (2.25%)(5)
Portfolio Turnover Rate ................................................................................ 136%
YEAR ENDED OCTOBER 31,
1995 1996 1997 1998 1999
------------ ----------- ----------- ------------ ------------
CLASS Y (3)
Per Share Operating Performance
Net Asset Value, Beginning of Period....................... $16.20 $22.40 $24.91 $26.86 $20.71
--------- --------- --------- --------- ---------
Net Investment Loss(1) .................................... (0.09) (0.14) (0.18) (0.17) (0.18)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .............................. 6.29 3.11 2.13 (5.98) 6.88
--------- --------- --------- --------- ---------
Total from Investment Operations ......................... 6.20 2.97 1.95 (6.15) 6.70
--------- --------- --------- --------- ---------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold .. - (0.46) - - (0.37)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ............................ $22.40 $24.91 $26.86 $20.71 $27.04
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value(2) ............. 38.27% 13.40% 7.83% (22.90%) 32.90%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $13,701 $67,498 $104,476 $40,291 $13,134
Ratio of Expenses to Average Net Assets ................... 1.01% 1.03% 0.97% 0.97% 1.02%
Ratio of Net Investment Loss to Average Net Assets ........ (0.50%) (0.54%) (0.73%) (0.66%) (0.78%)
Portfolio Turnover Rate ................................... 82% 59% 41% 107% 136%
(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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Special Equities Fund
Schedule of Investments
October 31, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Special Equities Fund on October 31, 1999. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (2.31%)
Catalina Marketing Corp.* ............... 100,000 $9,362,500
Getty Images, Inc.* ..................... 200,000 6,162,500
----------
15,525,000
----------
Automobile/Trucks (0.44%)
Monaco Coach Corp.* ..................... 125,000 2,937,500
----------
Business Services (7.67%)
Abacus Direct Corp.* .................... 34,600 5,068,900
Coinstar, Inc.* ......................... 580,600 4,427,075
InsWeb Corp.* ........................... 111,700 2,010,600
MedQuist, Inc.* ......................... 270,000 8,640,000
Modem Media . Poppe Tyson, Inc.* ........ 26,900 1,856,100
NCO Group, Inc.* ........................ 68,100 2,885,737
Navigant Consulting, Inc.* .............. 230,000 6,569,375
Profit Recovery Group International, Inc.
(The)* ................................. 305,000 12,562,188
Quanta Services, Inc.* .................. 270,000 7,526,250
----------
51,546,225
----------
Computers (21.90%)
Accrue Software, Inc.* .................. 69,200 3,719,500
Advantage Learning Systems, Inc.* ....... 70,000 1,933,750
Advent Software, Inc.* .................. 214,050 12,869,756
Aether Systems, Inc.* ................... 8,900 619,106
Apex, Inc. .............................. 280,000 4,760,000
Aspen Technology, Inc.* ................. 100,000 1,237,500
BindView Development Corp.* ............. 400,000 12,000,000
Broadbase Software, Inc.* ............... 108,900 4,954,950
BSQUARE Corp.* .......................... 15,000 593,437
Cognizant Technology Solutions Corp.* ... 30,000 1,378,125
DBT Online, Inc.* ....................... 6,700 156,613
Dendrite International, Inc.* ........... 50,000 1,568,750
Digex, Inc.* ............................ 66,100 1,892,112
FactSet Research Systems, Inc. .......... 15,750 1,046,391
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
Fundtech Ltd.* (Israel) ................. 200,000 $2,675,000
Maxtor Corp.* ........................... 1,100,000 6,050,000
Media Metrix, Inc.* ..................... 97,250 4,558,594
Medscape, Inc.* ......................... 157,300 1,356,713
Micromuse, Inc.* ........................ 112,500 12,023,437
National Computer Systems, Inc. ......... 360,000 13,612,500
Network Solutions, Inc.* ................ 97,700 11,577,450
Orckit Communications Ltd.* (Israel) .... 300,900 8,293,556
Packeteer, Inc. * ....................... 2,900 98,600
Paradyne Networks, Inc.* ................ 147,100 4,468,163
pcOrder.com, Inc.* ...................... 49,100 2,430,450
Quantum Corp. - Hard Disk Drive* ........ 967,900 5,928,387
Quest Software, Inc.* ................... 14,300 1,054,625
RADWARE Ltd.* (Israel) .................. 10,600 545,238
Software.com, Inc.* ..................... 49,800 3,352,163
SportsLine USA, Inc.* ................... 44,000 1,581,250
VerticalNet, Inc.* ...................... 61,300 3,432,800
WebTrends Corp.* ........................ 59,300 3,661,775
Whittman-Hart, Inc.* .................... 305,000 11,723,437
-----------
147,154,128
-----------
Electronics (10.80%)
Alpha Industries, Inc.* ................. 110,000 6,077,500
Micrel, Inc.* ........................... 250,000 13,593,750
Novellus Systems, Inc.* ................. 130,000 10,075,000
PLX Technology, Inc.* ................... 370,000 5,920,000
PMC-Sierra, Inc.* (Canada) .............. 59,000 5,560,750
Powerwave Technologies, Inc.* ........... 195,000 12,687,187
QLogic Corp.* ........................... 82,000 8,538,250
Vitesse Semiconductor Corp.* ............ 220,000 10,092,500
----------
72,544,937
----------
Finance (2.84%)
Medallion Financial Corp. ............... 330,300 6,750,506
Metris Cos., Inc. ....................... 250,000 8,609,375
NextCard, Inc.* ......................... 120,000 3,742,500
----------
19,102,381
----------
Food (0.75%)
American Italian Pasta Co. (Class A)* ... 200,000 5,025,000
----------
Leisure (2.89%)
Cinar Films, Inc. (Class B)* (Canada) ... 290,000 5,038,750
Premier Parks, Inc.* .................... 330,000 9,549,375
Steiner Leisure Ltd.* ................... 255,000 4,829,063
----------
19,417,188
----------
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Special Equities Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Machinery (0.75%)
Terex Corp.* ............................ 190,000 $5,023,125
----------
Media (13.19%)
Acme Communications, Inc.* .............. 144,600 5,205,600
Adelphia Communications Corp.
(Class A)* ............................. 65,000 3,550,625
Citadel Communications Corp.* ........... 239,100 11,551,519
Cumulus Media, Inc. (Class A)* .......... 465,000 16,681,875
Network Event Theater, Inc.* ............ 200,000 4,600,000
Pegasus Communications Corp.* ........... 278,000 12,301,500
Radio One, Inc.* ........................ 233,350 11,638,331
Radio Unica Corp.* ...................... 73,800 2,112,525
TiVo, Inc.* ............................. 88,900 3,811,587
Westwood One, Inc.* ..................... 255,000 11,761,875
Wink Communications, Inc.* .............. 152,700 5,363,588
----------
88,579,025
----------
Medical (4.80%)
Alkermes, Inc.* ......................... 225,000 7,945,312
Alpharma, Inc. (Class A)* ............... 200,200 7,044,538
Gilead Sciences, Inc.* .................. 49,200 3,108,825
IDEC Pharmaceuticals Corp.* ............. 40,000 4,647,500
King Pharmaceuticals, Inc.* ............. 200,000 6,050,000
Millennium Pharmaceuticals, Inc.* ....... 23,300 1,633,912
Triangle Pharmaceuticals, Inc.* ......... 111,100 1,805,375
----------
32,235,462
----------
Metal (1.65%)
Maverick Tube Corp.* .................... 600,000 11,100,000
----------
Oil & Gas (2.21%)
Pride International, Inc.* .............. 410,000 5,637,500
Stone Energy Corp.* ..................... 190,000 9,238,750
----------
14,876,250
----------
Retail (7.28%)
99 Cents Only Stores* ................... 230,000 6,871,250
Brightpoint, Inc.* ...................... 300,000 2,353,140
CSK Auto Corp.* ......................... 210,000 3,753,750
Chemdex Corp.* .......................... 123,300 4,700,813
GoTo.com, Inc.* ......................... 15,500 883,500
Linens `n Things, Inc.* ................. 220,000 8,745,000
Pacific Sunwear of California, Inc.* .... 425,000 12,829,688
ScanSource, Inc.* ....................... 30,000 1,016,250
Wild Oats Markets, Inc.* ................ 220,000 7,755,000
----------
48,908,391
----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Telecommunications (10.99%)
AirGate PCS, Inc.* ...................... 93,200 $4,660,000
Allegiance Telecom, Inc.* ............... 120,000 8,280,000
Commtouch Software, Ltd.* (Israel) ...... 29,600 854,700
CoreComm Ltd.* .......................... 98,400 3,874,500
Crown Castle International Corp.* ....... 490,700 9,445,975
Efficient Networks, Inc.* ............... 100,300 4,262,750
NEXTLINK Communications, Inc.
(Class A)* ............................. 80,000 4,785,000
Powertel, Inc.* ......................... 189,700 11,168,587
RF Micro Devices, Inc.* ................. 170,000 8,776,250
Rural Cellular Corp. (Class A)* ......... 89,100 5,362,706
Terayon Communication Systems, Inc.* .... 197,600 8,645,000
XM Satellite Radio Holdings, Inc.* ...... 193,500 3,749,063
----------
73,864,531
----------
Transport (3.38%)
Expeditors International of
Washington, Inc. ....................... 306,336 11,449,308
Forward Air Corp.* ...................... 381,900 11,242,181
----------
22,691,489
----------
TOTAL COMMON STOCKS
(Cost $467,909,906) (93.85%) 630,530,632
-------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Special Equities Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- -------- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.92%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
10-29-99, due 11-01-99
(Secured by U.S. Treasury
Bonds, 7.125% thru 13.375%,
due 08-15-01 thru 02-15-23)
- Note A ......................... 5.230% $19,617 $19,617,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.30% ......................... 15
-----------
TOTAL SHORT-TERM INVESTMENTS (2.92%) 19,617,015
-------- ------------
TOTAL INVESTMENTS (96.77%) 650,147,647
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (3.23%) 21,698,311
-------- ------------
TOTAL NET ASSETS (100.00%) $671,845,958
======== ============
* 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.
11
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Special Equities Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Special Equities Fund (the "Fund") is a diversified open-end
management investment company registered under the Investment Company Act of
1940. The 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
12
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Special Equities Fund
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
year amounted to $63,100,000. The annualized interest rate charged during the
period ranged from 5.1250% through 5.5625%. At October 31, 1999, there were no
outstanding borrowings.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated lender fees. These fees are included in interest
income. The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securitites on loan. As
with other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. At October 31, 1999, the Fund
loaned securities having a market value of $87,201,983 collateralized by
securities in the amount of $90,784,856.
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 October 31, 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 year ended
October 31, 1999 net sales charges received with regard to sales of Class A
shares amounted to $394,190. Out of this amount, $97,617 was retained and used
for printing prospectuses, advertising, sales literature and other purposes,
$152,541 was paid as sales commissions to unrelated broker-dealers and $144,032
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Signator Investors.
13
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Special Equities Fund
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 year ended October 31, 1999,
contingent deferred sales charges paid to JH Funds amounted to $3,339,013.
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. For the year ended
October 31, 1999, contingent deferred sales charges paid to JH Funds amounted to
$30.
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. A maximum of 0.25% of such payments may be service fees as defined by the
Conduct Rules of the National Association of Securities Dealers. Under the
Conduct Rules, 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,
accounting and legal services for the Fund. The compensation for the year 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. Maureen R. Ford,
Ms. Anne C. Hodsdon and Mr. Richard S. Scipione are directors and/or officers of
the Adviser and/or its affiliates, as well as Trustees of the Fund through
December 31, 1999. 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. The investment had no impact on the operations of the Fund.
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 year
ended October 31, 1999, aggregated $1,055,945,192 and $1,524,639,295,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the year ended October 31, 1999.
The cost of investments owned at October 31, 1999 (excluding the
corporate savings account) for federal income tax purposes was $488,053,188.
Gross unrealized appreciation and depreciation of investments aggregated
$194,542,770 and $32,448,326, respectively, resulting in net unrealized
appreciation of $162,094,444.
14
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Special Equities Fund
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1999, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$86,360,882 , a decrease in accumulated net investment loss of $14,196,660 and
an increase in capital paid-in of $72,164,222. This represents the amount
necessary to report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1999. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to the treatment of
net operating losses in the computation of distributable income and capital
gains under federal tax rules versus generally accepted accounting principles,
and the Fund's use of the tax accounting practice known as equalization. The
calculation of net investment income per share in the financial highlights
excludes these adjustments.
NOTE E -
SUBSEQUENT EVENT
On December 6, 1999, shareholders approved a vote on a proposed merger between
the Fund and the John Hancock Small Cap Growth Fund ("Small Cap Growth Fund").
The reorganization provides for a transfer of substantially all the assets and
liabilities of the Fund to the Small Cap Growth Fund. After the transaction and
as of the close of business on December 10, 1999, the Fund will be terminated.
15
<PAGE>
================================================================================
John Hancock Funds - Special Equities Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Special Equities Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Special Equities Fund (the
"Fund"), as of October 31, 1999, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers, or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the John Hancock Special Equities Fund at October 31, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods undicated therein, in conformity with generally accepted
accounting principles.
/s/Ernst & Young
- ----------------
Boston, Massachusetts
December 3, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the taxable distributions of the Fund during its fiscal year ended
October 31, 1999.
The Fund has designated distributions to shareholders of $99,730,650 as
a capital gain dividend.
Shareholders will be mailed a 1999 U.S. Treasury Department Form
1099-DIV in January of 2000. This will reflect the total of all distributions
which are taxable for calendar year 1999.
16
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Special Equities Fund
17
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Special Equities Fund
18
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Special Equities Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS ---------------------
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101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 Randolph, MA
INTERNET: www.jhfunds.com Permit No. 75
---------------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John
Hancock Special Equities Fund. It may be used as sales literature when pre-
ceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
[LOGO] Printed on Recycled Paper 1800A 10/99
12/99
