---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Bank and Thrift
Opportunity
Fund
OCTOBER 31, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------
TRUSTEES
Stephen L. Brown
James F. Carlin
William H. Cunningham*
Ronald R. Dion*
Maureen R. Ford
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
200 Berkeley Street
Boston, Massachusetts 02116
Listed New York Stock Exchange Symbol: BTO
For Shareholder Assistance
Refer to Page 19
--------------------------------------------
==================================CEO CORNER====================================
As the decade ends and a new millennium dawns, John Hancock Funds (JHF) welcomes
a new leader. Effective December 31, 1999, Maureen R. Ford becomes vice chairman
and chief executive officer, succeeding Edward J. Boudreau, Jr., who retires
after 32 years at John Hancock, the last 11 at the helm of JHF.
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy. Keep in mind that the
estimated benefits are precisely that, and that rules and regulations may change
by the time you retire. Also remember that they are not inflation adjusted, so
it would be unrealistic to expect them to have the same purchasing power in the
future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/Maureen R. Ford
- ------------------
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By James K. Schmidt, CFA, Portfolio Management Team Leader, and
Thomas Finucane and Thomas Goggins, Portfolio Managers
John Hancock Bank and
Thrift Opportunity Fund
Bank stocks lag the market amid inflation fears; imminent
---------------------------------------------------------
reform legislation sparks late-year rally
-----------------------------------------
During most of the last 12 months, bank stocks came under duress and lagged the
overall market in a volatile period. They fell prey to rising interest rates,
inflation fears and Year 2000 ("Y2K") concerns. Investors also fled the group in
pursuit of the top-performing technology sector. However, the year ended on a
high note in the last two weeks of October, when investor sentiment turned
sharply positive on news that passage of long-awaited financial reform
legislation appeared imminent.
As the fiscal year began last November, banks, particularly the large
money-center banks, were rallying from last year's fears of a global recession
that never materialized. But as the U.S. economy continued to remain stronger
than expected, the Federal Reserve reversed itself and raised interest rates
twice in the summer to prevent an inflation outbreak. The moves hit bank stocks
especially hard, as investors feared rising rates would curtail bank profits.
That was coupled with several headline-grabbing earnings disappointments at Bank
One and First Union, even though the group's earnings growth and fundamentals
remained mostly strong.
Then, in the last two weeks of the year, bank and other financial
stocks roared back to life on the anticipation that the removal of
Depression-era barriers that had prevented banks from
- --------------------------------------------------------------------------------
[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.
Standing (l-r): Jay McKelvey, Tom Goggins and Tom Finucane. Seated (l-r): Lisa
Welch, Jim Schmidt and Patricia Ouimet."]
- --------------------------------------------------------------------------------
"...passage of long-awaited financial reform legislation appeared imminent."
3
<PAGE>
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John Hancock Funds - Bank and Thrift Opportunity Fund
"...our banks have shown excellent loan growth and low credit losses."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Stocks." The first listing is
SunTrust Banks, Inc. 4.2%, the second is U.S. Bancorp 4.1%, the third Firstar
4.1%, the fourth Bank America 3.4% and the fifth PNC Bank 3.4%. A note below
the table reads "As a percentage of net assets on October 31, 1999."]
- --------------------------------------------------------------------------------
getting involved in other financial service businesses would spark a new round
of cross-sector consolidation. In the last two weeks of October, for example,
the Keefe, Bruyette & Woods Bank Index, which tracks the performance of large
banks, rose by 26% an astounding jump. Bank stocks were also lifted by more
calming news on the inflation front.
Fund performance modest this period
While John Hancock Bank and Thrift Opportunity Fund participated in the
late-year rally, our overall returns this fiscal year were more modest than
those of our financial services fund peers. For the most part, it was because we
don't own non-bank financial stocks, such as investment brokerage firms, and we
remain deliberately underweighted in the large money-center banks that have been
the best performers this year. Indeed, our focus on small-sized regional banks
and thrifts held us back, since these companies were decidedly out of favor.
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...And What's Behind The Numbers". The first listing is Pacific
Capital Bancorp followed by an up arrow with the phrase "Quality California
regional soars." The second listing is Summit Bancorp followed by a down arrow
with the phrase "New Jersey bank wallows; will it be forced to sell out?" The
third listing is Superior Financial followed by a sideways arrow with the phrase
"Market overlooking Arkansas dynamo." A note below the table reads "See
'Schedule of Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
For the year ended October 31, 1999, John Hancock Bank and Thrift
Opportunity Fund posted a total return of 4.95% at net asset value. That
compared to the 14.39% return of the average open-end financial services fund,
according to Lipper, Inc.
Sector investing for the long term
Although we have been disappointed with the performance of our bank stocks over
the last year, this late-year market shift reinforces the concept of sector
investing as a long-term proposition. While sector-specific funds are subject to
different, and sometimes greater, volatility than the market as a whole, they
can also provide long-term investors with greater outperformance. We've been
through periods like this past 18 months before, and, eventually, our stocks
have returned to be among the market leaders as investor psychology changed.
Fundamentals still strong
We remain encouraged by the generally positive fundamentals we are witnessing in
our companies. The global financial crisis that was feared last fall never
materialized and economic growth has been better than we had anticipated. As a
result, our banks have shown excellent loan growth and low credit losses.
Bank earnings are up 12% for the first nine months of 1999, even with
the rising interest-rate environment. This is further proof that, unfortunately,
the stock market, which still punishes bank stocks when rates rise, seems to
think bank earnings are far more sensitive to interest-rate changes than they
really are. In fact, most banks have developed the capacity to re-price both
sides of their balance sheets with equal rapidity as rates change, which helps
keep their margins and profitability on track.
4
<PAGE>
================================================================================
John Hancock Funds - Bank and Thrift Opportunity Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance".
Under the heading is a note that reads "For the year ended October 31, 1999."
The chart is scaled in increments of 3% with 0% at the bottom and 15% at the
top. The first bar represents the 4.95% total return for John Hancock Bank and
Thrift Opportunity Fund. The second bar represents the 14.39% total return for
Average open-end financial services fund. A note below the chart reads "The
total return for John Hancock Bank and Thrift Opportunity Fund is at net asset
value with all distributions reinvested. The average open-end financial
services fund is tracked by Lipper, Inc.]
- --------------------------------------------------------------------------------
Consolidation process continues
After a lull late last year and early in 1999, consolidation resumed in the
banking industry during the spring, albeit at a lower level than the
extraordinary number we saw in 1998. Although Y2K issues were a distraction,
they diminished as the year progressed, since merging banks would not
consolidate their systems until next year.
This year, 11 of the Fund's banks were involved in mergers, the most
important including Mercantile, which was bought by Firstar, and First American
Bank, which was bought by AmSouth Bancorp. These acquisitions were sparked by an
unusual pricing environment that was favorable to acquiring banks. Their stock
prices remained strong in the spring and summer, while the smaller banks they
bought had their stocks fall to very attractive levels, making them appealing
takeover candidates. As we have discussed in prior reports, even though it may
wax and wane with changes in the market environment, the process of industry
consolidation is destined to continue to address the over-capacity in the U.S.
banking system.
Strategy stays constant
Throughout the year, we continued our practice of taking profits and trimming
our stakes in the superregional banks that were the best performers, including
Wells Fargo and Bank of America. We also stuck to our consistent investment
approach of buying stocks when they were underpriced compared to the companies'
fundamentals, on the assumption that inevitably their stock prices would catch
up. This classic value-investing style has proven itself over time. With their
stock prices compellingly attractive, we added to our positions in high-quality
banks such as FirstMerit, CCBT Financial Cos. (formerly Cape Cod Bank) and
National Commerce Bancorp at bargain prices.
Reform legislation: catalyst for rebound?
At the end of this turbulent year for bank stocks, our optimistic outlook has
been fortified by several catalysts that appear poised to spark a further rally.
Perhaps the most important was the imminent passage at the end of this reporting
period of historic financial services reform legislation. This bill amends the
Glass-Steagall and Bank Holding Company Acts to permit banks, insurance
companies and securities brokers to affiliate in the same holding company. With
its passage, we expect a period of consolidation to result featuring just such
cross-industry combinations. Specifically, we think there will be further cases
of banks buying brokers, and, more importantly, for the first time we should see
banks interested in acquiring insurance companies. This consolidation should
produce more efficient and profitable financial services providers. It will also
benefit shareholders through takeover premiums and a greater industry focus on
operating with maximum efficiency to generate shareholder value.
"...consolidation resumed in the banking industry during the spring..."
5
<PAGE>
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John Hancock Funds - Bank and Thrift Opportunity Fund
"...bank-stock valuations are very compelling, even after their late-year
surge."
Interest rates, inexpensive stock prices
Another important catalyst is interest rates. The market has been edgy waiting
to see whether the monthly economic data would prompt the Federal Reserve Board
to continue raising interest rates in a move to pre-empt inflation. Recent
statistics have reassured investors that inflation remains in check, and once it
is clear that the Fed is done tinkering with rates, the market should calm down.
Finally, bank-stock valuations are very compelling, even after their
late-year surge. After an 18-month battering, most companies' valuations are
much lower than the average stock in the S&P 500 Index. And if banks and
financial companies continue to post strong earnings growth, investors will
increasingly recognize the attractive opportunities the sector currently offers
- - if they haven't already begun to do so. Indeed, the earnings of most banks are
on track to outperform the market. These statistics, coupled with the advent of
landmark industry deregulation, provide two solid arguments for a sustained
financial-stock rebound, and the biggest sources of encouragement to long-term
investors in the sector.
- --------------------------------------------------------------------------------
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
<PAGE>
============================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, 1999. You'll
also find the net asset value for each common share as of that date.
Statement of Assets and Liabilities
October 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and warrants
(cost - $382,247,201)...................................... $883,006,922
Preferred stocks (cost - $8,695,000) ....................... 8,865,720
Bonds (cost - $9,020,000) .................................. 8,870,150
Short-term investments (cost - $68,991,841) ................ 68,991,841
---------------
969,734,633
Cash ........................................................ 366
Receivable for investments sold ............................. 1,691,104
Interest receivable ......................................... 190,427
Dividends receivable ........................................ 1,572,425
Other assets ................................................ 116,124
---------------
Total Assets ....................... 973,305,079
----------------------------------------------------
Liabilities:
Payable for securities purchased ............................ 3,273,798
Payable upon return of securities on loan - Note A .......... 13,759,973
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 103,745
Accounts payable and accrued expenses ....................... 1,321,533
---------------
Total Liabilities .................. 18,459,049
----------------------------------------------------
Net Assets:
Capital paid-in ............................................. 396,962,340
Accumulated net realized gain on investments ................ 46,613,411
Net unrealized appreciation of investments .................. 500,780,591
Undistributed net investment income ......................... 10,489,688
---------------
Net Assets ........................ $954,846,030
===================================================
Net Asset Value Per Share:
(Based on 84,400,000 shares of beneficial interest
outstanding - unlimited number of shares authorized
with no par value) .......................................... $11.31
=============================================================================
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
Statement of Operations
Year ended October 31, 1999
- --------------------------------------------------------------------------------
Investment Income:
Dividends (including $557,027 received from
affiliated issuers and net of foreign withholding
taxes of $22,309) .......................................... $23,118,457
Interest .................................................... 3,633,974
---------------
26,752,431
---------------
Expenses:
Investment management fee - Note B ......................... 11,112,057
Administration fee - Note B ................................ 2,415,665
Printing ................................................... 274,920
Custodian fee .............................................. 153,027
New York Stock Exchange fee ................................ 149,836
Trustees' fees ............................................. 64,226
Auditing fee ............................................... 38,760
Transfer agent fee ......................................... 32,141
Miscellaneous .............................................. 27,451
Legal fees ................................................. 22,672
---------------
Total Expenses .................... 14,290,755
---------------------------------------------------
Net Investment Income ............. 12,461,676
---------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold
(including $276,242 on sales of investments
in affiliated issuers) .................................... 46,611,110
Change in net unrealized appreciation/depreciation
of investments (including $706,794 in net
unrealized depreciation of investments in
affiliated issuers) ....................................... (17,505,982)
---------------
Net Realized and Unrealized
Gain on Investments ............... 29,105,128
---------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ......... $41,566,804
===================================================
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Bank and Thrift Opportunity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .......................................................... $11,979,930 $12,461,676
Net realized gain on investments sold .......................................... 103,277,328 46,611,110
Change in net unrealized appreciation/depreciation of investments .............. (44,205,083) (17,505,982)
---------------- ----------------
Net Increase in Net Assets Resulting from Operations .......................... 71,052,175 41,566,804
---------------- ----------------
Distributions to Shareholders:
Dividends from net investment income ($0.1400 and
$0.1425 per share, respectively) ............................................. (12,375,469) (12,581,633)
Distributions from net realized gain on investments sold ($1.5955 and
$0.1691 per share, respectively) .............................................. (140,995,972) (14,929,632)
---------------- -----------------
Total Distributions to Shareholders ........................................... (153,371,441) (27,511,265)
---------------- -----------------
From Fund Share Transactions - Net: * ........................................... (435,140) (37,853,304)
---------------- -----------------
Net Assets:
Beginning of period ............................................................ 1,061,398,201 978,643,795
---------------- -----------------
End of period (including undistributed net investment income
of $10,608,356 and $10,489,688, respectively) ................................ $978,643,795 $954,846,030
================ =================
* Analysis of Fund Transactions:
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
1998 1999
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ---------------- ------------- ---------------
Shares outstanding, beginning of period ......... 88,400,000 $435,267,021 88,359,000 $434,820,311
Less shares repurchased ......................... (41,000) (435,140) (3,959,000) (37,853,304)
Reclassification of capital accounts - Note F ... - (11,570) - (4,667)
------------- -------------- ------------ --------------
Shares outstanding, end of period ............... 88,359,000 $434,820,311 84,400,000 $396,962,340
============= ============== ============ ==============
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 repurchased during the
last two periods, along with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
============================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:
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
Per Share Operating Performance(1)
Net Asset Value, Beginning of Period ........................ $4.95 $6.62 $7.83 $12.01 $11.08
-------- -------- -------- -------- --------
Net Investment Income(2) .................................... 0.13 0.14 0.14 0.14 0.14
Net Realized and Unrealized Gain on Investments ............. 1.60 1.64 4.08 0.67 0.40
-------- -------- -------- -------- --------
Total from Investment Operations ........................... 1.73 1.78 4.22 0.81 0.54
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ........................ (0.06) (0.23) (0.03) (0.14) (0.14)
Distributions from Net Realized Gain on Investments Sold .... - (0.38) (0.03) (1.60) (0.17)
-------- -------- -------- -------- --------
Total Distributions ........................................ (0.06) (0.61) (0.06) (1.74) (0.31)
-------- -------- -------- -------- --------
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 .............................. $6.62 $7.83 $12.01 $11.08 $11.31
======== ======== ======== ======== ========
Per Share Market Value, End of Period ....................... $5.69 $6.75 $10.64 $11.69 $9.50
======== ======== ======== ======== ========
Total Investment Return at Market Value ..................... 27.91% 29.78% 58.95% 25.35% (16.44%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $608,724 $701,675 $1,061,398 $978,644 $954,846
Ratio of Expenses to Average Net Assets ..................... 1.49% 1.50% 1.45% 1.47% 1.48%
Ratio of Net Investment Income to Average Net Assets ........ 2.22% 1.96% 1.42% 1.07% 1.29%
Portfolio Turnover Rate ..................................... 8% 13% 9% 6% 5%
</TABLE>
(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) Based on the average of the shares outstanding at the end of each month.
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 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
The Schedule of Investments is a complete list of all securities owned by the
Bank and Thrift Opportunity Fund on October 31, 1999. It's divided into four
main categories: common stocks and warrants, preferred stocks, bonds and short-
term investments. Common stocks are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
MARKET
ISSUER, DESCRIPTION, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- -----
COMMON STOCKS AND WARRANTS
Banks - Foreign (1.18%)
Popular, Inc. (Puerto Rico)............ 378,000 $11,316,375
-----------
Superregional Banks (27.26%)
Bank of America Corp. (NC) ............ 512,510 32,992,831
Bank One Corp. (OH) ................... 420,380 15,790,524
First Union Corp. (NC) ................ 565,125 24,123,773
Fleet Boston Corp. (MA) ............... 439,412 19,169,348
National City Corp. (OH) .............. 1,081,724 31,910,858
PNC Bank Corp. (PA) ................... 544,000 32,436,000
SunTrust Banks, Inc. (GA) ............. 554,272 40,565,782
U.S. Bancorp. (MN) .................... 1,058,484 39,230,063
Wells Fargo Co. (CA) .................. 503,027 24,082,418
----------
260,301,597
-----------
Regional Banks (53.07%)
ABC Bancorp. (GA) ..................... 59,500 773,500
Alabama National Bancorp. (AL) ........ 125,000 2,968,750
American Bancorp. (WV) ................ 34,000 561,000
American Bancshares, Inc.* (FL) ....... 61,500 853,312
AmSouth Bancorp. (AL) ................. 1,220,879 31,437,634
Associated Banc-Corp. (WI) ............ 87,795 3,377,364
BancFirst Corp. (OK) .................. 65,141 2,100,797
BancFirst Ohio Corp. (OH) ............. 43,000 951,375
BancorpSouth, Inc. (MS) ............... 120,250 2,089,344
BancWest Corp. (HI) ................... 106,800 4,465,575
Bank of Rhode Island (RI) ............. 20,500 217,813
Bank of the Ozarks, Inc. (AR) ......... 80,750 1,625,094
Banknorth Group, Inc. (VT) ............ 157,620 5,324,601
BB&T Corp. (NC) ....................... 817,025 29,719,284
Beverly National Corp. (MA) ........... 50,000 725,000
BT Financial Corp. (PA) ............... 38,400 849,600
BYL Bancorp. (CA) ..................... 81,000 951,750
MARKET
ISSUER, DESCRIPTION, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- -----
Regional Banks (continued)
Carolina First Corp. (SC) ............. 26,983 $558,211
Cascade Bancorp. (OR) ................. 2,500 34,688
CCB Financial Corp. (NC) .............. 226,150 10,402,900
CCBT Financial Cos., Inc. (MA) ........ 175,200 2,978,400
Centura Banks, Inc. (NC) .............. 90,750 4,781,391
Chittenden Corp. (VT) ................. 168,657 5,207,285
City National Corp. (CA) .............. 104,477 4,048,484
CNB Bancshares, Inc. (IN) ............. 44,461 2,884,407
Colonial BancGroup, Inc. (AL) ......... 1,477,500 17,637,656
Columbia Bancorp. (MD) ................ 110,000 1,361,250
Columbia Bancorp. (OR) ................ 75,500 556,813
Comerica, Inc. (MI) ................... 360,000 21,397,500
Commercial Bankshares, Inc. (FL) ...... 43,115 953,919
Commonwealth Bankshares, Inc. (VA) .... 51,784 440,164
Community Banks, Inc. (PA) ............ 54,573 1,166,498
Community Bankshares, Inc. (VA) ....... 38,662 802,236
Compass Bancshares, Inc. (AL) ......... 786,357 20,985,902
Cowlitz Bancorp. (WA) ................. 61,500 353,625
Desert Community Bank (CA) ............ 57,500 1,380,000
DNB Financial Corp. (PA) .............. 55,901 1,369,574
East-West Bancorp, Inc. (CA) (r) ...... 1,040,000 12,870,000
Eldorado Bancshares, Inc.* (CA) ....... 70,500 740,250
Empire Banc Corp. (MI) ................ 34,689 1,049,342
F & M National Corp. (VA) ............. 32,437 973,110
Fifth Third Bancorp. (OH) ............. 58,500 4,318,031
Financial Institutions, Inc. (NY) ..... 67,500 945,000
First Charter Corp. (NC) .............. 46,500 883,500
First Financial Corp. (RI) ............ 109,000 1,396,562
First Security Corp. (UT) ............. 592,716 15,188,347
First State Bancorp. (NM) ............. 78,625 1,710,094
First Tennessee National Corp. (TN) ... 241,900 8,224,600
Firstar Corp. (WI) .................... 1,332,181 39,132,817
FirstMerit Corp. (OH) ................. 99,000 2,617,312
F.N.B. Corp. (PA) ..................... 49,499 1,268,412
FNB Bankshares (ME) ................... 20,780 644,180
FNB Financial Service Corp. (NC) ...... 79,250 990,625
FVNB Corp. (TX) ....................... 57,500 2,070,000
Harleysville National Corp. (PA) ...... 48,825 1,629,534
Imperial Bancorp.* (CA) ............... 203,133 5,040,238
Independent Bankshares, Inc. (TX) ..... 48,000 678,000
Keystone Financial, Inc. (PA) ......... 129,750 3,251,859
M & T Bank Corp. (NY) ................. 10,616 5,260,228
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Bank and Thrift Opportunity Fund
MARKET
ISSUER, DESCRIPTION, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- -----
Regional Banks (continued)
Mahaska Investment Co. (IA) ........... 224,171 $3,026,308
Main Street Bancorp., Inc. (PA) ....... 66,807 780,807
Marathon Financial Corp. (VA) ......... 16,000 104,000
MetroBanCorp. (IN) .................... 55,095 440,760
Midwest Banc Holdings, Inc. (IL) ...... 40,000 625,000
Mississippi Valley Bancshares, Inc. (MO) 100,900 3,209,881
National Commerce Bancorp. (TN) ....... 281,500 7,037,500
New England Community Bancorp.
(Class A) (CT) ....................... 193,500 5,780,812
North Fork Bancorp., Inc. (NY) ........ 349,650 7,233,384
Northrim Bank (AK) .................... 63,800 669,900
Oak Hill Financial, Inc. (OH) ......... 50,000 825,000
Old Kent Financial Corp. (MI) ......... 360,315 14,682,836
One Valley Bancorp., Inc. (WV) ........ 132,090 4,821,285
Pacific Capital Bancorp. (CA) ......... 100,625 3,333,203
Pacific Century Financial Corp. (HI) .. 587,500 13,402,344
Patriot Bank Corp. (PA) ............... 40,500 369,563
Provident Bankshares Corp. (MD) ....... 328,835 7,080,229
Regions Financial Corp. (AL) .......... 155,912 4,687,104
Riggs National Corp. (DC) ............. 44,500 673,063
Salem Bank & Trust (VA) ............... 61,289 1,072,557
Shore Financial Corp. (VA) ............ 23,250 197,625
Six Rivers National Bank* (CA) ........ 26,000 331,500
Sky Financial Group, Inc. (OH) ........ 222,074 5,329,776
SouthTrust Corp. (AL) ................. 697,425 27,897,000
Southwest Bancorp. of Texas, Inc.* (TX) 209,230 3,635,371
Summit Bancorp. (NJ) .................. 918,305 31,796,311
Summit Bancshares, Inc. (TX) .......... 234,650 4,399,687
Sun Bancorp., Inc.* (NJ) .............. 168,142 1,733,964
TCF Financial Corp. (MN) .............. 52,008 1,534,236
Tehama Bancorp. (CA) .................. 57,552 618,684
Texas Regional Bancshares, Inc.
(Class A) (TX) ....................... 49,100 1,371,731
TriCo Bancshares (CA) ................. 30,000 558,750
Union Planters Corp. (TN) ............. 465,348 20,707,986
United Security Bancorp.* (WA) ........ 190,436 2,666,104
Univest Corp. (PA) .................... 94,500 2,480,625
Vail Banks, Inc.* (CO) ................ 66,000 660,000
Valley National Bancorp. (NJ) ......... 34,750 927,391
VRB Bancorp. (OR) ..................... 112,804 775,528
West Coast Bancorp. (OR) .............. 106,708 1,473,904
Whitney Holding Corp. (LA) ............ 146,500 5,420,500
Wilmington Trust Corp. (DE) ........... 88,000 4,774,000
Yardville National Bancorp. (NJ) ...... 152,400 1,847,850
Zions Bancorp. (UT) ................... 110,975 6,540,589
----------
506,709,385
-----------
MARKET
ISSUER, DESCRIPTION, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- -----
Thrifts (9.98%)
Astoria Financial Corp. (NY) .......... 160,955 $5,794,380
Bank West Financial Corp. (MI) ........ 103,000 849,750
BostonFed Bancorp., Inc. (MA) ......... 106,000 1,636,375
Cameron Financial Corp. (MO) .......... 72,500 897,187
Charter One Financial, Inc. (OH) ...... 35,715 877,250
Commercial Federal Corp. (NE) ......... 129,842 2,548,149
Dime Bancorp., Inc. (NY) .............. 17,500 312,813
Dime Community Bancshares., Inc. (NY) . 87,754 1,771,534
First Defiance Financial Corp. (OH) ... 70,000 813,750
First Federal Capital Corp. (WI) ...... 63,500 1,000,125
First Keystone Financial, Inc. (PA) ... 37,500 426,563
GA Financial, Inc. (PA) ............... 65,500 892,438
Golden State Bancorp., Inc.* (CA) ..... 17,500 365,313
GreenPoint Financial Corp. (NY) ....... 607,000 17,299,500
Guaranty Financial Corp. (VA) ......... 30,000 292,500
Highland Bancorp., Inc. (CA) .......... 156,334 2,911,721
Hingham Institute for Savings (MA) .... 90,000 1,361,250
HMN Financial, Inc. (MN) .............. 54,750 663,844
Independence Community Bank Corp.
(NY) ................................. 200,466 2,393,063
InterWest Bancorp., Inc. (WA) ......... 20,850 385,725
ISB Financial Corp. (LA) .............. 106,000 1,802,000
Lawrence Savings Bank (MA) ............ 70,000 551,250
Local Financial Corp. (OK) ............ 310,000 2,867,500
New Hampshire Thrift Bancshares, Inc.
(NH) ................................. 25,000 337,500
Northwest Equity Corp. (WI) ........... 61,000 1,357,250
Pamrapo Bancorp., Inc. (NJ) ........... 86,000 1,935,000
PBOC Holdings, Inc.* (CA) ............. 46,500 412,688
PennFed Financial Services, Inc. (NJ) . 611,000 9,470,500
People's Bancshares, Inc. (MA) ........ 45,000 804,375
Peoples Heritage Financial Group, Inc.
(ME) ................................. 337,333 6,409,327
Pittsburgh Home Financial Corp. (PA) . 90,000 1,170,000
Quaker City Bancorp., Inc.* (CA) ...... 97,500 1,620,937
Seacoast Financial Services Corp. (MA) 52,357 575,927
SFC Acquisition Corp.* (AR) (r) ....... 150,000 1,706,250
Southern Missouri Bancorp., Inc. (MO) . 16,000 208,000
Sovereign Bancorp., Inc. (PA) ......... 74,348 655,192
Sturgis Federal Savings Bank (MI) ..... 106,000 715,500
Superior Financial Corp.* (AR) ........ 47,250 537,469
Teche Holding Co. (LA) ................ 70,000 1,001,875
UCBH Holdings, Inc. (CA) (r) .......... 133,333 2,499,994
Warren Bancorp., Inc. (MA) ............ 159,500 1,405,594
Washington Mutual, Inc. (WA) .......... 291,875 10,489,258
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Bank and Thrift Opportunity Fund
MARKET
ISSUER, DESCRIPTION, STATE NUMBER OF SHARES VALUE
- -------------------------- ---------------- -----
Thrifts (continued)
Wells Financial Corp. (MN)............. 122,000 $1,525,000
WesterFed Financial Corp. (MT) ........ 101,162 1,700,786
----------
95,252,402
----------
Other (0.71%)
Capital One Financial Corp. (VA) ...... 127,500 6,757,500
Core Cap, Inc. (Class A)* (NY) (r) .... 500 8,100
----------
6,765,600
----------
WARRANTS (0.28%)
Golden State Bancorp., Inc.* (CA) ..... 255,000 2,661,563
----------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $382,247,201) (92.48%) 883,006,922
-------- -----------
PREFERRED STOCKS
Banks & Thrifts (0.93%)
Astoria Financial Corp., Ser B,
12.00% (NY) .......................... 40,000 980,000
Chevy Chase Savings, 13.00% (MD) ...... 55,000 1,636,250
First Preferred Capital I, 9.25% (MO) . 50,000 1,262,500
First Republic Preferred Capital Corp.,
10.50% (CA) (r) ...................... 2,000 1,990,000
IFC Capital Trust I, 9.25% (IN) ....... 40,000 1,020,000
MVBI Capital Trust, 7.10% ** (MO) ..... 40,000 970,000
Sterling Bancshares Capital Trust I,
9.28% (TX) ........................... 20,000 495,000
VBC Capital I, 9.50% (CO) ............. 20,000 500,000
----------
8,853,750
----------
Other (0.00%)
Core Cap, Inc., Ser A/I, 10.00% (NY)(r) 500 11,970
----------
TOTAL PREFERRED STOCKS
(Cost $8,695,000) (0.93%) 8,865,720
------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
BONDS
BFC Capital Trust I,
Capital Securities, Ser A,
01-15-27........................ 9.650% $250 $251,250
Coastal Bancorp., Inc.,
Sr Note 06-30-02 ............... 10.000 3,000 2,940,000
CSBI Capital Trust I,
Sub Cap Income, Ser A,
06-06-27 ....................... 11.750 770 823,900
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 2,020,000
ML Capital Trust I,
Capital Securities 03-01-27 .... 9.875 1,000 995,000
Ocwen Federal Bank,
Sub Deb 06-15-05 ............... 12.000 1,000 940,000
-----------
TOTAL BONDS
(Cost $9,020,000) (0.93%) 8,870,150
------- -----------
SHORT-TERM INVESTMENTS
Certificates of Deposit (0.00%)
Deposits in Mutual Banks......... 65,868
-----------
Joint Repurchase Agreement (5.78%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
10-29-99, due 11-01-99
(Secured by U.S. Treasury
Bonds, 8.125% thru 9.875%,
due 11-15-15 thru
08-15-21) - Note A ............. 5.230 55,166 55,166,000
-----------
Cash Equivalents (1.44%)
Navigator Securities Lending
Prime Portfolio *** ............ 13,760 13,759,973
-----------
TOTAL SHORT-TERM INVESTMENTS (7.22%) 68,991,841
--------- -----------
TOTAL INVESTMENTS (101.56%) 969,734,633
--------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.56%) (14,888,603)
--------- -----------
TOTAL NET ASSETS (100.00%) $954,846,030
========= ============
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, 1999.
*** Represents investment of security lending collateral - Note A.
(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 1999
----------- ----------- ---------- -----------
Core Cap, Inc.
(Common Stock)....... 10-31-97 $10,000 0.00% $8,100
(Preferred Stock) ... 10-31-97 12,500 0.00 11,970
East-West Bankcorp ... 06-09-98 10,400,000 1.35 12,870,000
SFC Acquisition Corp. 03-30-98 1,500,000 0.18 1,706,250
UCBH Holdings, Inc. .. 04-16-98 2,000,000 0.26 2,499,994
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. The Fund's primary investment objective is long-term capital
appreciation.
As authorized by the Board of Trustees, the Fund repurchased four
million shares of the Fund in a repurchase program which commenced September
1998 and ran 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.
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 distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles.
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.
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.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated lender fees. These fees are included in interest
income. The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. At October 31, 1999, the Fund
loaned securities having a market value of $13,547,430 collateralized by cash in
the amount of $13,759,973, which was invested in a short-term instrument.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Over-the-counter options will be
valued at the mean between the last bid and asked prices. 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
14
<PAGE>
========================NOTES TO FINANCIAL STATEMENTS===========================
John Hancock Funds - Bank and Thrift Opportunity Fund
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 ("credit risk"), 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 because 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, 1999.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to 1.15% of the Fund's average weekly net asset value.
The Fund has also entered into an administrative agreement with the
Adviser pursuant to which the Adviser provides certain administrative services
on behalf of the Fund. In return, the Fund has agreed to pay a monthly
administration fee at an annual rate of 0.25% of the Fund's average weekly net
asset value.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Maureen R. Ford,
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 through
December 31, 1999. The Adviser owns 20,000 shares of beneficial interest of the
Fund. The compensation of unaffiliated Trustees is borne by the Fund. The
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund makes investments into other John Hancock Funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover the
Fund's deferred compensation liability are recorded on the Fund's books as an
other asset. The deferred compensation liability and the related other asset are
always equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
investment had no impact on the operations of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the year ended October 31, 1999, aggregated $47,103,755 and
$103,661,486, respectively.
The cost of investments owned at October 31, 1999 for federal income
tax purposes was $468,977,964. Gross unrealized appreciation and depreciation of
investments aggregated $503,703,633 and $2,946,965, respectively, resulting in
net unrealized appreciation of $500,756,668.
NOTE D -
CAPITAL
During the year ended October 31, 1998, 41,000 shares of the Fund's stock were
repurchased from stockholders at an average discount of 10% from net asset
value. During the year ended October 31, 1999, 3,959,000 shares of the Fund's
stock were repurchased from stockholders at an average discount of 18% 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 -
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, 1999 is set forth below.
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING -------------------------------------- ENDING
SHARE SHARE SHARE SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT AMOUNT COST AMOUNT COST AMOUNT GAIN INCOME VALUE
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bank West Financial Corp. (MI) 168,000 - - 65,000 $461,167 103,000 $138,500 $29,040 -
First Financial Corp. (RI) 84,000 25,000 $318,750 - - 109,000 - 45,780 $1,396,562
Mahaska Investment Co. (IA) 249,171 - - 25,000 226,870 224,171 137,742 147,011 3,026,308
MVBI Capital Trust (MO) 40,000 - - - - 40,000 - 68,886 970,000
Northwest Equity Corp. (WI) 61,000 - - - - 61,000 - 51,850 1,357,250
PennFed Financial Services, Inc. (NJ) 611,000 - - - - 611,000 - 97,760 9,470,500
Pittsburgh Home Financial Corp. (PA) 90,000 - - - - 90,000 - 25,200 1,170,000
Wells Financial Corp. (MN) 122,000 - - - - 122,000 - 91,500 1,525,000
-------- -------- -------- ------- ----------
$318,750 $688,037 $276,242 $557,027 $18,915,620
======== ======== ======== ======== ===========
</TABLE>
NOTE F -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1999, the Fund has reclassified amounts to
reflect an increase in accumulated net realized gain on investments of $3,378,
an increase in undistributed net investment income of $1,289 and a decrease in
capital paid-in of $4,667. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1999. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to 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, 1999, the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended
October 31, 1999 and 1998, and the financial highlights for each of the years in
the five-year period ended October 31, 1999. 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, 1999 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, 1999, 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.
/s/DELOITTE & TOUCHE LLP
- ------------------------
Boston, Massachusetts
December 3, 1999
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, 1999.
The Fund designated distributions to shareholders of $14,607,359 as
capital gain dividends.
With respect to distributions paid by the Fund for the fiscal year
ended October 31, 1999, 100% of the distributions qualify for the dividends
received deduction available for corporations.
Shareholders will be mailed a 1999 U.S. Treasury Department Form
1099-DIV in January 2000. This will reflect the tax character of all
distributions for calendar year 1999.
17
<PAGE>
================================================================================
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-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
18
<PAGE>
================================================================================
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).
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 issuers in which the Fund invests, 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.
SHAREHOLDER MEETING
On May 5, 1999, the Annual Meeting of the John Hancock Bank and Thrift
Opportunity Fund (the "Fund") was held to elect five Trustees, to ratify the
action of the Trustees in selecting independent auditors for the Fund and to
approve amendments to certain of the Fund's fundamental investment restrictions.
The shareholders elected the following Trustees to serve until their
respective successors are duly elected and qualified, with the votes tabulated
as follows:
FOR WITHHELD AUTHORITY
--- ------------------
Stephen L. Brown 81,299,720 1,094,610
James F. Carlin 81,303,626 1,090,704
William H. Cunningham 81,305,067 1,089,263
Harold R. Hiser, Jr. 81,320,219 1,074,110
John P. Toolan 81,316,694 1,077,636
The shareholders approved a proposal to amend the Fund's investment
restriction on issuing senior securities as follows: 38,530,906 FOR, 4,747,288
AGAINST and 1,393,905 ABSTAINING.
The shareholders approved a restriction on pledging mortgaging or
hypothecating assets as follows: 38,410,236 FOR, 4,662,541 AGAINST and 1,599,322
ABSTAINING.
The shareholders also ratified the Trustees' selection of Deloitte and
Touche LLP as the Fund's independent auditors for the fiscal year ending October
31, 1999, with the votes tabulated as follows: 81,199,268 FOR, 708,625 AGAINST
and 486,437 ABSTAINING.
19
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