================================================================================
John Hancock Funds
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Bank and
Thrift
Opportunity
Fund
ANNUAL REPORT
October 31, 1996
<PAGE>
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TRUSTEES
EDWARD J. BOUDREAU, JR.
THOMAS W. L. CAMERON
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSER
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
INDEPENDENT AUDITORS
DELOITTE &TOUCHE LLP
125 SUMMER STREET
BOSTON, MASSACHUSETTS 02110-1617
LISTED: NEW YORK STOCK EXCHANGE SYMBOL: BTO
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of money by the
year 2030 unless Congress makes some changes. Although it seems a long way off,
the issue is serious enough that at least one group has studied the problem, and
experts and politicians alike have weighed in with a slew of prescriptions.
Legislative action could be in the offing in 1997.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The problem stems from demographic and societal changes. The number of
retirees collecting Social Security is growing rapidly, while the number of
workers supporting the system is shrinking. Consider this: in 1950, there were
16 workers paying into the Social Security system for each retiree collecting
benefits. Today, there are three workers for each retiree and by 2019 there will
be two. Starting then, the Social Security Administration estimates that the
amount paid out in Social Security benefits will start to be greater than the
amount collected in Social Security taxes. Compounding the issue is the fact
that people are retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A recent survey
by the Employee Benefits Research Institute (EBRI) found that 79% of current
workers polled had little confidence in the ability of Social Security to
maintain the same level of benefits as those received by today's retirees.
Instead, they said they expect to use their own savings or employer-sponsored
pensions for their retirement. Yet, remarkably, another EBRI survey revealed
that only slightly more than half of America's current workers are saving money
for retirement. Fewer than half own IRAs or participate in employer-sponsored
pension or savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce your
standard of living once you stop working. So we encourage you to save all that
you can now, so you can live the way you'd like later.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGER
John Hancock
Bank and Thrift
Opportunity Fund
Bank stocks lead market rally;
positive earnings fundamentals remain
The year ending October 31, 1996 was a good one for the equity market as a
whole, with the Standard & Poor's 500-Stock Index gaining 24.10% during the
period. It was an even better one for bank stocks. John Hancock Bank and Thrift
Opportunity Fund produced a total return of 29.47% at net asset value, compared
to 28.24% for the average open-end financial services fund and 31.57% for the
average closed-end financial services fund, according to Lipper Analytical
Services.
Investors have come to embrace an economic outlook of slow growth, low
inflation, and stable interest rates. This is an ideal environment for banks,
because they are able to achieve moderate growth in loans and earnings without
taking undue risks. If the economy were growing more rapidly, earnings would be
temporarily inflated, but the stage would be set for an eventual economic
slowdown or recession that would cause a dramatic increase in loan losses. Banks
do not earn enough money during an economic boom to make up for what they lose
during a bust. Slow, plodding growth of 2-3%, year after year, is what we hope
for as bank investors.
[A 2 1/4" x 3 1/2" photo of portfolio management team at bottom right. Caption
reads: "James K. Schmidt (seated) and Fund management team members: Patricia
Ouimet and (standing l-r) James Boyd, Thomas Finucane, Gerard Cronin".]
"We have benefited from consolidation
in the banking industry..."
3
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John Hancock Funds - Bank And Thrift Opportunity Fund
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[Table entitled "Equity Capital Ratios" at top left hand column. The chart is
scaled in increments of 1%, with 9% at the top and 5% at the bottom. Within the
chart, there are 11 solid bars scaled in increments of 1 year, with 86 at the
left and 6/96 at the right. Each bar represents the ratio of equity capital to
total assets. A footnote below states: "Chart shows ratio of equity capital to
total assets".]
- --------------------------------------------------------------------------------
"...an excellent
year for bank earnings."
The Fund's return was helped by some specific tactics we engaged in, such
as buying thrifts that are plaintiffs in "goodwill" lawsuits against the U.S.
Government, and investing in commercial banks in California that are benefiting
from recovering real estate values. We have also benefited from consolidation in
the banking industry, as 13 of our holdings have received takeover bids over the
last 12 months. This brings to 23 the number of takeovers during the slightly
more than two year life of the Fund.
Positive earnings trends
The favorable economic environment has contributed to an excellent year for bank
earnings. In our last shareholder report, we estimated that our holdings would
show average earnings gains of 10% for the year 1996. With three quarters of the
year reported, we now believe earnings gains will average 13%. Several
components of the earnings equation have been slightly better than we had
predicted -- loan growth, credit losses and non-interest revenues. In addition,
many banks have continued aggressive share repurchase programs, thereby
shrinking the denominator in the earnings- per-share calculation. In 1997, we
are looking for earnings to advance by another 10%. Based on this estimate,
banks and savings and loans are selling for an average of 11 times earnings.
This compares to 17 times 1997 earnings for the S&P 500, and means that bank
stocks are 35% cheaper than the overall market.
Stock repurchases
Stock repurchases deserve a special mention here because of their extraordinary
importance to bank investors. A string of very profitable years has left the
banking industry with very strong capital ratios (see chart). This is both a
blessing and a curse because while high levels of equity contribute to safety
and soundness, it is difficult for a bank to earn a satisfactory return on
equity unless it is fully leveraged. Leverage is traditionally accomplished by
aggressively booking additional loans. This could lead to imprudent lending
standards, which would eventually culminate in drastically increased loan
charge-offs. Fortunately, those bank executives who retained their jobs after
the lending debacle in 1989-90 were chastened by the experience, and are opting
now to reduce their equity ratios by using capital to buy back stock. This not
only increases earnings-per-share, as noted previously, but prevents the more
risky lending we might otherwise be witnessing at this point in the economic
cycle. The acceptance of share buybacks as a leverage strategy is an extremely
positive development, and it is one we stress in our meetings with managements.
4
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John Hancock Funds - Bank And Thrift Opportunity Fund
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[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended October 31, 1996." The chart is
scaled in increments of 10% from bottom to top, with 40% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first represents
the 29.47% total return for the John Hancock Bank and Thrift Opportunity Fund.
The second represents the 28.24% total return for the average open-end financial
services fund. The third represents the 31.57% total return for the average
closed-end financial services fund. A footnote below reads: "The total return
for John Hancock Bank and Thrift Opportunity Fund is at net asset value with all
distributions reinvested. The average closed-end and open-end financial services
fund is tracked by Lipper Analytical Services."]
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"...several legal and regulatory issues have
been resolved in a favorable manner."
Consolidation continues
Although 1996 has been similar to 1995 in terms of the number of merger
announcements, activity has declined noticeably when measured by the size of the
transactions. The drought in large bank acquisitions was broken on August 30,
when NationsBank and Boatmen's Bancshares (a St. Louis based bank with about $40
billion in assets) announced that they were merging. This deal was significant
for a number of reasons: it marked the return to the merger wars of a predator
bank that had sat out the frenzy of 1995, it set very high pricing standards
when measured by the price-to-book or price-earnings ratios, and it reinforced
the use of purchase (rather than pooling) accounting for major acquisitions. The
issue of accounting treatment is important because the "purchase" method allows
an acquiring bank to continue the stock buyback programs that we like so much.
While purchase accounting has historically been frowned on by bank investors, it
has gained credibility now that it has been employed successfully this year by
two of the nation's biggest banks, Wells Fargo and NationsBank. We think merger
activity will accelerate over the next year, although perhaps not to the extreme
levels of 1995. Consolidation will be instrumental in the banking industry's
achievement of greater efficiency and ability to make technological investments.
Even if we were to never own another bank that got taken over, we would still be
big fans of bank consolidation.
Dateline: Washington, D.C.
Since our last communication in April, several legal and regulatory issues have
been resolved favorably. On July 1, the Supreme Court affirmed a lower court
ruling that one of our holdings, Glendale Federal, had suffered from a breach of
contract when Congress changed the accounting rules for Supervisory Goodwill in
1989. We own several savings and loans that have similar claims in other
"goodwill" suits. It will now take a year or longer for the courts to determine
what the dollar amount of damages is. While there is still considerable
uncertainty as to what damages will ultimately be paid to our companies, the
July 1 decision was a step in the right direction. The stock market was
intensely interested in these stocks for a few days immediately preceding and
following the Supreme Court ruling, but we feel these stocks are now being
overlooked as the headlines have faded.
More recently, as part of the Omnibus Budget Reconciliation Bill, Congress
and the President
5
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John Hancock Funds - Bank And Thrift Opportunity Fund
enacted legislation to recapitalize the Savings Association Insurance Fund
(SAIF). In return for a one-time assessment this year, the savings and loan
industry will see its FDIC premiums cut dramatically in 1997 to levels
comparable to the banks. Most of the Fund's thrift holdings accrued these
charges in the third quarter of 1996 and will see a 3-5% earnings pickup in 1997
from the lower premiums. With this legislation, the road has been paved for a
merging of the bank and savings association insurance funds and eventually for a
single banking charter. This will make it much more common for commercial banks
to merge with thrifts.
"Our basic investment concept has remained
the same since we started the Fund..."
More banking power?
Finally, the banks' struggle for expanded powers rages on. Although repeal of
Glass-Steagall was nixed by Congress for this year, the Federal Reserve has
proposed allowing banks to receive a larger portion of their business from
underwriting stocks and bonds. Currently capped at 10%, the banks would be
allowed to derive 25% of revenue from the securities business after the Fed's
recent relaxation proposal is enacted, most likely in early 1997. These changes
would have an immediate impact primarily on money center banks, but some of the
Fund's larger superregionals could acquire a regional brokerage under the new
guidelines. We are not particularly excited about the possibility of banks
making an effort to be major players in the brokerage industry. Most of the
banks we own are culturally ill-equipped to succeed in the securities business,
and risk cannibalizing profitable banking customers in the process. The biggest
beneficiaries of a movement by banks into the brokerage business would be
shareholders of regional brokerage firms that would become acquisition targets.
Portfolio strategy and outlook
Our basic investment concept has remained the same since we started the Fund in
August of 1994. We buy undervalued regional banks and thrifts with solid
earnings fundamentals and that are likely to be in the path of industry
consolidation. We place a particular focus on smaller capitalization banks and
savings and loans at the low end of the "food chain." While the Fund remains
geographically diverse, we frequently play on the theme of "battleground"
states, those states that contain important markets, but where superregional
banks have only a minor presence. New Jersey was a battleground state until, in
1995, three of its four largest banks were acquired by out of state
superregional banks. States that now look to us like New Jersey once did are
Alabama, Tennessee and Virginia, all states where we own numerous positions in
mid-sized banks.
We have increased our holdings in many savings and loans this year. Two of
the reasons for this have already been discussed: the "goodwill" lawsuits and
the SAIF insurance resolution. The other area of intrigue is the conversion of
many previously mutual savings and loans to
- --------------------------------------------------------------------------------
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is Imperial
Bancorp followed by an up arrow and the phrase "Growth from California recovery
and niche businesses." The second listing is Sun Bancorp followed by an up arrow
and the phrase "Initial listing warmly received by the market." The third
listing is Pamrapo Bancorp followed by a down arrow and the phrase "Management
fears hurt stock price." Footnote below reads: "See "Schedule of Investments."
Investment holdings are subject to change."]
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6
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John Hancock Funds - Bank and Thrift Opportunity Fund
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TOP FIVE COMMON
STOCK HOLDINGS
1. Union Planters Corp. 4.3%
2. US Bancorp, 4.1%
3. PNC Bank Corp., 3.3%
4. Southern National Corp. 2.8%
5. National City Corp, 2.7%
As a percentage of total net assets on October 31, 1996
- --------------------------------------------------------------------------------
"Bank stocks remain inexpensive..."
stock ownership. These recent conversions are the least expensive of all
financial institutions as many trade under their book value. Almost of all these
companies have buyback programs in effect or planned, and these repurchases
increase their book value per share. Eventually, we expect many of the converted
thrifts to be acquired by commercial banks. We have established accounts at a
number of mutual savings and loans, and may be able to purchase stock on a
subscription basis if these institutions convert to public ownership down the
road.
We increased the number of our California holdings during the period
because of improving banking conditions in that state. As employment expands and
real estate values stabilize, most California banks are (at last!) seeing their
non-performing assets decline. From a consolidation point of view, the state is
still in its infancy -- it reminds us of the Midwest back in 1985. We expect
mergers among many of the smaller California banks and, several years from now,
interstate mergers into the state.
We have been disappointed at several points during the last year to see the
Fund trade at a surprisingly wide discount to its net asset value. In early
1996, this discount occasionally exceeded 20%. In May, the Directors authorized
the portfolio manager to repurchase up to one million shares of common stock in
an effort to mitigate the discount to net asset value. As of October 31, we had
purchased 607,900 shares and the discount stood at 14%.
Overall, we feel that the basic investment strategy that we have been
employing over the life of the Fund will continue to work in the future. Bank
stocks remain inexpensive, the economy is cooperating, and there are many years
of industry consolidation to look forward to. We would change our mind about the
attractiveness of bank equity investments only if these driving forces were to
evaporate.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
7
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FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 1996. You'll
also find the net asset value for each common share as of that date.
Statement of Assets and Liabilities
October 31, 1996
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and Warrant
(cost - $ 401,708,030) ................................ $653,039,492
Preferred stocks (cost - $ 7,962,500) ................... 9,266,125
Bonds (cost - $21,863,970) .............................. 22,730,850
Short-term investments (cost - $14,216,212) ............. 14,216,212
------------
699,252,679
Cash ..................................................... 4,048
Receivable for investments sold .......................... 1,643,750
Interest receivable ...................................... 536,904
Dividends receivable ..................................... 1,281,663
Deferred organization expenses - Note A .................. 44,979
Other assets ............................................. 39,793
------------
Total Assets ........................... 702,803,816
------------------------------------------------------------
Liabilities:
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ..................................... 977,366
Accounts payable and accrued expenses .................... 151,148
------------
Total Liabilities ...................... 1,128,514
------------------------------------------------------------
Net Assets:
Capital paid-in .......................................... 443,944,053
Accumulated net realized gain on investments ............. 2,948,793
Net unrealized appreciation of investments ............... 253,504,668
Undistributed net investment income ...................... 1,277,788
------------
Net Assets ............................. $701,675,302
============================================================
Net Asset Value Per Share:
(based on 22,397,100 shares of beneficial interest
outstanding - unlimited number of shares authorized
with no par value) ....................................... $ 31.33
============================================================
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gainsfor the period
stated.
Statement of Operations
Year ended October 31, 1996
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Investment Income:
Dividends (including $326,594 received from
affiliated issuers and net of foreign
withholding taxes of $22,859) ........................... $ 17,662,227
Interest ................................................. 4,916,368
------------
22,578,595
------------
Expenses:
Investment management fee - Note B ...................... 7,509,920
Administration fee - Note B ............................. 1,632,591
Printing ................................................ 262,951
Custodian fee ........................................... 124,887
Trustees' fees .......................................... 77,768
Auditing fee ............................................ 33,350
New York Stock Exchange fee ............................. 32,340
Miscellaneous ........................................... 30,094
Legal fees .............................................. 29,016
Transfer agent fee ...................................... 22,240
Organization expense - Note A ........................... 15,998
-----------
Total Expenses ......................... 9,771,155
------------------------------------------------------------
Net Investment Income .................. 12,807,440
------------------------------------------------------------
Unrealized Gain on Investments:
Net realized gain on investments sold
(including $706,751 on sales of
investments in affiliated issuers) ...................... 29,138,919
Change in net unrealized appreciation/depreciation
of investments .......................................... 120,230,953
------------
Net Increase in Net Assets
Resulting from Operations .............. $162,177,312
============================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................................ $ 11,534,409 $ 12,807,440
Net realized gain on investments sold ............................................................ 7,493,313 29,138,919
Change in net unrealized appreciation/depreciation of investments ................................ 139,216,330 120,230,953
------------ ------------
Net Increase in Net Assets Resulting from Operations ............................................ 158,244,052 162,177,312
------------ ------------
Distributions to Shareholders:
Dividends from net investment income ($0.2250 and $0.9075 per share, respectively) ............... ( 5,176,125) ( 20,616,437)
Distributions from net realized gain on investments sold (none and $1.495 per share, respectively) -- ( 33,683,439)
------------ ------------
Total Distributions to Shareholders ............................................................. ( 5,176,125) ( 54,299,876)
------------ ------------
From Fund Share Transactions - Net:*................................................................ -- ( 14,925,947)
------------ ------------
Net Assets:
Beginning of period............................................................................... 455,655,886 608,723,813
------------ ------------
End of period (including undistributed net investment income of $9,086,785 and
$1,277,788, respectively) ..................................................................... $608,723,813 $701,675,302
============ ============
</TABLE>
*Analysis of Common Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------
1995 1996
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period.................... 23,005,000 $458,870,000 23,005,000 $458,870,000
Less shares repurchased.................................... -- -- ( 607,900) ( 14,999,129)
Adjustment to capital paid-in - Note D..................... -- -- -- 73,182
---------- ------------ ---------- ------------
Shares outstanding, end of period.......................... 23,005,000 $458,870,000 22,397,100 $443,944,053
========== ============ ========== ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous 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 during the period,
along with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD AUGUST 23, 1994 YEAR ENDED OCTOBER 31,
(COMMENCEMENT OF OPERATIONS) ----------------------
TO OCTOBER 31, 1994 1995 1996
------------------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period.................................... $ 20.00 $ 19.81 $ 26.46
-------- -------- --------
Net Investment Income................................................... 0.12 0.50 0.56
Net Realized and Unrealized Gain (Loss) on Investments ................. ( 0.26) 6.38 6.57
-------- -------- --------
Total from Investment Operations....................................... ( 0.14) 6.88 7.13
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income.................................... -- ( 0.23) ( 0.91)
Distributions from Net Realized Gain on Investments Sold................ -- -- ( 1.50)
-------- -------- --------
Total Distributions.................................................... -- ( 0.23) ( 2.41)
-------- -------- --------
Common Shares Offering Costs............................................ ( 0.05) -- --
Increase due to purchase of Bank and Thrift Opportunity Fund stock at
less than net asset value ............................................ -- -- 0.15
-------- -------- --------
Net Asset Value, End of Period.......................................... $ 19.81 $ 26.46 $ 31.33
======== ======== ========
Per Share Market Value, End of Period................................... $ 18.00 $ 22.75 $ 27.00
======== ======== ========
Total Investment Return at Market Value................................. ( 10.00%)(a) 27.91% 29.78%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ................................ $455,656 $608,724 $701,675
Ratio of Expenses to Average Net Assets .................................. 1.51%* 1.49% 1.50%
Ratio of Net Investment Income to Average Net Assets ..................... 3.22%* 2.22% 1.96%
Portfolio Turnover Rate .................................. ............... 0% 8% 13%
Average Broker Commission Rate (per share of security) (b) ............... N/A N/A $0.0727
</TABLE>
* On an annualized basis.
(a) Not annualized.
(b) Average broker commission rate (per share of security) as required by
amended disclosure requirements effective September 1, 1995.
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indicated: the net investment income, gains
(losses), distributions 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.
10
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FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
Schedule of Investments
October 31, 1996
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Bank
and Thrift Opportunity Fund on October 31, 1996. It's divided into four main
categories:common stocks and warrant, preferred stocks, bonds and short-term
investments. The common stocks and warrant, preferred stocks and bonds are
further broken down by industry groups. Short-term investments, which represent
the Fund's "cash" position, are listed last.
MARKET
DESCRIPTION, ISSUER, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- -----
COMMON STOCKS AND WARRANT
Money Center Banks (0.23%)
Chase Manhattan Corp. (NY) .............. 18,387 $1,576,685
-----------
Super Regionals (8.95%)
Barnett Banks, Inc. (FL) ................ 460,000 17,537,500
Fleet Financial Group, Inc. (MA) ........ 205,206 10,234,649
Norwest Corp. (MN) ...................... 264,051 11,585,238
PNC Bank Corp. (PA) ..................... 647,000 23,453,750
-----------
62,811,137
-----------
Regionals (57.64%)
ABC Bancorp. (GA) ....................... 40,000 710,000
Alabama National Bancorp. (AL) .......... 130,000 2,112,500
American Bancorp. (WV) .................. 17,500 420,000
American Bancshares, Inc.* (FL) ......... 60,000 495,000
Atlantic Bancorp.* (ME) (R) ............. 150,000 2,094,000
BancFirst Corp. (OK) .................... 70,000 1,715,000
BancFirst Ohio Corp. (OH) ............... 25,000 706,250
Bancorp Hawaii, Inc. (HI) ............... 300,000 11,887,500
BancorpSouth, Inc. (MS) ................. 50,000 1,268,750
Bank Yorba Linda * (CA) ................. 20,000 220,000
Banknorth Group, Inc. (VT) .............. 96,500 3,329,250
BanPonce Corp. (PR) ..................... 300,000 7,875,000
Beverly National Corp. (MA) ............. 25,000 512,500
BNCCorp., Inc. * (ND) ................... 45,000 517,500
Boatmen's Bancshares, Inc. (MO) ......... 112,000 6,804,000
Broad National Bancorp. (NJ) ............ 80,657 867,063
California State Bank (CA) .............. 89,200 1,449,500
Carolina First Corp. (SC) ............... 28,242 494,235
CCB Financial Corp. (NC) ................ 35,600 2,029,200
Centura Banks, Inc. (NC) ................ 80,000 3,110,000
Century Financial Corp. (PA) ............ 10,000 160,000
Chittenden Corp. (VT) ................... 59,062 1,461,785
Colonial BancGroup, Inc. (AL) ........... 385,000 14,581,875
Columbia Bancorp. (MD) .................. 24,000 504,000
Comerica, Inc. (MI) ..................... 165,000 8,765,625
Commercial Bankshares, Inc. (FL) ........ 34,000 510,000
Commonwealth Bankshares, Inc.* (VA) ..... 25,440 241,680
Community Banks, Inc. (PA) .............. 33,000 808,500
Compass Bancshares, Inc. (AL) ........... 302,000 10,909,750
Corestates Financial Corp. (PA) ......... 250,875 12,198,797
County Bank of Chesterfield (VA) ........ 30,000 390,000
Crestar Financial Corp. (VA) ............ 267,000 16,420,500
Dauphin Deposit Corp. (PA) .............. 80,000 2,620,000
Desert Community Bank (CA) .............. 37,000 499,500
Dime Bancorp., Inc. * (NY) .............. 54,500 810,688
DNB Financial Corp. (PA) ................ 21,533 656,757
Empire Banc Corp. (MI) .................. 14,306 476,792
Evergreen Bancorp., Inc. (NY) ........... 50,000 743,750
F & M National Corp. (VA) ............... 10,000 185,000
Financial Trust Corp. (PA) .............. 99,000 2,685,375
First American Corp. (TN) ............... 322,100 16,024,475
First of America Bank Corp. (MI) ........ 308,300 16,763,812
First Commerce Corp. (LA) ............... 380,000 13,490,000
First Financial Corp (RI) ............... 94,000 869,500
First Security Corp. (UT) ............... 165,000 4,846,875
First State Bancorp. (NM) ............... 82,625 1,218,719
First Tennesse National Corp. (TN) ...... 121,200 4,408,650
First Victoria National Bank (TX) ....... 48,100 1,106,300
Firstar Corp. (WI) ...................... 110,176 5,398,624
FNB Bankshares (ME) ..................... 20,780 602,620
FNB Corp. (PA) .......................... 38,587 897,148
FNB Rochester Corp.* (NY) ............... 9,500 110,438
Harleysville National Corp. (PA) ........ 43,810 1,089,774
Imperial Bancorp. * (CA) ................ 125,550 2,432,531
Magna Group, Inc. (MO) .................. 90,000 2,520,000
Mahaska Investment Co. (IA) + ........... 149,500 2,803,125
Mahoning National Bancorp. (OH) ......... 26,000 633,750
Marathon Financial Corp. * (VA) ......... 15,000 69,375
Mercantile Bancorp., Inc. (MO) .......... 240,247 11,922,257
MetroBanCorp. (IN) ...................... 49,000 312,375
Mississippi Valley Bancshares, Inc. (MO) 40,500 1,539,000
National City Corp. (OH) ................ 441,400 19,145,725
New England Community Bancorp
(Class A) (CT) ......................... 185,000 2,601,562
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
MARKET
DESCRIPTION, ISSUER, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- -----
Regionals (continued)
North Fork Bancorp., Inc. (NY) .......... 35,800 $1,132,175
Old Kent Financial Corp. (MI) ........... 195,693 8,830,647
One Valley Bancorp., Inc. (WV) .......... 59,272 1,933,749
Oriental Bank & Trust (PR) .............. 58,500 1,096,875
Provident Bankshares Corp. (MD) ......... 120,825 4,349,700
Regions Financial Corp. (AL) ............ 82,956 4,147,800
Riggs National Corp. (DC) ............... 92,500 1,584,063
Salem Bank & Trust (VA) ................. 42,000 656,250
Santa Barbara Bancorp. (CA) ............. 4,500 121,500
Security Bank Corp. * (VA) .............. 22,000 189,750
Security Shares, Inc. (TX) (r) .......... 200,000 1,682,000
Signet Banking Corp. (VA) ............... 355,000 10,250,625
Southern National Corp. (NC) ............ 558,880 19,351,220
Southtrust Corp. (AL) ................... 530,000 17,556,250
Southwest Bancorp., Inc. (OK) ........... 68,500 1,301,500
Summit Bancorp. (NJ) .................... 452,420 18,492,667
Summit Bankshares, Inc. (TX) ............ 23,000 477,250
Sun Bancorp., Inc. * (NJ) (r) ........... 52,500 1,050,000
Surety Capital Corp.* (TX) + ............ 303,700 1,385,631
Tehama County Bank* (CA) ................ 51,052 542,428
Texas Regional Bancshares, Inc.
(Class A) (TX) ......................... 20,000 645,000
TriCo Bancshares (CA) ................... 11,000 225,500
Union Planters Corp. (TN) ............... 869,975 30,231,631
United Security Bancorp.* (WA) .......... 127,050 1,762,819
Univest Corp. (PA) ...................... 25,000 812,500
US Bancorp. (OR) ........................ 726,760 29,070,400
US Trust Corp. (NY) ..................... 26,000 1,618,500
Vectra Banking Corp.* (CO) .............. 34,100 528,550
Ventura County National Bancorp.* (CA) .. 213,909 1,042,806
Vermont Financial Services Corp. (VT) ... 41,500 1,431,750
West Coast Bancorp. (OR) ................ 61,187 1,040,179
Whitney Holding Corp. (LA) .............. 138,500 4,397,375
Yardville National Bank (NJ) ............ 25,500 471,750
-----------
404,465,097
-----------
Thrifts (23.92%)
Ambanc Holding Co., Inc. * (NY) ......... 45,000 455,625
American Federal Bank, FSB (SC) ......... 140,000 2,572,500
American National Bancorp., Inc. (MD) ... 146,470 1,721,023
Avondale Financial Corp.* (IL) .......... 41,000 599,625
Bank Plus Corp. * (CA) .................. 282,858 3,182,152
Bank West Financial Corp (MI) + ......... 130,000 1,397,500
BostonFed Bancorp., Inc. (MA) ........... 121,300 1,652,712
Calumet Bancorp., Inc.* (IL) ............ 33,000 932,250
Cameron Financial Corp. (MO) ............ 90,000 1,327,500
CB Bancorp., Inc.* (IN) ................. 50,000 1,150,000
CENFED Financial Corp. (CA) ............. 25,000 662,500
Charter Financial, Inc. (IL) ............ 15,000 187,500
Collective Bancorp., Inc. (NJ) .......... 546,500 16,395,000
Community Financial Corp.* (IL) ......... 25,000 321,875
Community Investors Bancorp., Inc. (OH) . 10,000 181,250
Crazy Woman Creek Bancorp., Inc. (WY) ... 30,000 345,000
CSB Financial Group, Inc.* (IL) ......... 40,000 402,500
Equitable Federal Savings Bank* (MD) + .. 40,000 1,050,000
FFVA Financial Corp. (VA) ............... 50,000 918,750
Financial Bancorp., Inc. (NY) .......... 85,000 1,205,938
First Bell Bancorp., Inc. (PA) .......... 82,500 1,258,125
First Colorado Bancorp., Inc. (CO) ...... 190,300 2,973,437
First Defiance Financial Corp. (OH) ..... 476,885 5,305,346
First Federal Bancorp.* (MN) ............ 14,000 224,000
First Federal Bancshares of
Arkansas, Inc. * (AR) .................. 17,500 275,625
First Federal Bancshares of
Eau Claire, Inc. (WI) .................. 60,000 1,080,000
First Federal Capital Corp. (WI) ........ 10,000 235,000
First Financial Corp. (WI) .............. 30,418 825,088
First Keystone Financial, Inc. (PA) ..... 55,000 1,031,250
First Mutual Bancorp., Inc. (IL) ........ 60,000 825,000
First State Financial Services, Inc. (NJ) 22,500 309,375
Fort Bend Holdings Corp. (TX) .......... 35,000 682,500
Fort Thomas Financial Corp. (KY) ........ 13,000 173,875
Frankfort First Bancorp. (KY) .......... 64,418 724,703
GA Financial, Inc. (PA) ................. 90,000 1,226,250
GFSB Bancorp., Inc. (NM) ................ 20,000 285,000
Greenpoint Financial Corp. (NY) ......... 340,000 15,810,000
Harbor Federal Bancorp., Inc. (MD) ...... 35,000 525,000
Hardin Bancorp., Inc. (MO) .............. 40,000 490,000
Harrington Financial Group, Inc. * (KS) . 45,000 461,250
Harvest Home Financial Corp. (OH) ....... 25,000 231,250
Highland Federal Bank* (CA) ............. 104,167 1,666,672
Hingham Institute For Savings (MA) ...... 60,000 960,000
HMN Financial, Inc.* (MN) ............... 86,500 1,470,500
Home Financial Corp. (FL) ............... 50,000 812,500
Horizon Bancorp., Inc. (TX) ............. 52,000 936,000
IBS Financial Corp. (NJ) ................ 15,000 240,000
InterWest Bankcorp., Inc. (WA) .......... 2,000 60,500
ISB Financial Corp. (LA) ................ 140,000 2,301,250
L & B Financial Inc. (TX) + ............. 127,000 2,198,687
Lawrence Savings Bank* (MA) ............. 75,000 515,625
Little Falls Bancorp., Inc. (NJ) ........ 120,000 1,380,000
Logansport Financial Corp. (IN) + 67,500 961,875
Long Island Bancorp., Inc. (NY) ......... 241,700 7,190,575
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
MARKET
DESCRIPTION, ISSUER, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- -----
Thrifts (continued)
MassBank Corp. (MA) ..................... 14,500 $482,125
Meritrust Federal Savings Bank (LA) ..... 18,000 558,000
MFB Corp. (IN) .......................... 15,000 236,250
Mid Continent Bancshares, Inc. (KS) ..... 60,000 1,140,000
Mississippi View Holding Co. (MN) ....... 45,000 551,250
ML Bancorp., Inc. (PA) .................. 40,000 557,500
Monterey Bay Bancorp., Inc. (CA) ........ 65,000 958,750
New Hampshire Thrift
Bancshares, Inc. (NH) .................. 25,000 293,750
North Central Bancshares, Inc. (IA) ..... 95,000 1,187,500
Northeast Indiana Bancorp., Inc. (IN) ... 60,000 795,000
Northwest Equity Corp. (WI) + .......... 61,000 716,750
NS & L Bancorp. (MO) .................... 5,000 65,000
Ottawa Financial Corp. (MI) ............. 25,000 403,125
Pamrapo Bancorp., Inc. (NJ) ............. 81,000 1,609,875
Patriot Bank Corp. (PA) ................. 140,000 2,292,500
PennFed Financial Services, Inc.* (NJ) + 350,000 6,825,000
People's Bancshares, Inc. (MA) .......... 60,000 667,500
Peoples Heritage Financial
Group, Inc. (ME) ....................... 19,800 455,400
Permanent Bancorp., Inc. (IN) .......... 90,000 1,575,000
PFF Bancorp., Inc.* (CA) ................ 60,000 765,000
Pittsburgh Home Financial Corp. (PA) + .. 110,000 1,313,125
Portsmouth Bank Shares, Inc. (NH) ....... 47,430 610,661
Potters Financial Corp. (OH) ............ 16,000 280,000
Primary Bank* (NH) ...................... 25,000 325,000
QCF Bancorp., Inc.* (MN) ................ 20,000 317,500
Quaker City Bancorp., Inc. * (CA) ....... 75,000 1,218,750
River Bank America* (NY) ................ 95,000 855,000
Roosevelt Financial Group, Inc. (MO) .... 489,324 8,502,004
St. Landry Financial Corp.* (LA) ........ 25,000 375,000
Scotland Bancorp., Inc.* (NC) .......... 22,500 289,688
Security Bancorp. (MT) .................. 59,500 1,740,375
Security First Network Bank* (GA) ....... 5,000 72,500
SFS Bancorp., Inc. (NY) ................. 49,000 747,250
SGV Bancorp., Inc.* (CA) ................ 30,000 311,250
SIS Bancorp., Inc. * (MA) ............... 92,500 2,173,750
Southern Banc Co., Inc. (AL) ............ 12,000 145,500
Southern Missouri Bancorp., Inc. (MO) ... 67,000 938,000
Standard Federal Bancorp. (MI) .......... 195,000 10,432,500
Standard Financial, Inc. (IL) .......... 135,000 2,404,687
Sterling Financial Corp.* (WA) .......... 36,500 511,000
Sturgis Federal Savings Bank (MI) ....... 27,000 499,500
Tappan Zee Financial, Inc. (NY) ......... 30,000 397,500
Teche Holding Co. (LA) .................. 80,000 1,060,000
Texarkana First Financial Corp. (AR) .... 28,000 399,000
Warren Bancorp., Inc. (MA) .............. 19,000 247,000
Washington Mutual, Inc. (WA) ............ 292,500 12,358,125
Wells Financial Corp.* (MN) + ........... 167,000 2,129,250
WesterFed Financial Corp. (MT) .......... 160,000 2,740,000
-----------
167,836,648
-----------
Other (2.01%)
Aames Financial Corp. (CA) ............... 30,000 1,338,750
Capital One Financial Corp. (VA) ........ 295,000 9,181,875
ITLA Capital Corp. * (CA) ............... 50,600 733,700
Olympic Financial Ltd. * (MN) .......... 15,000 238,125
Union Acceptance Corp. ..................
(Class A) * (IN) ....................... 147,800 2,604,975
-----------
14,097,425
-----------
WARRANT (0.32%)
Glendale Federal Savings Bank* (CA) ....... 265,000 2,252,500
-----------
TOTAL COMMON STOCKS
AND WARRANT
(Cost $401,708,030) (93.07%) 653,039,492
------------ -----------
PREFERRED STOCKS
Banks (1.32%)
Chevy Chase Savings, 13.00% (MD) ........ 55,000 1,801,250
Community Bank,
Ser B, 13.00% (CA) ..................... 21,000 572,250
Fidelity Federal Bank,
Ser A, 12.00% (CA) ..................... 40,000 1,110,000
Greater New York Savings Bank,
Ser B, 12.00% (NY) ..................... 50,000 1,562,500
Matewan BancShares, Inc.,
Ser A, 7.50% (WV) ...................... 25,000 643,750
Riggs National Corp.,
Ser B, 10.75% (DC) ..................... 93,000 2,638,875
Sovereign Bancorp.,
Ser B, 6.25% (PA) ...................... 15,000 937,500
-----------
TOTAL PREFERRED STOCKS
(Cost $7,962,500) (1.32%) 9,266,125
------------ -----------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
PAR VALUE
INTEREST (000'S) MARKET
DESCRIPTION, ISSUE RATE OMMITTED VALUE
- ------------------ ---- -------- -----
BONDS
Beal Financial Corp.,
Sr Note 08-15-00 .................. 12.75% $ 2,000 $2,105,000
Berkeley Federal Bank & Trust,
Sub Deb 06-15-05 .................. 12.00 1,000 1,090,000
CENFED Financial Corp. (R)
Sr Note 12-15-01 .................. 11.17 3,500 3,788,750
Centerbank,
Sub Note 10-01-02 ................. 8.375 1,000 1,058,750
Coastal Bancorp., Inc.,
Sr Note 06-30-02 .................. 10.00 3,000 3,011,250
Dime Bancorp.,
Sr Note 11-15-05 .................. 10.50 3,690 4,022,100
Fidelity Federal Bancorp.,
Sub Note 06-01-05 ................... 10.00 1,000 980,000
First Federal Financial Corp.,
Note 10-01-04 ....................... 11.75 2,000 2,040,000
MAF Bancorp., Inc.,
Sub Note 09-30-05 ................... 8.32 1,500 1,485,000
WSFS Financial Corp.,
Sr Note 12-31-05 .................... 11.00 3,000 3,150,000
----------
TOTAL BONDS
(Cost $ 21,863,970) (3.24%) 22,730,850
---------- ----------
SHORT-TERM INVESTMENTS
Certificates of Deposit (0.01%)
Deposits in Mutual Banks............. 54,899
Joint Repurchase Agreement (0.38%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Market, Inc.
Dated 10-31-96, due 11-01-96
(secured by US Treasury Bonds,
7.25% due 5-15-16, and 6.25%
due 8-15-23) Note A ............... 5.54 2,705 2,705,000
Short Term Note (1.63%)
Merrill Lynch & Co., Inc. ............
due 11-27-96 ........................ 5.26 11,500 11,456,313
------------
TOTAL SHORT-TERM INVESTMENTS ( 2.02%) 14,216,212
---------- ------------
TOTAL INVESTMENTS (99.65%) $699,252,679
=========== ============
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $ 5,882,750 as of October 31, 1996. See
Note A of the Notes to Financial Statements for valuation policy.
(r) The securities listed below are direct placement securities and are
restricted as to resale. The Fund has limited rights to registration under
the Securities Act of 1933 with respect to restricted securities (not
including Rule 144A securities). In certain circumstances the Fund may bear
a portion of the cost of such registrations; otherwise, such costs would be
borne by the issuer. See Note A of the Notes to Financial Statements for
valuation policy. Additional information on these restricted securities is
as follows:
MARKET MARKET
VALUE AS A VALUE
PERCENTAGE AS OF
ACQUISITION ACQUISITION OF FUND'S OCTOBER 31,
DATE COST NET ASSETS 1996
---- ---- ---------- ----
Security Shares, Inc. 09-29-94 $1,150,000 0.24% $1,682,000
Sun Bancorp, Inc. 09-29-94 650,000 0.15% 1,050,000
+ Denotes an affiliated company in which the Fund has ownership of at least
5% of the voting securities. (See Note E of the Notes to Financial
Statements).
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.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
NOTE A --
ACCOUNTING POLICIES
The John Hancock Bank and Thrift Opportunity Fund (the "Fund") is a diversified
closed-end management investment company registered under the Investment Company
Act of 1940. To provide the initial capital of the Fund, John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
purchased a total of 5,000 common shares for an aggregate purchase price of
$100,000 on August 8, 1994. The Adviser was the sole holder of common shares
until the public offering was completed and the operations of the Fund commenced
on August 23, 1994. The Fund's primary investment objective is long-term capital
appreciation. 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 the Adviser, may
participate in a joint repurchase agreement transaction. Aggregate cash balances
are invested in one or more repurchase agreements, whose underlying securities
are obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, 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. OPTIONS Listed options will be valued
at the last quoted sales price on the exchange on which they are primarily
traded. Purchased put or call over-the-counter options will be valued at the
average of the "bid" prices obtained from two independent brokers. Written put
or call over-the-counter options will be valued at the average of the "asked"
prices obtained from two independent brokers. Upon the writing of a call or put
option, an amount equal to the premium received by the Fund will be included in
the Statement of Assets and Liabilities as an asset and corresponding liability.
The amount of the liability will be subsequently marked-to-market to reflect the
current market value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
each transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter option
contracts, the Fund will continuously monitor the creditworthiness of all its
counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended October 31,
1996.
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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
purchased from either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code.
ORGANIZATION EXPENSES Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
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 1.15% of the Fund's average weekly net asset value.
The Fund has also entered into an administrative agreement with the Adviser
pursuant to which the Adviser provides certain administrative services on behalf
of the Fund. In return, the Fund has agreed to pay a monthly administration fee
at an annual rate of 0.25% of the Fund's average weekly net asset value.
Mr. Edward J. Boudreau, Jr., Mr. Thomas W.L. Cameron, 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. The compensation of
unaffiliated Trustees is borne by the Fund. The Adviser owns 5,000 shares of
beneficial interest of the Fund. Effective with the fees paid for 1996, 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 asset are
always equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At October
31, 1996, the Fund's investments to cover the deferred compensation liability
had unrealized appreciation of $2,701.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended October 31, 1996, aggregated $79,452,717
and $116,384,870, respectively.
The cost of investments owned at October 31, 1996 for Federal income tax
purposes was $445,750,712. Gross unrealized appreciation and depreciation of
investments aggregated $253,947,139 and $445,172, respectively, resulting in net
unrealized appreciation of $253,501,967.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
NOTE D --
CAPITAL
In connection with the Fund's initial public offering in August 1994, the Fund
recorded proceeds of $458,770,000, net of estimated offering costs of $1,230,000
through the issuance of 23,000,000 common shares at $20.00 per share. As of
October 31, 1996, the Fund had incurred $1,156,818 of public offering expenses
and has adjusted capital paid-in for $73,182 which represents the balance of
estimated offering costs which the Fund does not expect to incur. During the
year ended October 31, 1996, 607,900 shares of the Fund's stock were purchased
from stockholders at an average discount of 18.0% from net asset value. These
shares were retired and restored to the status of authorized but unissued
shares.
NOTE E --
TRANSACTIONS I SECURITIES O AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of 1940, are those
in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the period ended October
31, 1996 is set forth below.
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING -------------------- --------------------- ENDING
SHARE SHARE SHARE SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT AMOUNT COST AMOUNT COST AMOUNT GAIN INCOME VALUE
- --------- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank West Financial
Corp. (MI) .............. 210,000 -- $ -- 80,000 $ 699,375 130,000 $ 173,125 $ 54,600 $1,397,500
Benson Financial Corp. (TX) 258,300 -- -- 258,300 345,000 -- 200,000 -- --
Equitable Federal Savings
Bank (MD) ............... 40,000 -- -- -- -- 40,000 -- -- 1,050,000
FNB Bankshares (ME) ....... 20,780 -- -- -- -- 20,780 -- 10,390 602,620
L&B Financial, Inc. (TX) .. -- 127,000 1,306,500 -- -- 127,000 -- 50,800 2,198,687
Logansport Financial
Corp. (IN) .............. 77,500 -- -- 10,000 116,250 67,500 11,250 30,000 961,875
Mahaska Investment Co. (IA) 149,500 -- -- -- -- 149,500 -- 106,519 2,803,125
New England Community
Bancorp (CT) ............ 165,000 20,000 242,500 -- -- 185,000 -- 38,775 2,601,562
Northwest Equity Corp. (WI) 96,000 -- -- 35,000 273,125 61,000 106,250 25,720 716,750
Penn Fed Financial
Services, Inc. (NJ) ..... 375,000 -- -- 25,000 315,625 350,000 81,250 -- 6,825,000
Pittsburgh Home Financial
Corp. (PA) .............. -- 110,000 1,217,188 -- -- 110,000 -- 5,000 1,313,125
SFS Bancorp, Inc. (NY) .... 105,000 -- -- 56,000 640,750 49,000 66,125 3,540 747,250
St. Landry Financial
Corp. (LA) .............. 25,000 -- -- -- -- 25,000 -- 1,250 375,000
Surety Capital Corp. (TX) . 303,700 -- -- -- -- 303,700 -- -- 1,385,631
Wells Financial Corp. (MN) 212,000 -- -- 45,000 406,250 167,000 68,751 -- 2,129,250
---------- ---------- -------- -------- -----------
$2,766,188 $2,796,375 $706,751 $326,594 $25,107,375
========== ========== ======== ======== ===========
</TABLE>
17
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
NOTE F --
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations for the years ended October 31, 1996
and October 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
---------- -------- ------- ----------
(OOO's OMITTED EXCEPT PER SHARE DATA)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Total Investment Income ................................................ $ 5,152 $ 5,338 $ 6,047 $ 6,042
Net investment income .................................................. 2,834 3,039 3,659 3,275
Dividends from net investment income ................................... 10,985 -- -- 9,631
Distributions from net realized gain on investments sold ............... 7,477 PPP% PPP% 26,206
Net realized and unrealized gain on investments ........................ 36,793 14,279 1,375 96,923
Per share of beneficial interest:
Net investment income ................................................ 0.12 0.14 0.16 0.14
Dividends from net investment income ................................. (0.48) -- -- (0.43)
Distributions from net realized gain on investments sold ............. (0.33) -- -- (1.17)
Increase due to purchase of Bank and Thrift Opportunity Fund stock at
less than net asset value ......................................... -- -- 0.03 0.12
Net realized and unrealized gain on investments ...................... 1.61 0.62 0.07 4.27
Net asset value at end of quarter ...................................... $ 27.38 $ 28.14 $ 28.40 $ 31.33
Market value per share:
High ................................................................. 24.750 23.625 22.625 27.125
Low .................................................................. 22.625 21.750 22.250 26.875
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
---------- -------- ------- ----------
(OOO's OMITTED EXCEPT PER SHARE DATA)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Total Investment Income ................................................ $ 5,189 $ 4,429 $ 4,871 $ 4,761
Net investment income .................................................. 3,525 2,654 2,875 2,480
Dividends from net investment income ................................... 5,176 -- -- --
Net realized and unrealized gain on investments ........................ 3,772 45,475 64,320 33,143
Per share of beneficial interest:
Net investment income ................................................ 0.15 0.12 0.12 0.11
Dividends from net investment income ................................. ( 0.23) -- -- --
Net realized and unrealized gain on investments ...................... 0.16 1.98 2.80 1.44
Net asset value at end of quarter ...................................... $ 19.90 $ 21.99 $ 24.91 $ 26.46
Market value per share:
High ................................................................. 18.375 19.750 23.125 25.000
Low .................................................................. 15.875 18.125 19.125 22.375
</TABLE>
18
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John Hancock Funds - Bank and Thrift Opportunity Fund
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Trustees
John Hancock Bank and Thrift Opportunity Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of John Hancock Bank and Thrift Opportunity Fund
(the "Fund") as of October 31, 1996, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended
October 31, 1996 and 1995, and the financial highlights for the years ended
October 31, 1996 and 1995 and the period August 23, 1994 (commencement of
operations) to October 31, 1994. 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 at October
31, 1996 by correspondence with the custodian. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund at October
31, 1996, the results of its operations, the changes in its net assets, and its
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
DECEMBER 4, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1996.
The Fund designated distributions to shareholders of $21,039,952 as a
long-term capital gain dividend. These amounts were reported on the 1995 U.S.
Treasury Department Form 1099-DIV. It is anticipated there will be a
distribution from net realized gains sales of securities to shareholders of
record on December 23, 1996 and payable on December 30, 1996. Shareholders will
receive a 1996 U.S. Treasury Department Form 1099-DIV in January 1997
representing their proportionate share of ordinary income and long-term capital
gain distributions.
For the fiscal year ended October 31, 1996, 100% of the ordinary income
distributions qualify for the corporate dividends received deduction.
19
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John Hancock Funds - Bank and Thrift Opportunity Fund
INVESTMENT OBJECTIVE AND POLICY
John Hancock Bank and Thrift Opportunity fund is a closed-end diversified
management investment company, shares of which were initially offered to the
public on August 23, 1994 and are publicly traded on the New York Stock
Exchange. Its investment objective is long-term capital appreciation.
DIVIDEND REINVESTMENT PLAN
The Fund provides shareholders with a Dividend Reinvestment Plan, (the "Plan"),
which offers the opportunity to earn compound yields. Each holder of Common
Shares will automatically have all distributions of dividends and capital gains
reinvested by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as agent for holders of Common Shares pursuant to the Plan
(the "Plan Agent") unless an election is made to receive cash. Each registered
shareholder will receive from the Plan Agent an authorization card to be signed
and returned if the shareholder elects to receive distributions from net
investment income in cash or elects not to receive capital gains distributions
in the form of a shares dividend. The Plan Agent will effect purchases of Common
Shares under the Plan in the open market. The Fund will not issue any new shares
in connection with the Plan. Holders of Common Shares who elect not to
participate in the Plan will receive all distributions in cash paid by check
mailed directly to the shareholder of record (or if the Common Shares are held
in street or other nominee name, then to the nominee) by the Plan Agent, as
dividend disbursing agent. Shareholders whose shares are held in the name of a
broker or nominee or shareholders transferring such an account to a new broker
or nominee should contact the broker or nominee to determine whether and how
they may participate in the Plan.
The Plan Agent serves as agent for the holders of Common Shares in
administering the Plan. After the Fund declares a dividend or makes a capital
gains distribution, the Plan Agent will, as agent for the participants, receive
the cash payment and use it to buy Common Shares in the open market, on the New
York Stock Exchange or elsewhere, for the participants' accounts. The price of
the shares will be the average market price at which such shares were purchased
by the Plan Agent.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to a dividend record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant withdraws
from the Plan or upon termination of the Plan as provided below, either a cash
payment will be made to the participant for the full value of the Common Shares
credited to the account upon instruction by the participant or certificates for
whole Common Shares credited to his or her account under the Plan will be issued
and a cash payment will be made for any fraction of a Common Share credited to
such account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by the shareholders for personal and tax records.
Common Shares in the account of each Plan participant will be held by the Plan
Agent in non-certified form in the name of the participant. Proxy material
relating to shareholders' meetings of the Fund will include those shares
purchased as well as shares held pursuant to the Plan.
In the case of shareholders, such as banks, brokers, or nominees, which
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholders as representing the total amount
registered in the record shareholder's name and held for the account of
beneficial owners who are participants in the Plan. Shares may be purchased
through broker dealers.
The Plan Agent's fees for the handling of reinvestment of dividends and
other distributions will be paid by the Fund. Each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of distributions.
There are no other charges to participants for reinvesting dividends or capital
gain distributions.
Dividends and capital gains distributions are taxable whether received in
cash or reinvested in additional Common Shares, and the automatic reinvestment
of dividends and capital gain distributions will
20
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John Hancock Funds - Bank and Thrift Opportunity Fund
not relieve participants of any U.S. income tax that may be payable or required
to be withheld on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any distribution paid subsequent to written notice of the change sent
to all shareholders of the Fund at least 90 days before the record date for the
dividend or distribution. The Plan also may be amended or terminated by the Plan
Agent by at least 90 days' written notice to all shareholders of the Fund. All
correspondence concerning the Plan should be directed to the Plan Agent at P.O.
Box 8209, Boston, Massachusetts 02266-8209 (telephone 1-800-426-5523).
21
<PAGE>
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NOTES
John Hancock Funds - Bank and Thrift Opportunity Fund
22
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NOTES
John Hancock Funds - Bank and Thrift Opportunity Fund
23
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[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603
--------------
Bulk Rate
U.S. Postage
PAID
So. Hackensack
Permit No. 750
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[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
P900A 10/96
12/96
