ANNUAL REPORT
- --------------------------------------------------------------------------------
Bank and Thrift
Opportunity
Fund
OCTOBER 31, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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Chairman's Message
TRUSTEES
EDWARD J. BOUDREAU, JR.
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 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
JOHN HANCOCK CLOSED-END FUNDS:
1-800-843-0090
DEAR FELLOW SHAREHOLDERS:
The stock market in 1997 has been anything but dull. Investors have been
treated to record-breaking performance by the Dow Jones Industrial Average, but
with record-breaking volatility. After two years of strong advances amid
relatively little volatility, the market's recent sharp drops and enormous
rebounds have caused a fair share of investor concern.
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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.
- --------------------------------------------------------------------------------
The latest round came in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had stabilized, yet many markets remained edgy as investors sorted
out the Asian turmoil and its implications on economic growth, interest rates
and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
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
Stock market and bank stocks advance despite nervous
----------------------------------------------------
environment; earnings fundamentals stay on track
------------------------------------------------
The last 12 months were rewarding for stock investors, albeit occasionally
nerve-wracking. The markets brought their 1996 winning streak into the beginning
of 1997, but saw their progress slowed by inflationary concerns and rising
interest rates in March and April. After a mild sell-off, stocks resumed their
upward trajectories in the spring and summer, as investors basked in the warm
sunshine of a benign economic expansion that drove corporate earnings higher and
eased inflationary concerns. This positive tack stayed its course until very
recently, when trepidations over the slowdown in Asia spooked investors in the
US markets. Despite recent softness, the Standard & Poor's 500 Stock Index, a
commonly used gauge for the broader stock market, returned 32.10% for the 12
months ended October 31, 1997 including reinvested dividends.
Over the same period, financial stocks outperformed the broader market. After
early lethargy caused by rising interest rates in the spring, bank stocks then
rose smartly due to record earnings and merger activity. For the year ended
October 31, 1997, John Hancock Bank and Thrift Opportunity Fund posted a total
return of 54.58% at net asset value. That result surpassed both the 41.27%
return of the average open-end financial services fund and the 53.17% return of
the average closed-end financial services fund, according to Lipper Analytical
Services, Inc.
"...financial
stocks out-
performed
the broader
market."
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A 2 1/4" x 3 1/2" photo of portfolio management team at bottom right. Caption
reads: "James K. Schmidt (standing) and Fund management team members (l-r): Jay
McKelvey, Tom Finucane and Patricia Ouimet."
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3
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John Hancock Funds - Bank and Thrift Opportunity Fund
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Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Summit Bancorp 4.9%; 2) U.S. Bancorp 4.8%; 3)
Union Planters Corp. 4.5%; 4) Barnett Banks 3.0%; 5) First American Corp. 2.9%.
Footnote below states "As a percentage of total net assets on October 31, 1997."
- --------------------------------------------------------------------------------
Earnings trends positive again
We had expected strong earnings from the banking industry in 1997, and the
results have been even better than anticipated. The favorable variance resulted
from commercial loan growth that was a few percentage points higher than we had
forecast, coupled with very low levels of problem loans. The economy has been
ideal for running a bank - moderate growth, quarter after quarter. Importantly,
the strength of the economy has reached all regions of the country and therefore
bank investors are not faced with credit "land mines" exploding due to localized
economic difficulties. This contrasts with the situation during the last
prolonged expansion when, in the midst of a generally ebullient economy,
regional recessions crept through the farm states, the energy states, and the
real estate boom states sequentially.
Improved efficiency ratios (non-interest expense divided by revenues) have
also contributed to earnings gains. The style in the industry has become to use
healthy profits to fund share buyback programs, rather than adding additional
overhead. We feel that stock repurchases are excellent, shareholder-friendly
uses of excess capital. On average we think that the earnings per share of our
companies will grow 12% in 1997 and 8% to 10% in 1998.
The consolidation beat goes on
In the first 10 months of this year, 18 of the Fund's holdings were taken over,
topping the 14 mergers that occurred in the portfolio during 1996. The recent
rash of merger activity got going at the end of August with the announcement of
NationsBank's acquisition of Barnett Banks. This deal was noteworthy because of
the size of the target (Barnett's assets exceed $40 billion) and the
ground-breaking pricing of the transaction (over five times tangible book
value). As lofty as the price was, we believe that it was justifiable because
the transaction is non-dilutive to the earnings of NationsBank. The key to the
transaction is the 50% or greater expense savings that can be achieved by
eliminating redundancies in the organizations. The arithmetic of this merger
illustrates an interesting point - that the largest regional banks find
acquisitions to be affordable, even though deals are being struck at higher
prices than ever before. This is because, while the absolute level of
price-earnings and price-book ratios is high, the relative ratios between target
bank and acquiring bank are much narrower than usual. Thus, the number of shares
that would have to be issued in a merger has declined even as the stated price
has gotten higher. As the chart on the next page shows, the price-earnings
multiples that superregional banks
"...the
[earnings]
results have
been even
better than
anticipated."
- --------------------------------------------------------------------------------
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 Bank of the
Ozarks followed by an up arrow and the phrase "Benefits from recent mergers in
state and favorable reactions to its IPO." The second listing is Santa Barbara
Bancorp followed by an up arrow and the phrase "Recovering California economy
helps revenue and earnings rise." The third listing is Bank Plus Corp followed
by a horizontal arrow and the phrase "Not yet participating in Los Angeles
turnaround." Footnote below reads: "See "Schedule of Investments." Investment
holdings are subject to change."
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4
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John Hancock Funds - Bank and Thrift Opportunity Fund
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Bar chart with heading "Price / Earnings Ratio Differential" at top of left hand
column. Under the heading is the footnote: "Small and Superregional banks." The
chart is scaled in increments of 5% from bottom to top, with 20% at the top and
0% at the bottom. Within the chart there are two sets of two bars. The right one
is solid and the right one is shaded. There is a key showing that the solid bars
represent Small Bank Median, and the shaded bars represent Superregional Bank
Median. The two left bars have August 95 under them. The first bar is solid, and
represents 11.10%. The next bar is shaded, and represents 8.60%. The second set
of two bars have September 97 written under them. The first bar is solid, and
represents 16.80%. The second bar is shaded, and represents 16.00%.
- --------------------------------------------------------------------------------
are selling for in 1997 are significantly closer to the median multiple of a
smaller bank than was the case in 1995.
Although the affordability of bank mergers hasn't looked better in many
years, we find that the high profitability most banks are experiencing is
impinging on the willingness of managements to accept a merger proposal. Being a
bank CEO currently is a satisfying position: bonuses and stock options are
remunerative, shareholders are happy, and the annual report essays can brag
about record earnings. The incentive to disrupt this life style just isn't there
the way it used to be. Numerous bankers have told us they are looking for
acquisitions, but are having more trouble finding receptive sellers.
Troubles in the Far East
Economic bliss in the United States contrasts with some of the difficulties the
economies and currencies of fast-growing Pacific Rim nations have experienced
recently. These problems have been lurking in the background all year and leaped
onto the front pages when the Hong Kong dollar, heretofore a pillar of
stability, came under attack in October. The direct exposure of our holdings to
emerging markets is very little, since we own no banks based in emerging markets
and only 5% of the Fund is invested in banks that derive over 10% of their
earnings from them.
Portfolio strategy and tactics
We are using the same basic strategy the we spelled out when we started the Fund
in 1994. We seek relatively underfollowed, inexpensive regional banks and
thrifts stocks which have solid earnings fundamentals and which may be in the
path of consolidation. Although we own banks of all sizes, we have found that
since national interstate banking went into effect in September of 1995,
progressively larger banks have become merger targets. Most of the largest
holdings in the Fund are regional banks with $20 billion to $40 billion in
assets. These companies would once have been considered immune from being taken
over, but are now in a size category that has proven to be very attractive to
acquisition-hungry superregional banks. Among the smaller institutions, we
continue to hold many savings and loans that have converted from mutual to
public ownership within the last several years. These tend to be inexpensive
stocks with abundant capital. We also have acquired positions in some of the
numerous small commercial banks in California. We think that economic conditions
in that state have improved enormously and the consolidation activity is largely
still ahead of us.
A word about stock splits
Shortly after the fiscal period ended, the Fund's Board of Trustees declared a
four-for-one stock split to be distributed December 1, 1997. The
"In the first
10 months
of this year,
18 of the
Fund's hold-
ngs were
taken over."
5
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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, 1997." The chart is
scaled in increments of 10% from bottom to top, with 60% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first represents
the 54.58% total return for the John Hancock Bank and Thrift Opportunity Fund.
The second represents the41.27% total return for the Average open-end financial
services fund. The third represents the 53.17% total return for the Average
closed-end financial services fund. A footnote below reads: "Total returns for
John Hancock Bank and Thrift Opportunity Fund are at net asset value with all
distributions reinvested. The average open- and closed-end financial services
funds are tracked by Lipper Analytical Services, Inc.
- --------------------------------------------------------------------------------
action was taken in an effort to increase and broaden the shareholder base and
improve the Fund's market liquidity.
Outlook
Our outlook for bank stocks remains positive. The key factors that have caused
the stocks to perform well this year are still in place: earnings growth, merger
activity, and a backdrop of low inflation. The recent turmoil in Asian markets
could keep markets more volatile in the short-term, as investors try to
determine the potential effects of slowing Asian economies on the U.S. In our
view, the slowdown we anticipate in some of these countries will have only a
moderate impact on the domestic economy. If anything, we were worried that
domestic growth was too rapid to be sustained. A slight slowdown, therefore,
could further reduce the need for interest rate hikes and keep the economy on
the moderate growth path that we, as bank investors, love.
"Our outlook
for bank
stocks
remains
positive."
- --------------------------------------------------------------------------------
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.
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, 1997. You'll
also find the net asset value for each common share as of that date.
Statement of Assets and Liabilities
October 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks, unit and warrant
(cost - $385,572,791) ................................. $944,756,725
Preferred stocks (cost - $11,212,500) .................. 13,218,250
Bonds (cost - $22,989,855) .............................. 24,285,950
Short-term investments (cost - $81,233,829) ............. 81,233,829
--------------
1,063,494,754
Cash ..................................................... 55,599
Receivable for investments sold .......................... 399,268
Interest receivable ...................................... 577,210
Dividends receivable ..................................... 1,809,344
Deferred organization expenses - Note A .................. 29,025
Other assets ............................................. 46,179
--------------
Total Assets ........................... 1,066,411,379
------------------------------------------------------------
Liabilities:
Payable for investments purchased ........................ 3,225,170
Payable to John Hancock Advisers, Inc. ...................
and affiliates - Note B ................................. 1,686,144
Accounts payable and accrued expenses .................... 101,864
--------------
Total Liabilities ...................... 5,013,178
------------------------------------------------------------
Net Assets:
Capital paid-in .......................................... 435,267,021
Accumulated net realized gain on investments ............. 52,637,421
Net unrealized appreciation of investments ............... 562,491,656
Undistributed net investment income ...................... 11,002,103
--------------
Net Assets ............................. $1,061,398,201
============================================================
Net Asset Value Per Share:
(Based on 88,400,000 shares of beneficial
interest outstanding - unlimited number of
shares authorized with no par value - Note F) ........... $12.01
==============================================================================
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
Statement of Operations
Year ended October 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends (including $376,683 received from
affiliated issuers and net of foreign
withholding taxes of $18,609) .............................. $19,987,180
Interest .................................................... 4,977,903
------------
24,965,083
------------
Expenses:
Investment management fee - Note B ........................ 9,981,125
Administration fee - Note B ............................... 2,169,810
Custodian fee ............................................. 140,050
Printing .................................................. 96,677
Trustees' fees ............................................ 70,419
Auditing fee .............................................. 32,950
Miscellaneous ............................................. 32,509
New York Stock Exchange fee ............................... 32,340
Transfer agent fee ........................................ 24,478
Organization expense - Note A ............................. 15,954
Legal fees ................................................ 14,477
------------
Total Expenses ............................ 12,610,789
------------------------------------------------------------
Net Investment Income ..................... 12,354,294
------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold
(including $2,034,109 on sales of investments
in affiliated issuers) .................................... 52,635,494
Change in net unrealized appreciation/depreciation
of investments ............................................ 308,986,988
------------
Net Realized and Unrealized
Gain on Investments ....................... 361,622,482
------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................. $373,976,776
============================================================
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,
-----------------------------
1996 1997
------------ --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ....................................................... $12,807,440 $12,354,294
Net realized gain on investments sold ....................................... 29,138,919 52,635,494
Change in net unrealized appreciation/depreciation of investments ........... 120,230,953 308,986,988
------------ --------------
Net Increase in Net Assets Resulting from Operations ...................... 162,177,312 373,976,776
------------ --------------
Distributions to Shareholders:
Dividends from net investment income
($0.2332 and $0.0297 per share, respectively) ............................. (20,616,437) (2,629,876)
Distributions from net realized gain on investments
sold ($0.3810 and $0.0333 per share, respectively) ........................ (33,683,439) (2,946,969)
------------ --------------
Total Distributions to Shareholders ....................................... (54,299,876) (5,576,845)
------------ --------------
From Fund Share Transactions - Net:* ........................................... (14,925,947) (8,677,032)
------------ --------------
Net Assets:
Beginning of period ......................................................... 608,723,813 701,675,302
------------ --------------
End of period (including undistributed net investment income
of $1,277,788 and $11,002,103, respectively) ............................. $701,675,302 $1,061,398,201
============ ==============
*Analysis of Common Shareholder Transactions - Note F:
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1996 1997
----------- ------------- ----------- -------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period ............................ 92,020,000 $458,870,000 89,588,400 $443,944,053
Less shares repurchased ............................................ (2,431,600) (14,999,129) (1,188,400) (8,677,032)
Adjustment to capital paid-in - Note D ............................. -- 73,182 -- --
----------- ------------- ----------- -------------
Shares Outstanding, end of period .................................. 89,588,400 $443,944,053 88,400,000 $435,267,021
</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 and foreign currency 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.
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
AUGUST 23, 1994
(COMMENCEMENT OF YEAR ENDED OCTOBER 31,
OPERATIONS) --------------------------------
TO OCTOBER 31, 1994 1995 1996 1997
------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Per Share Operating Performance - Note G
Net Asset Value, Beginning of Period ............................. $5.00 $4.95 $6.62 $7.83
-------- -------- -------- ----------
Net Investment Income ............................................ 0.03 0.13 0.14 0.14
Net Realized and Unrealized Gain (Loss) on Investments ........... (0.07) 1.60 1.64 4.08
-------- -------- -------- ----------
Total from Investment Operations ................................ (0.04) 1.73 1.78 4.22
-------- -------- -------- ----------
Less Distributions:
Dividends from Net Investment Income ............................. -- (0.06) (0.23) (0.03)
Distributions from Net Realized Gain on Investments Sold ......... -- -- (0.38) (0.03)
-------- -------- -------- ----------
Total Distributions ............................................. -- (0.06) (0.61) (0.06)
-------- -------- -------- ----------
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
======== ======== ======== ==========
Per Share Market Value, End of Period ............................ $4.50 $5.69 $6.75 $10.64
======== ======== ======== ==========
Total Investment Return at Market Value .......................... (10.00%)(2) 27.91% 29.78% 58.95%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......................... $455,656 $608,724 $701,675 $1,061,398
Ratio of Expenses to Average Net Assets .......................... 1.51%(1) 1.49% 1.50% 1.45%
Ratio of Net Investment Income to Average Net Assets ............. 3.22%(1) 2.22% 1.96% 1.42%
Portfolio Turnover Rate .......................................... 0% 8% 13% 9%
Average Broker Commission Rate (per share of security) (3) ....... N/A N/A $0.0727 $0.0719
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) 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 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
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FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
Schedule of Investments
October 31, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Bank and Thrift Opportunity Fund on October 31, 1997. It's divided into four
main categories: common stocks, unit 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
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS, UNIT AND WARRANT
Banks - Foreign (1.69%)
Allied Irish Banks PLC, American
Depositary Receipt, ADR (Ireland) ........... 80,000 $4,070,000
Oriental Financial Group (PR ) ................ 20,400 541,875
Popular, Inc. (PR ) ........................... 290,000 13,340,000
------------
17,951,875
------------
Money Center Banks (0.20%)
Chase Manhattan Corp. (NY ) ................... 18,387 2,121,400
------------
Superregionals (9.67%)
Barnett Banks, Inc. (FL ) ..................... 460,000 31,740,000
First Union Corp. (NC ) ....................... 22,570 1,107,341
Fleet Financial Group, Inc. (MA ) ............. 225,206 14,483,561
NationsBank Corp. (NC ) ....................... 136,160 8,152,580
Norwest Corp. (MN ) ........................... 528,102 16,932,270
PNC Bank Corp. (PA ) .......................... 637,000 30,257,500
------------
102,673,252
------------
Regionals (64.07%)
ABC Bancorp. (GA ) ............................ 59,500 1,018,938
Alabama National Bancorp. (AL ) ............... 130,000 3,079,375
American Bancorp. (WV ) ....................... 35,000 761,250
American Bancshares, Inc.* (FL ) .............. 67,000 829,125
Associated Banc-Corp. (WI ) ................... 52,036 2,608,305
BancFirst Corp. (OK ) ......................... 72,500 2,301,875
BancFirst Ohio Corp. (OH ) .................... 43,500 1,870,500
BancorpSouth, Inc. (MS ) ...................... 57,500 2,185,000
Bank of The Ozarks, Inc. (AR ) ................ 55,000 1,141,250
Bank Yorba Linda (CA ) ........................ 110,000 1,980,000
Banknorth Group, Inc. (VT ) ................... 66,500 4,023,250
BB&T Corp. (NC ) .............................. 528,880 28,790,905
Regionals (continued)
BCB Financial Services Corp. (PA ) ............ 27,500 $591,250
Beverly Bancorp., Inc. (IL ) .................. 40,000 910,000
Beverly National Corp. (MA ) .................. 25,000 793,750
BNCCorp, Inc.* (ND ) .......................... 55,000 818,125
Broad National Bancorp. (NJ ) ................. 95,657 2,032,711
BT Financial Corp. (PA ) ...................... 18,450 844,088
California State Bank (CA ) ................... 89,200 2,653,700
Cape Cod Bank & Trust Co. (MA ) ............... 55,500 2,025,750
Capital Corp. of the West * (CA ) ............. 55,000 770,000
Carolina First Corp. (SC ) .................... 43,890 960,094
CCB Financial Corp. (NC ) ..................... 113,025 10,285,275
Centura Banks, Inc. (NC ) ..................... 82,500 4,774,687
Century Financial Corp. (PA ) ................. 70,000 1,181,250
Chittenden Corp. (VT ) ........................ 65,062 2,732,604
City National Corp. (CA ) ..................... 40,977 1,231,871
Colonial BancGroup, Inc. (AL ) ................ 770,000 22,859,375
Columbia Bancorp. (MD ) ....................... 51,000 1,491,750
Comerica, Inc. (MI ) .......................... 170,000 13,440,625
Commercial Bankshares, Inc. (FL ) ............. 38,200 869,050
Commonwealth Bankshares, Inc.* (VA ) .......... 31,966 375,601
Community Banks, Inc. (PA ) ................... 34,650 1,528,931
Community Bankshares, Inc. (VA ) .............. 38,162 877,726
Compass Bancshares, Inc. (AL ) ................ 542,905 20,460,732
CoreStates Financial Corp. (PA ) .............. 213,275 15,515,756
Crestar Financial Corp. (VA ) ................. 535,000 25,312,187
Desert Community Bank (CA ) ................... 48,600 1,263,600
DNB Financial Corp. (PA ) ..................... 45,218 1,220,886
Empire Banc Corp. (MI ) ....................... 19,206 965,102
Evergreen Bancorp., Inc. (NY ) ................ 54,300 1,072,425
F & M National Corp. (VA ) .................... 16,000 498,000
First American Corp. (TN ) .................... 644,200 30,599,500
First Commerce Corp. (LA ) .................... 365,000 23,451,250
First Financial Corp. (RI ) ................... 94,000 1,480,500
First Hawaiian, Inc. (HI ) .................... 45,000 1,755,000
First of America Bank Corp. (MI ) ............. 464,950 25,920,962
First Security Corp. (UT ) .................... 252,000 7,308,000
First State Bancorp. (NM ) .................... 82,625 1,538,891
First Tennessee National Corp. (TN ) .......... 122,200 7,041,775
First Victoria National Bank (TX ) ............ 48,100 1,635,400
Firstar Corp. (WI ) ........................... 275,352 9,947,091
FNB Bankshares (ME ) .......................... 20,780 628,595
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Regionals (continued)
FNB Rochester Corp. (NY ) ..................... 24,500 $444,063
F.N.B. Corp. (PA ) ............................ 43,016 1,430,282
Harleysville National Corp. (PA ) ............. 46,000 1,748,000
Imperial Bancorp. * (CA ) ..................... 148,105 6,461,081
Independent Bankshares, Inc. (TX ) ............ 27,500 458,906
Keystone Financial, Inc. (PA ) ............... 163,350 5,615,156
Magna Group, Inc. (MO ) ....................... 107,000 4,226,500
Mahaska Investment Co. (IA ) .................. 149,500 4,485,000
Mahoning National Bancorp. (OH ) .............. 67,600 1,842,100
Marathon Financial Corp. (VA ) ............... 15,000 123,750
Mercantile Bancorp., Inc. (MO ) ............... 557,950 27,095,447
MetroBanCorp. (IN ) ........................... 49,000 441,000
Mississippi Valley Bancshares, Inc. (MO ) ..... 46,500 2,418,000
National City Corp. (OH ) ..................... 446,400 26,672,400
New England Community Bancorp .................
(Class A) (CT ) ............................. 185,000 4,255,000
North Fork Bancorp., Inc. (NY ) ............... 184,600 5,434,162
Old Kent Financial Corp. (MI ) ............... 207,977 13,128,548
One Valley Bancorp., Inc. (WV ) ............... 79,090 3,163,600
Pacific Century Financial Corp. (HI ) ......... 300,000 15,112,500
Pinnacle Financial Services, Inc. (MI ) ....... 48,380 1,898,915
Prime Bancshares, Inc.* (TX ) ................. 6,500 123,906
Provident Bankshares Corp. (MD ) .............. 168,616 9,105,264
Regions Financial Corp. (AL ) ................. 171,912 6,317,766
Riggs National Corp. (DC ) .................... 55,000 1,265,000
Salem Bank & Trust (VA ) ...................... 43,260 800,310
Santa Barbara Bancorp. (CA ) .................. 22,500 1,057,500
Security Bank Corp.* (VA ) .................... 31,000 325,500
Security Shares, Inc. (TX ) (r) ............... 200,000 2,000,000
Signet Banking Corp. (VA ) .................... 337,500 18,161,719
Six Rivers National Bank * (CA ) .............. 28,500 534,375
Southtrust Corp. (AL ) ........................ 480,000 23,040,000
Southwest Bancorp. of Texas, Inc.* (TX ) ...... 90,800 2,724,000
Southwest Bancorp., Inc. (OK ) ............... 12,500 315,625
Summit Bancorp. (NJ ) ......................... 1,228,805 52,454,613
Summit Bancshares, Inc. (TX ) ................. 113,700 4,206,900
Sun Bancorp., Inc. * (NJ ) .................... 82,687 1,839,786
Surety Capital Corp.* (TX ) ................... 296,800 2,040,500
TCF Financial Corp. (MN ) ..................... 25,504 1,450,540
Tehama Bancorp. (CA ) ......................... 56,552 784,659
Texas Regional Bancshares, Inc. ...............
(Class A) (TX ) ............................. 41,250 1,175,625
TriCo Bancshares (CA ) ........................ 20,000 520,000
Union Planters Corp. (TN ) .................... 797,475 47,300,236
United Security Bancorp.* (WA ) ............... 161,105 2,980,442
Univest Corp. (PA ) ........................... 25,000 1,250,000
Regionals (continued)
U.S. Bancorp. (OR ) ........................... 504,828 $51,334,697
U.S. Trust Corp. (NY ) ........................ 52,000 3,042,000
Vectra Banking Corp.* (CO ) ................... 75,000 1,959,375
Vermont Financial Services Corp. (VT ) ........ 78,000 2,037,750
West Coast Bancorp. (OR ) ..................... 62,187 1,834,517
Western Bancorp. (CA ) ........................ 13,800 439,944
Whitney Holding Corp. (LA ) ................... 147,000 7,276,500
Yardville National Bank (NJ ) ................. 50,500 1,565,500
------------
679,972,597
------------
Thrifts ( 11.71%)
American National Bancorp., Inc. (MD ) ........ 76,470 1,534,179
Bank Plus Corp.* (CA ) ........................ 57,858 694,296
Bank West Financial Corp. (MI ) ............... 112,000 2,436,000
BostonFed Bancorp., Inc. (MA ) ............... 121,300 2,486,650
Cameron Financial Corp. (MO ) ................. 75,000 1,434,375
CENFED Financial Corp. (CA ) .................. 27,500 1,110,313
CFX Corp. (NH ) ............................... 45,059 1,109,578
CitFed Bancorp, Inc. (OH ) .................... 32,000 1,576,000
Community Financial Corp. (IL ) ............... 20,000 340,000
CSB Financial Group, Inc.* (IL ) .............. 10,000 122,500
Dime Bancorp., Inc. (NY ) ................... 49,500 1,188,000
FFVA Financial Corp. (VA ) .................... 50,000 1,712,500
Financial Bancorp., Inc. (NY ) ............... 70,000 1,697,500
First Colorado Bancorp., Inc. (CO ) ........... 91,000 1,854,125
First Defiance Financial Corp. (OH ) .......... 116,885 1,855,549
First Federal Capital Corp. (WI ) ............. 31,000 844,750
First Keystone Financial, Inc. (PA ) .......... 20,000 600,000
First SecurityFed Financial, Inc. * (IL ) ..... 50,000 753,125
GA Financial, Inc. (PA ) ...................... 90,000 1,755,000
GreenPoint Financial Corp. (NY ) .............. 315,000 20,278,125
Guaranty Financial Corp. (VA ) ............... 30,000 360,000
Highland Federal Bank * (CA ) ................. 79,167 2,533,344
Hingham Institute For Savings (MA ) ........... 60,000 1,635,000
HMN Financial, Inc.* (MN ) .................... 36,500 894,250
InterWest Bancorp, Inc. (WA ) ................. 20,900 799,425
ISB Financial Corp. (LA ) ..................... 120,000 2,955,000
Lawrence Savings Bank * (MA ) ................. 75,000 1,040,625
Little Falls Bancorp., Inc. (NJ ) ............. 110,000 2,007,500
Local Financial Corp. (DE) (R) ............... 230,000 2,587,500
Long Island Bancorp., Inc. (NY ) .............. 204,200 9,086,900
Mid Continent Bancshares, Inc. (KS ) .......... 53,500 2,153,375
New Hampshire Thrift Bancshares,
Inc. (NH ) .................................. 25,000 562,500
New York Bancorp., Inc. (NY ) ................. 10,000 342,500
North Central Bancshares, Inc. (IA ) .......... 55,000 996,875
Northwest Equity Corp. (WI ) .................. 61,000 1,052,250
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)
Pamrapo Bancorp., Inc. (NJ ) .................. 86,000 $2,128,500
Patriot Bank Corp. (PA ) ...................... 51,600 903,000
PennFed Financial Services, Inc. (NJ ) ........ 305,500 9,165,000
People's Bancshares, Inc. (MA ) ............... 50,000 962,500
Peoples Heritage Financial Group, Inc.
(ME ) ....................................... 29,800 1,173,375
Pittsburgh Home Financial Corp. (PA ) ......... 100,000 1,862,500
Quaker City Bancorp., Inc.* (CA ) ............. 93,750 1,921,875
St. Landry Financial Corp.* (LA ) ............. 25,000 375,000
Scotland Bancorp., Inc. (NC ) ................. 22,500 237,656
SGV Bancorp., Inc.* (CA ) ..................... 20,000 360,000
Shore Bank * (VA ) ............................ 15,000 174,375
SIS Bancorp, Inc. (MA ) ....................... 87,500 2,985,937
Southern Missouri Bancorp., Inc. (MO ) ........ 57,000 1,068,750
Sovereign Bancorp., Inc. (PA ) ............... 13,074 232,064
Stone Street Bancorp, Inc. (NC ) .............. 3,500 68,688
Sturgis Federal Savings Bank (MI ) ............ 40,500 936,563
Teche Holding Co. (LA ) ....................... 80,000 1,670,000
Warren Bancorp., Inc. (MA ) ................... 57,500 1,164,375
Washington Mutual, Inc. (WA ) ................. 222,300 15,213,656
Wells Financial Corp. (MN ) ................... 122,000 2,257,000
WesterFed Financial Corp. (MT ) ............... 209,162 5,072,178
------------
124,322,601
------------
Other ( 1.12%)
Capital One Financial Corp. (VA ) ............. 260,000 11,862,500
------------
UNIT ( 0.00%)
Core Cap, Inc. (NY) (r) ....................... 500 22,500
------------
WARRANT ( 0.55%)
Golden State Bancorp, Inc. * (CA ) ............ 265,000 5,830,000
------------
TOTAL COMMON STOCKS,
UNIT AND WARRANT
(Cost $385,572,791) ............... (89.01%) 944,756,725
------- ------------
PREFERRED STOCKS
Banks & Thrifts ( 1.25%)
Astoria Financial Corp.,
Ser B, 12.00% (NY) .......................... 50,000 1,575,000
Chevy Chase Savings, 13.00% (MD ) ............. 55,000 1,677,500
Community Bank, Ser B, 13.00% (CA) ............ 21,000 588,000
First Preferred Cap I, 9.25% (MO) ............. 50,000 1,306,250
IFC Capital Trust I, 9.25% (IN ) .............. 40,000 1,100,000
Matewan BancShares, Inc.,
Ser A, 7.50% (WV ) .......................... 25,000 671,875
MVBI Capital Trust, 7.45% (MO ) ** ............ 40,000 990,000
Riggs National Corp. Ser B, 10.75% (DC ) ...... 93,000 2,662,125
Banks & Thrifts (continued)
Sovereign Bancorp., Ser B, 6.25% (PA ) ....... 15,000 $1,597,500
Sterling Bancshares Capital Trust I, 9.28%
(TX ) ....................................... 20,000 510,000
VBC Capital I, 9.50% (CO ) ................... 20,000 540,000
------------
TOTAL PREFERRED STOCKS
(Cost $11,212,500) ............... (1.25%) 13,218,250
------- ------------
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
BONDS
BFC Capital Trust I,
Capital Securities, Ser A,
01/15/27 ............................... 9.650 250 $265,750
Bank Plus Corp.,
Sr Note 07-18-07 ...................... 12.000 125 140,000
Beal Financial Corp.,
Sr Note 08-15-00 ....................... 12.750 2,000 2,140,000
CENFED Financial Corp., (R)
Sr Note 12-15-01 ....................... 11.170 3,500 3,867,500
Coastal Bancorp., Inc.,
Sr Note 06-30-02 ....................... 10.000 3,000 3,090,000
CSBI Capital Trust I, (R)
Sub Cap Income,
Ser A 06-06-27 ......................... 11.750 770 793,100
Dime Bancorp.,
Sr Note 11-15-05 ....................... 10.500 3,690 3,985,200
Fidelity Federal Bancorp.,
Sub Note 06-01-05 ...................... 10.000 1,000 980,000
First Federal Financial Corp.,
Note 10-01-04 .......................... 11.750 2,000 2,135,000
MAF Bancorp., Inc.,
Sub Note 09-30-05 ...................... 8.320 1,500 1,485,000
ML Capital Trust I,
Capital Securities 03-01-27 ............ 9.875 1,000 1,114,400
Ocwen Federal Bank,
Sub Deb 06-15-05 ....................... 12.000 1,000 1,110,000
WSFS Financial Corp.,
Sr Note 12-31-05 ....................... 11.000 3,000 3,180,000
----------
TOTAL BONDS
(Cost $22,989,855) ( 2.29%) 24,285,950
----- ----------
SHORT-TERM INVESTMENTS
Certificates of Deposit ( 0.00%)
Deposits in Mutual Banks...... 57,829
----------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
Joint Repurchase Agreement (7.65%)
Investment in a joint repurchase
agreement transaction with
Aubrey G. Lanston & Co. -
Dated 10-31-97, Due 11-03-97
(Secured by US Treasury Notes,
5.750% thru 7.125%,
Due 12-31-98 thru 4-30-00)
- Note A .............................. 5.68% $81,176 $81,176,000
--------------
TOTAL SHORT-TERM INVESTMENTS (7.65%) 81,233,829
------- --------------
TOTAL INVESTMENTS ........... (100.20%) $1,063,494,754
======= ==============
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security.
** Floating Rate effective October 31, 1997.
(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 $7,248,100 as of October 31, 1997. 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. 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 1997
---- ---- ---------- ----
Security Shares, Inc. .. 9-29-94 $1,150,000 0.19% 2,000,000
Core Cap, Inc........... 10-31-97 22,500 0.00% 22,500
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,
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.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services,
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
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 are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of operations
of the Fund.
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.
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 writ-
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
ing 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 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 year ended October 31,
1997.
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, 1997, 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, 1997, aggregated $69,839,342 and
$133,770,869, respectively.
The cost of investments owned at October 31, 1997 for Federal income tax
purposes was $501,008,975.
Gross unrealized appreciation and depreciation of investments aggregated
$562,585,711 and $99,932, respectively, resulting in net unrealized appreciation
of $562,485,779.
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, 1997, 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. These shares were retired and
restored to the status of authorized but unissued shares.
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Bank and Thrift Opportunity Fund
NOTE E -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the period ended October 31, 1997, the Fund has reclassified amounts to
reflect an increase in accumulated net realized gain on investments of $103 and
a decrease in accumulated net investment income of $103. This represents the
amount necessary to report these balances on a tax basis, excluding certain
temporary differences, as of October 31, 1997. 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 certain
differences in the computation of distributable income and capital gains under
federal tax rules verses generally accepted accounting principles. The
calculation on net investment income per share in the financial highlights
excludes these adjustments.
NOTE F -
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of 1940, are those
in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the period ended October
31, 1997 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> <C>
Bank West Financial Corp. (MI) 130,000 32,000 $362,000 50,000 $429,375 112,000 $254,352 $40,140 $2,436,000
Bank Yorba Linda (CA) 20,000 62,500 1,072,188 -- -- 110,000(1) -- 12,625 1,980,000
Equitable Federal Savings Bank (MO) 40,000 -- -- 40,000 660,000 -- 517,461 -- --
First Financial Corp. (RI) 94,000 -- -- -- -- 94,000 -- 16,920 1,480,500
FNBBankshares (ME) 20,780 -- -- -- -- 20,780(2) -- -- --
L&BFinancial, Inc. (TX)(3) 127,000 -- -- -- -- -- -- -- --
Logansport Financial Corp. 67,500 -- -- 67,500 786,563 -- 234,375 6,750 --
Mahaska Investment Co. (IA) 149,500 -- -- -- -- 149,500 -- 116,873 4,485,000
MVBI Capital Corp. (MO) 40,000 -- -- -- -- 40,000 -- -- 990,000
N.E. Community Bancorp (CT) 185,000 -- -- -- -- 185,000(2) -- -- --
Northwest Equity Corp. (WI) 61,000 -- -- -- -- 61,000 -- 30,500 1,052,250
Penn Fed Financial Services, Inc. (NJ) 350,000 15,500 319,687 60,000 737,500 305,500 523,708 88,655 9,165,000
Pittsburgh Home Financial Corp. (PA) 110,000 -- -- 10,000 110,000 100,000 20,625 29,500 1,862,500
SFSBancorp, Inc. (NY) 49,000 -- -- 49,000 554,875 -- 229,125 2,940 --
St. Landry Financial Corp. (LA) 25,000 -- -- -- -- 25,000 -- 2,500 375,000
Surety Capital Corp. (TX) 303,700 -- -- 6,900 22,425 296,800 23,234 -- 2,040,500
Wells Financial Corp. (MN) 167,000 -- -- 45,000 410,625 122,000 231,229 29,280 2,257,000
---------- ---------- ---------- -------- -----------
$1,753,875 $3,711,363 $2,034,109 $376,683 $28,123,750
========== ========== ========== ======== ===========
</TABLE>
(1) Reflects four-for-three as of July 1, 1997.
(2) As of October 31, 1997, no longer an affiliated issuer.
(3) Acquired by Jefferson Savings Bancorp Inc. effective March 31, 1997.
NOTE G -
SUBSEQUENT EVENT
On November 7, 1997 the Board of Trustees declared a four (4) for one (1) stock
split to be distributed on December 1, 1997. The record date is November 17,
1997 and the ex-date is December 2, 1997. The shares of beneficial interest and
the per share data reflected in these financial statements have been restated to
give effect to the four for one split.
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, 1997, the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended
October 31, 1997 and October 31, 1996, and the financial highlights for each of
the years in the four-year period ended October 31, 1997. 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, 1997 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, 1997, 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 5, 1997
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, 1997.
The Fund designated a distribution to shareholders of $2,877,040 as a capital
gain dividend. All of this amount is subject to the 28% tax rate. With respect
to the dividends paid by the fund for the fiscal year ended October 31, 1997,
100% of the dividends qualify for the corporate dividends received deduction.
Shareholders will be mailed a 1997 U.S. Treasury Department Form 1099-DIV in
January 1998. This will reflect the total of all distributions which are taxable
for calendar year 1997.
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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
divided 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 not relieve participants of any
U.S. income tax that may be payable or
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John Hancock Funds - Bank and Thrift Opportunity Fund
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, State
Street Bank and Trust Company, at P.O. Box 8209, Boston, Massachusetts
02266-8209 (telephone 1-800-426-5523).
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[LOGO] JOHN HANCOCK FUNDS -------------------
A Global Investment Management Firm Bulk Rate
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101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-843-0990 S. Hackensack, NJ
INTERNET: www.jhancock.com/funds Permit No. 750
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