ANNUAL Report
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[PHOTO OMITTED]
Bank and Thrift Opportunity Fund
OCTOBER 31, 1998
[LOGO] John Hancock Funds
A Global Investment Management Firm
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TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin
William H. Cunningham*
Ronald R. Dion*
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Leo E. Linbeck, Jr.
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 and Chief Operating Officer
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
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 LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110-1617
Listed New York Stock Exchange Symbol: BTO
For Shareholder Assistance
Refer to Page 19
===========================CHAIRMAN'S MESSAGE===================================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term
is a roller coaster. That is because, while long-term history suggests the
market's general direction is up, its swings over the short term can be dra-
matic and, at times, violent. This year, the market has given us several stark
examples of this phenomenon. From the new highs set in mid-July, the major
indices plunged by 19% through the end of August. It was the worst such fall
since 1990. For the first time in a number of years, some bonds and bond mutual
funds outperformed stocks and stock mutual funds. Seeking safety in a world of
global economic uncertainties, investors everywhere converged on U.S. Treasury
bonds and pushed their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
Investors have been understandably shaken by these dramatic twists and
turns, but we are pleased to report that most individual investors did not
panic, and we hope that means they've taken our words to heart. Over the long
term, markets do not move up or down in a straight line. That's why after
watching the market charge ahead almost uninterrupted for so many years, we have
been striking a more cautionary stance in this space over the last several
months.
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[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
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 Management Team Leader and
Thomas Finucane and Thomas Goggins, Portfolio Managers
John Hancock Bank and
Thrift Opportunity Fund
Financial stocks lag the market in a year of volatility
Since late 1997, U.S. financial markets have been on a wild ride. For the year
ended October 31, 1998, the Standard & Poor's 500 Stock Index produced a total
return of 22%. However, there was enormous volatility within the year. After
cruising up over 28% from November through July, the market hit a large pocket
of turbulence and dropped much of this gain in a few short weeks. Overseas
traumas, a slowdown in the U.S. economy and questions about the ultimate driver
of stocks, corporate profits, all hit at once. Throughout this period, there was
an extraordinary tendency for larger companies to utperform smaller ones. The
decline of the Russell 2000 Index - a measure of small stock performance - in
the same year, returning -12% over the period, represented an astounding
underperformance. During the last month of the period, stocks gained due to a
surprise interest rate cut by the Federal Reserve Board and generally favorable
earnings reports. Declining interest rates during the year, coupled with a
global flight to quality as uncertainties increased, propelled the bellwether
30-year Treasury bond to a double-digit return.
Performance review
Over the last 12 months, bank stocks in general and the John Hancock Bank and
Thrift Opportunity Fund in particular lagged behind the advance in the S&P 500.
For the year ended October 31, 1998, the Fund returned 5.28% at net asset value,
compared to the 6.26% return of the average open-end financial services fund,
according to Lipper Analytical Services, Inc.
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[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Bank and
Thrift Opportunity Fund. Caption below reads "Fund management team members
(l-r): (standing) "Jay McKelvey, Tom Goggins and Tom Finucane; (seated) Lisa
Welch, Jim Schmidt and Patricia Ouimet."]
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"Overseas traumas, a slowdown in the U.S. economy and questions about...
corporate profits..."
3
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John Hancock Funds - Bank and Thrift Opportunity Fund
"...1998 will still be remembered as the year of the blockbuster merger."
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[Table at top left hand column entitled "Top Five Common Stock Holdings." The
first listing is First Union Corp. 4.2%, the second is National City Corp. 4.1%,
the third U.S. Bancorp 3.9%, the fourth Crestar Financial Corp. 3.8% and the
fifth Summit Bancorp 3.6%. A note below the table reads "As a percentage of net
assets on October 31, 1998."]
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The recent decline in bank stocks was triggered by economic turmoil in
the Far East and Russia, and the drop in share prices was indiscriminate,
including many regional banks with no exposure to overseas lending. Overall,
small- and mid-capitalization banks and thrifts have not kept up with other
financial stocks in 1998. This is partly due to the "small stock effect" (as
exemplified by the Russell 2000 return discussed above) which has taken its toll
among smaller issues in almost all industries. The Fund's significant weighting
in this group contributed to our slight shortfall versus our peers. Many
regional banks also advanced in late 1997 to what, in retrospect, seems to have
been an overvalued price level. The late summer sell-off in these stocks has
brought them once again to attractive levels of valuation. The average regional
bank stock sells at a price-earnings multiple which is only 65% of that of the
overall market.
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[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment process" and the header for the right column is
"Recent Performance...and What's Behind the Numbers". The first listing is Zions
Bancorp followed by an up arrow with the phrase "Even a queasy market will pay
for quality." The second listing is BancWest Corp. followed by an up arrow with
the phrase "Merger with First Hawaiian creates opportunity." The third listing
is Six Rivers National Bank followed by a down arrow with the phrase "Loan
quality setbacks, but growing signs of improvement." A note below the table
reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
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Consolidation ebbs and flows
Although recent market volatility has impacted deal flow, 1998 will still be
remembered as the year of the blockbuster merger. In the space of three weeks in
April, NationsBank/BankAmerica, Bank One/First Chicago and Travelers/Citicorp
all announced mergers. The first two transactions brought coast-to-coast,
national banking franchises closer to reality; the latter deal endeavors beyond
current regulations by merging a bank with an insurance company, portending what
many financial services companies will look like within a decade.
In the first ten months of 1998, a total of 13 of the Fund's holdings
announced mergers. Yet in recent months, the number of deals has abated, in line
with the sell-off in bank stocks. In times of market volatility, it is much
harder for buyer and seller to set an agreeable exchange ratio. We believe that
the uncertainty created by fluctuations in the market has caused a postponement
of several merger discussions. Nevertheless, some of the Fund's important
regional franchises were scooped up in the last six months for hefty premiums,
including Firstar (by Star Bank) and Crestar Financial (by SunTrust). We believe
bank consolidation will wax and wane with the vagaries of the market, but the
enduring reason for mergers - excess capacity in the U.S. banking system -
remains and will serve as a catalyst for this process well into the 21st
century.
Earnings in abundance
Headlines in recent months have been chock full of the travails of the large
money center banks: lending miscues to hedge funds, trading losses in emerging
markets and revenue shortfalls in investment banking. Although these risks are
not insignificant to these banks, the companies do have other domestic engines
to power their earnings. Note that only about 5% of the Fund's net assets are
invested in companies with substantial overseas businesses. Despite the
machinations of the market, the earnings environment for most regional banks has
been rather dull. In recently released third-quarter results, the median bank
owned by the Fund posted 10% earnings growth over the third quarter of 1997 and
3% growth when compared to the second quarter of 1998.
4
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John Hancock Funds - Bank and Thrift Opportunity Fund
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 2% with 0% at the bottom and 10% at the top. The first
bar represents the 5.28% Total return for John Hancock Bank and Thrift
Opportunity Fund . The second bar represents the 6.26% total return for Average
open-end financial services fund. A note below the chart reads "Total returns
for John Hancock Bank and Thrift Opportunity Fund are at net asset value with
all distributions reinvested. The average open-end fund is tracked by Lipper
Analytical Services, Inc."]
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Investor interest in bank stocks seems to have been rekindled by recent
cuts in interest rates by the Federal Reserve. While we welcome the advance in
share prices, we continue to believe that most investors overestimate the impact
of changes in interest rates on bank earnings. If anything, we think net
interest margins at most commercial banks will decline somewhat if rates move
lower because the rates paid on many of the savings deposit products are already
so paltry it will be difficult to move them still lower. The savings and loans
will fare a little better because the restoration of some slope to the yield
curve (the difference between short- and longer-term interest rates) within the
first year will improve the spreads on adjustable rate mortgages.
In general, we think our holdings will show average earnings-per-share
gains of about 9% next year, as the positive impact of share buybacks will
mitigate some loss in net interest margins. This profit forecast reflects our
belief that the U.S. economy will continue to grow in 1999, albeit at a 1.5 % to
2% rate that would represent a noticeable slowdown from this year. Asset quality
remains as one of the bright spots in the earnings equation, as most of our
holdings report non-performing assets to be stable and amounting to less than 1%
of their balance sheets.
Although we do not anticipate a recession in 1999, we should not rule
out the possibility, as the impact of turmoil in the capital markets and the
deterioration of some of the emerging-market economies is difficult to quantify.
Fortunately, we feel that the banking industry is far better equipped to deal
with an economic downturn now as opposed to 1989, when the economy last swooned.
What hurt the banks in the last recession was lending heavily against inflated
commercial real estate values. Recent bank loan growth has been diversified
across all sectors of their portfolios, backed more by sustainable cash flows
than by inflated collateral. More importantly, the levels of profitability,
capital and loss reserves are almost twice what they were in 1989, mitigating
the impact of rising problem loans on bank earnings. Importantly, consolidation
has reduced the number of banks by over 30% since the late 1980s. This has
alleviated over-zealous competition and should lead to far less stress on the
system should trouble start brewing.
"Asset quality remains as one of the bright spots in the earnings equation..."
5
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John Hancock Funds - Bank and Thrift Opportunity Fund
"...the decline in the prices of many banks and thrifts this year has created
opportubities for us."
Fund composition and activity
The Fund's basic investment concept - to look for regional banks and thrifts
with solid fundamentals that are selling at below average valuation levels - has
not changed since the Fund's inception in 1994. Because the interstate banking
laws are now uniform and the economic expansion has been widespread
geographically, we are not trying to concentrate our investments in any
particular region.
We believe that the decline in the prices of many banks and thrifts
this year has created opportunities for us. Many mid-sized regional banks in the
$10 billion to $30 billion asset range are now selling at the same or lower
price-earnings multiples as the larger "superregional" banks that they may
eventually be acquired by. This anomaly has not occurred in several years.
Interestingly, these banks tend to have little or no credit exposure to the
emerging markets or hedge funds, which are the areas that most investors are
wary of. As we noted earlier, this year's decline in interest rates might help
the earnings of some of the savings and loans, and yet these stocks have
performed poorly this year. We believe many of the smaller thrifts are now worth
more dead than alive, as they are trading below their liquidation value (i.e.,
book value plus a modest deposit premium).
Consummation of several recent mammoth mergers has built up the Fund's
holdings in First Union and National City Corp. Over time, we look for chances
to prune these positions at more favorable prices.
The Fund recently announced it was authorized to repurchase up to four
million of its shares over the next year. This buyback program was in response
to the widening discount between the Fund's market price and its net asset
value. Although the shares traded at a premium in early 1998, the discount had
widened out to nearly 18% in the late summer doldrums, and the buyback was
authorized. By the end of the period, the Fund was trading at a premium again.
A look ahead
While we are disappointed in the failure of stock prices of banks and thrifts to
perform as well as the market this year, we feel that the underperformance has
created an opportunity. The relative price-earnings multiple between the banking
institutions and the S&P 500 is now 10% below its long-term average, even though
we expect earnings growth for most banks to exceed that of the market in 1999.
We think the undervaluation is particularly pronounced in some of the smaller
banks, as the market has overwhelmingly favored large companies over small in
the last two years, regardless of the industry. Our investment strategy is
driven to a considerable extent by our expectation of substantial consolidation
among banks over the next decade. Although this activity has slowed in the last
several months, we believe that the trend toward fewer banks in the country is
solidly in place and inevitable. This should continue to work in the favor of
the Fund and its shareholders.
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
6
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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, 1998. You'll
also find the net asset value for each common share as of that date.
Statement of Assets and Liabilities
October 31, 1998
- -----------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and warrants
(cost - $384,761,214) ...................................... $ 902,127,225
Preferred stocks (cost - $8,072,375) ........................ 8,723,475
Bonds (cost - $17,356,615) .................................. 17,620,200
Short-term investments (cost - $48,967,801) ................. 48,967,801
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977,438,701
Cash .......................................................... 558,441
Receivable for investments sold ............................... 649,278
Interest receivable ........................................... 409,815
Dividends receivable .......................................... 1,583,716
Other assets .................................................. 84,219
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Total Assets ............................. 980,724,170
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Liabilities:
Payable for investments purchased ............................ 557,626
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ..................................... 1,413,017
Accounts payable and accrued expenses ........................ 109,732
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Total Liabilities ........................ 2,080,375
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Net Assets:
Capital paid-in .............................................. 434,820,311
Accumulated net realized gain on investments ................. 14,928,555
Net unrealized appreciation of investments ................... 518,286,573
Undistributed net investment income .......................... 10,608,356
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Net Assets ............................... $ 978,643,795
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Net Asset Value Per Share:
(based on 88,359,000 shares of beneficial
interest outstanding - unlimited number of
shares authorized with no par value) ....................... $11.08
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The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund It also shows net gains (losses) for the
period stated
Statement of Operations
Year ended October 31, 1998
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Investment Income:
Dividends (including $733,772 received from
affiliated issuers and net of foreign
withholding taxes of $31,259) ............................... $ 22,292,540
Interest ..................................................... 6,247,304
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28,539,844
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Expenses:
Investment management fee - Note B ........................... 12,935,623
Administration fee - Note B .................................. 2,812,092
New York Stock Exchange fee .................................. 232,050
Custodian fee ................................................ 174,002
Printing ..................................................... 171,955
Trustees' fees ............................................... 94,198
Auditing fee ................................................. 37,650
Transfer agent fee ........................................... 31,950
Organization expense - Note A ................................ 29,025
Miscellaneous ................................................ 27,646
Legal fees ................................................... 13,723
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Total Expenses ................................ 16,559,914
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Net Investment Income ......................... 11,979,930
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Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold
(including $476,834 on sales of investments
in affiliated issuers) ...................................... 103,277,328
Change in net unrealized appreciation/depreciation
of investments (including $9,946,480 in net
unrealized appreciation of investments) ..................... (44,205,083)
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Net Realized and Unrealized
Gain on Investments ............................ 59,072,245
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Net Increase in Net Assets
Resulting from Operations ...................... $ 71,052,175
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SEE NOTES TO FINANCIAL STATEMENTS
7
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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,
----------------------
1997 1998
---- ----
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ......................................................... $ 12,354,294 $ 11,979,930
Net realized gain on investments sold ......................................... 52,635,494 103,277,328
Change in net unrealized appreciation/depreciation of investments ............. 308,986,988 (44,205,083)
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ......................... 373,976,776 71,052,175
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Distributions to Shareholders:
Dividends from net investment income ($0.0297 and $0.1400 per share,
respectively) ................................................................. (2,629,876) (12,375,469)
Distributions from net realized gain on investments sold ($0.0333 and
$1.5955 per share, respectively................................................ (2,946,969) (140,995,972)
--------------- ---------------
Total Distributions to Shareholders .......................................... (5,576,845) (153,371,441)
--------------- ---------------
From Fund Share Transactions - Net:* ........................................... (8,677,032) (435,140)
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Net Assets:
Beginning of period ........................................................... 701,675,302 1,061,398,201
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End of period (including undistributed net investment income
of $11,002,103 and $10,608,356, respectively) ................................ $ 1,061,398,201 $ 978,643,795
=============== ===============
*Analysis of Common Shareholder Transactions:
YEAR ENDED OCTOBER 31,
----------------------
1997 1998
---- ----
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Shares outstanding, beginning of period ........................ 89,588,400 $ 443,944,053 88,400,000 $ 435,267,021
Less shares repurchased ........................................ (1,188,400) (8,677,032) (41,000) (435,140)
Reclassification of capital accounts - Note F .................. -- -- -- (11,570)
----------- -------------- ----------- --------------
Shares outstanding, end of period .............................. 88,400,000 $ 435,267,021 88,359,000 $ 434,820,311
=========== ============== =========== ==============
</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 last
two periods, along with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
8
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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 each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
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<TABLE>
<CAPTION>
FOR THE Period FROM AUGUST 23, 1994YEAR ENDED OCTOBER 31,
(commencement of operations)
TO OCTOBER 31, 1994 1995 1996 1997 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance(1)
Net Asset Value, Beginning of Period ...................... $ 5.00 $ 4.95 $ 6.62 $ 7.83 $ 12.01
-------- -------- -------- ------- --------
Net Investment Income ..................................... 0.03 0.13 0.14 0.14 0.14
Net Realized and Unrealized Gain (Loss) on Investments .... (0.07) 1.60 1.64 4.08 0.67
-------- -------- -------- ------- --------
Total from Investment Operations ......................... (0.04) 1.73 1.78 4.22 0.81
-------- -------- -------- ------- --------
Less Distributions:
Dividends from Net Investment Income ....................... -- (0.06) (0.23) (0.03) (0.14)
Distributions from Net Realized Gain on Investments Sold ... -- -- (0.38) (0.03) (1.60)
-------- -------- -------- ------- --------
Total Distributions ....................................... -- (0.06) (0.61) (0.06) (1.74)
-------- -------- -------- ------- --------
Common Shares Offering Costs ............................... (0.01) -- -- -- --
-------- -------- -------- ------- --------
Increase due to Purchase of Bank and Thrift Opportunity
Fund Stock at less than Net Asset Value ................... -- -- 0.04 0.02 --
-------- -------- -------- ------- --------
Net Asset Value, End of Period ............................. $ 4.95 $ 6.62 $ 7.83 $ 12.01 $ 11.08
======== ======== ======== ======== ========
Per Share Market Value, End of Period ...................... $ 4.50 $ 5.69 $ 6.75 $ 10.64 $ 11.69
======== ======== ======== ======== ========
Total Investment Return at Market Value .................... (10.00%)(2) 27.91% 29.78% 58.95% 25.35%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $455,656 $608,724 $701,375 $1,061,398 $978,644
Ratio of Expenses to Average Net Assets .................... 1.51%(3) 1.49 1.50% 1.45% 1.47%
Ratio of Net Investment Income to Average Net Assets ....... 3.22%(3) 2.22 1.96% 1.42% 1.07%
Portfolio Turnover Rate .................................... 0% 8% 13% 9% 6%
(1) All per share amounts and net asset values have been restated to reflect the
four-for-one stock split effective December 2, 1997.
(2) Not annualized.
(3) Annualized.
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each 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.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Bank and Thrift Opportunity Fund
Schedule of Investments
October 31, 1998
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The Schedule of Investments is a complete list of all securities owned by the
Bank and Thrift Opportunity Fund on October 31, 1998. It's divided into four
main categories: common stocks and warrants; preferred stocks; bonds; and
short-term investments. The common stocks and warrants and preferred 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 AND WARRANTS
Banks - Foreign (1.60%)
Allied Irish Banks PLC, American
Depositary Receipts (Ireland) ............. 36,800 $ 3,194,700
Popular, Inc. (Puerto Rico) ................ 411,000 12,484,125
------------
15,678,825
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Superregional Banks (25.39%)
Bank One Corp. (OH) ......................... 506,880 24,773,760
BankAmerica Corp. (NC) ...................... 589,010 33,831,262
First Union Corp. (NC) ...................... 703,125 40,781,250
Fleet Financial Group, Inc. (MA) ............ 455,412 18,188,017
National City Corp. (OH) .................... 619,612 39,848,797
Norwest Corp. (MN) .......................... 533,102 19,824,731
PNC Bank Corp. (PA) ......................... 653,000 32,650,000
U.S. Bancorp. (OR) .......................... 1,057,484 38,598,166
------------
248,495,983
------------
Regional Banks (52.71%)
ABC Bancorp. (GA) ........................... 59,500 784,656
Alabama National Bancorp. (AL) .............. 125,000 3,390,625
American Bancorp. (WV) ...................... 35,000 726,250
American Bancshares, Inc.* (FL) ............. 64,500 657,094
Associated Banc-Corp. (WI) .................. 101,295 3,557,987
BancFirst Corp. (OK) ........................ 72,500 2,745,937
BancFirst Ohio Corp. (OH) ................... 69,000 2,052,750
BancorpSouth, Inc. (MS) ..................... 118,000 2,345,250
Bank of Rhode Island * (RI) ................. 20,500 266,500
Bank of the Ozarks, Inc. (AR) ............... 70,750 1,591,875
Banknorth Group, Inc. (VT) .................. 111,000 3,538,125
BB&T Corp. (NC) ............................. 926,760 33,073,747
Beverly National Corp. (MA) ................. 50,000 918,750
BNCCorp, Inc.* (ND) ......................... 58,500 577,688
Regional Banks (continued)
Broad National Bancorp. (NJ) ................ 96,139 $ 1,592,302
BT Financial Corp. (PA) ..................... 36,900 1,023,975
BYL Bancorp. (CA) ........................... 80,000 1,310,000
Cape Cod Bank & Trust Co. (MA) .............. 155,000 2,654,375
Carolina First Corp. (SC) ................... 37,890 873,838
CCB Financial Corp. (NC) .................... 217,650 11,453,831
Centura Banks, Inc. (NC) .................... 84,000 5,796,000
Chittenden Corp. (VT) ....................... 83,827 2,504,332
City National Corp. (CA) .................... 76,977 2,631,651
CNB Bancshares, Inc. (IN) ................... 43,461 1,847,092
Colonial BancGroup, Inc. (AL) ............... 1,485,000 19,397,812
Columbia Bancorp. (MD) ...................... 107,000 1,498,000
Comerica, Inc. (MI) ......................... 296,250 19,108,125
Commercial Bankshares, Inc. (FL) ............ 40,110 912,503
Commonwealth Bankshares, Inc.* (VA) ......... 34,523 517,845
Community Banks, Inc. (PA) .................. 51,975 1,182,431
Community Bankshares, Inc. (VA) ............. 38,162 906,348
Compass Bancshares, Inc. (AL) ............... 547,405 20,151,347
Cowlitz Bancorp. (WA) ....................... 55,500 485,625
Crestar Financial Corp. (VA) ................ 570,076 37,553,756
Desert Community Bank (CA) .................. 50,500 1,123,625
DNB Financial Corp. (PA) .................... 47,478 1,471,818
East-West Bank Corp. * (CA) (r) ............. 1,040,000 6,240,000
Empire Banc Corp. (MI) ...................... 31,689 1,239,832
Evergreen Bancorp., Inc. (NY) ............... 51,800 1,437,450
F & M National Corp. (VA) ................... 12,500 371,094
Fifth Third Bancorp. (OH) ................... 48,000 3,180,000
First American Corp. (TN) ................... 647,700 26,717,625
First Financial Corp. (RI) .................. 84,000 1,060,500
First Hawaiian, Inc. (HI) .................. 57,300 2,284,838
First Security Corp. (UT) ................... 591,716 12,093,196
First State Bancorp. (NM) ................... 82,625 1,611,187
First Tennessee National Corp. (TN) ......... 241,400 7,649,363
Firstar Corp. (WI) .......................... 268,352 15,228,976
FirstMerit Corp. (OH) ....................... 40,000 1,060,000
F.N.B. Corp. (PA) .......................... 45,166 1,242,065
FNB Bankshares (ME) ......................... 20,780 727,300
FNB Financial Service Corp. (NC) ............ 49,000 820,750
FNB Rochester Corp. (NY) .................... 20,500 348,500
FVNB Corp. (TX) ............................. 48,100 1,587,300
Harleysville National Corp. (PA) ............ 46,000 1,610,000
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
===========================FINANCIAL STETEMENTS=================================
John Hancock Funds - Bank and Thrift Opportunity Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Regional Banks (continued)
Imperial Bancorp. * (CA) ..................... 213,457 $2,961,716
Independent Bankshares, Inc. (TX) ............ 50,500 533,406
Keystone Financial, Inc. (PA) ................ 152,350 4,456,237
Mahaska Investment Co. (IA) .................. 249,171 4,422,785
Mahoning National Bancorp. (OH) .............. 68,600 2,366,700
Main Street Bancorp., Inc. (PA) .............. 36,671 696,749
Marathon Financial Corp. (VA) ................ 15,000 102,188
Mercantile Bancorp., Inc. (MO) ............... 456,950 20,876,903
MetroBanCorp. (IN) ........................... 51,450 456,619
Midwest Banc Holdings, Inc. (IL) ............. 47,500 736,250
Mississippi Valley Bancshares, Inc. (MO)...... 94,000 3,278,250
New England Community Bancorp
(Class A) (CT) ............................... 213,500 3,843,000
North Fork Bancorp., Inc. (NY) ............... 352,150 6,998,981
Oak Hill Financial, Inc. (OH) ................ 40,000 785,000
Old Kent Financial Corp. (MI) ................ 380,121 15,988,840
One Valley Bancorp., Inc. (WV) ............... 136,090 4,405,914
Pacific Century Financial Corp. (HI) ......... 602,500 12,275,938
Provident Bankshares Corp. (MD) .............. 338,343 8,627,746
Regions Financial Corp. (AL) ................. 159,912 5,916,744
Riggs National Corp. (DC) .................... 48,000 1,158,000
Salem Bank & Trust (VA) ...................... 44,990 742,335
Santa Barbara Bancorp. (CA) .................. 82,500 2,000,625
Security Bank Corp.* (VA) .................... 31,000 325,500
Shore Financial Corp. * (VA) ................. 17,250 170,344
Six Rivers National Bank* (CA) ............... 33,500 381,063
Sky Financial Group, Inc. (OH) ............... 55,482 1,692,201
SouthTrust Corp. (AL) ........................ 725,175 26,468,888
Southwest Bancorp. of Texas, Inc.* (TX)....... 201,230 3,081,334
Summit Bancorp. (NJ) ......................... 925,805 35,122,727
Summit Bancshares, Inc. (TX) ................. 232,400 4,270,350
Sun Bancorp., Inc. * (NJ) .................... 156,731 3,291,351
Surety Capital Corp.* (TX) ................... 253,700 665,963
TCF Financial Corp. (MN) ..................... 55,008 1,296,126
Tehama Bancorp. (CA) ......................... 56,552 742,245
Texas Regional Bancshares, Inc.
(Class A) (TX) ............................... 49,250 1,120,437
TriCo Bancshares (CA) ........................ 20,000 470,000
Union Planters Corp. (TN) .................... 592,348 27,507,160
United Security Bancorp.* (WA) ............... 172,215 3,056,816
Univest Corp. (PA) ........................... 50,000 1,650,000
U.S. Trust Corp. (NY) ........................ 32,000 2,038,000
Vermont Financial Services Corp. (VT)......... 73,000 1,651,625
VRB Bancorp. (OR) ............................ 96,304 818,584
West Coast Bancorp. (OR) ..................... 98,758 1,814,678
Whitney Holding Corp. (LA) ................... 148,000 5,439,000
Regional Banks (continued)
Wilmington Trust Corp. (DE) .................. 43,000 $ 2,367,687
Yardville National Bank (NJ) ................. 126,400 1,785,400
Zions Bancorp. (UT) .......................... 117,625 6,241,477
------------
515,833,723
------------
Thrifts (11.13%)
Astoria Financial Corp. (NY) ................ 171,580 7,377,940
Bank Plus Corp.* (CA) ....................... 29,358 119,267
Bank West Financial Corp. (MI) .............. 168,000 1,575,000
BostonFed Bancorp., Inc. (MA) ............... 106,000 1,914,625
Cameron Financial Corp. (MO) ................ 72,500 1,114,687
Commercial Federal Corp. (NE) ............... 151,942 3,447,184
Dime Bancorp., Inc. (NY) ................... 17,500 416,719
Financial Bancorp., Inc. (NY) ............... 48,000 1,752,000
First Defiance Financial Corp. (OH) ......... 90,885 1,295,111
First Federal Capital Corp. (WI) ............ 66,500 1,014,125
First Keystone Financial, Inc. (PA) ......... 37,500 543,750
First SecurityFed Financial, Inc.* (IL)...... 35,000 490,000
First Source Bancorp., Inc. (NJ) ............ 50,000 431,250
GA Financial, Inc. (PA) ..................... 67,500 945,000
Golden State Bancorp., Inc.* (CA) ........... 33,000 633,188
GreenPoint Financial Corp. (NY) ............. 622,500 20,425,781
Guaranty Financial Corp. (VA) ............... 30,000 348,750
Highland Bancorp., Inc. (CA) ................ 79,167 2,691,678
Hingham Institute for Savings (MA) .......... 90,000 1,451,250
HMN Financial, Inc. (MN) .................... 54,750 732,281
InterWest Bancorp., Inc. (WA) ............... 19,850 527,266
ISB Financial Corp. (LA) .................... 106,000 2,636,750
Lawrence Savings Bank* (MA) ................. 70,000 892,500
Little Falls Bancorp., Inc. (NJ) ............ 105,000 1,548,750
Local Financial Corp. (OK) (R) .............. 310,000 2,790,000
New Hampshire Thrift Bancshares, Inc.
(NH) ....................................... 25,000 425,000
North Central Bancshares, Inc. (IA) ......... 54,500 899,250
Northwest Equity Corp. (WI) ................. 61,000 1,082,750
Pamrapo Bancorp., Inc. (NJ) ................. 86,000 2,042,500
Patriot Bank Corp. (PA) ..................... 54,500 694,875
PBOC Holdings, Inc.* (CA) ................... 46,500 447,563
PennFed Financial Services, Inc. (NJ) ....... 611,000 8,439,437
People's Bancshares, Inc. (MA) .............. 45,000 933,750
Peoples Heritage Financial Group, Inc.
(ME) ....................................... 124,708 2,244,745
Pittsburgh Home Financial Corp. (PA) ........ 90,000 1,136,250
Quaker City Bancorp., Inc.* (CA) ............ 97,500 1,462,500
St. Paul Bancorp., Inc. (IL) ................ 43,494 894,345
SFC Acquisition Corp. (AR) (r) .............. 150,000 1,500,000
SIS Bancorp., Inc. (MA) ..................... 94,500 3,756,375
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
=================================FINANCIAL STATEMENTS.==========================
John Hancock Funds - Bank and Thrift Opportunity Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Thrifts (continued)
Southern Missouri Bancorp., Inc. (MO) ....... 16,000 $ 266,000
Sovereign Bancorp., Inc. (PA) ............... 120,948 1,587,442
Sturgis Federal Savings Bank (MI) ........... 106,000 1,139,500
Teche Holding Co. (LA) ...................... 80,000 1,210,000
UCBH Holdings, Inc. * (CA) (r) .............. 133,333 1,999,995
Warren Bancorp., Inc. (MA) .................. 145,000 1,404,687
Washington Mutual, Inc. (WA) ................ 334,450 12,520,972
Wells Financial Corp. (MN) .................. 122,000 2,013,000
WesterFed Financial Corp. (MT) .............. 201,162 3,671,206
------------
108,886,994
------------
Other (1.00%)
Capital One Financial Corp. (VA) ............ 96,500 9,818,875
Core Cap, Inc. (Class A)* (NY) (r) .......... 500 5,700
------------
9,824,575
------------
Warrants (0.35%)
Golden State Bancorp., Inc. (Litigation)*
(CA) ...................................... 33,000 160,875
Golden State Bancorp., Inc.* (CA) ........... 265,000 3,246,250
------------
3,407,125
------------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $384,761,214) (92.18%) 902,127,225
--------- ------------
PREFERRED STOCKS
Banks & Thrifts (0.89%)
Astoria Financial Corp., Ser B, 12.00%
(NY)....................................... 50,000 1,300,000
Chevy Chase Savings, 13.00% (MD)............. 55,000 1,663,750
Community Bank, Ser B, 13.00% (CA)........... 21,000 564,375
First Preferred Capital I, 9.25% (MO)........ 50,000 1,325,000
IFC Capital Trust I, 9.25% (IN).............. 40,000 1,060,000
Matewan BancShares, Inc., Ser A, 7.50%
(WV)....................................... 25,000 750,000
MVBI Capital Trust, 6.81% ** (MO)............ 40,000 995,000
Sterling Bancshares Capital Trust I, 9.28%
(TX)....................................... 20,000 530,000
VBC Capital I, 9.50% (CO).................... 20,000 525,000
----------
8,713,125
----------
Other (0.00%)
Core Cap, Inc. Ser A/I, 10.00% (NY) (r)...... 500 10,350
----------
TOTAL PREFERRED STOCKS
(Cost $8,072,375) (0.89%) 8,723,475
--------- -------------
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---------- -------------- --------
<S> <C> <C> <C>
BONDS
BFC Capital Trust I, Capital
Securities, Ser A, 01-15-27................. 9.650% $250 $268,750
Coastal Bancorp., Inc.,
Sr Note 06-30-02............................ 10.000 3,000 2,970,000
CSBI Capital Trust I (R),
Sub Cap Income, Ser A,
06-06-27..................................... 11.750 770 808,500
Dime Bancorp.,
Sr Note 11-15-05............................. 10.500 3,690 3,892,950
Fidelity Federal Bancorp.,
Sub Note 06-01-05............................ 10.000 1,000 900,000
First Federal Financial Corp.,
Note 10-01-04................................ 11.750 2,000 2,040,000
MAF Bancorp., Inc.,
Sub Note 09-30-05............................ 8.320 1,500 1,500,000
ML Capital Trust I,
Capital Securities 03-01-27.................. 9.875 1,000 1,070,000
Ocwen Federal Bank,
Sub Deb 06-15-05............................. 12.000 1,000 1,035,000
WSFS Financial Corp.,
Sr Note 12-31-05............................. 11.000 3,000 3,135,000
-----------
TOTAL BONDS
(Cost $17,356,615) (1.80%) 17,620,200
--------- -----------
SHORT-TERM INVESTMENTS
Certificates of Deposit (0.01%)
Deposits in Mutual Banks 58,801
-----------
Joint Repurchase Agreement (5.00%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 10-30-98, due
11-02-98 (Secured by U.S.
Treasury Bonds, 6.25%
thru 8.125%, due 11-15-16
thru 11-15-26) - Note A 5.380 48,909 48,909,000
------ ----------
TOTAL SHORT-TERM INVESTMENTS (5.01%) 48,967,801
-------- ------------
TOTAL INVESTMENTS (99.88%) 977,438,701
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.12%) 1,205,094
-------- ------------
TOTAL NET ASSETS (100.00%) $978,643,795
========= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Bank and Thrift Opportunity Fund
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security.
** Floating rate effective October 31, 1998.
(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 $3,598,500 as of
October 31, 1998.
(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. Additional information on these restricted securities
is as follows:
<TABLE>
<CAPTION>
MARKET MARKET
VALUE AS A VALUE
PERCENTAGE AS OF
ACQUISITION ACQUISITION OF FUND'S OCTOBER 31,
DATE COST NET ASSETS 1998
---- ---- ---------- ----
<S> <C> <C> <C> <C>
Core Cap, Inc.
(Common Stock) 10-31-97 $10,000 0.00% $5,700
(Preferred Stock) 10-31-97 12,500 0.00 10,350
East-West Bank Corp. 06-09-98 10,400,000 0.64 6,240,000
SFC Acquisition Corp. 03-30-98 1,500,000 0.15 1,500,000
UCBH Holdings, Inc. 04-16-98 2,000,000 0.20 1,999,995
</TABLE>
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.
13
<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,
Inc., purchased a total of 20,000 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.
On November 7, 1997 the Board of Trustees of the Fund voted to split
the shares four for one, effective December 2, 1997. All per share amounts and
net asset values have been restated to reflect the stock split.
On September 15, 1998 the Board of Trustees of the Fund authorized the
Fund to repurchase up to four million shares of the Fund. The repurchase program
commenced September, 1998 and will run through September, 1999.
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.
Effective June 1, 1998, the Fund determines the net asset value of the
Common Shares each business day at the close of regular trading.
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 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 distributable 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.
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 were charged to the Fund's operations over
the period that began with the commencement of operations of the Fund through
October 31, 1998.
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.
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.
14
<PAGE>
=====================NOTES TO FINANCIAL STATEMENTS==============================
John Hancock Funds - Bank and Thrift Opportunity Fund
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 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 creditworth-iness 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 year-end
Statement of Assets and Liabilities.
There were no written option transactions for the year ended October
31, 1998.
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., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are Trustees and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. The Adviser owns 20,000 shares of beneficial interest of 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 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, 1998, the Fund's investments to cover the deferred compensation liability
had unrealized appreciation of $5,877.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the year ended October 31, 1998, aggregated $61,285,803 and
$173,378,714, respectively.
The cost of investments (including short-term investments) owned at
October 31, 1998 for federal income tax purposes was $459,158,005.
Gross unrealized appreciation and depreciation of investments
aggregated $524,589,318 and $6,308,622, respectively, resulting in net
unrealized appreciation of $518,280,696.
15
<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 92,000,000 common shares at $5.00 per share.
As of October 31, 1998, 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 years ended October 31, 1996 and 1997, 2,431,600 shares and 1,188,400
shares, respectively, of the Fund's stock were purchased from stockholders at an
average discount of 18.0% from net asset value. During the year ended October
31, 1998, 41,000 shares of the Fund's stock were purchased from stockholders at
an average discount of 10% from net asset value. These shares were retired and
restored to the status of authorized but unissued shares.
Note E -
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of 1940, are those
in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the year ended October
31, 1998 is set forth below.
<TABLE>
<CAPTION>
BEGINNING ACQUISITIONS DISPOSITIONS 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> <C>
Bank West Financial Corp. (MI) 112,000 - $- - $- 168,000(1) $- $30,240 $1,575,000
BYL Bancorp (CA) 110,000 - - 30,000 310,312 80,000(2,3) 172,484 16,000 -
First Financial Corp. (RI) 94,000 - - 10,000 93,750 84,000 68,120 19,820 1,060,500
Mahaska Investment Co. (IA) 149,500 - - - - 249,171(4) - 134,552 4,422,785
MVBI Capital Trust (MO) 40,000 - - - - 40,000 - 74,150 995,000
Northwest Equity Corp. (WI) 61,000 - - - - 61,000 - 29,280 1,082,750
Penn Fed Financial-
Services, Inc. (NJ) 305,500 - - - - 611,000(5) - 85,540 8,439,437
Pittsburgh Home-
Financial Corp. (PA) 100,000 - - 10,000 110,000 90,000(3) 48,745 273,400 -
St. Landry Financial Corp. (LA) 25,000 - - 25,000 250,000 - 187,485 1,250 -
Wells Financial Corp. (MN) 122,000 - - - - 122,000 - 69,540 2,013,000
------- -------- --------- --------- ----------
$- $764,062 $476,834 $733,772 $19,588,472
======= ======== ======== ======== ===========
</TABLE>
(1) Reflects three-for-two stock split effective December 3, 1997.
(2) Name change effective November 20, 1997, formerly known as Bank
Yorba Linda (CA).
(3) As of October 31, 1998, no longer an affiliated issuer.
(4) Reflects five-for-three stock split as of November 12, 1997.
(5) Reflects two-for-one stock split effective November 13, 1997.
NOTE F -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified amounts to
reflect an increase in accumulated net realized gain on investments of $9,778,
an increase in undistributed net investment income of $1,792 and a decrease in
capital paid-in of $11,570. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1998. 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 accounting for book/tax differences for
deferred compensation. The calculation of net investment income in the financial
highlights excludes these adjustments.
16
<PAGE>
================================================================================
John Hancock Funds - Bank and Thrift Opportunity Fund
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
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, 1998, the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended
October 31, 1998 and 1997, and the financial highlights for each of the years in
the four-year period ended October 31, 1998 and the period from the commencement
of operations, August 23, 1994 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, 1998 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. 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, 1998, 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, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is
furnished with respect to the dividends of the Fund for its fiscal year ended
October 31, 1998.
The Fund designated distributions to shareholders of $137,778,212 as
capital gain dividends.
100% of the distributions qualify for the dividends received deduction
available for corporations.
Shareholders will be mailed a 1998 U.S. Treasury Department Form
1099-DIV in January 1999. This will reflect the tax character of all
distributions which are taxable for calendar year 1998.
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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-certificated 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 not relieve
participants of any U.S. income tax that may be payable or required to be
withheld on such dividends or distributions.
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John Hancock Funds - Bank and Thrift Opportunity Fund
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, State
Street Bank and Trust Company, at P.O. Box 8209, Boston, Massachusetts
02266-8209 (telephone 1-800-426-5523).
Year 2000 Compliance
The Adviser and the Fund's service providers are taking steps to address any
year 2000-related computer problems. However, there is some risk that these
problems could disrupt the Fund's operations or financial markets generally.
Shareholder communication and assistance
If you have any questions concerning the John Hancock Bank and Thrift
Opportunity Fund, we will be pleased to assist you. If you hold shares in your
own name and not with a brokerage firm, please address all notices,
correspondence, questions or other communications regarding the Fund to the
transfer agent at:
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
Telephone: (800) 426-5523
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
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[LOGO] John Hancock Funds -----------------
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